-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FAFpB3g3lEGs8fXedna2eJ7qJVvNY0fqISGD6i6wrtwUOYtH2MtSr7IRmwaiCVoP 6dLM7KvBg1NzqtLE9M+2eA== 0000792570-97-000002.txt : 19970502 0000792570-97-000002.hdr.sgml : 19970502 ACCESSION NUMBER: 0000792570-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19970201 FILED AS OF DATE: 19970501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAKER J INC CENTRAL INDEX KEY: 0000792570 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-SHOE STORES [5661] IRS NUMBER: 042866591 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14681 FILM NUMBER: 97592545 BUSINESS ADDRESS: STREET 1: 555 TURNPIKE ST CITY: CANTON STATE: MA ZIP: 02021 BUSINESS PHONE: 6178289300 MAIL ADDRESS: STREET 1: P O BOX 231 CITY: HYDE PARK STATE: MA ZIP: 02136 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended February 1, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission file Number 0-14681 J. BAKER, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2866591 (State of Incorporation) (I.R.S. Employer Identification Number) 555 Turnpike Street, Canton, Massachusetts 02021 (Address of principal executive offices) (617) 828-9300 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.50 per share 7% Convertible Subordinated Notes Due 2002 Preferred Stock Purchase Rights (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 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 The aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $120,895,749 as of April 1, 1997 (based on the last reported sales price of the registrant's stock in the over-the-counter market on such date). The number of shares outstanding of the registrant's common stock as of April 1, 1997 was 13,892,910. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive proxy statement for the 1997 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated by reference in Part III. 1 J. Baker, Inc. Form 10-K Report Year Ended February 1, 1997 Part I DESCRIPTION OF BUSINESS General J. Baker, Inc. ("J. Baker" or the "Company", which term shall include all subsidiaries of the Company) is engaged in the retail sale of apparel and footwear. The Company is engaged in the retail sale of apparel through its chain of Casual Male Big & Tall men's stores which sell fashion, casual and dress clothing and footwear to the big and tall man and through its chain of Work 'n Gear work clothing stores which sell a wide selection of workwear as well as health care apparel and uniforms for industry and service businesses. The Company sells footwear through self-service licensed shoe departments in mass merchandising department stores. In all of these operations, the Company emphasizes the sale of quality products at comparatively low prices. During the fourth quarter of fiscal 1997, the Company restructured its footwear operations in order to focus its efforts on the management, development and growth of its Casual Male Big & Tall and Work 'n Gear apparel businesses. In connection with the restructuring, in March, 1997 the Company completed the sales of its Shoe Corporation of America ("SCOA") and Parade of Shoes divisions, and has begun to downsize its Licensed Discount footwear division. As part of the restructuring, the Company made a determination that it would reduce its investment in its Licensed Discount footwear business. The Company currently intends to concentrate the Licensed Discount division's efforts on its major licensors while exploring future strategic options for this business. For additional information on the restructuring, see Industry Segments, Footwear, Restructuring and Note 2 to the Consolidated Financial Statements. On January 13, 1997, the Company announced that it had signed a definitive agreement for the sale of its Parade of Shoes division to Payless ShoeSource, Inc. ("Payless") of Topeka, Kansas. The transaction was completed on March 10, 1997. For additional information on the sale of the Parade of Shoes division, see Industry Segments, Footwear, Parade of Shoes and Note 2 to the Consolidated Financial Statements. On March 5, 1997, the Company announced that it had sold its SCOA division to an entity formed by CHB Capital Partners of Denver, Colorado along with Dennis B. Tishkoff, President of SCOA, and certain members of SCOA management. For additional information on the sale of SCOA, see Industry Segments, Footwear, Shoe Corporation of America, and Note 2 to the Consolidated Financial Statements. During fiscal 1996, the Company disposed of its Fayva footwear division. For additional information on the disposal of the Fayva division, see Industry Segments, Footwear, Fayva Footwear Division and Note 2 to the Consolidated Financial Statements. The Company's businesses are seasonal. The Casual Male Big & Tall division generates its largest sales volumes in June (Father's Day) and the Christmas season, and the Work 'n Gear stores generate their largest sales volume during the second half of the fiscal year. The Company's largest footwear volume is generated in the Easter, back to school and Christmas seasons. On a combined basis, the Company's sales during the second half of each fiscal year have consistently exceeded those during the first half of the year. Unseasonable weather may affect sales of shoes and boots as well as of work clothing, especially during the traditional high-volume periods. The Company is required to carry a substantial inventory in order to provide prompt deliveries to its Casual Male Big & Tall and Work 'n Gear stores and its licensed shoe departments. Order backlogs, however, are not material to the Company's business. The inventories needed in the operation of the Company's apparel and footwear businesses are currently available from a number of domestic and overseas sources, with no single source accounting for more than nine percent of the Company's merchandise. The Company benefits by "most favored nation" provisions in trade agreements between the United States and certain countries in which the Company's suppliers are located. From time to time, the United States Congress has proposed legislation which could result in such provisions being struck from particular trade agreements, which could, in turn, result 2 in higher costs to the Company. There has been extensive Congressional debate with respect to the "most favored nation" provision of the trade agreement between the United States and China which was renewed for one year in July, 1992 and has since been extended through June, 1997. The failure of this provision to be renewed would likely result in substantially increased costs to the Company in the purchase of footwear from China. However, the Company believes that all of its competitors in the footwear industry would be similarly affected. Industry Segments The Company is engaged in the sale of apparel and footwear manufactured by others. Financial information with respect to the Company's industry segments can be found in Note 13 to the Consolidated Financial Statements. Apparel Casual Male Big & Tall Division Casual Male Big & Tall is the Company's chain of big and tall apparel stores providing fashion, casual and dress clothing and footwear for the big and tall man. The chain specializes in big sizes, featuring waist sizes from 44" to 64" and tall sizes, generally for men 6'3" or taller and with inseams up to 38". According to retailer and manufacturer estimates as well as Company research, big and tall men currently represent approximately 12% to 15% of the adult male population in the United States, compared to approximately 10% to 11% three years ago. The Company believes that the clothing demands of these customers have historically not been met through traditional men's apparel stores. The big and tall customer frequently has difficulty finding an adequate selection of apparel in his size in department and men's specialty stores. Furthermore, only a limited number of big and tall specialty stores exist, and these typically have a narrow selection of current sportswear fashions. Casual Male Big & Tall stores offer private label as well as some brand name casual sportswear and dress wear in a wide variety of styles, colors and fabrics with a focus on basic merchandise such as sports coats, dress pants and shirts and a wide variety of casual clothes, including footwear. The stores target the middle income customer seeking good value at moderate prices and, as a result, the Casual Male limits the amount of high-fashion-oriented and low-turnover tailored clothing offered and focuses primarily on basic items and classic fashion sportswear, thereby minimizing fashion risk and markdowns. Management believes that the type and selection of its merchandise, favorable prices and ability to obtain desirable store locations are key factors in enabling it to compete effectively. Casual Male Big & Tall started fiscal 1997 with 400 stores and ended the year with 440 stores (including one licensed department), having opened 49 stores and closed 9 stores. The 440 stores are located in 45 states throughout the United States. Sales in the Casual Male Big & Tall stores accounted for 26.9%, 21.0% and 17.4% of the Company's total revenues for the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. On a proforma basis, excluding sales generated by the Company's SCOA and Parade of Shoes divisions, sales in the Casual Male Big & Tall stores accounted for 40.4% of the Company's sales for the year ended February 1, 1997. The Company's Casual Male Big & Tall division faces competition from a variety of sources including department stores, specialty stores, discount stores and off price and other retailers who sell big and tall merchandise. In addition, sales of clothing through catalogs and home shopping networks or other electronic media provide additional sources of competition. The Casual Male faces competition on a local level from independent retailers and small, regional retail chains, as well as on a national scale from chains such as Rochester Big & Tall, and Repp, Ltd., a division of Edison Brothers, Inc. Repp, Ltd., one of Casual Male's largest competitors, operates a chain of approximately 175 big and tall stores. While Casual Male has successfully competed on the basis of merchandise selection, including inventory replenishment on an ongoing basis by color and size, favorable pricing and desirable store locations, there can be no assurance that other retailers will not adopt purchasing and marketing concepts similar to those of the Casual Male Big & Tall chain. In addition, discount retailers with significant buying power, such as Wal-Mart, K-Mart, Venture stores and Target stores, represent an increasing source of competition for Casual Male. The bulk of the merchandise carried by these department stores is classified as commodity or "basic" items, but their buying power provides them with a competitive edge and an ability to charge low prices for such items. In deciding to open Casual Male stores, the Company reviews market demographics, drive-by visibility for customers, store occupancy costs and costs to build and stock each location. Considering these factors and others, management of the Company projects sales volumes and estimates operating costs for each location and decides to open a store if such projections demonstrate that an acceptable return on the Company's inventory and fixed asset investment can be realized. New Casual Male stores require an average inventory and fixed asset investment of approximately $170,000 3 to $200,000, composed of approximately $85,000 to $100,000 for fixed assets and $85,000 to $100,000 for inventory. The Company makes decisions to close Casual Male locations when management believes that these locations are not generating acceptable profit levels. Most store closings occur at lease expiration, unless lease buyout is a more economical option for the Company. The costs to close stores are expensed at time of closing. Work 'n Gear Division The Work 'n Gear division is the Company's specialty retail chain focused entirely on workwear, uniforms and footwear. Work 'n Gear carries a wide selection of workwear products, including rugged specialty outerwear, work shirts and pants, and cold weather accessories as well as a complete line of health care apparel and uniforms for industry and service businesses. The Company started fiscal 1997 with 69 stores and ended the year with 66 stores, having closed 3 stores. The 66 stores are located in 13 states in the northeastern and midwestern United States. The Bureau of Labor Statistics ("BLS") estimates that there were 126.5 million people in the work force in 1996. Of this number, approximately 40%, or 49.2 million, wear work clothes or uniforms, according to the National Association of Uniform Manufacturers and Distributors. Although manufacturing industries are generally on the decline in the United States, service industries are among the fastest growing. For example, the BLS cites security and health care as two of the service industries where there will be significant growth over the next five years. The Work 'n Gear stores seek to address the needs of three major groups: (i) those customers who buy work clothing to be worn on the job, including industrial tops and bottoms, jeans, work boots, rugged outerwear and other accessories, (ii) those industrial customers who either supply uniforms or provide a clothing allowance to their employees to purchase uniforms, and (iii) those customers who work in the health care industry and related fields. Traditional competition for the sale of workwear is fragmented. Traditional Army and Navy stores offer a large assortment of workwear items, but supplement with fishing, hunting and other product lines. Other competitors include large specialty chains such as Bob's Stores and full service department stores which typically have more narrow product offerings and are increasingly discontinuing this line of apparel. To the Company's knowledge, no specific specialty store similar to Work 'n Gear exists on a national basis. Competition for industrial workwear (purchased by employers) comes from large manufacturers such as WearGuard/ARAMARK, Uniforms to You, Crest Uniform and Fashion Seal, as well as small "mom and pop" uniform dealers. In the medical uniform business, competition is dominated by three entities: (i) Life Uniform, the largest retailer with approximately 300 stores, (ii) catalog operations led by J. C. Penney and including Tafford, Uniform World, Sears Roebuck & Company and Jasco, and (iii) approximately 2,600 independent operators of medical uniform businesses. Management believes that its strategy of servicing all three segments of the workwear market - consumer, industrial and health care - combined with its retail expertise, affords Work 'n Gear a significant competitive advantage in the marketplace. Work 'n Gear stores are generally located in strip shopping centers or are free standing. Locations in active strip centers are a criterion for site selection, as the close proximity to other stores increases traffic into the Work 'n Gear stores, particularly for health care apparel and accessories. Site locations must take into consideration proximity of major medical facilities, active retail environments, population density, business presence in the market and competition. Sales in the Work 'n Gear stores accounted for 5.9%, 4.8% and 4.2% of the Company's total revenues for the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. On a proforma basis, excluding sales generated by the Company's SCOA and Parade of Shoes divisions, sales in the Work 'n Gear stores accounted for 8.8% of the Company's sales for the year ended February 1, 1997. Footwear Restructuring During the fourth quarter of fiscal 1997, the Company restructured its footwear operations in order to focus its efforts on the management, development and growth of its Casual Male Big & Tall and Work 'n Gear apparel businesses. In connection with the restructuring, in March, 1997 the Company completed the sales of its SCOA and Parade of Shoes divisions, and has begun to downsize its Licensed Discount footwear division. As part of the restructuring, the Company made a determination that it would reduce its investment in its Licensed Discount footwear business. The Company currently intends to concentrate the Licensed Discount division's efforts on its major licensors while exploring future strategic options for this business. The Company recorded a pre-tax charge of $166.6 million ($117.1 million, or $8.42 per share, on an after-tax basis) related to the sales of the SCOA and Parade of Shoes divisions, the write-down to realizable value of certain 4 assets related to its Licensed Discount shoe division, and severance and consolidation costs related to the downsizing of the Company's administrative areas and facilities. Of the pre-tax charge, $122.3 million is included as a separate component of results of operations in the Company's Consolidated Statement of Earnings for the year ended February 1, 1997, and the majority of the remaining charge, which relates to the reduction of the Licensed Discount division's inventory valuation, is included in cost of sales. Also, in fiscal 1996, the Company recorded a restructuring charge of $69.3 million ($41.6 million, or $3.00 per share, on an after-tax basis) related to the disposal of its Fayva footwear division. Further information on the divisional components of the restructuring of the Company's footwear business follows. Also, see Note 2 to the Consolidated Financial Statements. Licensed Discount Shoe Division In a licensed shoe department operation, the store and the Company enter into a license agreement under which the Company has the exclusive right to operate a shoe department in the store for a period of years. The department is operated under the store name in space supplied by the store, and the store collects payments from customers and credits the Company. The Company pays the store a license fee, generally a percentage of net sales, for the right to operate the department and for the use of the space. The license fee ordinarily covers utilities, janitorial service, cash collection and handling, packaging and advertising. In some circumstances, the license fee also covers staffing costs. In its licensed shoe department operations, the Company sells a wide variety of family footwear, including men's, women's and children's dress, casual and athletic footwear as well as work shoes and slippers. Most of the shoes offered by the Company in its licensed departments are sold under the Company's trademarks or on an unbranded basis, although the Company also sells name brand merchandise at discounted prices in its mass merchandising licensed accounts. The Company's licensed shoe departments in mass merchandising department stores are operated on a self-serve basis. The Company's personnel employed in particular departments are responsible for stocking and layout of shelves, responding to customer inquiries and related administrative tasks. In certain accounts, the Company's shoe departments are serviced in a similar manner by employees of the licensor. As part of the restructuring of its footwear operations, the Company made a determination that it would reduce its investment in its Licensed Discount footwear business. The Company currently intends to concentrate the division's efforts on its major licensors while exploring future strategic options for this business. As a result, the Company undertook an evaluation of the value of the assets in the Licensed Discount footwear business, and wrote off certain assets which did not benefit future operations and wrote down other assets to expected realizable value. For additional information on the restructuring of the Company's Licensed Discount footwear division, see Note 2 to the Consolidated Financial Statements. The Company and its predecessors have operated licensed shoe departments in mass merchandising department stores for more than forty years. Sales in the Licensed Discount division accounted for 33.8%, 34.5% and 38.5% of the Company's total revenues in the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. On a proforma basis, excluding sales generated by the Company's SCOA and Parade of Shoes divisions, sales in the Licensed Discount division accounted for 50.8% of the Company's sales for the year ended February 1, 1997. At February 1, 1997, the Company operated a total of 937 licensed shoe departments under license agreements with 21 different discount department store operators. During fiscal 1997, the Company opened 38 departments and closed 188, representing a net decrease of 150 units for the year. As previously indicated, the Company intends to concentrate its resources in this division on the major chains in which it operates licensed shoe departments. As a result, the Company may continue to experience declines in the number of licensed departments it operates. The Company's licensed discount departments are located in 40 states and in the District of Columbia. The Company conducts its licensed department operations under written agreements for fixed terms. Of the 937 licensed shoe departments which the Company operated at February 1, 1997, 635, or 68%, are covered by agreements with terms expiring in less than five years and 302, or 32%, are covered by agreements with terms expiring in more than ten years. Of the Company's licensed departments at February 1, 1997, 302 were operated under license with Ames Department Stores, Inc. ("Ames"), a major mass merchandising retailer in the eastern United States. For the fiscal year ended February 1, 1997, Ames accounted for 10.5% of the Company's total revenues. On a proforma basis, excluding sales generated by the Company's SCOA and Parade of Shoes divisions, sales in Ames accounted for 15.8% of the Company's sales for the year ended February 1, 1997. 5 On June 23, 1995, Bradlees Stores, Inc. ("Bradlees"), a licensor of the Company, filed for protection under Chapter 11 of the United States Bankruptcy Code. At the time of the bankruptcy filing, the Company had outstanding accounts receivable of approximately $1.8 million due from Bradlees. Under bankruptcy law, Bradlees has the option of continuing (assuming) the existing license agreement with the Company or terminating (rejecting) that agreement. The Company does not expect this filing under the Bankruptcy Code to have a material adverse effect on future earnings. The Company's sales in the Bradlees chain for the fiscal year ended February 1, 1997 were $57.7 million. For additional information, see Note 3 to the Consolidated Financial Statements. On October 18, 1995, Jamesway Corporation ("Jamesway"), then a licensor of the Company, filed for protection under Chapter 11 of the United States Bankruptcy Code. Jamesway liquidated its inventory, fixed assets and real estate and has ceased operation of its business in all of its 90 stores. The Company participated in Jamesway's going out of business sales and liquidated substantially all of its footwear inventory in the 90 Jamesway stores during the going out of business sales. At the time of the bankruptcy filing, the Company had outstanding accounts receivable of approximately $1.4 million due from Jamesway. Because Jamesway ceased operation of its business, the Company's license agreement was rejected. The Company has negotiated a settlement of the amount of its claim with Jamesway which has been approved by the Bankruptcy Court. It is anticipated that, if approved, a partial distribution of the amount owed to the Company under the settlement will be made during the second half of fiscal 1998. The Company's licensed shoe department business faces competition at two levels: (1) for sales to retail customers and (2) for the business of the department store chains which are its shoe licensor customers. The Company's success in its licensed department operations is substantially dependent upon the success of the department store chains in which the Company operates licensed departments. Within the particular market that is served by the mass merchandising department store chains, the Company believes that the primary competitive factors are the price and the breadth and suitability of the selection of footwear that is offered. The Company also faces potential competition from the in-house operational capabilities of its licensors. Because of the large scale of many licensing arrangements and years of commitment that are involved, the Company has observed that changes in these arrangements do not frequently occur and are more often initiated by external factors such as mergers or acquisitions involving the licensors or business terminations by other licensees, rather than by competition among licensees for the business of a licensor. To the extent that there is active competition for new business in this area, the Company believes that the principal factors weighed by a potential licensor are the quality of the licensee's operations, as reflected by sales results, and the price paid to the licensor in the form of the license fee. Shoe Corporation of America Division The Company's Shoe Corporation of America ("SCOA") division operated full-service, semi-service and self-service licensed shoe departments in department and specialty stores. SCOA was acquired by the Company in the fourth quarter of fiscal 1994. As of February 1, 1997, SCOA operated 454 licensed footwear departments in twelve chains with locations in 31 states throughout the United States. Sales in the SCOA licensed departments accounted for 19.8%, 18.0% and 12.1% of the Company's revenues in the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. On March 5, 1997, the Company announced that it had sold its SCOA division to an entity formed by CHB Capital Partners of Denver, Colorado along with Dennis B. Tishkoff, President of SCOA, and certain members of SCOA management. The decision to divest the SCOA division was a result of the refocusing of the Company's management efforts primarily on its apparel businesses and the desire of SCOA management to operate the division independently. The transaction involved the transfer to the buyer of the division's inventory, fixed assets, intellectual property and license agreements for the various department and specialty store chains serviced by SCOA as well as the assumption by the buyer of certain liabilities of the SCOA division. Net cash proceeds from the transaction of approximately $40.0 million were used to pay down the Company's bank debt. For additional information on the sale of the Company's SCOA division, see Note 2 to the Consolidated Financial Statements. Parade of Shoes Division The Company's Parade of Shoes division, which the Company began in 1985, operated a chain of 188 stores in 13 states and the District of Columbia at February 1, 1997. Parade of Shoes stores provided primarily leather dress and casual shoes and athletic footwear at everyday value prices available for selection in a casual, self-service atmosphere. Sales in the Parade of Shoes stores accounted for 13.7%, 11.3% and 11.3% of the Company's revenues in the fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. 6 On January 13, 1997, the Company announced that it had signed a definitive agreement for the sale of its Parade of Shoes division to Payless ShoeSource, Inc. ("Payless") of Topeka, Kansas. The Company decided to divest the Parade of Shoes division in order to refocus management efforts primarily on the Company's apparel businesses. The transaction, which was completed on March 10, 1997, involved the transfer to Payless of the division's inventory, fixed assets, intellectual property and leases on the 186 then remaining Parade of Shoes stores. Net cash proceeds from the transaction of approximately $20.0 million were used to pay down the Company's bank debt. For additional information on the sale of the Company's Parade of Shoes division, see Note 2 to the Consolidated Financial Statements. Fayva Footwear Division On September 5, 1995, the Company announced its intent to dispose of its Fayva footwear division, which was completed by the end of fiscal 1996. When the Company acquired all of the outstanding stock of Morse Shoe, Inc. ("Morse"), an operator of licensed footwear departments and of the Fayva chain of family shoe stores in early 1993, it did so primarily for the strategic fit of the Morse and Baker licensed footwear divisions. In addition, the Company believed, at that time, that it could improve the operations of Morse's Fayva division. However, after operating Fayva for two and one half years, the Company decided to dispose of Fayva due to the continued operating losses generated by the division, along with Fayva's declining market share in an already crowded discount retail footwear industry. For additional information on the disposal of the Fayva division, see Note 2 to the Consolidated Financial Statements. Trademarks The Company has no patents, franchises or concessions, except for agreements granting it the right to operate licensed departments. The Company owns certain trademarks which it uses in its business. The Company does not consider these trademarks to be materially important to its business. Research and Development The Company does not engage in any Company-sponsored research or customer-sponsored research. Environment The Company has not been required to make any material capital equipment expenditures, or suffered any material effect on its earnings or competitive position, as a result of compliance with federal, state or local environmental laws. Employees As of February 1, 1997, the Company employed approximately 5,037 persons full-time and 5,304 persons part-time, of whom approximately 4,119 full-time and 5,218 part-time employees were engaged in retail operations at the store level. Approximately 461 of the Company's full-time and part-time employees are covered by collective bargaining agreements. The Company believes that its employee relations are good. In connection with the divestiture of the SCOA and Parade of Shoes divisions and certain corporate downsizing, the Company reduced its work force during the first quarter of fiscal 1998 by approximately 3,481 employees, of whom approximately 1,693 were full-time and 1,788 were part-time. Executive Officers of the Company Name Age Office Sherman N. Baker 77 Chairman of the Board Alan I. Weinstein 54 President and Chief Executive Officer James Lee 50 Executive Vice President and President of the Licensed Discount Division Harold Leppo 59 Interim President of The Casual Male, Inc. Stuart M. Needleman 49 Executive Vice President and President of Work 'n Gear Philip G. Rosenberg 47 Executive Vice President, Chief Financial Officer and Treasurer
Mr. Baker has been the Chairman of the Board of the Company since March, 1990. From 1970 until March, 1990, Mr. Baker served as Chief Executive Officer of the Company and its predecessor. 7 Mr. Weinstein has held the positions of President and Chief Executive Officer since November, 1996 and March, 1997, respectively. From September, 1996 through March, 1997, Mr. Weinstein served as Acting Chief Executive Officer of the Company. From July, 1985 through September, 1996, Mr. Weinstein held the positions of Senior Executive Vice President, Chief Financial Officer and Secretary of the Company. He was also appointed Chief Administrative Officer in 1988. Mr. Weinstein joined the Company's predecessor in 1968 as Assistant Controller and has held a variety of positions of increasing responsibility in finance and administration since that time. Mr. Lee has held the positions of Executive Vice President of the Company and President of the Company's Licensed Discount Division since January, 1995. From August, 1994 through December, 1994, Mr. Lee was Senior Vice President and Director of Distribution for the Company's Fayva division. Prior to joining the Company, Mr. Lee was Senior Vice President and General Merchandise Manager of Caldor Stores. Mr. Leppo was named Interim President of The Casual Male in March, 1997, having previously served as President of Lord & Taylor for eleven years and as a consultant to the Company's Board of Directors from 1990 until 1992. Mr. Leppo has over 38 years experience in the retail industry and currently serves on the Board of Directors for Filene's Basement, Inc., The Napier Co., Royce Hosiery Co., Salant Corp. and Bradlees. Mr. Needleman has held the positions of Executive Vice President of the Company and President of the Company's Work 'n Gear division since October, 1993. From 1989 through October, 1993, Mr Needleman held the position of Senior Vice President and Director of Operations of The Casual Male, Inc. Mr. Rosenberg has held the position of Executive Vice President since September, 1996 and was appointed Chief Financial Officer in March, 1997. From September, 1996 through March, 1997, Mr. Rosenberg served as Acting Chief Financial Officer of the Company. In addition, Mr. Rosenberg has held the positions of Treasurer and Chief Accounting Officer since June, 1992. Mr. Rosenberg joined the Company's predecessor in May, 1970 and has held a variety of positions of increasing responsibility in finance and administration since that time. PROPERTIES The Company's executive, buying and general offices and one of its footwear distribution centers ("home office") are located in Canton, Massachusetts. This facility is located at 555 Turnpike Street, Canton, Massachusetts on 37 acres of land and is owned by JBAK Canton Realty, Inc. ("Realty"), a subsidiary of JBAK Holding, Inc. and an indirect, wholly-owned subsidiary of the Company. On December 30, 1996, Realty obtained a $15.5 million mortgage loan from The Chase Manhattan Bank secured by the real estate, buildings and other improvements located at the home office. Realty leases the property to JBI, Inc., a wholly-owned subsidiary of the Company. The home office contains approximately 750,000 square feet of space, including approximately 150,000 square feet of office space. The Company leases approximately 33,000 square feet of warehouse space at 40 Industrial Drive, Canton, Massachusetts. The lease on this facility expires on June 30, 1997. The Company has notified the lessor of its intent to vacate the building at the expiration of the current lease term. The Company leases a building at 65 Sprague Street, Readville, Massachusetts that serves as the administrative offices for Casual Male and Work 'n Gear, and as the distribution center for the Casual Male Big & Tall and Work 'n Gear stores. The building contains approximately 75,000 square feet of office space and approximately 375,000 square feet of warehouse/distribution space. The Company plans to move the administrative staff and distribution capabilities of the Work 'n Gear division to its Canton facility by the third quarter of the current fiscal year. The lease on this facility expires on May 31, 1999. The Company has two consecutive five year options to renew the lease. As of February 1, 1997, the Company operated 440 Casual Male Big & Tall stores, all in leased premises ranging from 1,710 to 6,050 square feet, with average space of approximately 3,310 square feet and total space of approximately 1,456,000 square feet. A majority of the leases run for initial terms of five years. Most are renewable at the option of the Company for one or more five year terms. As of February 1, 1997, the Company operated 66 Work 'n Gear stores, all in leased premises ranging from 3,258 square feet to 6,200 square feet, with average space of approximately 4,365 square feet and total space of approximately 288,000 square feet. A majority of the leases run for initial terms of five years. Most are renewable at the option of the Company for one or more five year terms. 8 As of February 1, 1997, the Company had 188 Parade of Shoes stores, all operating in leased premises. In connection with the sale of the Parade of Shoes division in March, 1997, the Company remains contingently liable for certain store lease obligations. See Note 2 to the Consolidated Financial Statements. See "DESCRIPTION OF BUSINESS - Industry Segments, Footwear, Licensed Discount Shoe Department Operations", for information regarding the Company's licenses to operate shoe departments in retail stores of its licensors. LEGAL PROCEEDINGS The Company is engaged in the following significant litigation: On November 10, 1993, a federal jury in Minneapolis, MN returned a verdict assessing royalties of $1,550,000, and additional damages of $1,500,000, against the Company in a patent infringement suit brought by Susan Maxwell with respect to a device used to connect pairs of shoes. Certain post trial motions were filed by Susan Maxwell seeking treble damages, attorney's fees and injunctive relief which motions were granted on March 10, 1995. Judgment was entered for Maxwell. The Company appealed the judgment. On June 11, 1996, the United States Court of Appeals for the Federal Circuit reversed the trial court's findings in part, affirmed the trial court's findings in part and vacated the award to Maxwell of treble damages, attorney's fees and injunctive relief. Maxwell subsequently requested a rehearing in banc of the matter which request was denied by order of the Court dated August 28, 1996. Maxwell petitioned the United States Supreme Court for a writ of certiorari to hear the case which petition was denied on March 17, 1997. The case has been remanded to the trial court for a redetermination of damages consistent with the opinion of the appellate court. A complaint was also filed by Susan Maxwell in November, 1992 against Morse Shoe, Inc. ("Morse"), a subsidiary of the Company, alleging infringement of the patent referred to above. The Morse trial was stayed pending the outcome of the J. Baker appeal. In light of the decision of the Supreme Court and the remand to the trial court, it is not clear when a trial date will be set for the Morse case. Other than as described above, the Company is not a party to any material legal proceedings. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 9 PART II MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. Market Information The Company's Common Stock is traded in the over-the-counter market and is quoted on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") under the symbol "JBAK". The following table sets forth the high and low last reported sales prices, as reported by NASDAQ, for the Company's Common Stock for each quarterly period during the years ended February 1, 1997 and February 3, 1996. The prices set forth below do not include retail mark-ups, mark-downs or commissions. Year Ended February 1, 1997 High Low ---- ---- First Quarter $ 9 7/8 $ 4 1/8 Second Quarter 10 1/2 6 3/8 Third Quarter 7 5 3/8 Fourth Quarter 7 5 5/16 Year Ended February 3, 1996 High Low ---- ---- First Quarter $15 13/16 $12 1/2 Second Quarter 13 1/2 9 7/8 Third Quarter 10 6 1/8 Fourth Quarter 6 5/8 4 3/8
Holders The approximate number of holders of record of the Company's Common Stock as of April 1, 1997 was 431. The Company believes that the actual number of beneficial owners of the Company's Common Stock is substantially greater than the stated number of holders of record, because a portion of the Common Stock outstanding is held in "street name". Dividends On March 2, 1987, the Board of Directors of the Company adopted a policy of paying quarterly dividends. For each quarter thereafter, the Company has paid a 1 1/2 cents per share dividend. The Company's unsecured revolving credit agreement and its senior subordinated notes agreement limit the amount of cash dividends that may be paid to stockholders. For additional information see Note 6 to the Consolidated Financial Statements. Other On December 15, 1994, the Board of Directors of the Company adopted a Shareholder Rights Agreement (the "Rights Agreement") designed to enhance the Company's ability to protect shareholder interests and to ensure that shareholders receive fair treatment in the event any coercive takeover attempt of the Company is made in the future. Pursuant to the Rights Agreement, the Board of Directors declared a dividend distribution of one preferred stock purchase right (the "Right") for each outstanding share of common stock of the Company to shareholders of record as of the close of business on January 6, 1995. Each right entitles the holder to purchase from the Company a unit consisting of one ten thousandth (1/10,000) of a share of Series A Junior Participating Cumulative Preferred Stock, par value $1.00 per share, at a cash exercise price of $70 per unit, subject to adjustment, upon the occurrence of certain events as are set forth in the Rights Agreement. These events include the earliest to occur of (i) the acquisition of 15% or more of the outstanding shares of common stock of the Company by any person or group, (ii) the commencement of a tender or exchange offer that would result upon its consummation in a person or a group becoming the beneficial owner of 15% or more of the outstanding common stock of the Company or (iii) the determination by the Board of Directors that any person is an "Adverse Person", as defined in the Rights Agreement. The Rights are not exercisable until or following the occurrence of one of the above events and will expire on December 14, 2004, unless previously redeemed or exchanged by the Company as provided in the Rights Agreement. 10 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for the Company are derived from the financial statements that have been audited and reported on by KPMG Peat Marwick LLP, independent certified public accountants, and are qualified in their entirety by reference to the more detailed consolidated financial statements and the independent auditors' report thereon appearing elsewhere in this Form 10-K. J. Baker has acquired a number of specialty retail businesses in recent years, sold its SCOA and Parade of Shoes divisions in fiscal 1998 and disposed of its Fayva division during fiscal 1996. The Company has also experienced a number of licensor bankruptcy filings in recent years. These acquisitions, the sales of SCOA and Parade of Shoes, the disposal of Fayva and licensor bankruptcy filings affect the comparability of the financial information herein. For further discussions see "DESCRIPTION OF BUSINESS" and Notes 2 and 3 to the Consolidated Financial Statements. J. BAKER, INC. SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share amounts) Year Ended --------------------------------------------------------------- 2/01/97 2/03/96 1/28/95 1/29/94 1/30/93 ------- ------- ------- ------- ------- Income Statement Data: (53 weeks) Net sales $ 897,492 $1,020,413 $1,042,979 $918,878 $532,256 Cost of sales 542,247 580,067 579,735 516,855 313,703 -------- --------- --------- ------- -------- Gross profit 355,245 440,346 463,244 402,023 218,553 Selling, administrative and general expenses 347,977 392,586 389,362 336,283 174,658 Depreciation and amortization 29,431 32,428 27,883 21,874 14,688 Restructuring and other non-recurring charges 122,309 69,300 - - - ------- ------- -------- ------- ------- Operating income (loss) (144,472) (53,968) 45,999 43,866 29,207 Interest income 254 526 635 704 80 Interest expense (13,056) (10,983) (9,735) (8,146) (8,211) -------- ------- ------- ------ ------- Earnings (loss) before taxes and extraordinary item (157,274) (64,425) 36,899 36,424 21,076 Income tax expense (benefit) (45,846) (25,823) 13,283 13,113 7,798 -------- -------- ------- ------- ------- Earnings (loss) before extraordinary item (111,428) (38,602) 23,616 23,311 13,278 Extraordinary item, net of income tax benefit - - - - (2,444) -------- --------- ------- -------- ------- Net earnings (loss) $(111,428) $ (38,602) $ 23,616 $ 23,311 $ 10,834 ======== ======== ======= ======= ======= Earnings (loss) per common share: Primary: Earnings (loss) before extraordinary item $ (8.02) $ (2.79) $ 1.71 $ 1.70 $ 1.25 Extraordinary item - - - - (.23) -------- -------- ------- ------- -------- $ (8.02) $ (2.79) $ 1.71 $ 1.70 $ 1.02 ======== ========= ======= ======= ======== Fully diluted: Earnings (loss) before extraordinary item $ (8.02) $ (2.79) $ 1.46 $ 1.45 $ 1.11 Extraordinary item - - - - (.18) -------- -------- ------- ------- -------- $ (8.02) $ (2.79) $ 1.46 $ 1.45 $ .93 ======== ======== ======= ======== ========
11 J. BAKER, INC. SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share amounts) As At ---------------------------------------------------------------------- 2/01/97 2/03/96 1/28/95 1/29/94 1/30/93 Balance Sheet Data: ------- ------- ------- ------- ------- Working capital $182,123 $205,080 $235,948 $187,095 $138,385 Total assets 382,521 526,082 578,618 502,496 431,798 Long-term debt 214,092 207,766 204,518 154,665 95,864 Stockholders' equity 71,989 184,037 223,317 200,086 172,610 ======= ======== ======== ======== ======== Cash dividends declared per common share $ .06 $ .06 $ .06 $ .06 $ .06 ======= ======= ======= ======= =======
Store Openings and Closings: Apparel Footwear* ---------------------------- ------------------------------------------------ Total Parade Casual Work Total Licensed Licensed of Total Male 'n Gear Apparel Discount SCOA Shoe Dept. Shoes Fayva Footwear Total ------ ------- ------- -------- ---- ---------- ------- ----- -------- ----- Stores open at January 29, 1994 254 52 306 1,368 162 1,530 162 395 2,087 2,393 Openings 65 9 74 71 321 392 46 2 440 514 Closings - - - (197) (35) (232) (17) (29) (278) (278) ---- ---- ---- ----- ---- ----- ---- ---- ----- ----- Stores open at January 28, 1995 319 61 380 1,242 448 1,690 191 368 2,249 2,629 Openings 81 9 90 27 99 126 8 6 140 230 Closings - (1) (1) (182) (42) (224) (31) (374) (629) (630) ---- ---- ----- ----- ---- ----- ---- ---- ----- ----- Stores open at February 3, 1996 400 69 469 1,087 505 1,592 168 - 1,760 2,229 Openings 49 - 49 38 56 94 42 - 136 185 Closings (9) (3) (12) (188) (107) (295) (22) - (317) (329) ---- ---- ---- ----- ----- ----- ---- ---- ----- ----- Stores open at February 1, 1997 440 66 506 937 454 1,391 188 - 1,579 2,085 ==== ==== ==== ===== ==== ===== ==== ==== ===== =====
* Excludes wholesale footwear departments serviced by the Company (all of which were closed during the year ended January 28, 1995). 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. All references herein to fiscal 1997, fiscal 1996 and fiscal 1995 relate to the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. To the extent that the Company may have incurred increased costs resulting from inflation, the Company believes that it has been able to offset these costs through higher revenues. Accordingly, the Company believes that inflation has had no significant impact on the operations of the Company. Results of Operations During the fourth quarter of fiscal 1997, the Company restructured its footwear operations in order to focus its efforts on the management, development and growth of its Casual Male Big & Tall and Work 'n Gear apparel businesses. In connection with the restructuring, in March, 1997 the Company completed the sales of its Shoe Corporation of America ("SCOA") and Parade of Shoes divisions, and has begun to downsize its Licensed Discount footwear division. As part of the restructuring, the Company made a determination that it would reduce its investment in its Licensed Discount footwear business. The Company currently intends to concentrate the Licensed Discount division's efforts on its major licensors while exploring future strategic options for this business. The Company recorded a pre-tax charge of $166.6 million ($117.1 million, or $8.42 per share, on an after-tax basis) related to the sales of the SCOA and Parade of Shoes divisions, the write-down to realizable value of certain assets related to its Licensed Discount shoe division, and severance and consolidation costs related to the downsizing of the Company's administrative areas and facilities. Of the pre-tax charge, $122.3 million is included as a separate component of results of operations as "Restructuring and other non-recurring charges" in the Company's Consolidated Statement of Earnings for the year ended February 1, 1997. The Company has also recorded a charge to cost of sales of $37.3 million related to a reduction in the Licensed Discount division's inventory to net realizable value. The remaining components of the charge include an increase in the allowance for doubtful accounts for the Licensed Discount division's accounts receivable, and losses incurred from actions taken in order to maximize the cash proceeds received for the assets sold in the Parade of Shoes and SCOA divisions subsequent to the Company's decision to dispose of each. Also, in fiscal 1996, the Company recorded a restructuring charge of $69.3 million ($41.6 million, or $3.00 per share, on an after-tax basis) related to the disposal of its Fayva footwear division. While the Company believes that the restructuring of its footwear business will serve to improve operations in the future, the Company recognizes it is operating in a soft retail environment and has taken steps intended to manage its remaining businesses in a manner consistent with such economic environment. These steps include reducing estimates of future sales, increasing management's focus on merchandise planning and distribution, cutting expenditures and prudently managing store openings. The Company also has attempted to generate additional sales and keep inventories in line by increasing promotional activities. Fiscal 1997 versus Fiscal 1996 In fiscal 1997, net sales decreased by $122.9 million or 12.0% from net sales in fiscal 1996. Sales in the Company's footwear operations decreased by $153.4 million due to a $106.0 million sales decrease in the Company's Fayva division (which is primarily the result of the closing of all 357 Fayva stores in the third quarter of fiscal 1996), a 1.1% decrease in comparable retail footwear store sales (Comparable retail footwear store sales increases/decreases are based upon comparisons of weekly sales volume in licensed departments and Parade of Shoes stores which were open in corresponding weeks of the two comparison periods), and a decrease in the number of licensed shoe departments in operation during fiscal 1997 versus fiscal 1996 (which was due in large part to Jamesway ceasing operations in the fourth quarter of fiscal 1996). Sales in the Company's specialty apparel operations increased by $30.5 million due to an increase in the number of Casual Male Big & Tall stores and Work 'n Gear stores in operation at the end of fiscal 1997 over fiscal 1996 and a 2.7% increase in comparable specialty apparel store sales. (Comparable specialty apparel store sales increases/decreases are based upon comparisons of weekly sales volume in Casual Male Big & Tall stores and Work 'n Gear stores which were open in corresponding weeks of the two comparison periods.) Cost of sales constituted 60.4% of sales in fiscal 1997 as compared to 56.8% in fiscal 1996. Cost of sales in the Company's footwear operations was 64.4% of sales in fiscal 1997 (which includes the $37.3 million write-down of the Licensed Discount division's inventory) as compared to 58.8% of sales in fiscal 1996. Excluding the effect of this $37.3 million charge, cost of sales in the Company's footwear operations was 58.3% of sales in fiscal 1997. The decrease in such percentage, from 58.8% of sales in fiscal 1996, is attributable to lower markdowns as a percentage of sales, partially offset by a lower initial markup on merchandise purchases. Cost of sales in the Company's apparel operations was 52.1% of sales 13 in fiscal 1997 as compared to 51.2% of sales in fiscal 1996 primarily due a lower initial markup on merchandise purchases, partially offset by lower markdowns as a percentage of sales. Selling, administrative and general expenses decreased $44.6 million or 11.4% from fiscal 1996, primarily due to the closing of the Company's Fayva division in the third quarter of fiscal 1996. As a percentage of sales, selling, administrative and general expenses were 38.8% of sales in fiscal 1997 as compared to 38.5% of sales in fiscal 1996. Selling, administrative and general expenses in the Company's footwear operations were 38.5% of sales in fiscal 1997 which was comparable to 38.5% of sales in fiscal 1996. Selling, administrative and general expenses in the Company's apparel operations were 39.4% of sales in fiscal 1997 as compared to 38.5% of sales in fiscal 1996. This increase was primarily the result of a higher allocation of predominantly fixed overhead to the Company's apparel operations as a result of the proportionate increase in apparel sales to total Company sales. Depreciation and amortization expense decreased by $3.0 million in fiscal 1997 from fiscal 1996 primarily due to the write-off of certain fixed and intangible assets in the fourth quarter of fiscal 1997 related to the overall restructuring of the Company's footwear divisions and the write-off of furniture, fixtures and leasehold improvements as a result of the closing of the Company's Fayva division in the third quarter of fiscal 1996. This decrease was partially offset by capital expenditures for depreciable and amortizable assets. Of the $166.6 million pre-tax charge recorded in the fiscal year ended February 1, 1997 for the divestitures of the SCOA and Parade of Shoes divisions and the downsizing of the Company's Licensed Discount division, the Company's administrative areas and its corporate facilities, $122.3 million has been classified as restructuring and other non-recurring charges. Such charges include the losses on the sales of the SCOA and Parade of Shoes divisions, the write-off of assets and obligations related to the reduction of the Company's investment in its Licensed Discount division, severance and related costs, and lease obligations and write-offs of assets for excess corporate facilities. For additional information, see Note 2 to the Consolidated Financial Statements. During the fiscal year ended February 3, 1996, the Company recorded restructuring charges of $69.3 million ($41.6 million, or $3.00 per share, on an after-tax basis) related to the disposal of its Fayva footwear division. Such charges included the costs to exit from and dispose of Fayva, including the loss on disposal of inventory, severance payments, the write-off of fixed assets and the costs to dispose of store leases. For additional information, see Note 2 to the Consolidated Financial Statements. As a result of the above described effects, the Company's operating loss increased to $144.5 million (operating income of $22.1 million excluding the $166.6 million pre-tax charge) in fiscal 1997 from an operating loss of $54.0 million (operating income of $15.3 million excluding the $69.3 million of restructuring charges) in fiscal 1996. As a percentage of sales, the operating loss was 16.1% of sales (operating income of 2.5% of sales excluding the $166.6 million pre-tax charge) in fiscal 1997 as compared to an operating loss of 5.3% of sales (operating income of 1.5% of sales excluding the $69.3 million of restructuring charges) in fiscal 1996. Net interest expense increased $2.3 million to $12.8 million in fiscal 1997 as compared to $10.5 million in fiscal 1996 due to higher average levels of borrowings and higher interest rates. Income tax benefit for fiscal 1997 was $45.8 million, yielding an effective tax rate of 29.2%, as compared to an income tax benefit of $25.8 million in fiscal 1996, yielding an effective tax rate of 40.1% in fiscal 1996. The difference in the effective tax rate primarily reflects the impact of the additional valuation reserve applied against deferred tax accounts as of February 1, 1997. See Note 7 to the Consolidated Financial Statements for further discussion of taxes on earnings. The net loss for fiscal 1997 was $111.4 million as compared to a net loss of $38.6 million in fiscal 1996. Fiscal 1996 versus Fiscal 1995 In fiscal 1996, net sales decreased by $22.6 million or 2.2% from net sales in fiscal 1995. Sales in the Company's footwear operations decreased by $61.1 million due to a sales decrease in the Company's Fayva division (which is primarily the result of the aforementioned closing of all 357 Fayva stores in the third quarter of fiscal 1996), the elimination of wholesale footwear sales (which is a result of the closing of all wholesale footwear departments serviced by the Company during the second quarter of fiscal 1995), a 7.0% decrease in comparable retail footwear store sales, and a decrease in the number of discount licensed shoe departments in operation during fiscal 1996 versus fiscal 1995 (which was due in large 14 part to Jamesway ceasing operations in the fourth quarter of fiscal 1996). This decrease was partially offset by a sales increase in the Company's SCOA licensed shoe division as a result of SCOA's beginning business in new licensed departments since the first quarter of fiscal 1995. Sales in the Company's specialty apparel operations increased by $38.6 million due to an increase in the number of Casual Male Big & Tall stores and Work 'n Gear stores in operation at the end of fiscal 1996 over fiscal 1995, partially offset by a 2.7% decrease in comparable specialty apparel store sales. Cost of sales constituted 56.8% of sales in fiscal 1996 as compared to 55.6% in fiscal 1995. Cost of sales in the Company's footwear operations was 58.8% of sales in fiscal 1996 as compared to 56.8% of sales in fiscal 1995. The increase in such percentage was primarily attributable to higher markdowns as a percentage of sales and a decrease in the initial markup on merchandise purchases, partially offset by the elimination of wholesale footwear sales, which have a higher cost of sales than retail footwear sales. Cost of sales in the Company's apparel operations was 51.2% of sales in fiscal 1996 as compared to 51.0% of sales in fiscal 1995. The increase in such percentage was primarily attributable to higher markdowns as a percentage of sales, partially offset by a higher initial markup on merchandise purchases. Selling, administrative and general expenses increased $3.2 million or 0.8% over fiscal 1995, primarily due to a relative decrease in sales in the licensed discount division which has lower selling, administrative and general expenses than the Company's other divisions. As a percentage of sales, selling, administrative and general expenses were 38.5% in fiscal 1996 as compared to 37.3% in fiscal 1995. Selling, administrative and general expenses in the Company's footwear operations were 38.5% in fiscal 1996 as compared to 37.2% of sales in fiscal 1995. This increase was primarily the result of a change in the relative mix of footwear sales and a decline in comparable retail footwear sales. Selling, administrative and general expenses in the Company's apparel operations were 38.5% of sales in fiscal 1996 as compared to 37.9% of sales in fiscal 1995, primarily due to an increase in store level expenses from new stores openings, coupled with comparable store sales declines. Depreciation and amortization expense increased by $4.5 million in fiscal 1996 over fiscal 1995 due to an increase in average depreciable and amortizable assets. During the fiscal year ended February 3, 1996, the Company recorded restructuring charges of $69.3 million ($41.6 million on an after tax basis) related to the disposal of its Fayva footwear division. Such charges included the costs to exit from and dispose of Fayva, including the loss on disposal of inventory, severance payments, the write off of fixed assets and the costs to dispose of store leases. As a result of the above described effects, the Company reported an operating loss of $54.0 million (operating income of $15.3 million excluding the restructuring charges) in fiscal 1996 versus operating income of $46.0 million in fiscal 1995. Net interest expense increased $1.4 million to $10.5 million in fiscal 1996 as compared to $9.1 million in fiscal 1995, primarily due to higher average levels of borrowings and higher interest rates on borrowings in fiscal 1996 as compared to fiscal 1995. For fiscal 1996, the Company reported a tax benefit of $25.8 million, resulting in an effective tax rate of 40.1%, as compared to tax expense of $13.3 million, yielding an effective tax rate of 36.0% in fiscal 1995. See Note 7 to the Consolidated Financial Statements for further discussion of taxes on earnings. Net loss for fiscal 1996 was $38.6 million as compared to net earnings of $23.6 million in fiscal 1995. Financial Condition February 1, 1997 versus February 3, 1996 As a result of the sales of the Company's SCOA and Parade of Shoes divisions in March, 1997, the Company's balance sheet at February 1, 1997 has classified certain assets and liabilities of these divisions as "Assets held for Sale", primarily accounts receivable, merchandise inventories, net property, plant and equipment and accounts payable. Also, as a result of the Company's overall restructuring of its footwear business in fiscal 1997, the Company has written down the value of inventory and accounts receivable in its Licensed Discount division, written down certain fixed and intangible assets, 15 and has recorded accruals related to the restructuring. For additional information, see Note 2 to the Consolidated Financial Statements. Accounts receivable at February 1, 1997 decreased from the balance at February 3, 1996 primarily due to the impact of the divestiture of the Company's SCOA division, the reduction in the number of units operated in January, 1997 as compared to January, 1996 in the Company's Licensed Discount shoe division, and a net increase of $2.1 million in the Company's allowance for doubtful accounts. The increase in the allowance for doubtful accounts, which was recorded in conjunction with the revaluation of the Company's investment in its Licensed Discount division, is primarily due to the reduction in the Company's estimate of the amounts expected to be realized from the settlement of Chapter 11 claims with various licensors. Merchandise inventories at February 1, 1997 were lower than at February 3, 1996 primarily due to the impact of the divestitures of the Company's SCOA and Parade of Shoes divisions and to the write-down of the Company's Licensed Discount division's inventory to net realizable value. Income tax receivable at February 1, 1997 decreased to zero from the balance at February 3, 1996 primarily due to the collection of the estimated federal tax refund during fiscal 1997. The decrease in net property, plant and equipment is the result of the impact of the divestitures of the Company's SCOA and Parade of Shoes divisions, coupled with the recording of $21.2 million in depreciation expense during fiscal 1997, partially offset by the Company incurring capital expenditures of $16.4 million in fiscal 1997, primarily for the opening of new stores and the renovation of existing units. The decrease in other assets is primarily due to the write-offs of certain intangible assets as a result of the divestitures of the Company's SCOA and Parade of Shoes divisions and the revaluation and reduction of the Company's investment in its Licensed Discount footwear division, coupled with the recording of $8.2 million in amortization expense. The decrease in accounts payable is primarily due to the impact of the divestiture of the Company's SCOA division. The ratio of accounts payable to merchandise inventory was 39.0% at February 1, 1997 as compared to 36.8% at February 3, 1996. Such increase is primarily the result of the write-down of the Company's Licensed Discount division's inventory. Accrued expenses at February 1, 1997 increased from the balance at February 3, 1996 primarily due to accruals related to the restructuring of the Company's footwear business, including the sales of the Company's SCOA and Parade of Shoes divisions, and the downsizing and restructuring of its Licensed Discount division and the Company's administrative areas and facilities. See Note 2 to the Consolidated Financial Statements for information on accruals set up for restructuring and other non-recurring costs. Liquidity and Capital Resources The Company currently has a revolving credit facility on an unsecured basis with Fleet National Bank, The First National Bank of Boston, The Yasuda Trust and Banking Company, Ltd., Bank Hapoalim B.M., National City Bank of Columbus, Standard Chartered Bank and Citizens Bank of Massachusetts (the "Banks"). As amended to date, the aggregate commitment amount under this revolving credit facility was reduced from $205 million to $145 million upon receipt of the proceeds of the sales of the Company's SCOA and Parade of Shoes divisions in March, 1997. Borrowings under the revolving credit facility bear interest at variable rates and, at the discretion of the Company, can be in the form of loans, bankers' acceptances and letters of credit. This facility expires on May 30, 1998. The Company had outstanding obligations under the revolving credit facility of $155.2 million as of February 1, 1997, consisting of loans, obligations under bankers' acceptances and letters of credit. The Company is in the process of seeking to refinance its revolving credit facility for a three-year term. On December 30, 1996, JBAK Canton Realty, Inc. ("Realty"), a subsidiary of JBAK Holding, Inc. and an indirect, wholly-owned subsidiary of the Company, obtained a $15.5 million mortgage loan from The Chase Manhattan Bank secured by the real estate, buildings and other improvements owned by Realty at 555 Turnpike Street, Canton, Massachusetts. Realty leases the property to JBI, Inc. a wholly-owned subsidiary of the Company. The property is used as the Company's corporate headquarters. Proceeds of the mortgage loan were used to pay down loans under the Company's revolving credit facility. 16 In June, 1992 the Company issued $70 million of 7% convertible subordinated notes due 2002. The notes are convertible at a conversion price of $16.125 per share, subject to adjustment in certain events. The Company expects to open approximately 50 Casual Male Big & Tall stores and 6 Work 'n Gear stores and to close approximately 1 Casual Male Big & Tall store in fiscal 1998. As part of the downsizing of the Licensed Discount shoe division, the Company plans to close approximately 100 licensed departments in fiscal 1998. The Company believes that amounts available under its revolving credit facility, along with internally generated funds, will be sufficient to meet its current operating and capital requirements under ordinary circumstances through the end of the current fiscal year. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Form 10-K or made by management of the Company involve risks and uncertainties, and are subject to change based on various important factors. The following factors, among others, in some cases have affected and in the future could affect the Company's financial performance and actual results, and could cause actual results for fiscal 1998 and beyond to differ materially from those expressed or implied in any such forward-looking statements: changes in consumer spending patterns, consumer preferences and overall economic conditions, availability of credit, interest rates, the impact of competition and pricing, the weather, the financial condition of the retailers in whose stores the Company operates licensed shoe departments, changes in existing or potential duties, tariffs or quotas, availability of suitable store locations at appropriate terms and ability to hire and train associates. 17 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA J. BAKER, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements Consolidated Financial Statements: PAGE Independent Auditors' Report 19 Consolidated balance sheets as of February 1, 1997 and February 3, 1996 20 Consolidated statements of earnings for the years ended February 1, 1997, 21 February 3, 1996 and January 28, 1995 Consolidated statements of stockholders' equity for the years ended 22 February 1, 1997, February 3, 1996 and January 28, 1995 Consolidated statements of cash flows for the years ended February 1, 1997, 23 February 3, 1996 and January 28, 1995 Notes to consolidated financial statements 24
All schedules have been omitted as they are inapplicable or not required, or the information has been included in the consolidated financial statements or in the notes thereto. 18 Independent Auditors' Report The Board of Directors and Stockholders J. Baker, Inc.: We have audited the accompanying consolidated balance sheets of J. Baker, Inc. and subsidiaries as of February 1, 1997 and February 3, 1996, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended February 1, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of J. Baker, Inc. and subsidiaries as of February 1, 1997 and February 3, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended February 1, 1997 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Boston, Massachusetts March 20, 1997 19 J. BAKER, INC. AND SUBSIDIARIES Consolidated Balance Sheets February 1, 1997 and February 3, 1996 Assets 1997 1996 ------ ---- ---- Current assets: Cash and cash equivalents $ 3,969,116 $ 3,287,141 Accounts receivable: Trade, net 14,771,734 19,514,985 Other 1,737,786 3,219,862 ---------- ---------- 16,509,520 22,734,847 ---------- ---------- Merchandise inventories 146,045,496 285,703,289 Prepaid expenses 6,031,033 8,600,990 Income tax receivable - 7,236,732 Deferred income taxes 37,548,000 9,198,000 Assets held for sale 62,255,582 - ----------- ----------- Total current assets 272,358,747 336,760,999 ----------- ----------- Property, plant and equipment, at cost: Land and buildings 19,340,925 25,064,423 Furniture, fixtures and equipment 54,695,398 115,099,770 Leasehold improvements 42,650,123 43,442,932 ----------- ----------- 116,686,446 183,607,125 Less accumulated depreciation and amortization 40,032,801 62,524,262 ----------- ----------- Net property, plant and equipment 76,653,645 121,082,863 ----------- ----------- Deferred income taxes 26,199,000 6,939,000 Other assets, at cost, less accumulated amortization 7,309,411 61,298,880 ------------ ----------- $382,520,803 $526,081,742 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 2,012,327 $ 1,500,000 Accounts payable 57,006,085 105,113,721 Accrued expenses 29,837,310 25,066,874 Income taxes payable 1,380,664 - ------------ ----------- Total current liabilities 90,236,386 131,680,595 ------------ ----------- Other liabilities 6,203,073 2,598,026 Long-term debt, net of current portion 140,787,673 133,000,000 Senior subordinated debt 2,951,411 4,412,711 Convertible subordinated debt 70,353,000 70,353,000 Stockholders' equity: Common stock, par value $.50 per share, authorized 40,000,000 shares, 13,892,397 shares issued and outstanding in 1997 (13,872,647 in 1996) 6,946,199 6,936,324 Preferred stock, par value $1.00 per share, authorized 2,000,000 shares (none issued and outstanding) - - Series A junior participating cumulative preferred stock, par value $1.00 per share, authorized 100,000 shares (none issued and outstanding) - - Additional paid-in capital 115,416,223 115,213,017 Retained earnings (deficit) (50,373,162) 61,888,069 ----------- ----------- Total stockholders' equity 71,989,260 184,037,410 ----------- ----------- $382,520,803 $526,081,742 =========== ===========
See accompanying notes to consolidated financial statements. 20 J. BAKER, INC. AND SUBSIDIARIES Consolidated Statements of Earnings For the years ended February 1, 1997, February 3, 1996 and January 28, 1995 1997 1996 1995 ---- ---- ---- Net sales $897,491,941 $1,020,412,703 $1,042,978,875 Cost of sales 542,246,938 580,067,086 579,734,911 ----------- ------------- ------------- Gross profit 355,245,003 440,345,617 463,243,964 Selling, administrative and general expenses 347,977,056 392,585,851 389,362,380 Depreciation and amortization 29,430,473 32,428,001 27,882,778 Restructuring and other non-recurring charges 122,309,000 69,300,000 - ----------- ------------- ------------- Operating income (loss) (144,471,526) (53,968,235) 45,998,806 Interest income 253,750 526,188 635,574 Interest expense (13,056,127) (10,983,067) (9,735,209) ----------- ------------ ------------- Earnings (loss) before taxes (157,273,903) (64,425,114) 36,899,171 Income tax expense (benefit) (45,846,000) (25,823,000) 13,283,000 ------------ ------------ ------------- Net earnings (loss) $(111,427,903) $(38,602,114) $ 23,616,171 ============ =========== ============ Earnings (loss) per common share: Primary $ (8.02) $ (2.79) $ 1.71 ============ ============= ============= Fully diluted $ (8.02) $ (2.79) $ 1.46 ============ ============= ============= Number of shares used to compute earnings (loss) per common share: Primary 13,887,544 13,858,273 13,831,552 ============ ============ ============= Fully diluted 13,900,633 13,905,545 18,363,042 ============ ============ =============
See accompanying notes to consolidated financial statements. 21 J. BAKER, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity For the years ended February 1, 1997, February 3, 1996 and January 28, 1995 Additional Retained Total Common Stock Paid-in Earnings Stockholders' Shares Amount Capital (Deficit) Equity ------ ------ ---------- -------- ------------ Balance, January 29, 1994 13,792,647 $6,896,324 $114,654,417 $78,535,733 $200,086,474 Net earnings for the year ended January 28, 1995 - - - 23,616,171 23,616,171 Exercise of stock options 48,000 24,000 420,405 - 444,405 Dividends paid ($.06 per share) - - - (830,145) (830,145) ---------- ---------- ----------- ----------- ----------- Balance, January 28, 1995 13,840,647 6,920,324 115,074,822 101,321,759 223,316,905 ---------- ---------- ----------- ----------- ----------- Net loss for the year ended February 3, 1996 - - - (38,602,114) (38,602,114) Exercise of stock options 32,000 16,000 138,195 - 154,195 Dividends paid ($.06 per share) - - - (831,576) (831,576) ---------- --------- --------- ---------- ---------- Balance, February 3, 1996 13,872,647 6,936,324 115,213,017 61,888,069 184,037,410 ---------- ---------- ----------- ---------- ----------- Net loss for the year ended February 1, 1997 - - - (111,427,903) (111,427,903) Shares issued in connection with the acquisition of Shoe Corporation of America 6,001 3,001 104,942 - 107,943 Exercise of stock options 13,749 6,874 98,264 - 105,138 Dividends paid ($.06 per share) - - - (833,328) (833,328) ---------- ---------- ---------- ----------- ----------- Balance, February 1, 1997 13,892,397 $6,946,199 $115,416,223 $(50,373,162) $ 71,989,260 ========== ========== ============ ============ ============
See accompanying notes to consolidated financial statements 22 J. BAKER, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended February 1, 1997, February 3, 1996 and January 28, 1995 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $(111,427,903) $ (38,602,114) $ 23,616,171 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization: Fixed assets 21,151,307 21,985,599 19,015,776 Deferred charges, intangible assets and deferred financing costs 8,317,866 10,490,278 8,922,497 Deferred income taxes (47,610,000) (20,153,000) 7,955,364 Loss on disposals and revaluation of assets 97,815,906 29,900,000 - Change in: Accounts receivable 2,002,092 3,088,464 8,466,255 Merchandise inventories 52,566,128 36,583,661 (56,854,448) Prepaid expenses (1,758,077) (3,030,223) (1,449,914) Accounts payable (29,177,966) (15,678,736) 12,529,534 Accrued expenses 5,340,437 9,561,924 (9,986,666) Income taxes payable/receivable 8,617,396 (7,709,089) 1,165,288 Other liabilities 3,724,711 (4,045,342) (7,267,692) ----------- ---------- ---------- Net cash provided by operating activities 9,561,897 22,391,422 6,112,165 ----------- ---------- ---------- Cash flows from investing activities: Capital expenditures for: Property, plant and equipment (16,420,644) (28,062,433) (44,513,548) Other assets (1,921,816) (1,379,958) (12,000,475) Payments received on note receivable 3,888,000 2,900,000 - ----------- ----------- ----------- Net cash used in investing activities (14,454,460) (26,542,391) (56,514,023) ----------- ----------- ----------- Cash flows from financing activities: Repayment of senior debt (8,700,000) (1,500,000) (2,636,300) Proceeds from other long term debt - 4,700,000 51,300,000 Proceeds from mortgage payable 15,500,000 - - Payment of mortgage escrow (605,215) - - Release of restricted cash - - 3,455,357 Proceeds from issuance of common stock, net of retirements 213,081 154,195 444,405 Payment of dividends (833,328) (831,576) (830,145) --------- ---------- ---------- Net cash provided by financing activities 5,574,538 2,522,619 51,733,317 --------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 681,975 (1,628,350) 1,331,459 Cash and cash equivalents at beginning of year 3,287,141 4,915,491 3,584,032 --------- ---------- ---------- Cash and cash equivalents at end of year $ 3,969,116 $ 3,287,141 $ 4,915,491 =========== =========== ===========
See accompanying notes to consolidated financial statements 23 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements February 1, 1997, February 3, 1996 and January 28, 1995 (1) Summary of Significant Accounting Policies ------------------------------------------ Nature of Operations J. Baker, Inc. and subsidiaries (the "Company") is engaged in the retail sale of apparel and footwear. As of February 1, 1997, the Company's Casual Male Big & Tall, Work 'n Gear and Licensed Discount footwear businesses operated 1,443 locations in 47 states and the District of Columbia. The Company operates the 440 store chain of Casual Male Big & Tall men's stores which sell fashion, casual and dress clothing and footwear to the big and tall man and the 66 store chain of Work 'n Gear work clothing stores which sell a wide selection of workwear as well as health care apparel and uniforms for industry and service businesses, and sells footwear through 937 self-service licensed shoe departments in mass merchandising department stores. In all of these operations, the Company emphasizes the sale of quality products at comparatively low prices. See Note 2 for information regarding the divestitures of the Company's Shoe Corporation of America (SCOA) and Parade of Shoes divisions and the liquidation of the Company's Fayva shoe division. Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from these estimates. Fiscal Year The Company follows a 52 - 53 week fiscal year ending on the Saturday nearest January 31. The fiscal year ended February 3, 1996 contained 53 weeks. Fair Value of Financial Instruments The carrying amount of cash, cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. The fair value of the Company's long-term instruments is estimated based on market values for similar instruments. At February 1, 1997, the difference between the carrying value of long-term instruments and their estimated fair value is not material. Cash and Cash Equivalents Cash equivalents consist of highly liquid instruments with maturities of three months or less and are stated at cost which approximates market. Merchandise Inventories Merchandise inventories, which consist entirely of finished goods, are valued at the lower of cost or market, principally by the retail inventory method. Depreciation and Amortization of Property, Plant and Equipment Depreciation and amortization of the Company's property, plant and equipment are provided on the straight-line method over the following periods: Furniture and fixtures 7 years Machinery and equipment 7 years Leasehold improvements 10 years Building, building improvements and land improvements 40 years
24 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Maintenance and repairs are charged to expense as incurred. Major renewals or replacements are capitalized. When properties are retired or otherwise disposed of, the asset and related reserve account are relieved and the resulting gain or loss, if any, is credited or charged to earnings. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", on February 4, 1996. This Statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations or liquidity. See Note 2 regarding asset write-offs as a result of the Company's decision to downsize its footwear operations. Earnings Per Common Share Earnings per common share of the Company is based on the weighted average number of shares of common stock outstanding during the applicable period. Primary earnings per share is based on the weighted average number of shares of common stock outstanding during such period. Stock options and warrants are excluded from the calculation since they have less than a 3% dilutive effect. Fully diluted earnings per share is based on the weighted average number of shares of common stock outstanding during the applicable period. Included in this calculation is the dilutive effect of stock options and warrants. Included in this calculation for the period ended January 28, 1995 is the dilutive effect of common stock issuable under the 7% convertible subordinated notes due 2002. The common stock issuable under the 7% convertible subordinated notes was not included in the calculation for the periods ended February 1, 1997 and February 3, 1996 because its effect would be antidilutive. Revenue Recognition The Company recognizes revenue at the time of sale in its retail stores and licensed departments. Store Opening and Closing Costs Direct incremental store opening costs are amortized to expense over a twelve month period. All costs related to store closings are expensed at the time of closing. Deferred Lease Acquisition Costs Costs incurred in connection with the acquisition of license agreements were classified as deferred lease acquisition costs and were being amortized over the terms of the respective leases, which ranged from three to twenty years. Stock Options Prior to February 4, 1996, the Company accounted for its stock options in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On February 4, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide proforma net income and proforma earnings per share disclosures for employee stock option grants made in fiscal 1996 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the proforma disclosure provisions of SFAS No. 123. 25 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Income Taxes Deferred taxes are provided for using the asset and liability method for temporary differences between financial and tax reporting. (2) Restructuring and Other Non-Recurring Charges --------------------------------------------- During the fourth quarter of fiscal 1997, the Company restructured its footwear operations in order to focus its efforts on the management, development and growth of its Casual Male Big & Tall and Work 'n Gear apparel businesses. In connection with the restructuring, in March, 1997 the Company completed the sales of its Shoe Corporation of America ("SCOA") and Parade of Shoes divisions, and has begun to downsize its Licensed Discount footwear division. As part of the restructuring, the Company made a determination that it would reduce its investment in its Licensed Discount footwear business. The Company currently intends to concentrate the Licensed Discount division's efforts on its major licensors while exploring future strategic options for this business. The Company recorded a pre-tax charge of $166.6 million ($117.1 million, or $8.42 per share, on an after-tax basis) related to the sales of the SCOA and Parade of Shoes divisions, the write-down to realizable value of certain assets related to its Licensed Discount shoe division, and severance and consolidation costs related to the downsizing of the Company's administrative areas and facilities. Of the pre-tax charge, $122.3 million is included as a separate component of results of operations in the Company's Consolidated Statement of Earnings for the year ended February 1, 1997. The Company has also recorded a charge to cost of sales of $37.3 million related to a reduction in the Licensed Discount division's inventory to net realizable value. The remaining components of the charge include an increase in the allowance for doubtful accounts for the Licensed Discount division's accounts receivable, and losses incurred from actions taken in order to maximize the cash proceeds received for the assets sold in the Parade of Shoes and SCOA divisions subsequent to the Company's decision to dispose of each. In connection with the above events, the Company reduced its work force during the first quarter of fiscal 1998 by approximately 3,481 employees of whom approximately 1,693 were full-time and 1,788 were part-time. Asset write-offs included in the restructuring and other non-recurring charges totaled $99.6 million, while the balance of the charge will require cash outlays, primarily in fiscal 1998. See Note 5 for information regarding the write-off of certain assets of the Company's footwear operations. The significant components of the restructuring and other non-recurring charges and the reserves remaining as of February 1, 1997 were as follows: Charges Remaining Recorded Reserves --------- ---------- Loss on sales of divisions $ 63,737,000 $ 2,777,000 Asset write-offs and obligations related to the reduction of the Company's investment in its Licensed Discount shoe division 36,739,000 2,800,000 Severance and employee benefit costs 9,300,000 8,600,000 Lease obligations and asset write-offs for excess corporate facilities 9,733,000 4,800,000 Other 2,800,000 2,550,000 ---------- ---------- $122,309,000 $21,527,000 =========== ==========
26 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Sale of Shoe Corporation of America Division On March 5, 1997, the Company announced it had sold its SCOA division to an entity formed by CHB Capital Partners of Denver Colorado, along with Dennis B. Tishkoff, President of SCOA, and certain members of SCOA management. The transaction involved the transfer to the buyer of the division's inventory, fixed assets, intellectual property and license agreements for the various department and specialty store chains serviced by SCOA as well as the assumption by the buyer of certain liabilities of the SCOA division. In connection with the sale of SCOA, the Company paid a total of $3.0 million to former stockholders of SCOA in order to satisfy a contractual contingent payment obligation, based on earnings, owed to such former SCOA stockholders. Net cash proceeds received from the sale, reduced by the amount of the contingent payment, by a $1.4 million two-year escrow account balance, and by transaction expenses of $1.3 million, totaled approximately $40.0 million. The Company also remains as guarantor on certain of SCOA's license agreements for periods not to exceed two years. Sale of Parade of Shoes Division On March 10, 1997, the Company completed the sale of its Parade of Shoes division to Payless ShoeSource, Inc. ("Payless") of Topeka, Kansas. The transaction involved the transfer to Payless of the division's inventory, fixed assets, intellectual property and leases on the 186 Parade of Shoes stores. Net cash proceeds from the sale, reduced by a $2.7 million two-year escrow account balance and the retained accounts payable of the division, were approximately $20.0 million. The Company remains contingently liable under certain of the Parade of Shoes store leases assigned to Payless. Revaluation and Downsizing of Licensed Discount Shoe Division As part of the restructuring of its footwear business, the Company made a determination that it would reduce its investment in its Licensed Discount footwear business. The Company currently intends to concentrate the Licensed Discount division's efforts on its major licensors while exploring future strategic options for this business. As a result, the Company undertook an evaluation of the value of the assets in the Licensed Discount business, and wrote off certain assets which did not benefit future operations and wrote down other assets to expected realizable value. Included in the restructuring and other non-recurring charges for the year ended February 1, 1997, are write-offs of intangible assets of $33.9 million, which the Company deems to have no future value, and $2.8 million in accrued costs relating to the repositioning and downsizing of the Licensed Discount business. In addition, the Company has recorded a charge of $37.3 million to cost of sales, representing the write-down of the Licensed Discount division's inventory to net realizable value and a charge of $2.2 million to selling, administrative and general expenses, representing an increase to the Company's allowance for doubtful accounts related to amounts expected to be realized from the settlement of Chapter 11 claims with various licensors. Disposal of Fayva Division In the year ended February 3, 1996, the Company recorded restructuring charges of $69.3 million (which had an after-tax effect of $41.6 million or $3.00 per share) as a result of the liquidation of the Company's Fayva footwear division. Restructuring charges included actual costs for employee severance and other benefits of $3.5 million (a total of 2,545 full and part-time employees were terminated), fixed asset write-offs of $18.5 million and a loss on the disposal of inventory of $20.5 million. Also included in restructuring charges is a charge of $26.8 million for costs related to the disposition of the Fayva store leases. Accrued at February 1, 1997 are lease termination costs of $2.0 million which are expected to be paid by the end of fiscal 1998. (3) Bankruptcy Filings of Licensors ------------------------------- On June 23, 1995, Bradlees Stores, Inc. ("Bradlees"), a licensor of the Company, filed for protection under Chapter 11 of the United States Bankruptcy Code. At the time of the bankruptcy filing, the Company had outstanding accounts receivable of approximately $1.8 million due from Bradlees. Under bankruptcy law, Bradlees has the option of continuing (assuming) the existing license agreement with the Company or terminating (rejecting) that agreement. If the license agreement is assumed, Bradlees must cure all defaults under the agreement and the Company will collect in full the outstanding past due receivable. The Company has no assurance that the agreement will be assumed or that Bradlees will continue in business. Although the Company believes that the rejection of the license agreement or the cessation of Bradlees' business is not probable, in the 27 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements event that the agreement is rejected or Bradlees does not continue in business, the Company believes it will have a substantial claim for damages. If such a claim is necessary, the amount realized by the Company, relative to the carrying values of Bradlees-related assets, will be based on the relevant facts and circumstances. The Company does not expect this filing under the Bankruptcy Code to have a material adverse effect on future earnings. The Company's sales in the Bradlees chain for the fiscal year ended February 1, 1997 were $57.7 million. On October 18, 1995, Jamesway Corporation ("Jamesway"), then a licensor of the Company, filed for protection under Chapter 11 of the United States Bankruptcy Code. Jamesway liquidated its inventory, fixed assets and real estate and ceased operation of its business in all of its 90 stores. The Company participated in Jamesway's going out of business sales and liquidated substantially all of its footwear inventory in the 90 Jamesway stores during the going out of business sales. At the time of the bankruptcy filing, the Company had outstanding accounts receivable of approximately $1.4 million due from Jamesway. Because Jamesway ceased operation of its business, the Company's license agreement was rejected. The Company has negotiated a settlement of the amount of its claim with Jamesway which has been approved by the Bankruptcy Court. It is anticipated that, if approved, a partial distribution of the amount owed to the Company under the settlement will be made during the second half of fiscal 1998. On April 26, 1990, Ames Department Stores, Inc., and related entities ("Ames"), a significant licensor of the Company (see Notes 5 and 12), filed for protection under Chapter 11 of the United States Bankruptcy Code. On December 18, 1992, the Company and Ames executed Amendment No. 2 to the Ames license agreement and the Company and Ames executed a certain Stipulation which was filed with the United States Bankruptcy Court for the Southern District of New York and approved on January 6, 1993, the consummation date of Ames' Plan of Reorganization. The Stipulation provided that the license agreement between Ames and the Company shall be modified and amended and the license agreement assumed by Ames. Further, pursuant to the Stipulation, the Company settled its $13.7 million pre-petition claim with Ames and, in return, the Company received $5 million in cash and a promissory note issued by Ames in the amount of $8.7 million bearing interest at the rate of 6.0% per annum and having a final maturity on December 1, 1997. At February 1, 1997, the outstanding balance of the Ames promissory note is $2.9 million. The Stipulation further provided for a mortgage lien on and security interest in the real property and buildings in Rocky Hill, Connecticut comprising the executive offices of Ames, which mortgage lien and security interest shall be used as security in repayment for the promissory note, and which shall be senior to all other liens and security interests except those granted in favor of certain banks under a credit agreement with such banks. (4) Accounts Receivable -------------------- Trade accounts receivable are principally comprised of amounts due from landlords of the Company's licensed shoe departments. The Company performs regular credit evaluations of its licensors, and generally does not require collateral from its licensors. The following is a summary of the activity affecting the allowance for doubtful accounts receivable for the years ended February 1, 1997, February 3, 1996 and January 28, 1995: 1997 1996 1995 ---- ---- ---- Balance, beginning of year $3,217,429 $1,972,723 $ 521,922 Additions charged to expense 2,200,000 1,413,580 1,450,801 Write-offs, net of recoveries (130,812) (169,054) - --------- --------- --------- Balance, end of year $5,286,617 $3,217,249 $1,972,723 ========= ========= =========
28 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (5) Other Assets ------------ Other assets, net of accumulated amortization, at February 1, 1997 and February 3, 1996 were comprised of: 1997 1996 ---- ---- Systems development costs, net of accumulated amortization of $4,529,842 and $9,566,062 $ 4,529,811 $14,165,479 Deferred lease acquisition costs, net of accumulated amortization of $18,628,527 at February 3, 1996 - 29,799,508 Excess of costs over net assets acquired, net of accumulated amortization of $1,828,479 at February 3, 1996 - 10,131,228 Notes Receivable, net of current portion of $2,900,000 at February 1, 1997 and February 3, 1996 - 3,888,000 Other intangible assets and deferred charges, net of accumulated amortization of $1,157,036 and $2,556,558 1,814,746 2,372,428 Cash surrender value of officers' life insurance, net 47,279 539,306 Deposits 917,575 402,931 ---------- ---------- $ 7,309,411 $61,298,880 ========== ==========
As of February 1, 1997, the Company wrote off certain assets, primarily systems development costs and excess of costs over net assets acquired, in connection with the sales of the SCOA and Parade of Shoes divisions. In conjunction with the restructuring of the Company's footwear operations, the Company undertook an evaluation of the value of the assets in the Licensed Discount footwear business. As a result, as of February 1, 1997, the Company wrote off certain assets which did not benefit future operations and wrote down other assets to expected realizable value, including deferred lease acquisition costs, systems development costs and excess of costs over net assets acquired. Remaining systems development costs are being amortized on a straight line basis over eight years. Deferred lease acquisition costs consisted primarily of payments made in connection with the acquisition of license agreements and were being amortized over the terms of the respective license agreements. The excess of costs over net assets acquired was the result of the acquisitions of various businesses and was being amortized over periods of fifteen to twenty years. Notes receivable consist of a 6.0% note from Ames maturing on December 1, 1997 (see Note 3) and a $988,000 (at February 3, 1996) 10.25% note from Hills Department Store Company. Other intangible assets and deferred charges consist primarily of costs incurred for the issuance of debt and are being amortized over periods of three to ten years. (6) Debt ---- Long-Term Debt Long-term debt at February 1, 1997 and February 3, 1996 was comprised of: 1997 1996 ---- ---- Credit facility (weighted average $125,800,000 $133,000,000 interest rate of 8.2% in fiscal 1997 and 7.9% in fiscal 1996) Mortgage note, net of current portion 14,987,673 - ----------- ----------- (interest rate of 9.0%) $140,787,673 $133,000,000 =========== ===========
The Company currently has a revolving credit facility on an unsecured basis with Fleet National Bank, The First National Bank of Boston, The Yasuda Trust and Banking Company, Ltd., Bank Hapoalim B.M., National City Bank of Columbus, Standard Chartered Bank and Citizens Bank of Massachusetts (the "Banks"). The aggregate 29 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements commitment amount under this revolving credit facility was reduced from $205 million to $145 million upon receipt of the proceeds of the sales of the Company's SCOA and Parade of Shoes divisions. Borrowings under the revolving credit facility can, at the discretion of the Company, be in the form of any combination of loans, bankers' acceptances and letters of credit. Loans under the revolving credit facility bear interest, at the Company's discretion, at Fleet National Bank of Massachusetts' corporate base rate or at the London Interbank Offered Rate (LIBOR) plus a margin. The margin amount, as well as a commitment fee, is determined based on a financial ratio as defined in the revolving credit facility. This facility expires on May 30, 1998. At February 1, 1997, the Company had $49.8 million available for borrowing under this facility. On December 30, 1996, JBAK Canton Realty, Inc. ("Realty"), a subsidiary of JBAK Holding, Inc. ("Holding") and an indirect, wholly-owned subsidiary of the Company, obtained a $15.5 million mortgage loan from The Chase Manhattan Bank secured by the real estate, buildings and other improvements owned by Realty located at 555 Turnpike Street, Canton, Massachusetts. Realty leases the property to JBI, Inc. ("JBI"), a wholly-owned subsidiary of the Company. The property is used as the Company's corporate headquarters. Neither Holding nor Realty has agreed to pay or make its assets available to pay creditors of the Company or JBI. Neither the Company nor JBI have agreed to make their assets available to pay creditors of Holding or Realty. Proceeds of the mortgage loan were used to pay down loans under the Company's revolving credit facility. Senior Subordinated Debt In June 1989, the Company issued $35 million of senior subordinated notes with detachable warrants which enable the holders to purchase 600,000 shares of the Company's common stock at a price of $20 per share, subject to adjustments. At February 1, 1997, the detachable warrants enable holders to purchase approximately 640,000 shares at $18.80 per share. Subject to certain conditions, the Company may repurchase all, but not less than all, of the outstanding warrants for 150% of the then per share warrant exercise price. The senior subordinated notes of $4,451,411 at February 1, 1997 ($5,912,711 at February 3, 1996) are presented net of $48,589 ($87,289 at February 3, 1996), which reflects the unaccreted portion of the $1,710,000 value originally assigned to the detachable warrants. The value of the warrants was recorded as additional paid-in capital and is being accreted using the effective interest method. The senior subordinated debt was reduced by $27.5 million in June, 1992 with proceeds from the $70 million 7% convertible subordinated notes referred to below. The senior subordinated notes are due in installments of $1.5 million per year beginning in May, 1995 with a final payment in May, 1999. Interest, currently at 11.21%, is payable quarterly. Convertible Subordinated Debt Convertible subordinated debt at February 1, 1997 and February 3, 1996 was comprised of: 1997 1996 ---- ---- 7% convertible subordinated notes $70,000,000 $70,000,000 Convertible debentures 353,000 353,000 ---------- ---------- $70,353,000 $70,353,000 ========== ==========
In June 1992, the Company issued $70 million of 7% convertible subordinated notes due 2002. The notes are convertible into common stock at a conversion price of $16.125 per share, subject to adjustment in certain events. The Company used the net proceeds to repay all of the $20 million outstanding principal amount of its senior term notes, $27.5 million principal amount of its senior subordinated notes, and a portion of outstanding bank indebtedness under its unsecured revolving credit facility. Prior to the Company's acquisition of Morse Shoe, Inc. ("Morse"), 94% of the Morse convertible debentures converted into Morse common stock. Since the acquisition of Morse on January 30, 1993, holders of $2.7 million of additional Morse convertible debentures converted their debt into 49,820 shares of J. Baker common stock. The remaining balance of $353,000 convertible debentures accrued no interest until January 15, 1997, 30 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements at which time the rate became 8%, and no principal will be payable until January 15, 2002. The debt is subject, under certain circumstances, to mandatory conversion. Approximately 6,500 shares of J. Baker common stock are reserved for any future conversions of the remaining Morse convertible debentures. The Company's revolving credit facility and senior subordinated notes contain various covenants and restrictive provisions, including restrictions on the incurrence of additional indebtedness and liens, the payment of dividends and the maintenance of specified financial ratios, minimum levels of working capital and other financial criteria. At February 1, 1997, the Company was in compliance with such covenants. The Company is restricted, under various debt agreements, from paying cash dividends unless tangible net worth exceeds certain required levels. As defined by the most restrictive of those agreements, minimum tangible net worth, as so defined, was $199 million at February 1, 1997. At February 1, 1997, the Company's tangible net worth, as so defined, was approximately $258 million. Scheduled principal repayments of long-term debt, senior subordinated notes and convertible subordinated debt for the next five fiscal years and thereafter are as follows: Fiscal year ending January -------------- 1998 $ 2,012,327 1999 127,860,387 2000 2,112,955 2001 670,455 2002 733,348 Thereafter $ 82,763,528
(7) Taxes on Earnings ----------------- Income tax expense (benefit) attributable to income (loss) from continuing operations consists of: Current Deferred Total ------- -------- ----- Year ended February 1, 1997: Federal $ - $(32,688,000) $(32,688,000) State and city 1,764,000 (14,922,000) (13,158,000) ----------- ----------- ---------- $ 1,764,000 $(47,610,000) $(45,846,000) =========== =========== =========== Year ended February 3, 1996: Federal $(7,311,000) $(13,271,000) $(20,582,000) State and city 1,641,000 (6,882,000) (5,241,000) ---------- ----------- ----------- $(5,670,000) $(20,153,000) $(25,823,000) ========== =========== =========== Year ended January 28, 1995: Federal $ 4,132,000 $ 5,308,000 $ 9,440,000 State and city 2,100,000 1,743,000 3,843,000 ---------- ---------- ---------- $ 6,232,000 $ 7,051,000 $13,283,000 ========== ============ ==========
The following is a reconciliation between the statutory federal income tax rate and the Company's effective rate for the years ended February 1, 1997, February 3, 1996 and January 28, 1995: 1997 1996 1995 ---- ---- ---- Statutory federal income tax rate (35.0%) (35.0%) 35.0% State income taxes, net of federal income tax benefit (5.4%) (5.3%) 6.8% Jobs tax credits - (0.6%) (1.6%) Change in beginning of year balance in the valuation allowance for deferred tax assets 7.4% - (2.6%) Other 3.8% 0.8% (1.6%) ----- ----- ----- (29.2%) (40.1%) 36.0% ===== ===== =====
31 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at February 1, 1997 and February 3, 1996 are presented below: 1997 1996 ---- ---- Deferred tax assets: Accounts receivable $ 550,000 $ 550,000 Inventory 32,692,000 1,500,000 Intangible assets 11,506,000 (71,000) Other assets 1,227,000 516,000 Nondeductible accruals and reserves 12,476,000 9,154,000 Operating loss and credit carryforwards 46,759,000 42,443,000 ----------- ----------- Total gross deferred tax assets 105,210,000 54,092,000 Less valuation allowance (26,636,000) (14,969,000) ----------- ----------- Net deferred tax assets 78,574,000 39,123,000 ----------- ----------- Deferred tax liabilities: Property, plant and equipment (5,811,000) (13,970,000) Intangible assets (6,426,000) (6,426,000) Other liabilities (2,590,000) (2,590,000) ----------- ----------- Total gross deferred tax liabilities (14,827,000) (22,986,000) ----------- ----------- Net deferred tax asset $ 63,747,000 $ 16,137,000 =========== ===========
At February 1, 1997 and February 3, 1996, the net deferred tax asset consisted of the following: 1997 1996 ---- ---- Deferred tax asset - current $ 37,548,000 $ 9,198,000 Deferred tax asset - noncurrent 26,199,000 6,939,000 ---------- ---------- $ 63,747,000 $ 16,137,000 =========== ===========
The valuation allowance for deferred tax assets as of February 3, 1996 was $14,969,000. The increase in valuation reserve of $11,667,000 is attributable to an increase in temporary differences for which a reserve is required. At February 1, 1997, the Company has net operating loss carryforwards ("NOLS") and general business credit carryforwards for federal income tax purposes of approximately $97.0 million and $1.3 million, respectively, which expire in years ended January, 2002 through January, 2012. Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109"), requires that the tax benefit of such NOLS be recorded as an asset to the extent that the Company assesses the utilization of such NOLS to be "more likely than not". The NOLS available for future utilization were generated principally by restructuring and other non-recurring charges which are not expected to continue. The Company has determined, based upon the history of prior operating earnings in its ongoing businesses and its expectations for the future, that operating income of the Company will more likely than not be sufficient to utilize fully the $97.0 million of NOLS prior to their expiration in the year 2012. The Company has minimum tax credit carryforwards of approximately $4.0 million available to reduce future regular federal income taxes, if any, over an indefinite period. (8) Pension and Profit Sharing Plans -------------------------------- The Company has a noncontributory pension plan (the "Pension Plan") which covers substantially all non-union employees and is administered by Trustees who are officers of the Company. 32 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table sets forth the Pension Plan's funded status at February 1, 1997 and February 3, 1996: 1997 1996 Actuarial present value of benefit obligations: ---- ---- Vested $12,696,000 $11,420,000 Non-vested 1,170,000 1,053,000 ---------- ----------- Total accumulated benefit obligations $13,866,000 $12,473,000 ========== ========== Plan assets at fair value $15,737,000 $12,137,000 Actuarial present value of projected benefit obligations (18,832,000) (17,100,000) ---------- ----------- Deficiency of plan assets over projected benefit obligations (3,095,000) (4,963,000) Unrecognized prior service benefit (449,000) (494,000) Unrecognized net transitional liability 979,000 1,100,000 Unrecognized net actuarial loss 520,000 2,612,000 ---------- ----------- Accrued pension cost $(2,045,000) $(1,745,000) ========== ==========
In December 1993, the Board of Directors of the Company established a Supplemental Retirement plan (the "Supplemental Plan") to provide benefits attributable to compensation in excess of $150,000, but less than $254,064. The following table sets forth the Supplemental Plan's funded status at February 1, 1997 and February 3, 1996: 1997 1996 ---- ---- Actuarial present value of benefit obligation: Vested $ 251,000 $ 203,000 Non-vested 110,000 89,000 ------- -------- Total accumulated benefit obligations $ 361,000 $ 292,000 ======== ======== Plan assets at fair value $ - $ - Actuarial present value of projected benefit obligations (700,000) (829,000) -------- -------- Deficiency of plan assets over projected benefit obligations (700,000) (829,000) Unrecognized prior service cost 400,000 433,000 Unrecognized net actuarial (gain) loss (149,000) 80,000 ------- ------- Accrued pension cost $(449,000) $(316,000) ======== ========
Assumptions used to develop the plans' funded status were discount rate (7.5% in 1997, 7.25% in 1996) and increase in compensation levels (4.5%). Plan assets of both the Pension Plan and the Supplemental Plan consist primarily of common stock, U.S. government obligations, mutual funds and insurance contracts. Net pension cost for the years ended February 1, 1997, February 3, 1996 and January 28, 1995 included the following components: 1997 1996 1995 ---- ---- ---- Service cost - benefits earned during the year $1,828,000 $1,260,000 $1,223,000 Interest cost on projected benefit obligation 1,420,000 1,199,000 1,056,000 Actual return on plan assets (2,657,000) (1,528,000) (66,000) Net amortization and deferral 1,734,000 655,000 (565,000) --------- --------- --------- Net pension cost $2,325,000 $1,586,000 $1,648,000 ========= ========= =========
33 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Assumptions used to develop the net periodic pension cost for fiscal 1997 were discount rate (7.25%), expected long-term return on assets (9.0%) and increase in compensation levels (4.5%). In January 1992, the Company implemented a qualified 401(k) profit sharing plan available to full-time employees who meet the plan's eligibility requirements. Under the 401(k) plan, the Company matches 25% (50% for the year ended January 28, 1995) of the qualified employee's contribution up to 3% of the employee's salary. The total cost of the matching contribution was $379,000, $441,000 and $915,000 for the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. The Company has established incentive bonus plans for certain executives and employees. The bonus calculations are based on the achievement of certain profit levels, as defined in the plans. For the years ended February 1, 1997, February 3, 1996 and January 28, 1995, $145,500, $50,000 and $940,000, respectively, was provided for bonuses under the plans. The Company does not provide post-retirement benefits other than pensions as defined under SFAS #106. (9) Stock Options and Performance Share Awards ------------------------------------------ The Company has options outstanding under the Amended and Restated 1985 Stock Option Plan, the 1992 Directors' Stock Option Plan and the 1994 Equity Incentive Plan (the "Stock Option Plans"). In addition, the Company has granted options which are not part of any Stock Option Plan. The Amended and Restated 1985 Stock Option Plan provided for the issuance of incentive and non-qualified stock options to key employees at an option price of not less than 100% of the fair market value of a share on the date of grant of the option. Under this plan, there are no shares of common stock available for grant at February 1, 1997 as no options could be granted thereunder after June, 1995. In fiscal 1995, the Company established the 1994 Equity Incentive Plan, which provides for the issuance of one million shares of common stock to officers and employees in the form of stock options (both incentive options and non-qualified options), grants of restricted stock, grants of performance shares and unrestricted grants of stock. At February 1, 1997, 26,500 shares of common stock are reserved for grants of performance shares, and 368,091 shares of common stock remain available for all other types of grants. Options granted under the Amended and Restated 1985 Stock Option Plan and the 1994 Equity Incentive Plan become exercisable either ratably over four or more years or upon grant, at the discretion of the Board of Directors, and expire ten years from the date of grant. The 1992 Directors' Stock Option Plan provides for the automatic grant of an option to purchase 2,500 shares of the Company's common stock upon a director's initial election to the Board of Directors and, in addition, at the close of business on the fifth business day following the Company's annual meeting of stockholders. Options under the Directors' Plan are granted at a price equal to the closing price of the Company's common stock on the date of grant. They are exercisable in full as of the date of grant and expire ten years from the date of grant. Under this plan, there are 15,000 shares of common stock available for grant at February 1, 1997. The Company applied Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock options. Accordingly, no compensation cost has been recognized for stock options in the Company's results of operations. Had the Company recorded a charge for the fair value of options granted consistent with SFAS No. 123, net loss and net loss per common share would have been increased by $940,000 and $0.07 in fiscal 1997 and $300,000 and $0.02 in fiscal 1996, respectively. There is no effect on fully diluted earnings per share. 34 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The fair value of each option grant is estimated on the date of the grant using the Black-Scholes options pricing model, with the following weighted average assumptions used for grants in fiscal 1997 and fiscal 1996. 1997 1996 ---- ---- Risk-free interest rate 5.9% 6.2% Expected option lives 6.8 years 7.1 years Expected volatility 59.0% 59.2% Expected dividend yield 0.8% 0.5%
The effect of applying SFAS No. 123 is not representative of the proforma effect on net earnings in future years because it does not take into consideration proforma compensation expense related to grants made prior to fiscal 1996. Data with respect to stock options for fiscal years 1997, 1996 and 1995 is as follows: 1997 1996 1995 ------------------------ ---------------------- --------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- -------- -------- -------- ------ -------- Outstanding at beginning of year 1,176,170 $15.30 1,091,395 $16.58 884,920 $15.42 Granted 731,262 8.70 338,000 12.88 336,025 19.21 Exercised (13,749) 7.65 (32,000) 4.82 (48,000) 9.26 Cancelled (821,253) 16.55 (221,225) 19.43 (81,550) 19.36 --------- -------- -------- Options outstanding at end of year 1,072,430 9.58 1,176,170 15.30 1,091,395 16.58 ========= ========= ========= Options exercisable at end of year 516,027 589,102 453,945 Weighted average fair-value of options granted during the year $ 4.94 $8.08
Effective as of February 5, 1996, the Board of Directors offered all employee participants in the Stock Option Plans the opportunity to reprice to $9.00 per share any currently outstanding stock options with exercise prices in excess of $9.00 per share. On February 5, 1996, the fair market value of the Company's common stock was $5.25 per share. Pursuant to the repricing program, any employee electing to reprice outstanding stock options was also required to accept a reduced number of options shares commensurate with the reduction in price to $9.00 from the price of the original grant. Each repriced option retained the vesting schedule associated with the original grant. Holders of original option grants totaling 646,376 shares elected to reprice such options at $9.00 per share resulting in a reduction of such options held to 342,962 shares, which is contained in the number of options granted in fiscal 1997. The following table sets forth a summary of the stock options outstanding at February 1, 1997: Options Outstanding Options Exercisable -------------------------------------------------- -------------------------------- Weighted Average Remaining Range of Number Years of Weighted Average Number Weighted Average Exercise price Outstanding Contractual Life Exercise Price Exercisable Exercise Price --------------- ----------- ---------------- ---------------- ----------- ---------------- $ 4.88 - $ 8.63 347,920 7.3 $ 7.35 135,320 $ 6.65 $ 9.00 - $ 9.88 583,985 7.3 $ 9.15 270,782 $ 9.18 $12.00 - $16.63 72,000 6.9 $13.41 55,575 $13.46 $17.00 - $22.38 68,525 6.8 $20.53 54,350 $20.64 -------- ------- $ 4.88 - $22.38 1,072,430 7.3 $ 9.58 516,027 $10.18 ========= =======
35 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements During fiscal 1997, the Company granted Performance Share Awards that entitle certain officers to shares of the Company's common stock in fiscal 1999 if the price of the common stock attains a "Target Price" (the average closing price of the Company's common stock for the fifteen consecutive trading days prior to April 30, 1998) between $10.00 and $14.00. If such Target Price is attained, the Company will grant between 61,750 and 123,500 shares of the Company's common stock, respectively, to the eligible officers. (10) Commitments and Contingent Liabilities -------------------------------------- Leases The Company operates mainly from leased premises under license agreements generally requiring payment of annual rentals contingent upon sales. The Company leases its computers, vehicles and certain of its offices and warehouse facilities, in addition to its retail stores. The Company remains liable under certain leases and lease guaranties for premises previously leased by the Company for the operation of Parade of Shoes and Fayva shoe stores (the "Excess Property Leases"). The total liability under the Excess Property Leases is approximately $61.1 million as of February 1, 1997. The Company has reduced its actual liability by assigning or subleasing substantially all of the Excess Property Leases to unaffiliated third parties. At February 1, 1997, minimum rental commitments under operating leases are as follows: Fiscal Year ending January Net minimum rentals Minimum sub-rentals -------------- ------------------- ------------------- (in thousands) 1998 $ 43,709 $ 661 1999 37,239 653 2000 28,100 648 2001 20,935 580 2002 16,014 409 Thereafter 36,504 - ------- ----- $182,501 $2,951 ======= =====
Rent expense for the years ended February 1, 1997, February 3, 1996 and January 28, 1995 was as follows: 1997 1996 1995 ---- ---- ---- (in thousands) Minimum rentals $ 49,167 $ 52,284 $ 53,189 Contingent rentals 83,084 93,289 90,275 ------- ------- ------- 132,251 145,573 143,464 Less sublease rentals 317 336 409 ------- ------- ------- Net rentals $131,934 $145,237 $143,055 ======= ======= =======
Other Commitments and Contingencies The Company has employment agreements with certain of its officers under which it is committed to pay an aggregate of approximately $1.1 million through April, 1998. During fiscal 1996, the Company's Board of Directors adopted executive severance agreements which create certain liabilities in the event of the termination of the covered executives within three years following either a change of control of the Company or the termination of certain key executives of the Company. The aggregate commitment amount under these executive severance agreements, should all thirteen covered employees be terminated, is approximately $2.2 million. 36 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements At February 1, 1997 and February 3, 1996, the Company was contingently liable under letters of credit totaling $11.2 million and $18.8 million, respectively. These letters of credit, which have terms of one month to one year, are used primarily to collateralize the Company's obligations to third parties for the purchase of inventory. The fair value of these letters of credit is estimated to be the same as the contract values based on the nature of the fee arrangements with the issuing banks. No material loss is anticipated due to the non-performance by counterparties to these arrangements. On November 10, 1993, a federal jury in Minneapolis, MN returned a verdict assessing royalties of $1,550,000, and additional damages of $1,500,000, against the Company in a patent infringement suit brought by Susan Maxwell with respect to a device used to connect pairs of shoes. Certain post trial motions were filed by Susan Maxwell seeking treble damages, attorney's fees and injunctive relief, which motions were granted on March 10, 1995. Judgment was entered for Maxwell. The Company appealed the judgment. On June 11, 1996, the United States Court of Appeals for the Federal Circuit reversed the trial court's findings in part, affirmed the trial court's findings in part and vacated the award to Maxwell of treble damages, attorney's fees and injunctive relief. Maxwell subsequently requested a rehearing in banc of the matter which request was denied by order of the Court dated August 28, 1996. Maxwell petitioned the United States Supreme Court for a writ of certiorari to hear the case which petition was denied on March 17, 1997. The case has been remanded to the trial court for a redetermination of damages consistent with the opinion of the appellate court. A complaint was also filed by Susan Maxwell in November, 1992 against Morse Shoe, Inc. ("Morse"), a subsidiary of the Company, alleging infringement of the patent referred to above. The Morse trial was stayed pending the outcome of the J. Baker appeal. In light of the decision of the Supreme Court and the remand to the trial court, it is not clear when a trial date will be set for the Morse case. Morse has filed a breach of contract lawsuit against a former wholesale customer. There can be no assurance of what amount, if any, the Company will realize as a result of this lawsuit. (11) Stockholders' Equity -------------------- The Board of Directors of the Company is authorized by vote or votes, from time to time adopted, to provide for the issuance of Preferred Stock in one or more series and to fix and state the voting powers, designations, preferences and relative participating, optional or other special rights of the shares of each series and the qualifications, limitations and restrictions thereof. On December 15, 1994, the Board of Directors of the Company adopted a Shareholder Rights Agreement (the "Rights Agreement") designed to enhance the Company's ability to protect shareholder interests and to ensure that shareholders receive fair treatment in the event any coercive takeover attempt of the Company is made in the future. Pursuant to the Rights Agreement, the Board of Directors declared a dividend distribution of one preferred stock purchase right (the "Right") for each outstanding share of common stock of the Company to shareholders of record as of the close of business on January 6, 1995. Each right entitles the holder to purchase from the Company a unit consisting of one ten thousandth (1/10,000) of a share of Series A Junior Participating Cumulative Preferred Stock, par value $1.00 per share, at a cash exercise price of $70 per unit, subject to adjustment, upon the occurrence of certain events as are set forth in the Rights Agreement. These events include the earliest to occur of (i) the acquisition of 15% or more of the outstanding shares of common stock of the Company by any person or group, (ii) the commencement of a tender or exchange offer that would result upon its consummation in a person or a group becoming the beneficial owner of 15% or more of the outstanding common stock of the Company or (iii) the determination by the Board of Directors that any person is an "Adverse Person", as defined in the Rights Agreement. The Rights are not exercisable until or following the occurrence of one of the above events and will expire on December 14, 2004, unless previously redeemed or exchanged by the Company as provided in the Rights Agreement. 37 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) Principal Licensor ------------------ Sales in licensed departments operated under the Ames license agreement accounted for 10.5%, 9.4% and 9.5% of the Company's net sales in the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. On a proforma basis, excluding sales generated by the Company's SCOA and Parade of Shoes divisions, sales in Ames accounted for 15.8% of the Company's sales for the year ended February 1, 1997. (13) Segment Information -------------------- The Company is a specialty retailer conducting business through retail stores in two business segments: apparel and footwear. Information about operations for each of these segments is summarized as follows: Year Ended -------------------------------------------------------------- February 1, 1997 February 3, 1996 January 28, 1995 ---------------- ---------------- ---------------- (53 weeks) ($ in thousands) Apparel Net sales $293,775 $263,322 $224,759 Operating profit 24,123 24,814 26,974 Identifiable assets 113,117 104,923 89,111 Depreciation and amortization 7,501 6,973 4,130 Additions to property, equipment and leasehold improvements 6,665 10,461 11,570 Footwear Net sales $603,717 $757,091 $818,220 Restructuring and other non-recurring charges (122,309) (69,300) - Operating profit (loss) (144,744) (51,768) 44,993 Identifiable assets 231,812 377,530 456,552 Depreciation and amortization 18,094 20,524 20,363 Additions to property, equipment and leasehold improvements 8,043 13,271 31,298 Consolidated Net sales $897,492 $1,020,413 $1,042,979 Restructuring and other non-recurring charges (122,309) (69,300) - Operating profit (loss) before general corporate expense (120,621) (26,954) 71,967 General corporate expense (23,851) (27,014) (25,968) Interest expense, net (12,802) (10,457) (9,100) Earnings (loss) before income taxes $(157,274) $(64,425) $ 36,899 Identifiable assets $344,929 $482,453 $545,663 Corporate assets 37,592 43,629 32,955 Total assets $382,521 $526,082 $578,618 Depreciation and amortization $ 29,430 $ 32,428 $ 27,883 Additions to property, equipment and leasehold improvements $ 16,421 $ 28,062 $ 44,514
38 J. BAKER, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (14) Selected Quarterly Financial Data (Unaudited) --------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- (In thousands, except per share data) Year ended February 1, 1997 Net sales $ 195,530 $ 231,805 $ 222,764 $ 247,393 $ 897,492 Gross profit 90,621 101,427 96,184 67,013 355,245 Net earnings (loss) $ 826 $ 1,486 $ 1,418 $(115,158) $(111,428) ======== ======== ======== ======== ======== Earnings (loss) per common share: Primary $ .06 $ .11 $ .10 $ (8.29) $ (8.02) ======== ======== ======== ======== ======== Fully diluted $ .06 $ .11 $ .10 $ (8.29) $ (8.02) ======== ======== ======== ======== ======== Year ended February 3, 1996 Net sales $ 231,385 $ 272,520 $ 245,255 $271,253 $1,020,413 Gross profit 103,532 120,202 104,600 112,012 440,346 Net earnings (loss) $ 638 $ 1,397 $ (41,328) $ 691 $ (38,602) ======== ======== ======== ======== ========= Earnings (loss) per common share: Primary $ .05 $ .10 $ (2.98) $ .05 $ (2.79) ======== ======== ======== ======== ========= Fully diluted $ .05 $ .10 $ (2.98) $ .05 $ (2.79) ======== ======== ======== ======== =========
(15) Advertising Costs Advertising costs are charged to expense as incurred. The Company incurred advertising costs of $14.8 million, $20.5 million and $20.1 million in the years ended February 1, 1997, February 3, 1996 and January 28, 1995, respectively. (16) Supplemental Schedules to Consolidated Statements of Cash Flows 1997 1996 1995 ---- ---- ---- Cash paid for interest $12,670,073 $11,069,341 $ 8,765,653 Cash paid for income taxes $ 1,168,901 $ 2,039,089 $ 4,162,348 Income taxes refunded $(8,315,483) - - ========== ========== ========== Non-cash investing activities: Notes receivable (see Notes 3 and 5) $ 23,000 $ 47,000 $ 95,000 ========== ========== ==========
39 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information appearing in the Proxy Statement under the captions "ELECTION OF DIRECTORS", "Information About Board of Directors and Committees", "Report of the Compensation Committee of the Board of Directors on Executive Compensation", "Executive Compensation" and "Employment and Severance Arrangements" is incorporated herein by this reference. EXECUTIVE COMPENSATION The information appearing in the Proxy Statement under the caption "Executive Compensation", "Employment and Severance Arrangements", "Information About Board of Directors and Committees" and "Report of the Compensation Committee of the Board of Directors on Executive Compensation" is incorporated herein by this reference. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing in the Proxy Statement under the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by this reference. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing in the Proxy Statement under the caption "Certain Relationships and Related Transactions" is incorporated herein by this reference. PART IV EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1,2. The financial statements, notes thereto, and independent auditors' report listed in the Index to Consolidated Financial Statements set forth in Item 8. 3. The Exhibits listed in the Exhibit Index. (b) None. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. J. Baker, Inc. ------------- (Registrant) By/s/Sherman N. Baker By/s/Alan I. Weinstein ------------------- -------------------- Sherman N. Baker Alan I. Weinstein Chairman of the Board President and Chief Executive Officer By/s/Philip G. Rosenberg ---------------------- Philip G. Rosenberg Executive Vice President and Principal Financial Officer May 1, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/Sherman N. Baker /s/J. Christopher Clifford - -------------------- ----------------------------- Sherman N. Baker, Director J. Christopher Clifford, Director /s/Ervin Cruce /s/Douglas Kahn - -------------------- --------------------------- Ervin Cruce, Director Douglas Kahn, Director /s/David Pulver /s/Melvin M. Rosenblatt - --------------------- -------------------------- David Pulver, Director Melvin M. Rosenblatt, Director /s/Nancy Ryan /s/Stanley Simon - -------------------- -------------------------- Nancy Ryan, Director Stanley Simon, Director /s/Alan I. Weinstein - ------------------------ Alan I. Weinstein, Director All as of May 1, 1997 41 EXHIBITS Filed with Annual Report on Form 10-K of J. BAKER, INC. 555 Turnpike Street Canton, MA 02021 For the Year Ended February 1, 1997 42 EXHIBIT INDEX Exhibit Page No. 2. Plan of Acquisition, Reorganization, Arrangement, Liquidation of Succession (.01) Asset Purchase Agreement dated as of March 5, 1997 by and between * Shoe Corporation of America and JBI, Inc. (filed as Exhibit 2.1 to the Company's Form 8-K Report dated March 20, 1997). (.02) Asset Purchase Agreement dated as of January 13, 1997 by and between * Payless ShoeSource, Inc., JBI, Inc. and J. Baker, Inc. (filed as Exhibit 2.2 to the Company's Form 8-K Report dated March 20, 1997). 3. Articles of Organization and By-Laws (.01) Amended and Restated Articles of Organization of the Company, * as filed with the Secretary of the Commonwealth of Massachusetts on September 26, 1990 (filed as Exhibit 3.01 to the Company's Form 10-K Report for the year ended February 2, 1991). (.02) By-Laws of the Company, as amended by the Board of Directors * on September 11, 1990 (filed as Exhibit 19.01 to the Company's Form 10-Q Report for the quarter ended November 3, 1990). 4. Instruments Defining the Rights of Security Holders, Including Indentures (.01) Senior Notes and Senior Subordinated Notes with Stock Purchase * Warrants dated as of May 1, 1989 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended July 29, 1989). (.02) Amendment dated as of November 13, 1995 to Senior Subordinated * Note Agreement dated May 1, 1989 (filed as Exhibit 4.02 to the Company's Form 10-Q Report for the quarter ended October 28, 1995). (.03) Indenture dated as of January 15, 1992 by and between Morse Shoe, * Inc. and State Street Bank and Trust Company as Trustee with respect to Convertible Subordinated Debentures due 2002 (filed as Exhibit 4.12 to the Company's Form 10-K Report for the year ended January 30, 1993). (.04) First Supplemental Indenture dated as of January 30, 1993 to * the Indenture dated January 15, 1992 under which Convertible Subordinated Debentures Due 2002 were issued by Morse Shoe, Inc. (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended May 1, 1993). * Incorporated herein by reference ** Included herein 43 Exhibit Page No. (.05) Indenture dated as of June 12, 1992 by and between J. Baker, Inc. * and State Street Bank and Trust Company as Trustee with respect to 7% Convertible Subordinated Notes due 2002 (filed as Exhibit 4.08 to the Company's Form 10-Q Report for the quarter ended August 1, 1992). (.06) Revolving Credit and Loan Agreement by and among JBI, Inc., J. * Baker, Inc. and Fleet National Bank of Massachusetts, et al (formerly Shawmut Bank, N.A.), dated as of February 1, 1993 (filed as Exhibit 4.03 to the Company's Form 10-K Report for the year ended January 30, 1993). (.07) Guarantee Agreement dated as of February 1, 1993, between J. * Baker, Inc., Fleet National Bank of Massachusetts, et al, and subsidiaries of J. Baker, Inc. (filed as Exhibit 4.09 to the Company's Form 10-K Report for the year ended January 30, 1993). (.08) Security Agreement dated as of February 1, 1993, between JBI, * Inc., J. Baker, Inc., and Fleet National Bank of Massachusetts, et al (filed as Exhibit 4.10 to the Company's Form 10-K Report for the year ended January 30, 1993). (.09) Stock Pledge Agreement dated as of February 1, 1993 by and * between JBI, Inc., J. Baker, Inc., Fleet National Bank of Massachusetts, et al, and subsidiaries of J. Baker, Inc. (filed as Exhibit 4.11 to the Company's Form 10-K Report for the year ended January 30, 1993). (.10) First Amendment and Waiver Agreement by and among JBI, Inc., J. * Baker, Inc, and Fleet National Bank of Massachusetts, et al, dated as of November 19, 1993 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended October 30, 1993). (.11) First Amendment to Pledge Agreement by and among JBI, Inc., J. * Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of November 19, 1993 (filed as Exhibit 4.03 to the Company's Form 10-Q Report for the quarter ended October 30, 1993). (.12) Second Amendment to Pledge Agreement by and among JBI, Inc., J. * Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of December 30, 1993 (filed as Exhibit 4.14 to the Company's Form 10-K Report for the year ended January 29, 1994). (.13) Second Amendment Agreement to Revolving Credit and Loan Agreement * by and among JBI, Inc, J. Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of April 29, 1994 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended April 30, 1994). * Incorporated herein by reference ** Included herein 44 Exhibit Page No. (.14) Third Amendment Agreement to Revolving Credit and Loan Agreement * by and among JBI, Inc., J. Baker, Inc., and Fleet National Bank of Massachusetts, et al, dated as of December 1, 1994 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended October 29, 1994). (.15) Fourth Amendment Agreement to Revolving Credit and Loan Agreement * by and among JBI, Inc., J. Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of March 6, 1995 (filed as Exhibit 4.16 to the Company's Form 10-K Report for the year ended January 28, 1995). (.16) Fifth Amendment Agreement to Revolving Credit and Loan Agreement * by and among JBI, Inc., J. Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of May 19, 1995 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended April 29, 1995). (.17) Assumption Agreement between TCMB&T and Fleet National Bank * of Massachusetts, et al, dated as of May 19, 1995 (filed as Exhibit 4.02 to the Company's Form 10-Q Report for the quarter ended April 29, 1995). (.18) Second Amendment Agreement to Pledge Agreement among JBI, Inc., * J. Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of May 19, 1995 (filed as Exhibit 4.03 to the Company's Form 10-Q Report for the quarter ended April 29, 1995). (.19) Sixth Amendment Agreement to Revolving Credit and Loan Agreement * by and among JBI, Inc., J. Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of September 12, 1995 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended July 29, 1995). (.20) Seventh Amendment Agreement to Revolving Credit and Loan * Agreement by and among JBI, Inc., J. Baker, Inc. and Fleet National Bank of Massachusetts, et al, dated as of November 17, 1995 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended October 28, 1995). (.21) Shareholder Rights Agreement between J. Baker, Inc. and Fleet * National Bank of Massachusetts, dated as of December 15, 1994 (filed as Exhibit 4.01 to the Company's Form 8-K Report dated December 15, 1994). (.22) Eighth Amendment to Revolving Credit and Loan Agreement by and among * JBI, Inc., J. Baker, Inc. and Fleet National Bank, et al., dated as of June 21, 1996 (filed as Exhibit 4.01 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). * Incorporated herein by reference ** Included herein 45 Exhibit Page No. (.23) Ninth Amendment to Revolving Credit and Loan Agreement by and among ** JBI, Inc., J. Baker, Inc. and Fleet National Bank, et al., dated as of December 31, 1996, attached. (.24) Tenth Amendment to Revolving Credit and Loan Agreement by and among ** JBI, Inc., J. Baker, Inc. and Fleet National Bank, et al., dated as of February 14, 1997, attached. (.25) Eleventh Amendment to Revolving Credit and Loan Agreement by and among ** JBI, Inc., J. Baker, Inc. and Fleet National Bank, et al., dated as of April 14, 1997, attached. (.26) Waiver Agreement and Amendment to Senior Subordinated Note Agreement ** between JBI, Inc. and Massachusetts Mutual Life Insurance Company and MassMutual Participation Investors ("MassMutual") dated February 24, 1997, attached. (.27) Guaranty Agreement of certain subsidiaries of the Company in favor of ** MassMutual dated as of March 13, 1997, attached. 10. Material Contracts (.01) License Agreement between Ames Department Stores, Inc., et al and * JBI Holding Company, Inc. (filed as Exhibit 10.01 to the Company's Form 10-K Report for the year ended January 30, 1988). (.02) Agreement between JBI Holding Company, Inc. and JBI, Inc. re: * Assignment of Ames License Agreement (filed as Exhibit 10.02 to the Company's Form 10-K Report for the year ended January 30, 1988). (.03) Amendment No. 1 dated April 29, 1989 to Agreement between Ames * Department Stores, Inc. and JBI Holding Company, Inc. (filed as Exhibit 10.04 to the Company's Form 10-Q Report for the quarter ended April 29, 1989). (.04) Amendment No. 2 dated December 18, 1992, to Agreement between * Ames Department Stores, Inc. and JBI Holding Company, Inc. (filed as Exhibit 10.04 to the Company's Form 10-K Report for the year ended January 30, 1993). (.05) Guaranty and Indemnity Agreement dated April 28, 1989 between J. * Baker, Inc. and Ames Department Stores, Inc. (filed as Exhibit 10.05 to the Company's Form 10-Q Report for the quarter ended April 29, 1989). (.06) Plan of Reorganization of The Casual Male Corporation dated * November 1, 1990 as revised November 20, 1990 (filed as Exhibit 2.01 to the Company's Form 10-Q Report for the quarter ended November 3, 1990). * Incorporated herein by reference ** Included herein 46 Exhibit Page No. (.07) Executive Employment Agreement dated March 25, 1993 between * Sherman N. Baker and J. Baker, Inc. (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended July 31, 1993). (.08) Amendment to Employment Agreement between J. Baker, Inc. and * Sherman N.Baker, dated March 31, 1995 (filed as Exhibit 4.10 to the Company's Form 10-K Report for the year ended January 28, 1995). (.09) Amendment to Employment Agreement between J. Baker, Inc. and * Sherman N. Baker, dated March 31, 1996 (filed as Exhibit 10.09 to the Company's Form 10-K Report for the year ended February 3, 1996). (.10) Third Amendment to Employment Agreement between J. Baker, Inc. and ** Sherman N. Baker dated as of March 31, 1997, attached. (.11) Executive Employment Agreement between J. Baker, Inc. and Alan * I. Weinstein, dated March 25, 1993 (filed as Exhibit 10.04 to the Company's Form 10-Q Report for the quarter ended July 31, 1993). (.12) Amendment to Employment Agreement between J. Baker, Inc. and Alan * I. Weinstein, dated April 27, 1994 (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended July 30, 1994). (.13) Amendment to Employment Agreement between J. Baker, Inc. and Alan * I. Weinstein, dated April 25, 1995 (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended April 29, 1995). (.14) Amendment to Employment Agreement between J. Baker, Inc. and Alan * I. Weinstein, dated March 7, 1996 (filed as Exhibit 10.13 to the Company's Form 10-K Report for the year ended February 3, 1996). (.15) Amendment to Employment Agreement between J. Baker, Inc. and Alan * I. Weinstein, dated April 5, 1996 (filed as Exhibit 10.14 to the Company's Form 10-K Report for the year ended February 3, 1996). (.16) Performance Share Award granted to Alan I. Weinstein dated March 26, * 1996 (filed as Exhibit 10.04 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.17) Executive Employment Agreement between J. Baker, Inc. and Alan I. ** Weinstein dated April 1, 1997, attached. (.18) Executive Employment Agreement between J. Baker, Inc. and Jerry * M. Socol, dated March 25, 1993 (filed as Exhibit 10.11 to the Company's Form 10-K Report for the year ended January 29, 1994). (.19) Amendment to Employment Agreement between J. Baker, Inc. and Jerry * M. Socol, dated June 9, 1994 (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended July 29, 1995). * Incorporated herein by reference ** Included herein 47 Exhibit Page No. (.20) Amendment to Employment Agreement between J. Baker, Inc. and Jerry * M. Socol, dated July 14, 1995 (filed as Exhibit 10.02 to the Company's Form 10-Q Report for the quarter ended July 29, 1995). (.21) Amendment to Employment Agreement between J. Baker, Inc. and Jerry * M. Socol, dated March 7, 1996 (filed as Exhibit 10.18 to the Company's Form 10-K Report for the year ended February 3, 1996). (.22) Amendment to Employment Agreement between J. Baker, Inc. and Jerry * M. Socol, dated April 5, 1996 (filed as Exhibit 10.19 to the Company's Form 10-K Report for the year ended February 3, 1996). (.23) Performance Share Award granted to Jerry M. Socol dated March 26, * 1996 (filed as Exhibit 10.03 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.24) Termination Agreement between J. Baker, Inc. and Jerry M. Socol ** dated October, 1996, attached. (.25) Executive Employment Agreement between J. Baker, Inc. and Larry I. * Kelley, dated March 25, 1993 (filed as Exhibit 10.06 to the Company's Form 10-Q Report for the quarter ended July 31, 1993). (.26) Amendment to Employment Agreement between J. Baker, Inc. and Larry * I. Kelley, dated April 27, 1994 (filed as Exhibit 10.02 to the Company's Form 10-Q Report for the quarter ended July 30, 1994). (.27) Amendment to Employment Agreement between J. Baker, Inc. and Larry * I. Kelley, dated May 2, 1995 (filed as Exhibit 10.02 to the Company's Form 10-Q Report for the quarter ended April 29, 1995). (.28) Amendment to Employment Agreement between J. Baker, Inc. and Larry * I. Kelley, dated November 7, 1995 (filed as Exhibit 10.03 to the Company's Form 10-Q Report for the quarter ended October 28, 1995) (.29) Amendment to Employment Agreement between J. Baker, Inc. and Larry * I. Kelley, dated April 5, 1996 (filed as Exhibit 10.24 to the Company's Form 10-K Report for the year ended February 3, 1996). (.30) Promissory Note of Larry I. Kelley dated June 3, 1991 (filed as * Exhibit 10.33 to the Company's Form 10-K Report for the year ended February 1, 1992). (.31) Promissory Note of Larry I. Kelley dated February 2, 1993 (filed * as Exhibit 10.15 to the Company's Form 10-K Report for the year ended January 29, 1994). (.32) Promissory Note of Larry I. Kelley dated April 30, 1993 (filed as * Exhibit 10.16 to the Company's Form 10-K Report for the year ended January 29, 1994). * Incorporated herein by reference ** Included herein 48 Exhibit Page No. (.33) Amendment to Employment Agreement between J. Baker, Inc. and Larry * I. Kelley dated June 5, 1996 (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.34) Promissory Note of Larry I. Kelley in favor of J. Baker, Inc. dated * August 23, 1996 (filed as Exhibit 10.02 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.35) Performance Share Award granted to Larry I. Kelley dated June 5, 1996 * (filed as Exhibit 10.05 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.36) Executive Employment Agreement dated as of November 1, 1993 * between Stuart M. Needleman and J. Baker, Inc. (filed as Exhibit 10.03 to the Company's Form 10-Q Report for the quarter ended October 30, 1993). (.37) Amendment to Employment Agreement between J. Baker, Inc. and * Stuart M. Needleman, dated February 13, 1995 (filed as Exhibit 10.24 to the Company's Form 10-K Report for the year ended January 28, 1995). (.38) Amendment to Employment Agreement between J. Baker, Inc. and * Stuart M. Needleman, dated November 10, 1995 (filed as Exhibit 10.04 to the Company's Form 10-Q Report for the quarter ended October 28, 1995). (.39) Amendment to Executive Employment Agreement between J. Baker, Inc. * and Stuart M. Needleman dated April 5, 1996 (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended May 3, 1996). (.40) Performance Share Award granted to Stuart M. Needleman dated October * 18, 1996 (filed as Exhibit 10.02 to the Company's Form 10-Q Report for the quarter ended November 2, 1996). (.41) Executive Employment Agreement dated as of November 19, 1993 * between Dennis B. Tishkoff and J. Baker, Inc. (filed as Exhibit 10.04 to the Company's Form 10-Q Report for the quarter ended October 30, 1993). (.42) Amendment to Employment Agreement between J. Baker, Inc. and * Dennis B. Tishkoff, dated February 8, 1995 (filed as Exhibit 10.26 to the Company's Form 10-K Report for the year ended January 28, 1995). (.43) Amendment to Employment Agreement between J. Baker, Inc. and * Dennis B. Tishkoff, dated April 25, 1995 (filed as Exhibit 10.03 to the Company's Form 10-Q Report for the quarter ended April 29, 1995). * Incorporated herein by reference ** Included herein 49 Exhibit Page No. (.44) Amendment to Employment Agreement between J. Baker, Inc. and * Dennis B. Tishkoff, dated November 26, 1995 (filed as Exhibit 10.05 to the Company's Form 10-Q Report for the quarter ended October 28, 1995). (.45) Executive Employment Agreement between J. Baker, Inc. and James * Lee, dated January 26, 1995 (filed as Exhibit 10.27 to the Company's Form 10-K Report for the year ended January 28, 1995). (.46) Amendment to Employment Agreement between J. Baker, Inc. and * James D. Lee, dated November 6, 1995 (filed as Exhibit 10.02 to the Company's Form 10-Q Report for the quarter ended October 28, 1995). (.47) Forgiveness Loan made by James Lee in favor of Morse Shoe, Inc., * dated August 26, 1994 (filed as Exhibit 10.03 to the Company's Form 10-Q Report for the quarter ended July 29, 1995). (.48) Promissory Note made by James Lee in favor of J. Baker, Inc., * dated May 19, 1995 (filed as Exhibit 10.04 to the Company's Form 10-Q Report for the quarter ended July 29, 1995). (.49) Performance Share Award granted to James Lee dated October 18, 1996 * (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended November 2, 1996). (.50) Executive Employment Agreement between J. Baker, Inc. and David * A. Levin, dated June 12, 1995 (filed as Exhibit 10.39 to the Company's Form 10-K Report for the year ended February 3, 1996). (.51) Amendment to Employment Agreement between J. Baker, Inc. and * David A. Levin, dated April 5, 1996 (filed as Exhibit 10.40 to the Company's Form 10-K Report for the year ended February 3, 1996). (.52) Termination Agreement between J. Baker, Inc. and David A. Levin ** dated March 15, 1997, attached. (.53) Severance Compensation Agreement between J. Baker, Inc. and * Philip G. Rosenberg, dated November 1, 1995 (filed as Exhibit 10.41 to the Company's Form 10-K Report for the year ended February 3, 1996). (.54) Performance Share Award granted to Philip G. Rosenberg dated October * 18, 1996 (filed as Exhibit 10.03 to the Company's Form 10-Q Report for the quarter ended November 2, 1996). (.55) Executive Employment Agreement between J. Baker, Inc. and Philip ** G. Rosenberg, dated April 1, 1997, attached. (.56) J. Baker, Inc. Amended and Restated 1985 Stock Option Plan (filed * as Exhibit 19.02 to the Company's Form 10-Q Report for the quarter ended August 1, 1992). * Incorporated herein by reference ** Included herein 50 Exhibit Page No. (.57) J. Baker, Inc. 1994 Equity Incentive Plan dated as of March 29, * 1994 (filed as Exhibit 10.23 to the Company's Form 10-K Report for the year ended January 29, 1994). (.58) J. Baker, Inc. 1992 Directors Stock Option Plan dated as of * April 13, 1992 (filed as Exhibit 19.03 to the Company's Form 10-Q Report for the quarter ended August 1, 1992). (.59) Stock Purchase Agreement by and among J. Baker, Inc. and Tishkoff * Enterprises, Inc. and certain stockholders of Tishkoff Enterprises, Inc. dated November 19, 1993 (filed as Exhibit 2.01 to the Company's Form 10-Q Report for the quarter ended October 30, 1993). (.60) Mortgage and Security Agreement dated as of December 30, 1992 by * and between JBI Holding Company, Inc. and Ames Department Stores, Inc. (filed as Exhibit 10.22 to the Company's Form 10-K Report for the year ended January 30, 1993). (.61) Promissory Note dated as of December 30, 1992 made by Ames * Department Stores, Inc. in favor of JBI Holding Company, Inc. (filed as Exhibit 4.14 to the Company's Form 10-K Report for the year ended January 30, 1993). (.62) Agreement and Plan of Reorganization by and among J. Baker, Inc., * Morse Acquisition, Inc. and Morse Shoe, Inc. dated October 22, 1992, as amended by Letter Amendments dated December 7, 1992 and December 10, 1992 (filed as Exhibits 2.01-2.03 to the Company's Form 10-Q Report for the quarter ended October 31, 1992). (.63) Agreement of Merger among J. Baker, Inc., JBAK Acquisition Corp. * and Tishkoff Enterprises, Inc. dated December 3, 1993 (filed as Exhibit 10.30 to the Company's Form 10-K Report for the year ended January 29, 1994). (.64) Agency Agreement by and between Gordon Brothers Partners, Inc. * and Morse Shoe, Inc., dated September 22, 1995 (filed as Exhibit 10.01 to the Company's Form 10-Q Report for the quarter ended October 28, 1995). (.66) Mortgage, Assignment of Leases and Rents and Security Agreement from * Morse Shoe, Inc. to Fleet National Bank dated as of June 21, 1996 (filed as Exhibit 10.06 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.66) Mortgage, Assignment of Leases and Rents and Security Agreement from * JBI, Inc. to Fleet National Bank dated as of June 21, 1996 (filed as Exhibit 10.07 to the Company's Form 10-Q Report for the quarter ended August 3, 1996). (.67) Release and Discharge of Mortgage from Fleet National Bank as Agent ** with respect to the Canton, Massachusetts property dated December 27, 1996, attached. * Incorporated herein by reference ** Included herein 51 Exhibit Page No. (.68) Release of Mortgage from Fleet National Bank as Agent with ** respect to the Columbus, Ohio property dated February 27, 1997, attached. (.69) Mortgage and Security Agreement by JBAK Canton Realty, Inc. to ** The Chase Manhattan Bank dated as of December 30, 1996, attached. 11. Statement re: Computation of Primary and Fully Diluted Earnings ** Per Share, attached. 12. Statement re: Computation of Earnings to Fixed Charges, attached. ** 21. Subsidiaries of the Registrant, attached. ** 23. Consent of KPMG Peat Marwick, attached. ** 27. Financial Data Schedule, attached. ***
* Incorporated herein by reference ** Included herein *** This exhibit has been filed with the Securities and Exchange Commission as part of J. Baker, Inc.'s electronic submission of this Form 10-K under EDGAR filing requirements. It has not been included herein. 52 EX-4 2 NINTH AMENDMENT AGREEMENT EXHIBIT 4.23 NINTH AMENDMENT AGREEMENT This NINTH AMENDMENT AGREEMENT is dated as of December 31, 1996 (this "Agreement"), by and among JBI, INC., a Massachusetts corporation (the "Borrower"); J. BAKER, INC., a Massachusetts corporation ("Baker"); each of the banks that is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); and FLEET NATIONAL BANK (successor by merger to Fleet National Bank of Massachusetts (formerly known as Shawmut Bank, N.A.) and Fleet Bank of Massachusetts, N.A.), a national banking association, as agent for the BANKS (in such capacity, together with its successors in such capacity, the "Agent"). The Borrower, Baker, the Banks and the Agent are parties to a Revolving Credit and Loan Agreement, dated as of February 1, 1993 (as amended by the First Amendment and Waiver Agreement, dated as of November 19, 1993, by the Second Amendment Agreement, dated as of April 29, 1994, by the Third Amendment Agreement, dated as of December 1, 1994, by the Fourth Amendment Agreement, dated as of March 6, 1995, by the Fifth Amendment Agreement, dated as of May 19, 1995, by the Sixth Amendment Agreement, dated as of September 12, 1995, by the Seventh Amendment Agreement, dated as of November 17, 1995, and by the Eighth Amendment Agreement, dated as of June 21, 1996, as in effect on the date hereof, the "Credit Agreement"). Capitalized terms used but not defined in this Agreement have the meanings specified for such terms in the Credit Agreement. The Borrower and Baker have requested that the Banks and the Agent extend the Termination Date under the Credit Agreement. The Banks and the Agent are prepared to so amend the Credit Agreement, subject to the satisfaction of the conditions precedent and in reliance upon the representations and warranties of the Borrower and Baker set forth herein. Section 1. Amendments to the Credit Agreement. As of the Effective Date (as defined in Section 2 below), the Credit Agreement shall be amended by amending and restating the following defined term that appears therein to read as follows: " 'TERMINATION DATE' shall mean February 14, 1998, provided, that if such day is not a BUSINESS DAY, the TERMINATION DATE shall be the immediately preceding BUSINESS DAY (subject to the provisions of Article XXV)." In order to effect said extension, each of the parties hereto waives the request and notice requirements set forth in Article XXV of the Credit Agreement. Additionally, the Revolving Notes currently outstanding (collectively, the "Current Notes") are hereby amended such that the Maturity Date set forth therein shall be the Termination Date as defined and amended herein. So as to remove any doubt, the Maturity Date of the Revolving Notes shall be, as of the Effective Date (as defined below), February 14, 1998. Section 2. Conditions to Effectiveness. This Agreement shall become effective (the date of such effectiveness being referred to hereinafter as the "Effective Date") on the later to occur of (a) December 31, 1996 and (b) the date on which each of the following conditions precedent is satisfied: (a) the Agent shall receive copies of this Agreement bearing the signature of each of the Borrower, Baker, the Guarantors and the Banks; (b) the Aggregate Commitment Amount, as determined as of the date hereof, shall automatically and permanently be reduced by $5,400,000, provided, however, that such reduction shall be in addition to, and not in lieu or in satisfaction of, (i) any reductions in the Aggregate Commitment Amount otherwise required under the Credit Agreement and (ii) all reductions in the Aggregate Commitment Amount required pursuant to that certain Waiver Agreement, dated as of December 19, 1996 (the "Chase Waiver Agreement"), by and among the Borrower, Baker, the Banks and the Agent; (c) the Borrower shall pay to the Agent, for the benefit of the Banks, the Initial Payment (a defined in Section 3 below); (d) the representations and warranties of the Borrower and Baker set forth in Section 4 below, shall be true and correct in every respect; and (e) the Agent shall receive such other documents and writings as the Agent may reasonably determine necessary to effect the transactions contemplated hereby. Notwithstanding anything in this Agreement to the contrary, should the Effective Date not occur on or before December 31, 1996, this Agreement shall be null and void and of no force or effect. Section 3. Fees. In partial consideration of the Banks and the Agent executing and delivering this Agreement, and thereby consenting to the extension of the Termination Date, the Borrower agrees that, on the Effective Date, it shall pay to the Agent, for the account of all of the Banks, collectively, which have executed and delivered their respective signature page hereto to the Agent, a fee in the aggregate amount of $200,000 (the "Fee"). The Fee is earned and owing in full to the Agent on the Effective Date; however, notwithstanding the foregoing, the Agent and the Banks hereby consent to the payment by the Borrower of the Fee in two (2) installments as follows: (a) 25% of the Fee (the "Initial Payment") shall be paid immediately on the Effective Date, and (b) 75%of the Fee (the "Final Payment") shall be paid on February 14, 1997, provided, however, that if, and only if, on or before 5:00 p.m. Boston, Massachusetts time, February 14, 1997, (x) the Borrower has permanently reduced the Aggregate Commitment Amount to an amount equal to or less than $165,000,000 and (y) no Default or Event of Default has occurred and is continuing under any provision of any of the Credit Agreement, the other Operative Documents or the Financing Agreements, including without limitation Section 2.25.1 of the Credit Agreement, then the Agent and the Banks shall irrevocably waive the payment of the Final Payment set forth in subsection (b) above. The Borrower's obligation hereunder to pay the Fee shall be an Obligation under the Credit Agreement, and the failure by the Borrower to pay the Final Payment when (and if) due shall constitute an Event of Default under the Credit Agreement. The Initial Payment and the Final Payment (if any) shall be distributed by the Agent to the Banks pro rata in accordance with each Bank's Commitment Percentage set forth in Section 6.01 of the Credit Agreement. Notwithstanding the foregoing, should the Agent and the Banks accelerate, prior to 5:00 p.m. Boston, Massachusetts time, February 14, 1997, the Borrower's Obligations in accordance with Section 11.02 of the Credit Agreement, and, prior to such acceleration, the Borrower and the other Obligors not have complied with the conditions set forth in subsections (x) and (y) above, the Final Payment shall become automatically and immediately due and payable. Section 4. Representations and Warranties. By its signature hereto, each of the Borrower and Baker (and with respect to subsections (c), (d) and (e) below, the other Obligors), jointly and severally, represents and warrants to the Banks and the Agent that, as of the date hereof and after giving effect to the amendments to the Credit Agreement contemplated in Section 1 above: (a) This Agreement has been duly executed and delivered by the Borrower and Baker. The agreements and obligations of the Borrower and Baker contained herein constitute legal, valid and binding obligations of each such Person enforceable against such Person in accordance with their respective terms. (b) The execution, delivery and performance by the Borrower and Baker of this Agreement and the transactions contemplated hereby are within the corporate authority of each such Person, have been duly authorized by proper corporate proceedings, do not and will not contravene any contractual obligation of such Person or any applicable law, and do not and will not result in or require the creation or imposition of any Lien on any property of such Person, other than Liens in favor of the Agent on behalf of the Banks. (c) The representations and warranties made by the Obligors in the Credit Agreement, the other Operative Documents and the Financing Agreements were true and correct when made and are true and correct on and as of the date hereof with the same force and effect as if made on and as of the date hereof (except for representations or warranties that (i) relate solely to a prior date, (ii) are rendered inaccurate solely by reason of the transactions contemplated by the Chase Waiver Agreement or (iii) are rendered inaccurate solely by reason of the failure of any information contained in any of Exhibits G (solely as the information therein relates to Section 8.04 or 8.05 of the Credit Agreement), N, O, P, Q or R to the Credit Agreement to remain true). For purposes of this Section 4(c), each reference in Article VIII of the Credit Agreement to "this Agreement" shall include this Agreement. (d) No Default or Event of Default has occurred, is continuing or will exist under the Credit Agreement, any other Operative Documents or any Financing Agreements after giving effect to this Agreement. (e) All of the Obligors' obligations and liabilities to the Agent and the Banks as evidenced by or otherwise arising under the Credit Agreement, any of the other Operative Documents or any Financing Agreements, are hereby ratified and confirmed in all respects, and no counterclaim, right of set-off or defense of any kind exists or is outstanding with respect to such obligations and liabilities. The foregoing shall be deemed to be representations and warranties made in an Operative Document for purposes of Section 11.01(d) of the Credit Agreement. Section 5. Consent of Obligors. Each of the Obligors acknowledges and consents to the execution and delivery by the Borrower and Baker of this Agreement on the terms specified herein and the performance by each such Person of its respective obligations hereunder, under the Credit Agreement (as amended hereby), the other Operative Documents and the Financing Agreements. Each Obligor, by signing this Agreement, confirms and agrees with the Banks that (a) all of its obligations under the Guarantee and/or the Pledge Agreement (as the case may be) shall remain in full force and effect and are hereby ratified and confirmed, and (b) its grant (as the case may be) to the Banks of a security interest under the Operative Documents to which it is a party shall remain in full force and effect and is hereby ratified and confirmed. Section 6. Miscellaneous. (a) Replacement Notes. The Borrower hereby agrees that, within five (5) business days after receipt of a written request therefor from any Bank, the Borrower shall execute or caused to be executed (as the case may be) and deliver to such Bank (i) a new Revolving Note in the same form and with the same terms as the Current Notes, provided, however, that the Maturity Date set forth therein shall be February 14, 1998, and (ii) an opinion of in-house counsel to the Borrower as to the replacement Revolving Note in form and substance satisfactory to the Bank. (b) No Other Amendments, Etc. Except as expressly set forth in this Agreement, this Agreement shall not, by implication or otherwise, limit,impair, constitute a waiver of or otherwise affect any rights or remedies of the Agent or the Banks under the Credit Agreement, the other Operative Documents or the Financing Agreements, nor alter, modify, amend or in any way affect any of the terms, obligations or covenants contained in the Credit Agreement, the other Operative Documents or the Financing Agreements, all of which are ratified and confirmed on and as of the date hereof in all respects and shall continue in full force and effect. In the event of any conflict between the terms of this Agreement and the terms of the Credit Agreement, the terms of this Agreement shall control. (c) Counterparts, Etc. This Agreement may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. Delivery of an executed counterpart of a signature page by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. (d) Assignments. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors in title and assigns. (e) Governing Law, Etc. This Agreement and the respective rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of The Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. JBI, INC. By /s/Alan I. Weinstein Name: Alan I. Weinstein Title: President J. BAKER, INC. By /s/Alan I. Weinstein Name: Alan I. Weinstein Title: President FLEET NATIONAL BANK, for itself and as Agent By /s/Gerald G. Sheehan Name: Gerald G. Sheehan Title: AVP THE FIRST NATIONAL BANK OF BOSTON By /s/Thomas F. Farley, Jr. Name: Thomas F. Farley, Jr. Title: Director FLEET BANK, N.A. (formerly "NatWest Bank N.A.") By /s/Gerald G. Sheehan Name: Gerald G. Sheehan Title: AVP BANK HAPOALIM B.M. By /s/Shaun Breidbart Name: Shaun Breidbart Title: Assistant Vice President By /s/Conrad Wagner Name: Conrad Wagner Title: First Vice President NATIONAL CITY BANK OF COLUMBUS By /s/Michael J. Durbin Name: Michael J. Durbin Title: Corporate Loan Officer STANDARD CHARTERED BANK By /s/David D. Cutting Name: David D. Cutting Title: Senior Vice President By /s/Kristina McDavid Name: Kristina McDavid Title: Vice President CITIZENS BANK OF MASSACHUSETTS By /s/Patrick C. Joyce Name: Patrick C. Joyce Title: Vice President THE YASUDA TRUST AND BANKING COMPANY, LTD. By /s/Raitaro Ito Name: Mr. Raitaro Ito Title: Joint General Manager We hereby acknowledge, consent and agree to the terms of the foregoing Agreement and confirm that our obligations under the Guarantee and the Pledge Agreement shall remain unchanged and in full force and effect. Dated: December 31, 1996 SPENCER COMPANIES, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President SPENCER NO. 301 CORP. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President JBI HOLDING CO., INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President TCMB&T, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President WGS CORP. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President TCM HOLDING COMPANY, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President MORSE SHOE, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President BUCKMIN, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President ELM EQUIPMENT CORP. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President JARED CORPORATION By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President MORSE SHOE (CANADA) LTD. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President MORSE SHOE INTERNATIONAL, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President ISAB, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President WHITE CAP FOOTWEAR, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President THE CASUAL MALE, INC. By /s/ Alan I. Weinstein Name: Alan I. Weinstein Title: President EX-4 3 TENTH AMENDMENT AGREEMENT EXHIBIT 4.24 TENTH AMENDMENT AGREEMENT This TENTH AMENDMENT AGREEMENT is dated as of February 14, 1997 (this "Agreement"), by and among JBI, INC., a Massachusetts corporation (the "Borrower"); J. BAKER, INC., a Massachusetts corporation ("Baker"); each of the banks that is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); and FLEET NATIONAL BANK (successor by merger to Fleet National Bank of Massachusetts (formerly known as Shawmut Bank, N.A.) and Fleet Bank of Massachusetts, N.A.), a national banking association, as agent for the BANKS (in such capacity, together with its successors in such capacity, the "Agent"). The Borrower, Baker, the Banks and the Agent are parties to a Revolving Credit and Loan Agreement, dated as of February 1, 1993 (as amended by the First Amendment and Waiver Agreement, dated as of November 19, 1993, by the Second Amendment Agreement, dated as of April 29, 1994, by the Third Amendment Agreement, dated as of December 1, 1994, by the Fourth Amendment Agreement, dated as of March 6, 1995, by the Fifth Amendment Agreement, dated as of May 19, 1995, by the Sixth Amendment Agreement, dated as of September 12, 1995, by the Seventh Amendment Agreement, dated as of November 17, 1995, by the Eighth Amendment Agreement, dated as of June 21, 1996, and by the Ninth Amendment, dated as of December 31, 1996, as in effect on the date hereof, the "Credit Agreement"). Capitalized terms used but not defined in this Agreement have the meanings specified for such terms in the Credit Agreement. The Borrower and Baker have requested that the Banks and the Agent extend the Termination Date under the Credit Agreement. The Banks and the Agent are prepared to so amend the Credit Agreement, subject to the satisfaction of the conditions precedent and in reliance upon the representations and warranties of the Borrower and Baker set forth herein. Section 1. Amendments to the Credit Agreement. As of the Effective Date (as defined in Section 2 below), the Credit Agreement shall be amended by amending and restating the following defined term that appears therein to read as follows: " 'TERMINATION DATE' shall mean April 14, 1998, provided, that if such day is not a BUSINESS DAY, the TERMINATION DATE shall be the immediately preceding BUSINESS DAY (subject to the provisions of Article XXV)." In order to effect said extension, each of the parties hereto waives the request and notice requirements set forth in Article XXV of the Credit Agreement. Additionally, the Revolving Notes currently outstanding (collectively, the "Current Notes") are hereby amended such that the Maturity Date set forth therein shall be the Termination Date as defined and amended herein. So as to remove any doubt, the Maturity Date of the Revolving Notes shall be, as of the Effective Date (as defined below), April 14, 1998. Section 2. Conditions to Effectiveness. This Agreement shall become effective (the date of such effectiveness being referred to hereinafter as the "Effective Date") on the date on which each of the following conditions precedent is satisfied: (a) the Agent shall receive copies of this Agreement bearing the signature of each of the Borrower, Baker, the Guarantors and the Banks; (b) the representations and warranties of the Borrower and Baker set forth in Section 3 below, shall be true and correct in every respect; and (c) the Agent shall receive such other documents and writings as the Agent may reasonably determine necessary to effect the transactions contemplated hereby. Notwithstanding anything in this Agreement to the contrary, should the Effective Date not occur on or before February 14, 1997, this Agreement shall be null and void and of no force or effect. Section 3. Representations and Warranties. By its signature hereto, each of the Borrower and Baker (and with respect to subsections (c), (d) and (e) below, the other Obligors), jointly and severally, represents and warrants to the Banks and the Agent that, as of the date hereof and after giving effect to the amendments to the Credit Agreement contemplated in Section 1 above: (a) This Agreement has been duly executed and delivered by the Borrower and Baker. The agreements and obligations of the Borrower and Baker contained herein constitute legal, valid and binding obligations of each such Person enforceable against such Person in accordance with their respective terms. (b) The execution, delivery and performance by the Borrower and Baker of this Agreement and the transactions contemplated hereby are within the corporate authority of each such Person, have been duly authorized by proper corporate proceedings, do not and will not contravene any contractual obligation of such Person or any applicable law, and do not and will not result in or require the creation or imposition of any Lien on any property of such Person, other than Liens in favor of the Agent on behalf of the Banks. (c) The representations and warranties made by the Obligors in the Credit Agreement, the other Operative Documents and the Financing Agreements were true and correct when made and are true and correct on and as of the date hereof with the same force and effect as if made on and as of the date hereof (except for representations or warranties that (i) relate solely to a prior date, or (ii) are rendered inaccurate solely by reason of the failure of any information contained in any of Exhibits G (solely as the information therein relates to Section 8.04 or 8.05 of the Credit Agreement), N, O, P, Q or R to the Credit Agreement to remain true). For purposes of this Section 3(c), each reference in Article VIII of the Credit Agreement to "this Agreement" shall include this Agreement. (d) No Default or Event of Default has occurred, is continuing or will exist under the Credit Agreement, any other Operative Documents or any Financing Agreements after giving effect to this Agreement. (e) All of the Obligors' obligations and liabilities to the Agent and the Banks as evidenced by or otherwise arising under the Credit Agreement, any of the other Operative Documents or any Financing Agreements, are hereby ratified and confirmed in all respects, and no counterclaim, right of set-off or defense of any kind exists or is outstanding with respect to such obligations and liabilities. The foregoing shall be deemed to be representations and warranties made in an Operative Document for purposes of Section 11.01(d) of the Credit Agreement. Section 4. Consent of Obligors. Each of the Obligors acknowledges and consents to the execution and delivery by the Borrower and Baker of this Agreement on the terms specified herein and the performance by each such Person of its respective obligations hereunder, under the Credit Agreement (as amended hereby), the other Operative Documents and the Financing Agreements. Each Obligor, by signing this Agreement, confirms and agrees with the Banks that (a) all of its obligations under the Guarantee and/or the Pledge Agreement (as the case may be) shall remain in full force and effect and are hereby ratified and confirmed, and (b) its grant (as the case may be) to the Banks of a security interest under the Operative Documents to which it is a party shall remain in full force and effect and is hereby ratified and confirmed. Section 5. Covenant to Give Notice of Commitment Reduction. Each of the Borrower and Baker jointly and severally agrees that, on or before March 17 1997, they will give irrevocable written direction to the Agent to reduce the Aggregate Commitment Amount to $145,000,000 (or such amount less than $145,000,000 as the Borrower and Baker may elect) and that upon receipt of such direction by the Agent, the Aggregate Commitment Amount shall automatically be reduced by such amount. Any failure on the part of the Borrower and Baker to give such irrevocable written direction on or before March 17, 1997, as set forth in the immediately preceding sentence, shall constitute an Event of Default under the Credit Agreement; provided that such Event of Default may be waived by the Agent with, and only with, the written consent of the Majority Banks. Section 6. Miscellaneous. (a) Replacement Notes. The Borrower hereby agrees that, within five (5) business days after receipt of a written request therefor from any Bank, the Borrower shall execute or cause to be executed (as the case may be) and deliver to such Bank (i) a new Revolving Note in the same form and with the same terms as the Current Notes, provided, however, that the Maturity Date set forth therein shall be April 14, 1998, notwithstanding anything contained in Section 6(a) in the Ninth Amendment to the Credit Agreement regarding the same, and (ii) an opinion of in-house counsel to the Borrower as to the replacement Revolving Note in form and substance satisfactory to the Bank. (b) No Other Amendments, Etc. Except as expressly set forth in this Agreement, this Agreement shall not, by implication or otherwise, limit, impair, constitute a waiver of or otherwise affect any rights or remedies of the Agent or the Banks under the Credit Agreement, the other Operative Documents or the Financing Agreements, nor alter, modify, amend or in any way affect any of the terms, obligations or covenants contained in the Credit Agreement, the other Operative Documents or the Financing Agreements, all of which are ratified and confirmed on and as of the date hereof in all respects and shall continue in full force and effect. In the event of any conflict between the terms of this Agreement and the terms of the Credit Agreement, the terms of this Agreement shall control. (c) Counterparts, Etc. This Agreement may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. Delivery of an executed counterpart of a signature page by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. (d) Assignments. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors in title and assigns. (e) Governing Law, Etc. This Agreement and the respective rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of The Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. JBI, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President J. BAKER, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President FLEET NATIONAL BANK, for itself and as Agent By /s/R. A. Meringolo Name: R. A. Meringolo Title: Senior Vice President THE FIRST NATIONAL BANK OF BOSTON By /s/Thomas F. Farley, Jr. Name: Thomas F. Farley, Jr. Title: Director FLEET BANK, N.A. (formerly "NatWest Bank N.A.") By /s/R. A. Meringolo Name: R. A. Meringolo Title: Senior Vice President BANK HAPOALIM B.M. By /s/Conrad Wagner Name: Conrad Wagner Title: First Vice President By /s/Laura A. Raffa Name: Laura Anne Raffa Title: First Vice President and Corporate Manager NATIONAL CITY BANK OF COLUMBUS By /s/Michael J. Durbin Name: Michael J. Durbin Title: Corporate Loan Officer STANDARD CHARTERED BANK By /s/David D. Cutting Name: David D. Cutting Title: Senior Vice President By /s/Leonardo A. Tee Name: Leonardo A. Tee Title: Vice President CITIZENS BANK OF MASSACHUSETTS By /s/Patrick C. Joyce Name: Patrick C. Joyce Title: Vice President THE YASUDA TRUST AND BANKING COMPANY, LTD. By /s/Makoto Tagawa Name: Makoto Tagawa Title: Deputy General Manager We hereby acknowledge, consent and agree to the terms of the foregoing Agreement and confirm that our obligations under the Guarantee and the Pledge Agreement shall remain unchanged and in full force and effect. Dated: December 31, 1996 SPENCER COMPANIES, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President SPENCER NO. 301 CORP. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President JBI HOLDING CO., INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCMB&T, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President WGS CORP. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCM HOLDING COMPANY, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President BUCKMIN, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President ELM EQUIPMENT CORP. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President JARED CORPORATION By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE (CANADA) LTD. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE INTERNATIONAL, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President ISAB, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President WHITE CAP FOOTWEAR, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President THE CASUAL MALE, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President EX-4 4 ELEVENTH AMENDMENT AGREEMENT EXHIBIT 4.25 ELEVENTH AMENDMENT AGREEMENT This ELEVENTH AMENDMENT AGREEMENT is dated as of April 14, 1997 (this "Agreement"), by and among JBI, INC., a Massachusetts corporation (the "Borrower"); J. BAKER, INC., a Massachusetts corporation ("Baker"); each of the banks that is a signatory hereto (individually, a "Bank" and, collectively, the "Banks"); and FLEET NATIONAL BANK (successor by merger to Fleet National Bank of Massachusetts (formerly known as Shawmut Bank, N.A.) and Fleet Bank of Massachusetts, N.A.), a national banking association, as agent for the BANKS (in such capacity, together with its successors in such capacity, the "Agent"). The Borrower, Baker, the Banks and the Agent are parties to a Revolving Credit and Loan Agreement, dated as of February 1, 1993 (as amended by the First Amendment and Waiver Agreement, dated as of November 19, 1993, by the Second Amendment Agreement, dated as of April 29, 1994, by the Third Amendment Agreement, dated as of December 1, 1994, by the Fourth Amendment Agreement, dated as of March 6, 1995, by the Fifth Amendment Agreement, dated as of May 19, 1995, by the Sixth Amendment Agreement, dated as of September 12, 1995, by the Seventh Amendment Agreement, dated as of November 17, 1995, by the Eighth Amendment Agreement, dated as of June 21, 1996, by the Ninth Amendment, dated as of December 31, 1996, ,and by the Tenth Amendment, dated as of February 14, 1997, as in effect on the date hereof, the "Credit Agreement"). Capitalized terms used but not defined in this Agreement have the meanings specified for such terms in the Credit Agreement. The Borrower and Baker have requested that the Banks and the Agent extend the Termination Date under the Credit Agreement. The Banks and the Agent are prepared to so amend the Credit Agreement, subject to the satisfaction of the conditions precedent and in reliance upon the representations and warranties of the Borrower and Baker set forth herein. Section 1. Amendments to the Credit Agreement. As of the Effective Date (as defined in Section 2 below), the Credit Agreement shall be amended by amending and restating the following defined term that appears therein to read as follows: " 'TERMINATION DATE' shall mean May 30, 1998, provided, that if such day is not a BUSINESS DAY, the TERMINATION DATE shall be the immediately preceding BUSINESS DAY (subject to the provisions of Article XXV)." In order to effect said extension, each of the parties hereto waives the request and notice requirements set forth in Article XXV of the Credit Agreement. Additionally, the Revolving Notes currently outstanding (collectively, the "Current Notes") are hereby amended such that the Maturity Date set forth therein shall be the Termination Date as defined and amended herein. So as to remove any doubt, the Maturity Date of the Revolving Notes shall be, as of the Effective Date (as defined below), May 30, 1998. Section 2. Conditions to Effectiveness. This Agreement shall become effective (the date of such effectiveness being referred to hereinafter as the "Effective Date") on the date on which each of the following conditions precedent is satisfied: (a) the Agent shall receive copies of this Agreement bearing the signature of each of the Borrower, Baker, the Guarantors and the Banks; (b) the representations and warranties of the Borrower and Baker set forth in Section 3 below, shall be true and correct in every respect; and (c) the Agent shall receive such other documents and writings as the Agent may reasonably determine necessary to effect the transactions contemplated hereby. Notwithstanding anything in this Agreement to the contrary, should the Effective Date not occur on or before April 14, 1997, this Agreement shall be null and void and of no force or effect. Section 3. Representations and Warranties. By its signature hereto, each of the Borrower and Baker (and with respect to subsections (c), (d) and (e) below, the other Obligors), jointly and severally, represents and warrants to the Banks and the Agent that, as of the date hereof and after giving effect to the amendments to the Credit Agreement contemplated in Section 1 above: (a) This Agreement has been duly executed and delivered by the Borrower and Baker. The agreements and obligations of the Borrower and Baker contained herein constitute legal, valid and binding obligations of each such Person enforceable against such Person in accordance with their respective terms. (b) The execution, delivery and performance by the Borrower and Baker of this Agreement and the transactions contemplated hereby are within the corporate authority of each such Person, have been duly authorized by proper corporate proceedings, do not and will not contravene any contractual obligation of such Person or any applicable law, and do not and will not result in or require the creation or imposition of any Lien on any property of such Person, other than Liens in favor of the Agent on behalf of the Banks. (c) The representations and warranties made by the Obligors in the Credit Agreement, the other Operative Documents and the Financing Agreements were true and correct when made and are true and correct on and as of the date hereof with the same force and effect as if made on and as of the date hereof (except for representations or warranties that (i) relate solely to a prior date, or (ii) are rendered inaccurate solely by reason of the failure of any information contained in any of Exhibits G (solely as the information therein relates to Section 8.04 or 8.05 of the Credit Agreement), N, O, P, Q or R to the Credit Agreement to remain true). For purposes of this Section 3(c), each reference in Article VIII of the Credit Agreement to "this Agreement" shall include this Agreement. (d) No Default or Event of Default has occurred, is continuing or will exist under the Credit Agreement, any other Operative Documents or any Financing Agreements after giving effect to this Agreement. (e) All of the Obligors' obligations and liabilities to the Agent and the Banks as evidenced by or otherwise arising under the Credit Agreement, any of the other Operative Documents or any Financing Agreements, are hereby ratified and confirmed in all respects, and no counterclaim, right of set-off or defense of any kind exists or is outstanding with respect to such obligations and liabilities. The foregoing shall be deemed to be representations and warranties made in an Operative Document for purposes of Section 11.01(d) of the Credit Agreement. Section 4. Consent of Obligors. Each of the Obligors acknowledges and consents to the execution and delivery by the Borrower and Baker of this Agreement on the terms specified herein and the performance by each such Person of its respective obligations hereunder, under the Credit Agreement (as amended hereby), the other Operative Documents and the Financing Agreements. Each Obligor, by signing this Agreement, confirms and agrees with the Banks that (a) all of its obligations under the Guarantee and/or the Pledge Agreement (as the case may be) shall remain in full force and effect and are hereby ratified and confirmed, and (b) its grant (as the case may be) to the Banks of a security interest under the Operative Documents to which it is a party shall remain in full force and effect and is hereby ratified and confirmed. Section 5. (a) Affirmative Covenant. Each of the Borrower and Baker jointly and severally agrees that, on or before April 28, 1997, they will deliver to the Agent and the Banks one or more commitment letters (the "New Commitment Letters"), issued by one or more financial institutions reasonably acceptable to the Agent and the Majority Banks, setting forth a commitment or commitments to provide one or more credit facilities (the "New Commitments") to the Obligors in an amount sufficient, in the aggregate, to repay all outstanding obligations under the Credit Agreement (assuming full utilization of the Aggregate Commitment Amount), and having a required funding date of not later than May 30, 1997, and provided, that the New Commitment Letters will be in form and substance reasonably satisfactory to the Agent and the Majority Banks. Any failure on the part of the Borrower and Baker to deliver the New Commitment Letters on or before April 28, 1997, as set forth in the immediately preceding sentence, shall constitute an Event of Default under the Credit Agreement; provided that such Event of Default may be waived by the Agent with, and only with, the written consent of the Majority Banks. (b) Extension Fee. Additionally, each of the Borrower and Baker jointly and severally promise to pay an extension fee in the aggregate amount of $150,000 (the "Extension Fee") on April 29, 1997 if the Borrower and Baker have failed to comply with the covenant contained in subparagraph (a) of Section 5 of this Amendment. The Extension Fee (if any) shall be paid to the Agent and distributed by the Agent to the Banks pro rata in accordance with each Bank's Commitment Percentage set forth in ss.6.01 of the Credit Agreement. The obligation of the Borrower and Baker to pay the Extension Fee (if any) shall be an Obligation under the Credit Agreement, and the failure to pay the Extension Fee (if any) shall constitute an Event of Default under the Credit Agreement. Section 6. Miscellaneous. (a) Replacement Notes. The Borrower hereby agrees that, within five (5) business days after receipt of a written request therefor from any Bank, the Borrower shall execute or cause to be executed (as the case may be) and deliver to such Bank (i) a new Revolving Note in the same form and with the same terms as the Current Notes, provided, however, that the Maturity Date set forth therein shall be May 30, 1998, notwithstanding anything contained in Section 6(a) in the Tenth Amendment to the Credit Agreement regarding the same, and (ii) an opinion of in-house counsel to the Borrower as to the replacement Revolving Note in form and substance satisfactory to the Bank. (b) No Other Amendments, Etc. Except as expressly set forth in this Agreement, this Agreement shall not, by implication or otherwise, limit, impair, constitute a waiver of or otherwise affect any rights or remedies of the Agent or the Banks under the Credit Agreement, the other Operative Documents or the Financing Agreements, nor alter, modify, amend or in any way affect any of the terms, obligations or covenants contained in the Credit Agreement, the other Operative Documents or the Financing Agreements, all of which are ratified and confirmed on and as of the date hereof in all respects and shall continue in full force and effect. In the event of any conflict between the terms of this Agreement and the terms of the Credit Agreement, the terms of this Agreement shall control. (c) Counterparts, Etc. This Agreement may be executed in any number of counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. Delivery of an executed counterpart of a signature page by facsimile transmission shall be effective as delivery of a manually executed counterpart of this Agreement. (d) Assignments. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors in title and assigns. (e) Governing Law, Etc. This Agreement and the respective rights and obligations hereunder of each of the parties hereto shall be governed by and interpreted and determined in accordance with the laws of The Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. JBI, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President J. BAKER, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President FLEET NATIONAL BANK, for itself and as Agent By /s/Gerald G. Sheehan Name: Gerald G. Sheehan Title: AVP THE FIRST NATIONAL BANK OF BOSTON By /s/Thomas J. McGrath Name: Thomas J. McGrath Title: Vice President FLEET BANK, N.A. (formerly "NatWest Bank N.A.") By /s/Gerald G. Sheehan Name: Gerald G. Sheehan Title: AVP BANK HAPOALIM B.M. By /s/Conrad Wagner Name: Conrad Wagner Title: First Vice President By /s/Laura A. Raffa Name: Laura A. Raffa Title: First Vice President NATIONAL CITY BANK OF COLUMBUS By /s/Ralph A. Kaparos Name: Ralph Kaparos Title: Senior Vice President STANDARD CHARTERED BANK By /s/Kristina McDavid Name: Kristina McDavid Title: Vice President CITIZENS BANK OF MASSACHUSETTS By /s/Peter J. Reyno Name: Peter J. Reyno Title: VP THE YASUDA TRUST AND BANKING COMPANY, LTD. By /s/Makota Tagawa Name: Makoto Tagawa Title: Deputy General Manager We hereby acknowledge, consent and agree to the terms of the foregoing Agreement and confirm that our obligations under the Guarantee and the Pledge Agreement shall remain unchanged and in full force and effect. Dated: April 14, 1997 SPENCER COMPANIES, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President SPENCER NO. 301 CORP. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President JBI HOLDING CO., INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCMB&T, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President WGS CORP. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCM HOLDING COMPANY, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President BUCKMIN, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President ELM EQUIPMENT CORP. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President JARED CORPORATION By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE (CANADA) LTD. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE INTERNATIONAL, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President ISAB, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President WHITE CAP FOOTWEAR, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President THE CASUAL MALE, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President EX-4 5 WAIVER AGREEMENT EXHIBIT 4.26 WAIVER AGREEMENT WAIVER AGREEMENT dated as of February 27, 1997, between JBI, INC., a Massachusetts corporation (the "Borrower"); J. BAKER, INC., a Massachusetts corporation ("Baker"), each of the banks that is a signatory hereto (individually a "Bank" and, collectively, the "Banks"); and FLEET NATIONAL BANK, a national banking association, as agent for the Banks party to the Credit Agreement referred to below (in such capacity, together with its successors in such capacity, the "Agent"). Reference is made to the Revolving Credit and Loan Agreement dated as of February 1, 1993 (as modified and supplemented and in effect from time to time, the "Credit Agreement") among the Borrower, Baker, the Banks and the Agent. Baker has advised the Banks that Baker desires to: (a) sell its divisional business known as Shoe Corporation of America ("SCOA") to SC Acquisition Corp. (the "SCOA Sale"), all as more particularly described in the draft Asset Purchase Agreement among the Borrower and SC Acquisition Corp. (a copy of which has been provided to the Agent and each of the Banks; the "SCOA Sale Agreement"); (b) sell its divisional business known as Parade of Shoes ("Parade") to Payless ShoeSource, Inc. (the "Parade Sale"), all as more particularly described in the Purchase and Sale Agreement, dated as of January 13, 1997 (a copy of which has been provided to the Agent and each of the Banks; the "Parade Sale Agreement"); and (c) amend its Senior Subordinated Note Agreement (the "Note Agreement"), dated as of May 1, 1989 between the Borrower, Baker and Massachusetts Mutual Life Insurance Company and Mass Mutual Participation Investors ("MassMutual"), under which MassMutual holds an outstanding principal amount of $4,500,000 of the Borrower's Senior Subordinated Notes (the "Subordinated Notes") all as more particularly described in the consent letter dated February 24, 1997, issued by the Borrower and Baker and accepted by MassMutual (a copy of which has been provided to the Agent and each of the Banks; the "MassMutual Consent Letter"). Baker has further advised the Banks that as a result of the SCOA Sale and the Parade Sale, and the repositioning of its licensed discount shoe division, Baker will suffer a one-time, after-tax restructuring charge to earnings of $118,000,000 to be recorded by Baker in the fourth quarter of fiscal year ending on the last Saturday in January 1997 (the "Restructuring Charge"). To that end, Baker and the Borrower have requested that: (i) the Majority Banks waive certain provisions of the Credit Agreement solely to the extent required to permit the SCOA Sale and the Parade Sale; (ii) the Majority Banks consent to the Borrower and Baker's exclusion of the Restructuring Charge in their calculations of all financial covenants contained in the Credit Agreement under Sections 10.01.1 through 10.01.10; (iii) the Majority Banks waive compliance with Section 10.06 to the extent necessary to (a) increase the applicable interest rate payable under the Note Agreement and (b) amend the interest payment periods under the Note Agreement, each as contemplated under the MassMutual Consent Letter; (iv) the Majority Banks consent to the Subsidiaries delivering guarantees to MassMutual in connection with Baker and Borrower's obligations under the Note Agreement; and (v) in connection with the SCOA Sale, the Agent release the Mortgage, Assignment of Leases and Rents and Security Agreement, dated as of June 21, 1996, from the Borrower to the Agent (the "Mortgage") held on the property located at 2035 Innis Road, Columbus, Ohio (the "Columbus Property"). Accordingly the parties hereto agree as follows: 1. Definitions. Except as otherwise defined in this Agreement, terms defined in the Credit Agreement are used herein as defined therein. 2. Waivers. Effective as of the Effective Date (as defined in Section 5 hereof) and subject to the terms and conditions hereof, and in reliance on the representations and warranties set forth herein, the Majority Banks hereby: (a) waive compliance by the Borrower and Baker with the provisions of Sections 10.01.8 and 10.07 of the Credit Agreement solely to the extent required to permit the consummation of the SCOA Sale in accordance with the terms of the SCOA Sale Agreement and to permit the release of the Mortgage in connection with the SCOA Sale; provided that the foregoing waiver of compliance with Sections 10.01.8 and 10.07 contained in this clause (a) shall only be effective if the SCOA Sale is consummated on or before March 17, 1997 and Baker shall have complied with the covenants set forth in clause (a) of Section 4 hereof and no Default or Event of Default shall have occurred and be continuing; (b) waive compliance by the Borrower and Baker with the provisions of Sections, 10.01.8 and 10.07 of the Credit Agreement solely to the extent required to permit the consummation of the Parade Sale in accordance with the terms of the Parade Sale Agreement; provided that the foregoing waiver of compliance with Sections 10.01.8 and 10.07 contained in this clause (b) shall only be effective if the Parade Sale occurs on or before March 17, 1997, and Baker shall have complied with the covenants set forth in clause (b) of Section 4 hereof and no Default or Event of Default shall have occurred and be continuing; and (c) consent to Borrower and Baker's exclusion of the Restructuring Charge in their calculations of all financial covenants contained in the Credit Agreement under Sections 10.01.1 through 10.01.10; provided that the foregoing consent contained in this clause (c) shall only be effective if the SCOA Sale is consummated on or before March 17, 1997 and Baker shall have complied with the covenants set forth in clause (a) of Section 4 hereof and no Default or Event of Default shall have occurred and be continuing; (d) waive compliance by the Borrower and Baker with the provisions of Section 10.06 of the Credit Agreement solely to the extent required to permit the transactions contemplated by the MassMutual Consent Letter upon the terms and conditions and under the circumstances described in clause (c) of the recitals hereto; provided that the foregoing waiver of compliance with Section 10.06 shall only be effective if (i) the SCOA Sale has closed and the Net Proceeds of the SCOA Sale have been paid to the Banks, (ii) Borrower and Baker have permanently reduced the Aggregate Commitment Amount in an amount equal to the greater of (x) the Net Proceeds of the SCOA Sale and (y) $40,000,000, and (iii) no Default or Event of Default shall have occurred and be continuing prior to or after giving effect to any proposed transaction under the MassMutual Consent Letter. 3. Representations and Warranties. By its signature hereto, each of the Borrower and Baker represents and warrants to the Banks and the Agent that, as of the date hereof and after giving effect to the SCOA Sale, the Parade Sale and the MassMutual Consent Letter and the waivers contemplated by Section 2 hereof: (a) no Default has occurred and is continuing; (b) the representations and warranties set forth in Article VIII of the Credit Agreement are true and complete on the date hereof as if made on and as of the date hereof and as if each reference in said Article VIII to "this Agreement" included reference to this Agreement (provided that the representation and warranty set forth herein shall not be deemed to be inaccurate solely by reason of the failure of any information contained in any of Exhibits G (solely as the information therein relates to Section 8.04 or 8.05 of the Credit Agreement), N, O, P, Q and R to the Credit Agreement to remain true); and (c) the Parade Sale, the SCOA Sale and the MassMutual Consent Letter do not require any consent or waiver (other than the waivers contemplated by Section 2 hereof) under any agreement, instrument or other document (including without limitation the Convertible Subordinated Notes and the Subordinated Convertible Debentures). The foregoing shall be deemed to be representations and warranties made in an operative Document for purposes of section 11.01(d) of the Credit Agreement: 4. Covenants. (a) Simultaneously with receipt thereof, Baker shall cause to be paid to the Banks an amount equal to the Net Proceeds of the SCOA Sale for application to the Borrower's Obligations under the Credit Agreement, and the Aggregate Commitment Amount shall automatically and permanently be reduced by an amount equal to the greater of (x) the Net Proceeds of the SCOA Sale and (y) $40,000,000, provided, however, that such reduction in the Aggregate Commitment Amount under the Credit Agreement (the "SCOA Reduction") shall be in addition to (and not in satisfaction of) any required reductions in the Aggregate Commitment Amount pursuant to the terms of the Credit Agreement (including the Parade Reduction (as defined below)); and (b) Simultaneously with receipt thereof, Baker shall cause to be paid to the Banks an amount equal to the Net Proceeds of the Parade Sale for application to the Borrower's Obligations under the Credit Agreement, and the Aggregate Commitment Amount shall automatically and permanently be reduced by an amount equal to the greater of (x) the Net Proceeds of the Parade Sale and (y) $20,000,000, provided, however, that such reduction in the Aggregate Commitment Amount under the Credit Agreement (the "Parade Reduction") shall be in addition to (and not in satisfaction of) any required reductions in the Aggregate Commitment Amount pursuant to the terms of the Credit Agreement (including the SCOA Reduction). A breach of any of the foregoing covenants shall be an Event of Default for all purposes of the Credit Agreement. 5. Effective Date. This Agreement shall become effective on the date (the "Effective Date") as of which the Agent notifies each of the parties hereto in writing that it shall have received the following documents, each of which shall be satisfactory to it in form and substance: (a) copies of this Agreement duly executed and delivered by each of the Borrower, Guarantors and Majority Banks; and (b) such other documents relating to the matters contemplated hereby as the Agent or its counsel may reasonably request. 6. Miscellaneous. Except as expressly herein provided, the Credit Agreement and all other operative Documents and Financing Agreements shall remain unchanged and in full force and effect. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be governed by, and construed in accordance with, the law of the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. JBI, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President J. BAKER, INC. By /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President FLEET NATIONAL BANK, for itself and as Agent By /s/Gerald G. Sheehan Name: Gerald G. Sheehan Title: Asst. Vice President THE FIRST NATIONAL BANK OF BOSTON By /s/Thomas F. Farley, Jr. Name: Thomas F. Farley, Jr. Title: Director FLEET BANK, N.A. (formerly "NatWest Bank N.A.") By /s/Gerald G. Sheehan Name: Gerald G. Sheehan Title: Asst. Vice President BANK HAPOALIM B.M. By /s/Conrad Wagner Name: Conrad Wagner Title: First Vice President By /s/Laura A. Raffa Name: Laura Anne Raffa Title: First Vice President and Corporate Manager NATIONAL CITY BANK OF COLUMBUS By /s/Michael J. Durbin Name: Michael J. Durbin Title: Corporate Loan Officer STANDARD CHARTERED BANK By /s/David D. Cutting Name: David D. Cutting Title: Senior Vice President By /s/Leonardo A. Tee Name: Leonardo A. Tee Title: Vice President CITIZENS BANK OF MASSACHUSETTS By /s/Patrick C. Joyce Name: Patrick C. Joyce Title: Vice President THE YASUDA TRUST AND BANKING COMPANY, LTD. By /s/Makoto Tagawa Name: Makoto Tagawa Title: Deputy General Manager We hereby acknowledge, consent and agree to the terms of the foregoing Agreement and confirm that our obligations under the Guarantee and the Pledge Agreement shall remain unchanged and in full force and effect. Dated: February 27, 1997 SPENCER COMPANIES, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President SPENCER NO. 301 CORP. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President JBI HOLDING CO., INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCMB&T, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President WGS CORP. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCM HOLDING COMPANY, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President BUCKMIN, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President ELM EQUIPMENT CORP. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President JARED CORPORATION By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE (CANADA) LTD. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE INTERNATIONAL, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President ISAB, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President WHITE CAP FOOTWEAR, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President THE CASUAL MALE, INC. By /s/ Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President EX-4 6 GUARANTY AGREEMENT EXHIBIT 4.27 GUARANTY AGREEMENT To Massachusetts Mutual Life Insurance Company and MassMutual Participation Investors: Gentlemen: JBI, Inc., a Massachusetts corporation (the "Company") originally issued and sold $35,000,000 aggregate principal amount (of which $4,500,000 is currently outstanding and held by Massachusetts Mutual Life Insurance Company and MassMutual Participation Investors) of 11.21% (original interest rate, which interest rate has been adjusted per Letter Agreement dated February 24, 1997, the "Letter Agreement") Senior Subordinated Notes, due 1999 (the "Subordinated Notes"), pursuant to the several Senior Subordinated Note Agreements (the "Subordinated Note Agreements"), each dated as of May 1, 1989 between the Company, J. Baker, Inc., a Massachusetts corporation ("Baker"), and the Purchasers named in Schedule I thereto. All indebtedness for principal, interest, Make Whole Amount, fees, expenses and all other amounts payable by the Company under and in respect of the Subordinated Notes are hereinafter collectively referred to as the "Subordinated Debt". Terms used but not otherwise defined herein are used as defined in the Subordinated Note Agreements. Baker owns, directly or indirectly, 100% of the outstanding stock of the Company, WGS Corp., a Massachusetts corporation, The Casual Male, Inc., a Massachusetts corporation; TCMB&T, Inc., a Massachusetts corporation; Spencer No. 301 Corp., a New York corporation; Morse Shoe, Inc., a Delaware corporation; Buckmin, Inc., a Massachusetts corporation; Elm Equipment Corp., a Massachusetts corporation; Isab, Inc., a Delaware corporation; Jared Corporation, a Puerto Rican corporation; Morse Shoe (Canada) Ltd., a Canadian corporation; Morse Shoe International, Inc., a Delaware corporation, and White Cap Footwear, Inc., a Delaware corporation, (individually a "Guarantor" and collectively, the "Guarantors"). The Subordinated Notes are to be guaranteed by, inter alia, an unconditional guaranty by each of the Guarantors. In compliance with the requirements of the Letter Agreement, the Guarantors do hereby covenant with the holders of the Subordinated Notes as follows: SECTION 1. GUARANTY. Section 1.1. Guaranty. Each Guarantor, individually, hereby unconditionally guarantees the payment when due, whether by demand or otherwise, of all of the Subordinated Debt and agrees to pay any and all reasonable expenses incurred by the holders of the Subordinated Notes in enforcing any rights under this Guaranty Agreement. The guaranty provided for herein is a guaranty of payment and not of collectability. Section 1.2. Nature of Guaranty. Each Guarantor guarantees that the Subordinated Notes will be paid strictly in accordance with the terms thereof, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such items or the rights of the holders of the Subordinated Notes with respect thereto, except as specifically provided herein. The liability of each Guarantor under this Guaranty Agreement shall be absolute and unconditional irrespective of: (i) any lack of validity or enforceability of the Subordinated Note Agreements, this Guaranty Agreement, the other Subsidiary Guaranty Agreements, the Baker Guaranty Agreement, the Subordinated Notes or any other agreement or instrument relating thereto (collectively the "Related Documents"); (ii) any change in the time, manner or place of payment of, or in any other terms of, all or any of the Subordinated Debt, or any other amendment or waiver of or any consent to departure from all or any of the Related Documents; (iii) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Subordinated Debt; or (iv) to the extent permitted by law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, a Guarantor in respect of the Subordinated Debt or a Guarantor in respect of this guaranty, other than the payment or the tender of payment in full of the Subordinated Debt. This Guaranty Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Subordinated Debt is rescinded or must otherwise be returned by any holder of Subordinated Notes upon the insolvency, bankruptcy or reorganization of a Guarantor or otherwise, all as though such payment had not been made. The obligations of each Guarantor hereunder shall in no way be effected or impaired by any acceptance by any holder of Subordinated Notes of any direct or indirect security for, or other guaranties of, any of the Subordinated Debt or by any failure, delay, neglect or omission by the holders of the Subordinated Notes to realize upon or protect any of the Subordinated Debt or any notes or other instruments evidencing the Subordinated Debt or any direct or indirect security therefor or by any approval, consent, waiver, or other action taken, or omitted to be taken, by the holders of the Subordinated Notes. Each Guarantor expressly recognizes that payment of the Subordinated Debt is guaranteed by Baker pursuant to the Baker Guaranty Agreement and by each of Holding and Spencer pursuant to separate Subsidiary Guaranty Agreements entered into by each of Holding and Spencer, respectively, and agrees that the obligations of a Guarantor under this Guaranty Agreement are in no way affected or diminished thereby. The obligations of a Guarantor under this Guaranty Agreement and the rights of the holders of the Subordinated Notes to enforce such obligations by any proceedings, whether by action at law, suit in equity or otherwise, shall not be subject to any reduction, limitation, impairment or termination, whether by reason of any claim of any character whatsoever or otherwise, including, without limitation, claims of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense, setoff, counterclaim, recoupment or termination whatsoever, other than the payment or the tender of payment in immediately available funds in full of the Subordinated Debt. A Guarantor shall not be required to make any payment hereunder at any time when payment by the Company of the Subordinated Debt is prohibited by the provisions of Section 9 of the Subordinated Note Agreement. Section 1.3. Waivers by Guarantors; Subrogation. Each Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Subordinated Debt and this Guaranty Agreement and any requirement that the holders of the Subordinated Notes protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action (including, without limitation, any presentment or demand with respect to the Subordinated Debt) against the Guarantor or any other Person or any collateral. No Guarantor will exercise any rights which it may acquire by way of subrogation under this Guaranty Agreement, by any payment made hereunder or otherwise, until all of the Subordinated Debt and other amounts payable under this Guaranty Agreement shall have been paid in full (the "Guaranty Termination Date"). If any amount shall be paid to a Guarantor on account of such subrogation rights at any time prior to the Guaranty Termination Date, such amount shall be held in trust and shall forthwith be credited and applied upon the Subordinated Debt, whether matured or unmatured. If a Guarantor shall make payment to the holders of the Subordinated Notes of all or any part of the Subordinated Debt, then, on or after the Guaranty Termination Date, each such holder will, at the Guarantor's request, execute and deliver to the Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Guarantor of the interest in the Subordinated Debt resulting from such payment by the Guarantor. Section 1.4. Duration of Guaranty. The guaranty provided for herein is a continuing guaranty and shall (i) remain in full force and effect until the Guaranty Termination Date, (ii) be binding upon each Guarantor, its successors and assigns, and (iii) inure to the benefit of and be enforceable by each holder of Subordinated Notes and its successors, transferees and assigns. Section 1.5. Subordination. Each holder of Subordinated Notes acknowledges and agrees, by its acceptance of this Guaranty Agreement, that the rights of such holder hereunder in respect of such Subordinated Debt shall at all times be wholly subordinate and junior in right of payment to any and all Superior Indebtedness, as provided in the subordination provisions appearing in the Subordinated Note Agreement. SECTION 2. AMENDMENT. No amendment, modification or waiver of, or any action taken or not taken under or pursuant to, any of the terms and provisions of any Subordinated Note shall effect or modify any of the terms or provisions of this Guaranty Agreement or any of the obligations of the Guarantor hereunder, except and to the extent expressly provided for in any such amendment, modification or waiver. SECTION 3. MISCELLANEOUS. Section 3.1. Amendment and Waiver. This Guaranty Agreement may be amended with respect to one or more Guarantor and observance of any term of this Guaranty Agreement may be waived with respect to one or more Guarantor with, and only with, the written consent of such Guarantor and the holder or holders of at least 66-2/3% in principal amount of the Subordinated Notes then outstanding (exclusive of Subordinated Notes then owned by such Guarantor, any Restricted Subsidiary and any Affiliates). Section 3.2. No Waiver. No delay or omission on the part of the holders of the Subordinated Notes to exercise any right or power accruing upon any default, omission or failure of performance hereunder shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time as often as may be deemed expedient. No waiver, amendment, release or modification of this Guaranty Agreement shall be established by conduct, custom or course of dealing, but solely by an instrument in writing as provided in Section 3.1 hereof. No remedy conferred herein upon the holders of the Subordinated Notes is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Guaranty Agreement or now or hereafter existing at law or in equity. In order to entitle the holders of the Subordinated Notes to exercise any remedy reserved in this Guaranty Agreement, it shall not be necessary to give any notice, other than such notice as may be herein expressly required. In the event any provision contained in this Guaranty Agreement should be breached by the Guarantor and thereafter duly waived by the holders of the Subordinated Notes, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. Section 3.3. Notices. All notices and other communications provided for hereunder shall be in writing and shall be mailed by certified or registered mail, return receipt requested, or delivered, if to the Guarantor at 555 Turnpike Street, Canton, Massachusetts 02021, Attention: Philip Rosenberg, with a copy to General Counsel at the same address; and if to any holder of the Subordinated Notes, at the address of such holder set forth in Schedule I to the Subordinated Note Agreements, or to such other address as any Guarantor or any holder of Subordinated Notes shall have designated by written notice to the other parties to this Guaranty Agreement. Section 3.4. Entire Agreement.This Guaranty Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. Section 3.5. Severability. All provisions contained in this Guaranty Agreement are severable and the invalidity or unenforceability of any provision shall in no manner effect or impair the validity, legality and enforceability of the remaining provisions contained herein. Section 3.6. Counterparts. This Guaranty Agreement may be executed simultaneously in several counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Section 3.7. Headings. The descriptive headings of the several sections of this Guaranty Agreement are inserted for convenience only and do not constitute a part of this Guaranty Agreement. Section 3.8. Governing Law. This Guaranty Agreement shall in all respects be governed by and construed in accordance with the law of the Commonwealth of Massachusetts. Executed and delivered by each Guarantor on March 13, 1997. WGS CORP. By:/s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President THE CASUAL MALE, INC. By:/s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCM HOLDING CO., INC. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President TCMB&T, INC. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President SPENCER NO. 301 CORP. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President MORSE SHOE, INC. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE (CANADA) LTD. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: Executive Vice President MORSE SHOE INTERNATIONAL, INC. By:/s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President BUCKMIN, INC. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President ELM EQUIPMENT CORP. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President ISAB, INC. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President JARED CORPORATION By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President WHITE CAP FOOTWEAR, INC. By: /s/Philip Rosenberg Name: Philip Rosenberg Title: First Senior Vice President ATTEST: By: /s/Mark T. Beaudouin Name: Mark T. Beaudouin Title: Secretary EX-10 7 AMENDMENT TO EMPLOYMENT AGREEMENT EXHIBIT 10.10 THIRD AMENDMENT TO EMPLOYMENT AGREEMENT DATED MARCH 25, 1993 Reference is made to the Executive Employment Agreement dated as of March 25, 1993, as amended on March 31, 1995 and on March 31, 1996 (the "Agreement") by and between J. Baker, Inc. and Sherman N. Baker. Pursuant to paragraph 19 of the Agreement and in order to further amend certain provisions of the Agreement, the Agreement is hereby amended as follows: 1. Paragraph 3(a) of the Agreement entitled "Compensation" is hereby amended by deleting the figure "$283,500" in the third line thereof and inserting in its place the figure "$255,150". 2. Paragraph 6 of the Agreement is hereby amended by deleting the phrase "ending on April 1, 1997" in the fifth line thereof and inserting in its place the phrase "ending on April 1, 1998". 3. All other terms of the Agreement shall remain unchanged and continue in full force and effect. J. BAKER, INC. By: /s/Alan I. Weinstein Alan I. Weinstein President and Chief Executive Officer /s/ Sherman N. Baker Sherman N. Baker EX-10 8 EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10.17 EXECUTIVE EMPLOYMENT AGREEMENT This Agreement is dated as of April 1, 1997 by and between Alan I. Weinstein (the "Employee") and J. BAKER, INC., a Massachusetts corporation (the "Company"). WHEREAS, the Employee and the Company are parties to an Executive Employment Agreement dated as of March 25, 1993 as amended by amendments dated April 27, 1994, April 25, 1995, March 8, 1996 and April 5, 1996; and WHEREAS, the Employee and the Company now desire to amend, restate and set forth in writing the terms and conditions of the Employee's employment agreement with the Company from the date hereof; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. Employment. Under and subject to the terms and conditions set forth herein, the Company hereby agrees to employ the Employee during the Term (as defined in Section 6 hereof) as its President and Chief Executive Officer and/or in such other senior executive management position(s) with the Company, or any parent or subsidiary of the Company, as the Board of Directors of the Company (the "Board") may determine from time to time, and the Employee hereby accepts such employment. 2. Duties. The Employee agrees, during the Term and any extension of the Term, faithfully to perform for the Company, and any subsidiary or parent of the Company, the duties of the President and Chief Executive Officer, and/or such other duties as may be assigned to him from time to time by the Company. The Employee further agrees to devote his entire business time, attention and energies exclusively to such employment and to conform to the rules, regulations, instructions, personnel practices and policies of the Company and its subsidiaries, as existing and amended from time to time. 3. Compensation. (a) Base Salary. The Company shall pay the Employee during the Term an annual base salary ("Base Salary") of not less than $375,000, payable in equal installments in accordance with the Company's regular pay intervals for its senior executives. 1 (b) Cash Incentive Compensation. In addition to his annual base salary as determined pursuant to Section 3(a), the Company shall pay to the Employee such amounts, if any, to which the Employee is entitled, as an officer of the Company, under the Company's Cash Incentive Compensation Plan (the "Incentive Plan"), as from time to time such plan may be amended. 4. Other Benefits. (a) Fringe Benefits. The Employee shall be entitled to participate in all benefit programs that the Company establishes and makes available to management generally and in any event shall be entitled to receive benefits at least substantially comparable to those provided pursuant to the present practices of the Company and its subsidiaries. (b) Paid Vacations. The Employee shall be entitled to an annual paid vacation of four weeks in each calendar year, to be taken at such time or times as the Employee and the Company shall mutually agree. 5. Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other business expenses incurred or paid by the Employee in performing his duties under this Agreement upon presentation by the Employee of expense statements or vouchers and such other supporting information as the Company may from time to time request, provided, however, that the amount available for such expenses may be fixed in advance by the Board after consultation with the Employee. 6. Effective Date and Term. This Agreement shall become effective as of the date hereof and the Employee's employment under this Agreement shall commence on such date and, unless sooner terminated as provided herein or extended, shall continue for a term (the "Term") ending on April 1, 1999. The Employee and the Company have obligations hereunder extending past the Term. 7. Noncompetition. (a) During the Employee's employment under this Agreement or otherwise and for a period of two years after the date of termination of such employment (the "Termination Date"), the Employee will not, without the express written consent of the Company, anywhere in the United States or any territory or possession thereof or in any foreign country in which the Company was active as of the Termination Date: (i) compete with the Company or any other entity directly or indirectly controlled by the Company (each an "Affiliate"), in the Company's Business (as defined in Section 7(c) hereof); or (ii) otherwise interfere with, disrupt or attempt to interfere with or disrupt the relationship between the 2 Company or an Affiliate and any person or business that was a customer, supplier, lessor, licensor, manufacturer, contractor, designer or employee of the Company or such Affiliate on the Termination Date or within two years prior to the Termination Date. (b) The term "compete" as used in this Section 7 means directly or indirectly, or by association with any entity or business, either as a proprietor, partner, employee, agent, consultant, director, officer, shareholder (provided that the Employee may make passive investments in competitive enterprises the shares of which are listed on a national securities exchange if the Employee at no time owns directly or indirectly more than 2% of the outstanding equity ownership of such enterprise) or in any other capacity or manner (i) to solicit, hire, purchase from, sell to, rent from, or otherwise conduct business related to the Company's Business with any party that is a customer or supplier of the Company or an Affiliate or (ii) operate any retail store or leased footwear department ("Leased Department") which sells products related to the Company's Business (as defined in Section 7(c) hereof). (c) The term "Company's Business" as used in this Section 7 means the operation of any of the following specialty retail businesses, as a principal business unit, either alone or in combination: (i) Leased Departments in discount or mass merchandising department stores; (ii) retail stores offering casual clothing for "Big and Tall" men or the mail order catalog sales thereof; or (iii) retail stores offering primarily work related clothing and uniforms for medical and laboratory purposes or the mail order catalog sales thereof. The term shall also include any additional specialty retail businesses which the Company may acquire subsequent to the date hereof and which are operated as principal business units of the Company on the Termination Date. (d) The term "supplier" as used in this Section 7 shall mean any party or affiliate of a party from which, on the Termination Date or within two years prior to the Termination Date, the Company or an Affiliate purchased products sold by the Company or an Affiliate or was in contact or actively planning to contact in connection with the purchase of products sold by the Company or an Affiliate on or before the Termination Date or which the Company or an Affiliate was contemplating the sale of at some time after the Termination Date. (e) The term "customer" as used in this Section 7 shall mean any party or affiliate of a party, that on the Termination Date or within two years prior to the Termination Date, was a wholesale vendee or prospective wholesale vendee of the Company or an Affiliate or in connection with whose business the Company or an Affiliate operated a Leased Department, a retail store for the sale of casual clothing for "Big and Tall" men, work related clothing and uniforms for medical and laboratory purposes or any other specialty retail business which the Company operated as a principal business unit on the Termination Date, had contacted in connection with the potential operation of such businesses within two years prior to the Termination Date or which the Company or an Affiliate was actively planning to contact in connection with the potential operation of any such businesses on the Termination Date. 3 8. Confidential Information. The Employee will never use for his own advantage or disclose any proprietary or confidential information relating to the business operations or properties of the Company, any Affiliate or any of their respective customers, suppliers, landlords, licensors or licensees. Upon termination of the Employee's employment, the Employee will surrender and deliver to the Company all documents and information of every kind relating to or connected with the Company and Affiliates and their respective businesses, customers, suppliers, landlords, licensors and licensees. 9. Termination. (a) Death. In any event of the death of the Employee during the Term, his employment shall terminate and the Company shall pay to the Employee's surviving spouse, or to the Employee's estate if their is no surviving spouse, (i) the Employee's base salary for one year from the date of death, payable in accordance with the Company's regular pay intervals for its senior executives and (ii) amounts under the Incentive Plan, if any, payable with respect to the fiscal year in which his death occurs which otherwise would have been paid to the Employee on the basis of the results for such fiscal year, prorated to the date of his death. Upon the death of the Employee, the rights of the Employee's surviving spouse or estate hereunder, as the case may be, shall be limited solely to the benefits set forth in this Section 9(a). (b) Disability. In the event that the Employee shall become disabled (as hereinafter defined) during the Term, the Company shall have the right to terminate the Employee's employment upon written notice, provided, however, that in such event the Company shall (i) continue to pay the Employee's base salary for one year from the date such termination occurs, payable in accordance with the Company's regular pay intervals for its senior executives and (ii) pay to the Employee amounts under the Incentive Plan, if any, which otherwise would have been paid to the Employee on the basis of the results for the fiscal year in which such termination occurs, prorated to the date of such termination. For purposes of this Agreement, the Employee shall be considered disabled on the date when any physical or mental illness or other incapacity shall, in the judgment of a majority of the members (other than the Employee) of the Board, after consulting with or being advised by one or more physicians (it being understood that one of such physicians may be the Employee's physician but that the Board shall not be bound by his views), have prevented the performance in a manner reasonably satisfactory to the Company of the Employees duties under this Agreement for a period of six consecutive months. (c) For Cause. The Company may by notice terminate the Employee's employment at any time for cause, which shall mean (i) failure by the Employee to cure a material breach of this Agreement within 15 days after written notice thereof by the Company, (ii) the continuation after notice by the Company of willful misconduct by the Employee in the 4 performance of the Employee's duties hereunder or (iii) the commission by the Employee of an act constituting a felony. In such event all obligations of the Company hereunder shall thereupon terminate, including the obligation to pay any amounts under the Incentive Plan with respect to the fiscal year in which such termination occurs, but the Employee shall be entitled to receive any accrued salary and other amounts under the Incentive Plan accrued with respect to any prior fiscal years. (d) Without Cause. During the Term hereof and prior to any Change of Control of the Company, the Company may terminate this Agreement at any time without cause. In such event, the Company shall pay to the Employee, in accordance with the Company's regular pay intervals for its senior executives, an amount equal to the greater of (i) the amount of Base Salary the Employee would have received through the last day of the Term or (ii) one (1) year of Base Salary. (e) Change of Control. In the event the Employee's employment with the Company is terminated either by the Company or by the Employee within one (1) year after a Change of Control of the Company occurring during the Term hereof (regardless of whether such Employee's termination occurs after the expiration of the Term) then, in such event, the Company shall pay the Employee at his sole and exclusive option an amount in cash (the "Severance Payment") equal to either (i) the greater of (a) the amount of Base Salary the Employee would have received through the last day of the Term or (b) two (2) years Base Salary, payable to the Employee in a single lump sum cash payment; or (ii) three (3) years Base Salary payable in accordance with the Company's regular pay intervals for its senior executives; provided, however, that any amounts payable to the Employee pursuant to this subparagraph (e)(ii) which exceed one (1) year of Base Salary shall be reduced by any salary or other compensation earned by the Employee from subsequent employment. For purposes of this Agreement "Base Salary" shall mean the Employee's Base Salary as set forth in Paragraph 3 of this Agreement, as such Base Salary may be increased from time to time. "Change of Control" of the Company shall have the meaning set forth in the Company's 1994 Equity Incentive Plan as approved by the Stockholders of the Company on June 7, 1994 (and without regard to any subsequent amendments thereto). If any of the termination events set forth in this subparagraph (e) shall occur during the Term hereof or other applicable time periods, the provisions of paragraph 7 hereof shall be null and void and have no further force or effect. (f) Severance Payment Limitation Upon Change of Control. If all or part of the Severance Payment payable to the Employee pursuant to subparagraph 9(e) hereof, when added to other payments payable to the Employee as a result of a Change of Control, constitute Parachute Payments, the following limitation shall apply. If the Parachute Payments, net of the sum of the Excise Tax, Federal income and employment taxes and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, are greater than the Threshold Amount, the Employee shall be entitled to the full Severance Payment 5 payable under subparagraph 9(e) of this Agreement. If the Threshold Amount is greater than the Parachute Payments, net of the sum of the Excise Tax, Federal income and employment taxes and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, then the Severance Payment payable under subparagraph 9(e) of this Agreement shall be reduced to the extent necessary so that the maximum Parachute Payments shall not exceed the Threshold Amount. The Company shall select a firm of independent certified public accountants to determine which of the foregoing alternative provisions shall apply. For purposes of determining the amount of the Federal income and employment taxes, and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the Severance Payments under subparagraph 9(e) of this Agreement are payable and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Employee's residence for the calendar year in which the Severance Payments under Subparagraph 9(e) of this Agreement are payable, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. For purposes of this Agreement: "Parachute Payments" shall mean any payment or provision by the Company of any amount or benefit to and for the benefit of the Employee, whether paid or payable or provided or to be provided under the terms of this Agreement or otherwise, that would be considered "parachute payments" within the meaning of Section 280G(B)(2)(A) of the Internal Revenue Code and the regulations promulgated thereunder. "Threshold Amount" shall mean three times the Employee's "base amount" within the meaning of Section 280(G)(b)(3) of the Internal Revenue Code and the regulations promulgated thereunder, less one dollar. "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Internal Revenue Code. 10. Approval of Board. The Company represents that this Agreement has been duly approved by the Board and is in all respects valid and binding upon the Company. 11. Key Person Insurance. The Employee agrees to take such actions as may be reasonably required to permit the Company to, in its sole discretion, maintain key person life insurance on the Employee's life in such amounts and for such periods of time, if any, as the Company deems appropriate, with all benefits being payable to the Company. Upon payment by the Employee of the cash surrender value, if any, of any such policy and any paid but unearned premiums for such policy, the Company will assign such policy to the Employee upon termination (other than because of the Employee's death) of the Employee's employment 6 with the Company, provided, however, that, in the event the Employee's employment is terminated by reason of the disability of the Employee and the death of the Employee may reasonably be expected within one year after such termination as a result of such disability, the Company shall not be required to assign any such policy. 12. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been given and received when actually delivered, one business day after dispatch by telegraphic means, two business days after dispatch by recognized overnight delivery service, or five days after mailing by certified or registered mail with proper postage affixed, return receipt requested and addressed as follows (or to such other address as a party entitled to receive notice hereunder may have designated by notice pursuant to this Section 12): (a) If to the Company: J. Baker, Inc. 555 Turnpike Street Canton, Massachusetts 02021 Attention: Chief Executive Officer (b) If to the Employee: Alan I. Weinstein 13 Kings Road Sharon, Massachusetts 02067 13. Severability. If any provision of this Agreement or its application to any person or circumstances is invalid or unenforceable, then the remainder of this Agreement or the application of such provision to other persons or circumstances shall not be affected thereby. Further, if any provision or application hereof is invalid or unenforceable, then a suitable and equitable provision shall be substituted therefor in order to carry out so far as may be valid or enforceable the intent and purposes of the invalid and unenforceable provision. 14. Applicable Law. This Agreement shall be interpreted and construed in accordance with, and shall be governed by, the laws of the Commonwealth of Massachusetts without giving effect to the conflict of law provisions thereof. 15. Assignment. Neither of the parties hereto shall, without the written consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, provided, however, that in the event that the Company sells all or substantially all of its assets the 7 Company may assign its rights and transfer its obligations hereunder to the purchaser of such assets. A merger of the Company with or into another corporation shall be deemed not to be an assignment of this Agreement, and, in any such event, this Agreement shall inure to the benefit of and be binding upon the surviving corporation and the Employee. Subject to the foregoing, this Agreement shall be binding upon, and shall inure to the benefit of, the parties and their respective successors, heirs, administrators, executors, personal representatives and assigns. 16. Headings. This section and paragraph headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 17. Remedies. It is specifically understood and agreed that any breach of the provisions of Section 7 or 8 of this Agreement is likely to result in irreparable injury to the Company, that damages at law will be inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of said Sections and to seek both temporary and permanent injunctive relief therefor without the necessity of proving actual damages. 18. Waiver of Breach. Any waiver by either the Company or the Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 19. Amendment of Agreement. This Agreement may be altered, amended or modified, in whole or in part, only by a writing signed by both the Employee and the Company. 20. Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject matter thereof and supersedes all prior agreements whether oral or written with respect to such subject matter between the parties including, without limitation, the Executive Employment Agreement dated as of March 25, 1993 and amendments to such agreement dated April 27, 1994, April 25, 1995, March 8, 1996 and April 5, 1996. 8 Intending to be legally bound, the Company and the Employee have signed this Agreement as if under seal as of the date set forth at the head of the first page. J. BAKER, INC. /s/ Sherman N. Baker Sherman N. Baker Chairman of the Board /s/ Alan I. Weinstein Alan I. Weinstein 9 EX-10 9 TERMINATION AGREEMENT EXHIBIT 10.24 TERMINATION AGREEMENT THIS AGREEMENT is made and entered into this ____ day of October, 1996 by and between Jerry M. Socol ("Executive" or "You" or "Your") and J. Baker, Inc. (the "Company"). WHEREAS, the Executive is currently employed by the Company under an employment agreement dated March 23, 1993, as amended from time to time (the "Employment Agreement"); and WHEREAS, the Executive and the Company both desire to terminate the Employment Agreement; and WHEREAS, the Executive and the Company further desire to establish an amicable arrangement for ending the employment relationship between them. NOW, THEREFORE, for good and valuable consideration, including the promises and mutual agreement contained herein, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. RESIGNATION Effective October 1, 1996 ("Resignation Date") or prior thereto, the Executive has resigned his employment, offices, positions as Director, and all other positions he now holds with the Company and its affiliates and subsidiaries. 2. SEVERANCE PAY To the extent that the Company has not already done so, the Company shall pay the Executive as severance pay all base salary accrued and due him under the Employment Agreement up to and including the Resignation Date. This amount, totaling Six Hundred Seventy Five Thousand Dollars ($675,000), shall be paid as follows: (a) A lump sum payment of One Hundred Twelve Thousand Five Hundred Dollars ($112,500), constituting three (3) months base salary to be paid eight (8) days after execution of this Agreement; and (b) Thirty-nine (39) weekly installment payments of Fourteen Thousand Four Hundred Twenty Three Dollars and 07/100 ($14,423.07) commencing immediately following the Resignation Date and terminating on the week ending June 29, 1997. The Executive agrees that payments provided in this Section 2 and 3 shall constitute payment in full of any and all obligations of the Company to the Executive under the Employment Agreement. G\JMSTERM.RV3 1 3. BENEFIT CONTINUATION (a) Health and Disability Insurance. During the period beginning on the Resignation Date and ending on April 1, 1998, you will be entitled to participate in the health, dental, group life and disability insurance programs ("Insurance Coverages") currently maintained by the Company at the Company employee cost thereof. Your share of premium payments in connection with the Insurance Coverages, if applicable, will be deducted from your severance pay as if you had remained actively employed. On July 1, 1997, the Executive shall pay to the Company, in a lump sum, the Executive's share of premium payments in connection with the above Insurance Coverages as well as the portion of medicare taxes associated with the personal use of his automobile as set forth in Section 3(c) hereof, for the period commencing July 1, 1997 and ending December 31, 1997. On January 1, 1998 the Executive shall pay to the Company, in a lump sum, that portion of the Insurance Coverages and of FICA and medicare taxes as are associated with the personal use of his automobile from January 1, 1998 until April 1, 1998. The Company will furnish specific details of such amounts to the Executive. (b) Other Benefits. Pursuant to applicable benefit plan terms and benefit practices, your eligibility to participate in the Company's section 401(k) plan, defined benefit pension plan and supplemental executive retirement plan ceased effective on the Resignation Date. Your rights to benefits, if any, are governed by the terms of those benefit plans and programs. (c) Car Lease. You shall have the right to use the vehicle leased by the Company for your benefit through the close of business on April 1, 1998 and the Company shall maintain the current level of insurance on the vehicle through that date. In addition, the maintenance and repairs on the vehicle will be continued in accordance with the terms of the Company's fleet leasing program as currently in place with respect to the vehicle. The cellular telephone which is currently installed in the vehicle shall be available for your use until the vehicle is returned to the Company. Any charges, however, for the use of the telephone including, without limitation, monthly service fees, peak or off-peak air time charges and maintenance charges shall be at your sole expense. The Company will arrange for the billing address for bills in connection with the use of the telephone to be changed to your home address. (d) Company Credit Cards. Any use of Company credit cards, gasoline cards, telephone cards or the like shall have terminated effective as of the Resignation Date and you shall return these to the Company immediately. G\JMSTERM.RV3 2 4. STOCK OPTION AGREEMENTS With respect to incentive or non-qualified stock options (the "Options") granted to you pursuant to the Company's 1985 Amended and Restated Stock Option Plan or 1994 Equity Incentive Plan (the "Option Plans"), any such Options to purchase shares of the Company's common stock which are exercisable as of the Resignation Date ("Currently Exercisable Options") shall remain exercisable through July 1, 1997. A list of Currently Exercisable Options is set forth on the attached Exhibit A. Any such Options to purchase shares which may become exercisable subsequent to the Resignation Date shall have terminated effective as of the Resignation Date and such Options shall be forfeited to the Company. Similarly, the Performance Share Award granted to you as of March 26, 1996 and any other performance share award which may have been granted to you shall terminate effective as of the Resignation Date. 5. GENERAL RELEASE OF CLAIMS (a) You voluntarily release and absolutely and forever discharge the Company and its affiliates, subsidiaries, predecessors, successors, and assigns, and the current and former officers, directors, shareholders, employees, and agents of each of the foregoing (any and all of which are referred to as the "Releasees") generally from all suits, demands, charges, complaints, claims, sums of money, promises, agreements, causes of action, damages, interest, attorneys' fees, expenses, judgments, accounts, agreements and debts of any nature whatsoever, known or unknown ("Claims"), which you have, claim to have, ever had, or ever claimed to have had against the Releasees. This general release of Claims including, without implication of limitation, all Claims related to your employment with the Company, the compensation provided to you by the Company, the Company's decision to terminate your employment, your resignation from the Company, or your activities on behalf of the Company, including, without implication of limitation, any Claims for wrongful discharge, breach of contract, breach of an implied covenant of good faith and fair dealing, tortious interference with advantageous relations, any intentional or negligent misrepresentation, and unlawful discrimination under the common law or any statute (including, without implication of limitation, Title VII of the Civil Rights Act of 1964 and the Age Discrimination in Employment Act, 29 USC 621 et sec). You also waive any claim for reinstatement, attorney's fees, or costs. Notwithstanding anything in this general release to the contrary, this general release shall not be construed to limit your right to enforce this Agreement. Basically, and without limiting the foregoing, you will not bring or otherwise participate in any lawsuits or charges against the Company concerning your employment, the compensation, benefits, terms, and conditions of your employment, or your resignation from employment. G\JMSTERM.RV3 3 (b) The Company hereby releases and absolutely and forever discharges the Executive from any and all suits, claims, demands, debts, sums of money, damages, interest, attorneys' fees, expenses, actions, causes of action, judgments, accounts, promises, contracts, agreements, and any and all claims in law or in equity, whether now known or unknown, which it ever had, now has, or which it, hereafter can, shall or may have against the Executive, arising out of, or related to, his employment with or, separation from the Company, including, but expressly not limited to, any claim which it may have to recover money, or damages of any kind, as a result of any actions, claims, complaints or charges brought by it under any federal, state or common law, except for actions to enforce or for breach of this Agreement. 6. CONFIDENTIALITY OF AGREEMENT You and the Company agree to keep the existence and terms of this Agreement in the strictest confidence and not disclose the terms of this Agreement to any persons except, as the case may be, immediate family, attorneys, and financial advisors and accountants, and to them only provided that they also agree to keep the information completely confidential. Each party will be considered to have breached this Agreement if any of those individuals fail to keep such information completely confidential and the party disclosing such information failed to obtain a prior agreement from such individual(s) to keep the information confidential. Notwithstanding the foregoing, each party may make any disclosure to the extent required by law. Nothing herein shall prevent you from disclosing the provisions of Section 9 to any prospective employer or to any individuals with whom you contemplate engaging in a business relationship. 7. CONFIDENTIAL INFORMATION You shall at all times keep in confidence and trust all Confidential Information and shall not reveal Confidential Information for a period of eighteen (18) months. "Confidential Information" means information concerning the Company that has been treated as confidential by the Company and that is of competitive or other business value to the Company. Confidential Information includes, without implication of limitation, trade secrets, confidential revenue, sales, or earnings information, confidential business relationships, and confidential business plans and sales and marketing plans. No provision of this section shall be construed as prohibiting the following disclosures by the Executive: (i) disclosure pursuant to the terms of the order of the court or governmental authority of competent jurisdiction, provided that, prior to any such disclosure the Company shall be promptly notified of any such order of a court or governmental authority and have the opportunity to obtain a protective order in connection therewith; or (ii) disclosure of matters which have become generally available to the public other than as a result of disclosures made by the Executive in violation of this Agreement. G\JMSTERM.RV3 4 8. RETURN OF PROPERTY All documents, records, materials, software, equipment, and other physical property, and all copies of any of the foregoing, whether or not pertaining to Confidential Information, that have come into your possession or been produced by you in connection with your employment ("Property") have been and remain the sole property of the Company. You confirm that you have returned to the Company all Property. 9. NON-COMPETITION Effective as of the Resignation Date and for a period of two (2) years thereafter, you agree that unless you receive prior written approval from the Company, you will not, anywhere in the United States or any territory or possession thereof, engage in, as an employee, consultant, owner or otherwise, either directly or indirectly or by association with, any business which, is in competition with either J. Baker's Casual male Big & Tall or Work 'N Gear divisions or which, without implication of limitation, (i) distributes, sells or markets so-called "big and tall" clothing of any kind for men or which utilizes the "big and tall" retail or wholesale marketing concept as part of its business or (ii) distributes, sells or markets work related clothing for men or women (including, without limitation, medical and laboratory uniforms), and agree that for a period of two (2) years from the date hereof, neither you nor any new employer of yours shall open, convert, develop, organize or acquire any new or existing business which utilizes the concept of big and tall clothing or specialty workwear and clothing for the distribution, selling or marketing of same. Nothing in this paragraph 9 shall prohibit your participation in the footwear business of any kind or in the business of manufacturing big & tall clothing or work clothing. For purposes of this section, a business that distributes, sells or markets "big and tall" or "work related" or "workwear" clothing shall mean a business whose gross sales of such clothing exceeds three (3) percent of the total overall gross sales of the business. 10. LITIGATION COOPERATION You agree to cooperate fully with the Company in the defense or prosecution of any claims, actions or government investigations which already have been brought or which may be brought in the future against or on behalf of or affecting the Company which relate to events or occurrences that transpired during your employment with the Company. Your full cooperation in connection with such claims or actions shall include, without implication of limitation, being available to meet with counsel to prepare for investigatory interviews, discovery or trial, to provide complete information pursuant to the Company's counsel's requests and questions, and to testify truthfully as a witness when reasonably requested by the Company at reasonable times designated by the Company. The Company agrees to reimburse you for any reasonable out-of-pocket expenses that you incur in connection with such cooperation, subject to reasonable documentation. G\JMSTERM.RV3 5 11. NON-SOLICITATION You agree that, prior to October 1, 1998 you will not solicit or encourage employees of the Company or its affiliates to leave the employment of the Company or any of its affiliates for the purpose of becoming employed by or otherwise affiliated with you or any other person or entity. 12. NON-DISPARAGEMENT The Company and you agree that neither the Company, which includes its officers and directors, nor you will make any statements, written or oral, that are disparaging about or adverse to the business interests of you or the Company, as the case may be, or any of the Company's affiliates or subsidiaries (including disparaging statements about their officers, directors, employees, consultants, customers or suppliers) or which are intended to harm the good will of either you or the Company or any of the Company's affiliates or subsidiaries. Each party's obligations hereunder include but are not limited to any correspondence or discussions with employees, officers, directors, customers, shareholders, investors or anyone in the investment community. They also apply to any communication with or about employees, officers or directors about any other employees, officers or directors. 13. TAX EFFECT OF PAYMENTS The Company shall reduce payments made to you pursuant to this Agreement by deductions and withholdings that it reasonably determines to be required for tax purposes and the Company shall make such tax related reporting that it reasonably determines to be required with respect to payments pursuant to this Agreement. 14. NOTICES, ACKNOWLEDGEMENT AND OTHER TERMS This Agreement is the entire agreement between you and the Company and, with the exception of the Option Agreements and those other agreements pertaining to benefits referred to and set forth in Section 3 of this Agreement, all previous agreements, or promises between you and the Company are superseded, terminated, null, and void. You acknowledge that you have been given the opportunity, if you so desired, to consider this Agreement for twenty-one (21) days before executing it and have been advised by legal counsel with respect thereto. If not signed by you and returned to me so that I receive it within twenty-one (21) days of your receipt of this Agreement, this Agreement will not be valid. In the event that you execute and return this Agreement within less than twenty-one (21) days of the date of its delivery to you, you acknowledge that such decision was entirely voluntary and that you had the opportunity to consider this letter agreement for the entire twenty-one (21) day period. The Company acknowledges that for a period of seven (7) days from the date of the execution by you of this Agreement, you shall retain the right to revoke this Agreement by written notice that I receive before the end of such period, and the Company and you agree that G\JMSTERM.RV3 6 this Agreement shall not become effective or enforceable until the expiration of such revocation period. By signing this Agreement, you acknowledge that you are doing so voluntarily. You also acknowledge that you are not relying on any representations by any representative of the Company or by any of the other Releasees concerning the meaning of any aspect of this Agreement. In the event of any dispute, this Agreement will be construed as a whole, will be interpreted in accordance with its fair meaning, and will not be construed strictly for or against either you or the Company. The law of Massachusetts will govern any dispute about this Agreement, including any interpretation or enforcement of this Agreement, without giving effect to the conflict of laws provisions of Massachusetts law. In the event that any provision or portion of a provision of this Agreement shall be determined to be unenforceable, the remainder of this Agreement shall be enforced to the fullest extent possible as if such provision or portion of a provision were not included. This Agreement may be modified only by a written agreement signed by you and an authorized representative of the Company. 15. ENFORCEMENT The Executive agrees that violation of Sections 6 through 12 above could cause the Company to suffer irreparable harm, whereby remedies at law may be inadequate to protect the Company against actual or threatened breach. Therefore, the Executive agrees that the provisions of the above sections are enforceable in both law and equity, and that the granting of injunctive relief in favor of the Company may be allowed without proof of actual damages and without requirement of the Company to post a bond in connection therewith. 16. AUTHORITY The party signing for the Company represents that he has the authority to execute this Agreement on behalf of the Company. G\JMSTERM.RV3 7 17. SUCCESSORS This Agreement shall binding be upon and inure to the benefit of the parties and their respective heirs, executors, administrators, personal representatives, successors and assigns. IN WITNESS WHEREOF, the parties set their hands and seals as of the date written above. J. BAKER, INC. By:/s/Alan I. Weinstein Alan I. Weinstein Acting President and Chief Executive Officer EXECUTIVE /s/Jerry M. Socol Jerry M. Socol G\JMSTERM.RV3 EX-10 10 TERMINATION AGREEMENT 8 EXHIBIT 10.52 TERMINATION AGREEMENT This Agreement, by and between J. Baker, Inc., a Massachusetts corporation together with its subsidiaries and divisions (the "Company") with its principal place of business at 555 Turnpike Street, Canton, Massachusetts and David Levin of Newton, Massachusetts ("Employee") shall be effective as of the 15th day of March, 1997. W I T N E S S E T H WHEREAS, the Employee has been employed by the Company as a senior executive officer pursuant to an Executive Employment Agreement dated June 12, 1995, as amended by an amendment dated April 5, 1996, (the "Employment Agreement"); WHEREAS, the parties hereto have agreed that the Employee will resign from his present positions with the Company upon the terms and conditions hereafter set forth and that these terms and conditions shall supersede the terms and conditions of the Employment Agreement. NOW THEREFORE, in consideration of the agreements contained herein, the sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Effective as of the date hereof, (the "Termination Date"), the Company and the Employee agree to terminate the Employment Agreement and all rights and obligations of the parties thereunder, which Employment Agreement shall be superseded in all respects by the terms and conditions of this Agreement. 2. Effective as of the date hereof, the Employee shall resign in writing from any positions he occupies as an executive officer of the Company. 3. (a) During the period beginning on the date hereof and ending on April 1, 1998 the Employee will continue to receive, as severance pay, his present base salary on a weekly basis, and shall be entitled to subscribe to the health and dental programs currently maintained by the Company at the Company's cost of and pursuant to the provisions of the Consolidated Omnibus Budget Reconciliation Act. 1 (b) During the period beginning on the date hereof and ending on April 1, 1998, the Employee or his heirs, successors or assigns will receive, in the aggregate, the sum of two hundred thousand dollars ($200,000) payable in installments on a weekly basis. (c) On the date hereof, the Employee will receive from the Company a lump sum cash payment of one hundred thousand dollars ($100,000) representing the Company's additional contribution to the costs of the Employee's relocation from Holmdel, New Jersey to Massachusetts. The Employee agrees that the Company has the right to deduct from all such payments set forth in Subparagraphs (a) - (c) above any Federal, state or local taxes of any kind required by law to be withheld with respect to such payments. The Employee further agrees that the payments provided for in this Paragraph 3 shall constitute payment in full of any and all obligations of the Company to the Employee under the aforementioned Employment Agreement or any other agreement, whether written or oral, the Employee may have had with the Company. 4. The Company agrees that through the close of business on May 15, 1997, the Employee shall, at his option, have the right to use the vehicle leased by the Company for the benefit of the Employee. Through such date, the Company shall maintain the current level of insurance on the vehicle and maintain and repair the vehicle in accordance with the Company's fleet leasing program. The cellular telephone which is currently installed in the vehicle shall be available for the Employee's use until the vehicle is returned to the Company. Any charges, however, for use of the telephone including, without limitation, monthly service fees, peak or off-peak air time charges and maintenance charges shall be at his sole expense. The Company will arrange for the billing address for bills in connection with the use of the telephone to be changed to his home address. 5. Any use of Company credit cards, gasoline cards, telephone cards or the like shall have terminated effective as of the Resignation Date and the Employee agrees to return these to the Company immediately. 6. Effective as of the date hereof and thereafter, the Employee agrees that he will not divulge, use, furnish, disclose or make accessible to anyone other than the Company or its officers and directors any knowledge or information with respect to systems, plans, procedures, 2 programs, methods, or material relating to the business, products or activities of the Company or any other confidential, secret or proprietary information concerning the business, products, properties or activities of the Company including, without limitation, financial information concerning the Company's operations and information relating to the Company's customers, suppliers, vendors, vendees, landlords, licensors or licensees. The provisions of this paragraph shall not apply to information which is or generally becomes available to the public other than as a result of breach of this Agreement by the Employee. 7. The Employee hereby represents, warrants and agrees that as of the date hereof, he has turned over to the Company or left in its offices all documents or other materials or things owned by the Company and has not taken any such documents or materials with him, nor made copies of any such documents or materials for his own use or the use of any person other than the Company or persons connected therewith. 8. Effective as of the date hereof and thereafter, the parties agree that neither will take any action or make any statements with respect to the Company or the Employee or any persons connected therewith which shall injure the name or reputation of any such party or which may in any way adversely affect the ability of such party both to conduct its business and to maintain harmonious intra-company relations. 9. Effective as of the date hereof and for a period of one year thereafter, the Employee agrees that neither he nor any new employer will, without the express written consent of the Company, hire, recruit, solicit or induce or attempt to induce, any employee or employees of the Company to terminate their employment with the Company or to become an employee of the Employee or his new employer. 10. (a) The Employee agrees that he, his representatives, agents, estates, successors and assigns release and forever discharge the Company and its affiliates, subsidiaries, predecessors, successors, assigns, and the current and former officers, directors, shareholders, employees and agents of each of the foregoing, both individually and in their official capacities with the Company, from any and all actions, suits, claims, complaints, contracts, liabilities, agreements, promises, debts and damages, whether existing or contingent which arise out of the Employee's employment with or his termination of employment from the Company, except as set forth in this Agreement. 3 (b) The Company agrees that it, its successors and assigns release and forever discharge the Employee, his representatives, agents, estates, successors and assigns from any and all actions, suits, claims, complaints, contracts, liabilities, agreements, promises, debts and damages, whether existing or contingent which arise out of the Employee's employment with or his termination of employment from the Company, except as set forth in this Agreement. 11. The Employee and the Company agree that with respect to stock options granted to the Employee pursuant to the Company's 1985 Amended and Restated Stock Option Plan or the 1992 Equity Incentive Plan (the "Option Plans"), any such options to purchase shares of the Company's common stock which are currently exercisable on the date hereof shall remain exercisable through June 15, 1997; and any such options to purchase shares which may become exercisable subsequent to the date hereof shall be forfeited and terminated. Effective as of the close of business on June 15, 1997 the exercisability of any stock options granted to the Employee shall terminate and such options shall be forfeited to the Company. 12. The Company and the Employee acknowledge and agree that a breach by either party of the provisions of this Agreement will cause the other party irreparable injury and damage and, therefore, the Company and the Employee expressly agree that each party shall be entitled to injunctive and/or equitable relief in any court of competent jurisdiction to prevent or otherwise restrain a breach of this Agreement for the purpose of enforcing this Agreement or any part hereof. 13. This Agreement contains the entire contract between the parties, supersedes all prior agreements, written or oral, and may not be changed except in writing duly executed by the parties in the same manner as this Agreement. 14. This Agreement is being executed and delivered in the Commonwealth of Massachusetts and this Agreement shall be construed under and governed by the laws of such Commonwealth. 4 IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the day and year first written above. J. BAKER, INC. By: /s/Alan I. Weinstein Alan I. Weinstein President and Chief Executive Officer /s/ David A. Levin David Levin 5 EX-10 11 EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10.55 EXECUTIVE EMPLOYMENT AGREEMENT This Agreement is dated as of April 1, 1997 by and between Philip G. Rosenberg (the "Employee") and J. BAKER, INC., a Massachusetts corporation (the "Company"). WHEREAS, the Employee and the Company desire to set forth in writing the terms and conditions of the Employee's employment agreement with the Company from the date hereof; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows: 1. Employment. Under and subject to the terms and conditions set forth herein, the Company hereby agrees to employ the Employee during the Term (as defined in Section 6 hereof) as its Executive Vice President and Chief Financial Officer and/or in such other senior executive management position(s) with the Company, or any parent or subsidiary of the Company, as the Board of Directors of the Company (the "Board") may determine from time to time, and the Employee hereby accepts such employment. 2. Duties. The Employee agrees, during the Term and any extension of the Term, faithfully to perform for the Company, and any subsidiary or parent of the Company, the duties of the Chief Financial Officer, and/or such other duties as may be assigned to him from time to time by the Company. The Employee further agrees to devote his entire business time, attention and energies exclusively to such employment and to conform to the rules, regulations, instructions, personnel practices and policies of the Company and its subsidiaries, as existing and amended from time to time. The Employee may be required to relocate his principal residence only to an area in which the Company or a subsidiary of the Company has or determines to have significant operations. 3. Compensation. (a) Base Salary. The Company shall pay the Employee during the Term an annual base salary ("Base Salary") of not less than $225,000, payable in equal installments in accordance with the Company's regular pay intervals for its senior executives. (b) Cash Incentive Compensation. In addition to his annual base salary as determined pursuant to Section 3(a), the Company shall pay to the Employee such amounts, if any, to which the Employee is entitled, as an officer of the Company, under the Company's Cash Incentive Compensation Plan (the "Incentive Plan"), as from time to time such plan may 1 be amended. 4. Other Benefits. (a) Fringe Benefits. The Employee shall be entitled to participate in all benefit programs that the Company establishes and makes available to management generally and in any event shall be entitled to receive benefits at least substantially comparable to those provided pursuant to the present practices of the Company and its subsidiaries. (b) Paid Vacations. The Employee shall be entitled to an annual paid vacation of four weeks in each calendar year, to be taken at such time or times as the Employee and the Company shall mutually agree, provided, however, that no more than two weeks shall be taken during any three month period unless otherwise agreed upon by the Company's Chief Executive Officer. 5. Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and other business expenses incurred or paid by the Employee in performing his duties under this Agreement upon presentation by the Employee of expense statements or vouchers and such other supporting information as the Company may from time to time request, provided, however, that the amount available for such expenses may be fixed in advance by the Board after consultation with the Employee. 6. Effective Date and Term. This Agreement shall become effective as of the date hereof and the Employee's employment under this Agreement shall commence on such date and, unless sooner terminated as provided herein or extended, shall continue for a term (the "Term") ending on April 1, 1999. The Employee and the Company have obligations hereunder extending past the Term. 7. Noncompetition. (a) During the Employee's employment under this Agreement or otherwise and for a period of two years after the date of termination of such employment (the "Termination Date"), the Employee will not, without the express written consent of the Company, anywhere in the United States or any territory or possession thereof or in any foreign country in which the Company was active as of the Termination Date: (i) compete with the Company or any other entity directly or indirectly controlled by the Company (each an "Affiliate"), in the Company's Business (as defined in Section 7(c) hereof); or (ii) otherwise interfere with, disrupt or attempt to interfere with or disrupt the relationship between the Company or an Affiliate and any person or business that was a customer, supplier, lessor, licensor, manufacturer, contractor, designer or employee of the Company or such Affiliate on the Termination Date or within two years prior to the Termination Date. 2 (b) The term "compete" as used in this Section 7 means directly or indirectly, or by association with any entity or business, either as a proprietor, partner, employee, agent, consultant, director, officer, shareholder (provided that the Employee may make passive investments in competitive enterprises the shares of which are listed on a national securities exchange if the Employee at no time owns directly or indirectly more than 2% of the outstanding equity ownership of such enterprise) or in any other capacity or manner (i) to solicit, hire, purchase from, sell to, rent from, or otherwise conduct business related to the Company's Business with any party that is a customer or supplier of the Company or an Affiliate or (ii) operate any retail store or leased footwear department ("Leased Department") which sells products related to the Company's Business (as defined in Section 7(c) hereof). (c) The term "Company's Business" as used in this Section 7 means the operation of any of the following specialty retail businesses, as a principal business unit, either alone or in combination: (i) Leased Departments in discount or mass merchandising department stores; (ii) retail stores offering casual clothing for "Big and Tall" men or the mail order catalog sales thereof; or (iii) retail stores offering primarily work related clothing and uniforms for medical and laboratory purposes or the mail order catalog sales thereof. The term shall also include any additional specialty retail businesses which the Company may acquire subsequent to the date hereof and which are operated as principal business units of the Company on the Termination Date. (d) The term "supplier" as used in this Section 7 shall mean any party or affiliate of a party from which, on the Termination Date or within two years prior to the Termination Date, the Company or an Affiliate purchased products sold by the Company or an Affiliate or was in contact or actively planning to contact in connection with the purchase of products sold by the Company or an Affiliate on or before the Termination Date or which the Company or an Affiliate was contemplating the sale of at some time after the Termination Date. (e) The term "customer" as used in this Section 7 shall mean any party or affiliate of a party, that on the Termination Date or within two years prior to the Termination Date, was a wholesale vendee or prospective wholesale vendee of the Company or an Affiliate or in connection with whose business the Company or an Affiliate operated a Leased Department, a retail store for the sale of casual clothing for "Big and Tall" men, work related clothing and uniforms for medical and laboratory purposes or any other specialty retail business which the Company operated as a principal business unit on the Termination Date, had contacted in connection with the potential operation of such businesses within two years prior to the Termination Date or which the Company or an Affiliate was actively planning to contact in connection with the potential operation of any such businesses on the Termination Date. 8. Confidential Information. The Employee agrees that he will never use for his own advantage or disclose any proprietary or confidential information relating to the business operations or properties of the Company, any Affiliate or any of their respective customers, suppliers, landlords, licensors or licensees. Upon termination of the Employee's employment, 3 the Employee will surrender and deliver to the Company all documents and information of every kind relating to or connected with the Company and Affiliates and their respective businesses, customers, suppliers, landlords, licensors and licensees. 9. Termination. (a) Death. In any event of the death of the Employee during the Term, his employment shall terminate and the Company shall pay to the Employee's surviving spouse, or to the Employee's estate if their is no surviving spouse, (i) the Employee's base salary for one year from the date of death, payable in accordance with the Company's regular pay intervals for its senior executives and (ii) amounts under the Incentive Plan, if any, payable with respect to the fiscal year in which his death occurs which otherwise would have been paid to the Employee on the basis of the results for such fiscal year, prorated to the date of his death. Upon the death of the Employee, the rights of the Employee's surviving spouse or estate hereunder, as the case may be, shall be limited solely to the benefits set forth in this Section 9(a). (b) Disability. In the event that the Employee shall become disabled (as hereinafter defined) during the Term, the Company shall have the right to terminate the Employee's employment upon written notice, provided, however, that in such event the Company shall (i) continue to pay the Employee's base salary for one year from the date such termination occurs, payable in accordance with the Company's regular pay intervals for its senior executives and (ii) pay to the Employee amounts under the Incentive Plan, if any, which otherwise would have been paid to the Employee on the basis of the results for the fiscal year in which such termination occurs, prorated to the date of such termination. For purposes of this Agreement, the Employee shall be considered disabled on the date when any physical or mental illness or other incapacity shall, in the judgment of a majority of the members (other than the Employee) of the Board, after consulting with or being advised by one or more physicians (it being understood that one of such physicians may be the Employee's physician but that the Board shall not be bound by his views), have prevented the performance in a manner reasonably satisfactory to the Company of the Employees duties under this Agreement for a period of six consecutive months. (c) For Cause. The Company may by notice terminate the Employee's employment at any time for cause, which shall mean (i) failure by the Employee to cure a material breach of this Agreement within 15 days after written notice thereof by the Company, (ii) the continuation after notice by the Company of willful misconduct by the Employee in the performance of the Employee's duties hereunder or (iii) the commission by the Employee of an act constituting a felony. In such event all obligations of the Company hereunder shall thereupon terminate, including the obligation to pay any amounts under the Incentive Plan with respect to the fiscal year in which such termination occurs, but the Employee shall be entitled to receive any accrued salary and other amounts under the Incentive Plan accrued with respect to any prior fiscal years. 4 (d) Without Cause. During the Term hereof and prior to any Change of Control of the Company, the Company may terminate this Agreement at any time without cause. In such event, the Company shall pay to the Employee, in accordance with the Company's regular pay intervals for its senior executives, an amount equal to the greater of (i) the amount of Base Salary the Employee would have received through the last day of the Term or (ii) one (1) year of Base Salary. (e) Change of Control. (i) In the event the Employee's employment with the Company is terminated (A) by the Company or (B) by the Employee for "good reason" within three (3) years after a Change in Control of the Company occurring during the Term hereof (regardless of whether such Employee's termination occurs after the expiration of the Term), or (ii) in the event the Employee's employment is terminated (C) by the Company (except if such termination is for "Cause") or (D) by the Employee for good reason within three (3) years after the employment of any of Messrs. Socol, Weinstein or Levin, respectively, with the Company has terminated during the Term hereof for any reason including, without limitation, dismissal, resignation, retirement, death or termination for any other reason, then, in either event occurring in (e)(i) or (e)(ii), the Company shall pay to the Employee an amount, in cash, (the "Severance Payment") equal to the greater of (I) the amount of Base Salary the Employee would have received through the last day of the Term or (II) one (1) year of Base Salary. For purposes of this Agreement "Annual Base Salary" shall mean the Employee's base salary in effect on the date of this Agreement, as such base salary may be increased from time to time. (iii) In the event the Employee's employment is terminated as described in subparagraph (e)(i) above, the Severance Payment shall be made to the Employee in a single lump sum cash payment. In the event the Employee's employment is terminated as described in subparagraph (e)(ii) above, the Severance Payment shall be made to the Employee in accordance with the Company's regular pay intervals for its senior executives beginning immediately following the Employee's termination of employment with the Company. (iv) Notwithstanding the Employee's rights to receive the payments and benefits pursuant to this agreement, the Employee shall not be deemed to have waived any rights the Employee may have at law or equity with respect to the termination of his employment. (v) A termination for "good reason" shall be deemed to have occurred, and the Employee shall be entitled to the benefits set forth in this Paragraph (e), if the Employee voluntarily terminates his employment after the occurrence of any of the following events, if either the circumstances set forth in subparagraphs (e)(i) or (e)(ii) has occurred: (i) the assignment to the Employee of any duties inconsistent with the highest position (including status, offices, titles and reporting requirements), authority, duties or responsibilities attained by the Employee during the period of his employment by the Company; (ii) a relocation of the Employee outside the metropolitan Boston area; or (iii) a decrease in the Employee's 5 compensation (including base salary, bonus or fringe benefits). For purposes hereof, "Change of Control of the Company" shall have the meaning set forth in the Company's 1994 Equity Incentive Plan, as approved by the Stockholders of the Company on June 7, 1994 (and without regard to any subsequent amendments thereto). (f) Severance Payment Limitation Upon Change of Control. If all or part of the Severance Payment payable to the Employee pursuant to subparagraph 9(e) hereof, when added to other payments payable to the Employee as a result of a Change of Control, constitute Parachute Payments, the following limitation shall apply. If the Parachute Payments, net of the sum of the Excise Tax, Federal income and employment taxes and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, are greater than the Threshold Amount, the Employee shall be entitled to the full Severance Payment payable under subparagraph 9(e) of this Agreement. If the Threshold Amount is greater than the Parachute Payments, net of the sum of the Excise Tax, Federal income and employment taxes and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, then the Severance Payment payable under subparagraph 9(e) of this Agreement shall be reduced to the extent necessary so that the maximum Parachute Payments shall not exceed the Threshold Amount. The Company shall select a firm of independent certified public accountants to determine which of the foregoing alternative provisions shall apply. For purposes of determining the amount of the Federal income and employment taxes, and state and local income taxes on the amount of the Parachute Payments in excess of the Threshold Amount, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate of Federal income taxation applicable to individuals for the calendar year in which the Severance Payments under subparagraph 9(e) of this Agreement are payable and state and local income taxes at the highest marginal rates of individual taxation in the state and locality of the Employee's residence for the calendar year in which the Severance Payments under Subparagraph 9(e) of this Agreement are payable, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. For purposes of this Agreement: "Parachute Payments" shall mean any payment or provision by the Company of any amount or benefit to and for the benefit of the Employee, whether paid or payable or provided or to be provided under the terms of this Agreement or otherwise, that would be considered "parachute payments" within the meaning of Section 280G(B)(2)(A) of the Internal Revenue Code and the regulations promulgated thereunder. "Threshold Amount" shall mean three times the Employee's "base amount" within the meaning of Section 280(G)(b)(3) of the Internal Revenue Code and the regulations promulgated thereunder, less one dollar. 6 "Excise Tax" shall mean the excise tax imposed by Section 4999 of the Internal Revenue Code. 10. Approval of Board. The Company represents that this Agreement has been duly approved by the Board and is in all respects valid and binding upon the Company. 11. Key Person Insurance. The Employee agrees to take such actions as may be reasonably required to permit the Company to, in its sole discretion, maintain key person life insurance on the Employee's life in such amounts and for such periods of time, if any, as the Company deems appropriate, with all benefits being payable to the Company. Upon payment by the Employee of the cash surrender value, if any, of any such policy and any paid but unearned premiums for such policy, the Company will assign such policy to the Employee upon termination (other than because of the Employee's death) of the Employee's employment with the Company, provided, however, that, in the event the Employee's employment is terminated by reason of the disability of the Employee and the death of the Employee may reasonably be expected within one year after such termination as a result of such disability, the Company shall not be required to assign any such policy. 12. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been given and received when actually delivered, one business day after dispatch by telegraphic means, two business days after dispatch by recognized overnight delivery service, or five days after mailing by certified or registered mail with proper postage affixed, return receipt requested and addressed as follows (or to such other address as a party entitled to receive notice hereunder may have designated by notice pursuant to this Section 12): (a) If to the Company: J. Baker, Inc. 555 Turnpike Street Canton, Massachusetts 02021 Attention: Chief Executive Officer (b) If to the Employee: Philip G. Rosenberg 36 Castle Drive Sharon, Massachusetts 02067 13. Severability. If any provision of this Agreement or its application to any person or circumstances is invalid or unenforceable, then the remainder of this Agreement or the application of such provision to other persons or circumstances shall not be affected thereby. 7 Further, if any provision or application hereof is invalid or unenforceable, then a suitable and equitable provision shall be substituted therefor in order to carry out so far as may be valid or enforceable the intent and purposes of the invalid and unenforceable provision. 14. Applicable Law. This Agreement shall be interpreted and construed in accordance with, and shall be governed by, the laws of the Commonwealth of Massachusetts without giving effect to the conflict of law provisions thereof. 15. Assignment. Neither of the parties hereto shall, without the written consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, provided, however, that in the event that the Company sells all or substantially all of its assets the Company may assign its rights and transfer its obligations hereunder to the purchaser of such assets. A merger of the Company with or into another corporation shall be deemed not to be an assignment of this Agreement, and, in any such event, this Agreement shall inure to the benefit of and be binding upon the surviving corporation and the Employee. Subject to the foregoing, this Agreement shall be binding upon, and shall inure to the benefit of, the parties and their respective successors, heirs, administrators, executors, personal representatives and assigns. 16. Headings. This section and paragraph headings contained in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. 17. Remedies. It is specifically understood and agreed that any breach of the provisions of Section 7 or 8 of this Agreement is likely to result in irreparable injury to the Company, that damages at law will be inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of said Sections and to seek both temporary and permanent injunctive relief therefor without the necessity of proving actual damages. 18. Waiver of Breach. Any waiver by either the Company or the Employee of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 19. Amendment of Agreement. This Agreement may be altered, amended or modified, in whole or in part, only by a writing signed by both the Employee and the Company. 20. Integration. This Agreement constitutes the entire agreement between the parties with respect to the subject matter thereof and supersedes all prior agreements whether oral or written with respect to such subject matter between the parties including, without limitation, that certain Severance Compensation Agreement dated as of November 1, 1995 by and between the Employee and the Company. 8 Intending to be legally bound, the Company and the Employee have signed this Agreement as if under seal as of the date set forth at the head of the first page. J. BAKER, INC. /s/ Alan I. Weinstein Alan I. Weinstein President and Chief Executive Officer /s/ Philip Rosenberg Philip G. Rosenberg 9 EX-10 12 RELEASE AND DISCHARGE OF MORTGAGE EXHIBIT 10.67 RELEASE AND DISCHARGE OF MORTGAGE THIS INSTRUMENT is executed as of December 27, 1996, by FLEET NATIONAL BANK, a national banking association having an address at 1 Federal Street, Boston, Massachusetts 02111, as agent (in such capacity, the "Agent") for itself and the other banks party to that certain Revolving Credit and Loan Agreement, dated as of February 1, 1993 (as amended, modified and supplemented and in effect from time to time). WITNESSETH: WHEREAS, the Agent is the holder of that certain Mortgage and Security Agreement, dated as of July 15, 1996 (the "Mortgage"), from Morse Shoe, Inc. to the Agent, recorded with the Norfolk County Registry District of the Land Court as Document No. 742555. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Agent hereby releases the Mortgage and the lien evidenced thereby and consents to the discharge of the Mortgage of record. EXECUTED AS A SEALED INSTRUMENT as of the 27 day of December, 1996. FLEET NATIONAL BANK, a national banking association, as Agent By: /s/ Gerald G. Sheehan Title: AVP COMMONWEALTH OF MASSACHUSETTS COUNTY OF SUFFOLK, ss. December 27, 1996 Then personally appeared the above-named Gerald G. Sheehan, the AVP of FLEET NATIONAL BANK, a national banking association ("Fleet Bank"), and acknowledged the foregoing to be the free act and deed of Fleet Bank, before me, /s/ Michael Araujo Notary Public My commission expires: May 27, 1997 EX-10 13 RELEASE OF MORTGAGE EXHIBIT 10.68 RELEASE OF MORTGAGE FOR VALUABLE CONSIDERATION PAID, FLEET NATIONAL BANK, a national banking association having its principal office at One Federal Street, Boston, Massachusetts 02211, as agent for certain other banks referred to in a certain Revolving Credit and Loan Agreement dated as of February 1, 1993, as amended, does hereby certify that a certain Mortgage, Assignment of Leases and Rents and Security Agreement dated the 21st day of June, 1996, and recorded on the 28th day of June, 1996, in the Recorder's Office, Franklin County, Ohio in Official Record Volume 32406, Page D-18, executed by JBI, Inc. to Fleet National Bank, as agent, on the following described real estate known as 2035 Innis Road situated in the State of Ohio, County of Franklin and being part in the City of Columbus and part in Clinton Township has been fully paid and satisfied, and the Recorder of said county is authorized to discharge the same of record. IN WITNESS WHEREOF, this Satisfaction of Mortgage has been duly executed by Fleet National Bank, as agent, this 27th day of February, 1997. Signed and Acknowledged FLEET NATIONAL BANK in the Presence of: ______________________ By: /s/ Gerald G. Sheehan Name: Name: Gerald G. Sheehan Title: Title: AVP Commonwealth of Massachusetts County of ______________, ss Before me, a notary public, in and for said county, personally appeared Gerald G. Sheehan, known to me to be the person who, as AVP of Fleet National Bank, the corporation which executed the foregoing instrument, signed the same, and acknowledged to me that he/she did so sign said instrument in the name and upon behalf of said corporation as such officer; that the same is his/her free act and deed as such officer and the free and corporate act and deed of said corporation; and that he/she is duly authorized thereunto by its board of directors. In testimony whereof, I have hereunto subscribed my name this 27th day of February, 1997. /s/ Michael Araujo Michael Araujo, Notary Public My Commission Expires: May 27, 1997 EX-10 14 MORTGAGE AND SECURITY AGREEMENT EXHIBIT 10.69 JBAK CANTON REALTY, INC., as mortgagor (Borrower) to THE CHASE MANHATTAN BANK, as mortgagee (Lender) ----------------------------------- MORTGAGE AND SECURITY AGREEMENT ----------------------------------- Dated: As of December 30, 1996 Location: J. Baker Corporate Facility 555 Turnpike Street Canton, Massachusetts 02021 County: Norfolk PREPARED BY AND UPON RECORDATION RETURN TO: MESSRS. THACHER PROFFITT & WOOD Two World Trade Center New York, New York 10048 Attention: David S. Hall, Esq. File No.: 86000-00376 Title No.: THIS MORTGAGE AND SECURITY AGREEMENT (the "Security Instrument") is made as of the ____ day of December, 1996, by JBAK CANTON REALTY, INC., a Massachusetts corporation, having its principal place of business at 555 Turnpike Street, Canton, Massachusetts 02021 as mortgagor ("Borrower") to THE CHASE MANHATTAN BANK, a New York banking corporation, having an address at 380 Madison Avenue, 11th Floor, New York, New York 10017 as mortgagee ("Lender"). RECITALS: Borrower by its promissory note of even date herewith given to Lender is indebted to Lender in the principal sum of FIFTEEN MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($15,500,000) in lawful money of the United States of America (the note together with all extensions, renewals, modifications, substitutions and amendments thereof shall collectively be referred to as the "Note"), with interest from the date thereof at the rates set forth in the Note, principal and interest to be payable in accordance with the terms and conditions provided in the Note. Borrower desires to secure the payment of the Debt (as defined in Article 2) and the performance of all of its obligations under the Note and the Other Obligations (as defined in Article ). Article 1 - GRANTS OF SECURITY Section 1.1 PROPERTY MORTGAGED. Borrower does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to Lender, and grant a security interest to Lender in, the following property, rights, interests and estates now owned, or hereafter acquired by Borrower (collectively, the "Property"): (a) Land. The real property described in Exhibit A attached hereto and made a part hereof (the "Land"); (b) Additional Land. All additional lands, estates and development rights hereafter acquired by Borrower for use in connection with the Land and the development of the Land and all additional lands and estates therein which may, from time to time, by supplemental mortgage or otherwise be expressly made subject to the lien of this Security Instrument; (c) Improvements. The buildings, structures, fixtures, additions, enlargements, extensions, modifications, repairs, replacements and improvements now or hereafter erected or located on the Land (the "Improvements"); (d) Easements. All easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, [NY01:247789.4] 86000-00376 12/23/96 4:57pm relating or pertaining to the Land and the Improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Land, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Borrower of, in and to the Land and the Improvements and every part and parcel thereof, with the appurtenances thereto; (e) Fixtures and Personal Property. All machinery, equipment, fixtures (including, but not limited to, all heating, air conditioning, plumbing, lighting, communications and elevator fixtures) and other property of every kind and nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, and usable in connection with the present or future operation and occupancy of the Land and the Improvements and all building equipment, materials and supplies of any nature whatsoever owned by Borrower, or in which Borrower has or shall have an interest, now or hereafter located upon the Land and the Improvements, or appurtenant thereto, or usable in connection with the present or future operation and occupancy of the Land and the Improvements (collectively, the "Personal Property"), and the right, title and interest of Borrower in and to any of the Personal Property which may be subject to any security interests, as defined in the Uniform Commercial Code, as adopted and enacted by the state or states where any of the Property is located (the "Uniform Commercial Code"), superior in lien to the lien of this Security Instrument and all proceeds and products of the above; (f) Leases and Rents. All leases, subleases and other agreements affecting the use, enjoyment or occupancy of the Land and/or the Improvements heretofore or hereafter entered into and all extensions, amendments and modifications thereto, whether before or after the filing by or against Borrower of any petition for relief under 11 U.S.C. ss.101 et seq., as the same may be amended from time to time (the "Bankruptcy Code") (the "Leases") and all right, title and interest of Borrower, its successors and assigns therein and thereunder, including, without limitation, cash or securities deposited thereunder to secure the performance by the lessees of their obligations thereunder and all rents, additional rents, revenues, issues and profits (including all oil and gas or other mineral royalties and bonuses) from the Land and the Improvements whether paid or accruing before or after the filing by or against Borrower of any petition for relief under the Bankruptcy Code (the "Rents") and all proceeds from the sale or other disposition of the Leases and the right to receive and apply the Rents to the payment of the Debt; (g) Condemnation Awards. All awards or payments, including interest thereon, which may heretofore and hereafter be made with respect to the Property, whether from the exercise of the right of eminent domain (including but not limited to any transfer made in lieu of or in anticipation of the exercise of the [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 2 - right), or for a change of grade, or for any other injury to or decrease in the value of the Property; (h) Insurance Proceeds. All proceeds of and any unearned premiums on any insurance policies covering the Property, including, without limitation, the right to receive and apply the proceeds of any insurance, judgments, or settlements made in lieu thereof, for damage to the Property; (i) Tax Certiorari. All refunds, rebates or credits in connection with a reduction in real estate taxes and assessments charged against the Property as a result of tax certiorari or any applications or proceedings for reduction; (j) Conversion. All proceeds of the conversion, voluntary or involuntary, of any of the foregoing including, without limitation, proceeds of insurance and condemnation awards, into cash or liquidation claims; (k) Rights. The right, in the name and on behalf of Borrower, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Lender in the Property; (l) Agreements. All agreements, contracts, certificates, instruments, franchises, permits, licenses, plans, specifications and other documents, now or hereafter entered into, and all rights therein and thereto, respecting or pertaining to the use, occupation, construction, management or operation of the Land and any part thereof and any Improvements or respecting any business or activity conducted on the Land and any part thereof and all right, title and interest of Borrower therein and thereunder, including, without limitation, the right, upon the happening of any default hereunder, to receive and collect any sums payable to Borrower thereunder; (m) Trademarks. All tradenames, trademarks, servicemarks, logos, copyrights, goodwill, books and records and all other general intangibles relating to or used in connection with the operation of the Property; and (n) Other Rights. Any and all other rights of Borrower in and to the items set forth in Subsections (a) through (m) above. Section 1.2 ASSIGNMENT OF RENTS. Borrower hereby absolutely and unconditionally assigns to Lender Borrower's right, title and interest in and to all current and future Leases and Rents; it being intended by Borrower that this assignment constitutes a present, absolute assignment and not an assignment for additional security only. Nevertheless, subject to the terms of this Section and Section , Lender grants to Borrower a revocable license to collect and receive the Rents. Borrower shall hold the Rents, or a portion thereof sufficient to discharge all current sums due on the Debt, for use in the payment of such sums. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 3 - Section 1.3 SECURITY AGREEMENT. This Security Instrument is both a real property mortgage and a "security agreement" within the meaning of the Uniform Commercial Code. The Property includes both real and personal property and all other rights and interests, whether tangible or intangible in nature, of Borrower in the Property. By executing and delivering this Security Instrument, Borrower hereby grants to Lender, as security for the Obligations (defined in Section ), a security interest in the Personal Property to the full extent that the Personal Property may be subject to the Uniform Commercial Code. Section 1.4 PLEDGE OF MONIES HELD. Borrower hereby pledges to Lender any and all monies now or hereafter held by Lender, including, without limitation, any sums deposited in the Escrow Fund (as defined in Section ), Net Proceeds (as defined in Section 4.4) and condemnation awards or payments described in Section 3.6, as additional security for the Obligations until expended or applied as provided in this Security Instrument. CONDITIONS TO GRANT TO HAVE AND TO HOLD the above granted and described Property unto and to the use and benefit of Lender, and the successors and assigns of Lender, forever; PROVIDED, HOWEVER, these presents are upon the express condition that, if Borrower shall well and truly pay to Lender the Debt at the time and in the manner provided in the Note and this Security Instrument, shall well and truly perform the Other Obligations as set forth in this Security Instrument and shall well and truly abide by and comply with each and every covenant and condition set forth herein and in the Note, these presents and the estate hereby granted shall cease, terminate and be void. Article 2 - DEBT AND OBLIGATIONS SECURED Section 2.1 DEBT. This Security Instrument and the grants, assignments and transfers made in Article are given for the purpose of securing the following, in such order of priority as Lender may determine in its sole discretion (the "Debt"): (a) the payment of the indebtedness evidenced by the Note in lawful money of the United States of America; (b) the payment of interest, default interest, late charges and other sums, as provided in the Note, this Security Instrument or the Other Security Documents (defined below); (c) the payment of the Prepayment Consideration (as defined in the Note), if any; (d) the payment of all other moneys agreed or provided to be paid by Borrower in the Note, this Security Instrument or the Other Security Documents; [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 4 - (e) the payment of all sums advanced pursuant to this Security Instrument to protect and preserve the Property and the lien and the security interest created hereby; and (f) the payment of all sums advanced and costs and expenses incurred by Lender in connection with the Debt or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender. Section 2.2 OTHER OBLIGATIONS. This Security Instrument and the grants, assignments and transfers made in Article are also given for the purpose of securing the following (the "Other Obligations"): (a) the performance of all other obligations of Borrower contained herein; (b) the performance of each obligation of Borrower contained in any other agreement given by Borrower to Lender which is for the purpose of further securing the obligations secured hereby, and any amendments, modifications and changes thereto; and (c) the performance of each obligation of Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of the Note, this Security Instrument or the Other Security Documents. Section 2.3 DEBT AND OTHER OBLIGATIONS. Borrower's obligations for the payment of the Debt and the performance of the Other Obligations shall be referred to collectively below as the "Obligations." Section 2.4 PAYMENTS. Unless payments are made in the required amount in immediately available funds at the place where the Note is payable, remittances in payment of all or any part of the Debt shall not, regardless of any receipt or credit issued therefor, constitute payment until the required amount is actually received by Lender in funds immediately available at the place where the Note is payable (or any other place as Lender, in Lender's sole discretion, may have established by delivery of written notice thereof to Borrower) and shall be made and accepted subject to the condition that any check or draft may be handled for collection in accordance with the practice of the collecting bank or banks. Acceptance by Lender of any payment in an amount less than the amount then due shall be deemed an acceptance on account only, and the failure to pay the entire amount then due shall be and continue to be an Event of Default (defined below). [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 5 - Article 3 - BORROWER COVENANTS Borrower covenants and agrees that: Section 3.1 PAYMENT OF DEBT. Borrower will pay the Debt at the time and in the manner provided in the Note and in this Security Instrument. Section 3.2 INCORPORATION BY REFERENCE. All the covenants, conditions and agreements contained in (a) the Note and (b) all and any of the documents other than the Note or this Security Instrument now or hereafter executed by Borrower and/or others and by or in favor of Lender, which wholly or partially secure or guaranty payment of the Note (the "Other Security Documents"), are hereby made a part of this Security Instrument to the same extent and with the same force as if fully set forth herein. Section 3.3 INSURANCE. (a) Borrower shall obtain and maintain, or cause to be maintained, insurance for Borrower and the Property providing at least the following coverages: (i) comprehensive all risk insurance on the Improvements and the Personal Property which is owned by Borrower, in each case (A) in an amount equal to 100% of the "Full Replacement Cost," which for purposes of this Security Instrument shall mean actual replacement value (exclusive of costs of excavations, foundations, underground utilities and footings) with a waiver of depreciation; (B) containing an agreed amount endorsement with respect to the Improvements and Personal Property which is owned by Borrower, waiving all co-insurance provisions; (C) providing for no deductible in excess of $100,000; and (D) providing coverage for contingent liability from Operation of Building Laws, Demolition Costs and Increased Cost of Construction Endorsements together with an "Ordinance or Law Coverage" or "Enforcement" endorsement if any of the Improvements or the use of the Property shall at any time constitute legal non-conforming structures or uses. The Full Replacement Cost shall be redetermined from time to time (but not more frequently than once in any twelve (12) calendar months) at the request of Lender by an appraiser or contractor designated and paid by Borrower and approved by Lender, or by an engineer or appraiser in the regular employ of the insurer. After the first appraisal, additional appraisals may be based on construction cost indices customarily employed in the trade. No omission on the part of Lender to request any such ascertainment shall relieve Borrower of any of its obligations under this Subsection; (ii) commercial general liability insurance against claims for personal injury, bodily injury, death or property damage occurring upon, in or about the Property, such insurance (A) to be on the so-called "occurrence" form with a combined single limit of not less than $2,000,000; (B) to continue at not less than the aforesaid limit until required to be changed by Lender in writing by reason of changed economic conditions making such protection inadequate; and (C) to [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 6 - cover at least the following hazards: (1) premises and operations; (2) products and completed operations on an "if any" basis; (3) independent contractors; (4) blanket contractual liability for all written and oral contracts; and (5) contractual liability covering the indemnities contained in Article hereof to the extent the same is available; (iii) loss of rents insurance (A) with loss payable to Lender; (B) covering all risks required to be covered by the insurance provided for in Subsection (a)(i); and (C) in an amount equal to 100% of the projected gross income from the Property for a period of twelve (12) months. The amount of such loss of rents insurance shall be determined prior to the date hereof and at least once each year thereafter based on Borrower's reasonable estimate of the gross income from the Property for the succeeding twelve-month period. All insurance proceeds payable to Lender pursuant to this Subsection shall be held by Lender and shall be applied to the obligations secured hereunder from time to time due and payable hereunder and under the Note; provided, however, that nothing herein contained shall be deemed to relieve Borrower of its obligations to pay the obligations secured hereunder on the respective dates of payment provided for in the Note except to the extent such amounts are actually paid out of the proceeds of such loss of rents insurance; (iv) at all times during which structural construction, repairs or alterations are being made with respect to the Improvements (A) owner's contingent or protective liability insurance covering claims not covered by or under the terms or provisions of the above mentioned commercial general liability insurance policy; and (B) the insurance provided for in Subsection (a)(i) written in a so-called builder's risk completed value form or equivalent property insurance satisfactory to Lender (1) on a non-reporting basis, (2) against all risks insured against pursuant to Subsection (a)(i), (3) including permission to occupy the Property, and (4) with an agreed amount endorsement waiving co-insurance provisions; (v) workers' compensation, subject to the statutory limits of the state in which the Property is located, and employer's liability insurance with a limit of at least $1,000,000 per accident and per disease per employee, and $1,000,000 for disease aggregate in respect of any work or operations on or about the Property, or in connection with the Property or its operation (if applicable); (vi) comprehensive boiler and machinery insurance, if applicable, in amounts as shall be reasonably required by Lender; (vii) if any portion of the Improvements is at any time located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National Flood Insurance Reform Act of 1994, as each may be amended, or any successor law (the "Flood Insurance Acts"), flood hazard insurance in an amount equal to [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 7 - the lesser of (A) the principal balance of the Note, and (B) the maximum limit of coverage available for the Property under the Flood Insurance Acts; (viii) earthquake, sinkhole and mine subsidence insurance, if required by Lender in amounts, form and substance satisfactory to Lender, provided that the insurance pursuant to this Subsection (viii) shall be on terms consistent with the all risk insurance policy required under Subsection 3.3(a)(i); (ix) such other insurance and in such amounts as Lender from time to time may reasonably request against such other insurable hazards which at the time are commonly insured against for property similar to the Property located in or around the region in which the Property is located. (b) All insurance provided for in Subsection (a) hereof shall be obtained under valid and enforceable policies (the "Policies" or in the singular, the "Policy"), in such forms and, from time to time after the date hereof, in such amounts as may from time to time be satisfactory to Lender, issued by financially sound and responsible insurance companies authorized to do business in the state in which the Property is located and approved by Lender. The insurance companies must have a general policy rating of A or better and a financial class of VI or better by A.M. Best Company, Inc., and if there are any Securities (defined in Section 19.1 below) issued which have been assigned a rating by a credit rating agency approved by Lender (a "Rating Agency"), the insurance company shall have a claims paying ability rating by such Rating Agency of not less than one rating category below the highest rating at any time assigned to the Securities, but in no event less than BBB by Standard & Poor's Corp. or such comparable rating by such other Rating Agency (each such insurer shall be referred to below as a "Qualified Insurer"). Not less than thirty (30) days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to Subsection (a), certified copies of the Policies marked "premium paid" or accompanied by evidence satisfactory to Lender of payment of the premiums due thereunder (the "Insurance Premiums"), shall be delivered by Borrower to Lender; provided, however, that in the case of renewal Policies, Borrower may furnish Lender with binders therefor to be followed by the original Policies when issued. (c) Borrower shall not obtain (i) any umbrella or blanket liability or casualty Policy unless, in each case, such Policy is approved in advance in writing by Lender and Lender's interest is included therein as provided in this Security Instrument and such Policy is issued by a Qualified Insurer, or (ii) separate insurance concurrent in form or contributing in the event of loss with that required in Subsection (a) to be furnished by, or which may be reasonably required to be furnished by, Borrower. In the event Borrower obtains separate insurance or an umbrella or a blanket Policy, Borrower shall notify Lender of the same and shall cause certified copies of each Policy to be delivered as required in Subsection (a). Any blanket insurance Policy shall specifically allocate to the Property the amount of coverage from time to time required hereunder and shall otherwise provide the same protection as would a separate Policy insuring only the Property in compliance with the provisions of Subsection (a). Notwithstanding Lender's approval of any umbrella or blanket liability or casualty Policy [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 8 - hereunder, Lender reserves the right, in its reasonable discretion, to require Borrower to obtain a separate Policy in compliance with this Section 3.3. (d) All Policies of insurance provided for or contemplated by Subsection (a), except for the Policy referenced in Subsection (a)(v), shall name Lender and Borrower as the insured or additional insured, as their respective interests may appear, and in the case of property damage, boiler and machinery, and flood insurance, shall contain a standard non-contributing mortgagee clause in favor of Lender providing that the loss thereunder shall be payable to Lender. (e) All Policies of insurance provided for in Subsection (a) shall contain clauses or endorsements to the effect that: (i) no act or negligence of Borrower, or anyone acting for Borrower, or of any tenant under any Lease or other occupant, or failure to comply with the provisions of any Policy which might otherwise result in a forfeiture of the insurance or any part thereof, shall in any way affect the validity or enforceability of the insurance insofar as Lender is concerned; (ii) the Policy shall not be materially changed (other than to increase the coverage provided thereby) or cancelled without at least 30 days' written notice to Lender and any other party named therein as an insured; and (iii) each Policy shall provide that the issuers thereof shall give written notice to Lender if the Policy has not been renewed thirty (30) days prior to its expiration; and (iv) Lender shall not be liable for any Insurance Premiums thereon or subject to any assessments thereunder. (f) If requested by Lender, Borrower shall furnish to Lender, on or before thirty (30) days after the close of each of Borrower's fiscal years, a statement certified by Borrower or a duly authorized officer of Borrower of the amounts of insurance maintained in compliance herewith, of the risks covered by such insurance and of the insurance company or companies which carry such insurance and, if requested by Lender, verification of the adequacy of such insurance by an independent insurance broker or appraiser acceptable to Lender. (g) If at any time Lender is not in receipt of written evidence that all insurance required hereunder is in full force and effect, Lender shall have the right, without notice to Borrower to take such action as Lender deems necessary to protect its interest in the Property, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate, and all expenses incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrower to Lender upon demand and until paid shall be secured by this Security Instrument and shall bear interest in accordance with Section 10.3 hereof. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 9 - (h) If the Property shall be damaged or destroyed, in whole or in part, by fire or other casualty, Borrower shall give prompt notice of such damage to Lender and shall promptly commence and diligently prosecute the completion of the repair and restoration of the Property as nearly as possible to the condition the Property was in immediately prior to such fire or other casualty, with such alterations as may be approved by Lender (the "Restoration") and otherwise in accordance with Section of this Security Instrument. Borrower shall pay all costs of such Restoration whether or not such costs are covered by insurance. Section 3.4 PAYMENT OF TAXES, ETC. (a) Borrower shall promptly pay or cause to be paid all taxes, assessments, water rates, sewer rents, governmental impositions, and other charges, including without limitation vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Taxes"), all ground rents, maintenance charges and similar charges, now or hereafter levied or assessed or imposed against the Property or any part thereof (the "Other Charges"), and all charges for utility services provided to the Property as same become due and payable. Borrower will deliver to Lender, promptly upon Lender's request, evidence reasonably satisfactory to Lender that the Taxes, Other Charges and utility service charges have been so paid or are not then delinquent. Borrower shall not suffer and shall promptly cause to be paid and discharged any lien or charge whatsoever which may be or become a lien or charge against the Property. Except to the extent sums sufficient to pay all Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument, Borrower shall furnish to Lender paid receipts for the payment of the Taxes and Other Charges prior to the date the same shall become delinquent. (b) After prior written notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any of the Taxes, provided that (i) no Event of Default has occurred and is continuing under the Note, this Security Instrument or any of the Other Security Documents, (ii) Borrower is permitted to do so under the provisions of any other mortgage, deed of trust or deed to secure debt affecting the Property, (iii) such proceeding shall suspend the collection of the Taxes from Borrower and from the Property or Borrower shall have paid all of the Taxes under protest, (iv) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and shall not constitute a default thereunder, (v) neither the Property nor any part thereof or interest therein will be in danger of being sold, forfeited, terminated, cancelled or lost, (vi) Borrower shall have deposited with Lender adequate reserves for the payment of the Taxes, together with all interest and penalties thereon, unless Borrower has paid all of the Taxes under protest, and (vii) Borrower shall have furnished the security as may be required in the proceeding, or as may be requested by Lender to insure the payment of any contested Taxes, together with all interest and penalties thereon. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 10 - Section 3.5 ESCROW FUND. In addition to the initial deposits with respect to Taxes and, if applicable, Insurance Premiums made by Borrower to Lender on the date hereof to be held by Lender in escrow, Borrower shall pay or cause to be paid to Lender on the first day of each calendar month (a) one-twelfth of an amount which would be sufficient to pay the Taxes payable, or estimated by Lender to be payable, during the next ensuing twelve (12) months and (b) at the option of Lender, if the liability or casualty Policy maintained by Borrower covering the Property shall not constitute an approved blanket or umbrella Policy pursuant to Subsection 3.3(c) hereof, or Lender shall require Borrower to obtain a separate Policy pursuant to Subsection 3.3(c) hereof, one-twelfth of an amount which would be sufficient to pay the Insurance Premiums due for the renewal of the coverage afforded by the Policies upon the expiration thereof (the amounts in (a) and (b) above shall be called the "Escrow Fund"). In the event Lender shall elect to collect payments in escrow for Insurance Premiums, Borrower shall pay to Lender an initial deposit to be determined by Lender, in its sole discretion, to increase the amounts in the Escrow Fund to an amount which, together with anticipated monthly escrow payments, shall be sufficient to pay all Insurance Premiums and Taxes as they become due. Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Taxes and Insurance Premiums of which it has or obtains knowledge and authorizes Lender or its agent to obtain the bills for Taxes and Other Charges directly from the appropriate taxing authority. The Escrow Fund and the payments of interest or principal or both, payable pursuant to the Note shall be added together and shall be paid as an aggregate sum by Borrower to Lender. Lender will apply the Escrow Fund to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Sections and hereof. If the amount of the Escrow Fund shall exceed the amounts due for Taxes and Insurance Premiums pursuant to Sections and hereof, Lender shall, in its discretion, return any excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In allocating such excess, Lender may deal with the person shown on the records of Lender to be the owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth in (a) and (b) above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall estimate as sufficient to make up the deficiency. The Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. No earnings or interest on the Escrow Fund shall be payable to Borrower. Section 3.6 CONDEMNATION. Borrower shall promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding and shall deliver to Lender copies of any and all papers served in connection with such proceedings. Notwithstanding any taking by any public or quasi-public authority through eminent domain or otherwise (including but not limited to any transfer made in lieu of or in anticipation of the exercise of such taking), Borrower shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Security Instrument and the Debt shall not be reduced until any award or payment therefor shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the award by the condemning authority but shall be entitled to receive out of the award interest at the rate or rates provided herein or in the Note. If the Property or any portion thereof is taken by the power of eminent domain, Borrower shall promptly commence and diligently prosecute the Restoration of the Property in accordance with Section 4.4 of this Security Instrument. In the event Lender is not required to disburse Net Proceeds (defined below) to Borrower in accordance with Section 4.4 of this Security [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 11 - Instrument, Lender may apply any award or payment to the reduction or discharge of the Debt whether or not then due and payable. If the Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the award or payment, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the award or payment, or a portion thereof sufficient to pay the Debt. Section 3.7 LEASES AND RENTS. (a) All renewals of Leases and all proposed Leases shall provide for rental rates and terms comparable to existing local market rates and terms and shall be arms-length transactions with bona fide, independent third party tenants. All proposed Leases and renewals of existing Leases (other than residential Leases relating to a residential multifamily property) shall be subject to the prior approval of Lender and its counsel, at Borrower's expense. All Leases shall provide that they are subordinate to this Security Instrument and that the lessee agrees to attorn to Lender. Borrower (i) shall observe and perform all the obligations imposed upon the lessor under the Leases and shall not do or permit to be done anything to impair the value of any of the Leases as security for the Debt; (ii) shall promptly send copies to Lender of all notices of default which Borrower shall send or receive thereunder; (iii) shall enforce all of the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed, short of termination thereof; provided however, with respect to multifamily residential property, a residential Lease may be terminated in the event of a default by the tenant thereunder; (iv) shall not collect any of the Rents more than one (1) month in advance; (v) shall not execute any other assignment of the lessor's interest in any of the Leases or the Rents; (vi) shall not alter, modify or change the terms of any Leases without the prior written consent of Lender, or cancel or terminate any Leases or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Land or of any interest therein so as to effect a merger of the estates and rights of or a termination or diminution of the obligations of, lessees thereunder; (vii) shall not alter, modify or change the terms of any guaranty, letter of credit or other credit support with respect to any of the Leases (the "Lease Guaranty") or cancel or terminate such Lease Guaranty without the prior written consent of Lender; and (viii) shall not consent to any assignment of or subletting under any Leases not in accordance with their terms, without the prior written consent of Lender. (b) Intentionally Omitted (c) Upon the occurrence of an Event of Default, to the extent permitted by law, Borrower shall promptly deposit with Lender any and all monies representing security deposits under the Leases, whether or not Borrower actually received such monies (the "Security Deposits"). Lender shall hold the Security Deposits in accordance with the terms of the respective Lease, and shall only release the Security Deposits in order to return a tenant's Security Deposit to such tenant if such tenant is entitled to the return of the Security Deposit under the terms of the Lease and is not otherwise in default under the Lease. To the extent required by Applicable Laws (defined below), Lender shall hold the Security Deposits in an interest bearing account selected by Lender in its sole discretion. In the event Lender is not permitted by law to hold the Security [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 12 - Deposits, Borrower shall deposit the Security Deposits into an account with a federally insured institution as approved by Lender. (d) Notwithstanding anything to the contrary contained in this Section 3.7, Lender shall consent to a one-time assignment or other transfer of the tenant's interest in the J.Baker Lease (as defined in Section 5.10) provided J. Baker, Inc. continues to guaranty the tenant's obligations under said lease. Notwithstanding the foregoing, Lender agrees to release JBI, Inc. from further liability under the J. Baker Lease and to allow J. Baker, Inc. to terminate its Lease Guaranty in connection with such a transfer provided that (a) Lender receives thirty (30) days prior written notice of such termination, (b) no default has occurred and is continuing under this Security Instrument, the Note or the Other Security Documents and (c) upon the satisfaction (in the sole determination of Lender) of such conditions as may be reasonably imposed by Lender, which may include, but shall not be limited to, the following matters: A. Tenant's proposed transferee ("Tenant's Transferee") shall have a credit rating from Standard's & Poor's Corp. or Moody's or such comparable Rating Agency (a) if Lender has not released the balance of the reserve amount held pursuant to that certain Tenant Credit Reserve and Security Agreement dated the date hereof, by and between Borrower and Lender (the "Additional Reserve") pursuant to the terms thereof, equal to or greater than that of J. Baker, Inc. as of the date hereof and at the time of said transfer or (b) if Lender has released the balance of the Additional Reserve pursuant to the terms thereof, of not less than an investment grade credit rating from Standard & Poor's Corp. or Moody's or such comparable Rating Agency; B. Borrower shall pay to Lender a processing fee of $4,000 upon request for approval of such termination and a fee equal to 1% of the outstanding principal balance of the Loan upon approval of the release of JBI, Inc. from further liability under the J. Baker Lease and the termination of the Lease Guaranty; C. Borrower shall pay any and all out-of-pocket costs incurred in connection with the termination (including, without limitation, Lender's reasonable counsel fees and disbursements); D. Tenant's Transferee shall, as of the date of such transfer, have an aggregate net worth and liquidity of not less than that of J. Baker, Inc. as of the date hereof and as of the date of the transfer; E. Tenant's Transferee must not have been a party to any bankruptcy proceeding, voluntary or involuntary, made an assignment for the benefit of creditors or taken advantage of any insolvency act, or any act for the benefit of debtors within seven (7) years prior to the date of the transfer; [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 13 - F. Tenant's Transferee shall assume all of the obligations of the tenant under the J. Baker Lease; G. There shall be no material litigation pending against Tenant's Transferee that is not acceptable to Lender; and H. Tenant's Transferee shall not have defaulted under its or their obligations with respect to any other indebtedness beyond any applicable grace period. Section 3.8 MAINTENANCE OF PROPERTY. Borrower shall cause the Property to be maintained in a good and safe condition and repair. The Improvements and the Personal Property shall not be removed, demolished or materially altered (except for normal replacement of the Personal Property) without the consent of Lender. Borrower shall promptly repair, replace or rebuild any part of the Property which may be destroyed by any casualty, or become damaged, worn or dilapidated or which may be affected by any proceeding of the character referred to in Section hereof and shall complete and pay for any structure at any time in the process of construction or repair on the Land. Borrower shall not initiate, join in, acquiesce in, or consent to any change in any private restrictive covenant, zoning law or other public or private restriction, limiting or defining the uses which may be made of the Property or any part thereof. If under applicable zoning provisions the use of all or any portion of the Property is or shall become a nonconforming use, Borrower will not cause or permit the nonconforming use to be discontinued or abandoned without the express written consent of Lender. Section 3.9 WASTE. Borrower shall not commit or suffer any waste of the Property or make any change in the use of the Property which will in any way materially increase the risk of fire or other hazard arising out of the operation of the Property, or take any action that might invalidate or give cause for cancellation of any Policy, or do or permit to be done thereon anything that may in any way impair the value of the Property or the security of this Security Instrument. Borrower will not, without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Land, regardless of the depth thereof or the method of mining or extraction thereof. Section 3.10 COMPLIANCE WITH LAWS. (a) Borrower shall promptly comply with all existing and future federal, state and local laws, orders, ordinances, governmental rules and regulations or court orders affecting or which may be interpreted to affect the Property, or the use thereof ("Applicable Laws"). (b) Borrower shall from time to time, upon Lender's request, provide Lender with evidence satisfactory to Lender that the Property complies with all Applicable Laws or is exempt from compliance with Applicable Laws. (c) Notwithstanding any provisions set forth herein or in any document regarding Lender's approval of alterations of the Property, Borrower shall not alter the Property in any manner which would increase Borrower's responsibilities for compliance [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 14 - with Applicable Laws without the prior written approval of Lender. Lender's approval of the plans, specifications, or working drawings for alterations of the Property shall create no responsibility or liability on behalf of Lender for their completeness, design, sufficiency or their compliance with Applicable Laws. The foregoing shall apply to tenant improvements constructed by Borrower or by any of its tenants. Lender may condition any such approval upon receipt of a certificate of compliance with Applicable Laws from an independent architect, engineer, or other person acceptable to Lender. (d) Borrower shall give prompt notice to Lender of the receipt by Borrower of any notice related to a violation of any Applicable Laws and of the commencement of any proceedings or investigations which relate to compliance with Applicable Laws. Section 3.11 BOOKS AND RECORDS. (a) Borrower and any Guarantors (defined in Subsection (e)) and Indemnitor(s) (defined in Subsection (o)), if any, shall keep adequate books and records of account in accordance with generally accepted accounting principles ("GAAP"), or in accordance with other methods acceptable to Lender in its sole discretion, consistently applied and furnish to Lender: (i) monthly certified rent rolls signed and dated by Borrower, detailing the names of all tenants of the Improvements, the portion of Improvements occupied by each tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, and any other information as is reasonably required by Lender, within twenty (20) days after the end of each calendar month; (ii) upon Lender's written request therefor, quarterly operating statements of the Property, prepared and certified by Borrower in the form required by Lender, detailing the revenues received, the expenses incurred and the net operating income before and after debt service (principal and interest) and major capital improvements for that quarter and containing appropriate year to date information, within thirty (30) days after the end of each fiscal quarter; (iii) an annual operating statement of the Property detailing the total revenues received, total expenses incurred, total cost of all capital improvements, total debt service and total cash flow, to be prepared and certified by Borrower in the form required by Lender, or if required by Lender, an audited annual operating statement prepared and certified by an independent certified public accountant acceptable to Lender, within sixty (60) days after the close of each fiscal year of Borrower; (iv) an annual balance sheet and profit and loss statement of Borrower, any Guarantors and any Indemnitor(s) in the form required by Lender, prepared and certified by the respective Borrower, Guarantors and/or Indemnitor(s), or if required by Lender, audited financial statements prepared by an independent certified public accountant reasonably acceptable to Lender, within sixty (60) days [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 15 - after the close of each fiscal year of Borrower, Guarantors and Indemnitor(s), as the case may be; and (v) an annual operating budget presented on a monthly basis consistent with the annual operating statement described above for the Property, including cash flow projections for the upcoming year, and all proposed capital replacements and improvements at least fifteen (15) days prior to the start of each fiscal year. Notwithstanding the provisions of this Subsection 3.11(a), Lender agrees not to require the rent rolls referred to in Subsection 3.11(a)(i) for so long as J. Baker, Inc. is the guarantor of the lease of the entire Property. (b) Upon request from Lender, Borrower, any Guarantor and any Indemnitor shall furnish in a timely manner to Lender: (i) a property management report for the Property, showing the number of inquiries made and/or rental applications received from tenants or prospective tenants and deposits received from tenants and any other information requested by Lender, in reasonable detail and certified by Borrower (or an officer, general partner, member or principal of Borrower if Borrower is not an individual) under penalty of perjury to be true and complete, but no more frequently than quarterly; and (ii) an accounting of all security deposits held in connection with any Lease of any part of the Property, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions. Notwithstanding the provisions of this Subsection 3.11(b), Lender agrees not to require the reports referred to in Subsection 3.11(b) for so long as J. Baker, Inc. is the guarantor of the lease of the entire Property. (c) Borrower, any Guarantor and any Indemnitor shall furnish Lender with such other additional financial or management information (including State and Federal tax returns) as may, from time to time, be reasonably required by Lender in form and substance satisfactory to Lender. (d) Borrower, any Guarantor and any Indemnitor shall furnish to Lender and its agents convenient facilities for the examination and audit of any such books and records. Section 3.12 PAYMENT FOR LABOR AND MATERIALS. Borrower will promptly pay when due all bills and costs for labor, materials, and specifically fabricated materials [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 16 - incurred in connection with the Property and never permit to exist beyond the due date thereof in respect of the Property or any part thereof any lien or security interest, even though inferior to the liens and the security interests hereof, and in any event never permit to be created or exist in respect of the Property or any part thereof any other or additional lien or security interest other than the liens or security interests hereof, except for the Permitted Exceptions (defined below). Section 3.13 PERFORMANCE OF OTHER AGREEMENTS. Borrower shall observe and perform each and every term to be observed or performed by Borrower pursuant to the terms of any agreement or recorded instrument affecting or pertaining to the Property, or given by Borrower to Lender for the purpose of further securing an obligation secured hereby and any amendments, modifications or changes thereto. Article 4 - SPECIAL COVENANTS Borrower covenants and agrees that: Section 4.1 PROPERTY USE. The Property shall be used only for a commercial office building and distribution center, and for no other use without the prior written consent of Lender, which consent may be withheld in Lender's sole and absolute discretion. Section 4.2 ERISA. (a) It shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Security Instrument and the Other Security Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); provided, however, that Borrower shall not be deemed to have breached the representation in this Section 4.2(a) if a prohibited transaction occurs which would not have occurred if all or part of Lender's interest had not been transferred to an employee benefit plan (as defined in Section 3(3) of ERISA) or an entity using assets of such a plan (as defined in 29 C.F.R. ss.2510.3-101). (b) Borrower further covenants and agrees to deliver to Lender such certifications or other evidence from time to time throughout the term of the Security Instrument, as requested by Lender in its sole discretion, that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a "governmental plan" within the meaning of Section 3(3) of ERISA; (ii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; and (iii) one or more of the following circumstances is true: (A) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. ss. 2510.3-101(b)(2); [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 17 - (B) Less than 25 percent of each outstanding class of equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. ss. 2510.3-101(f)(2); or (C) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. ss. 2510.3-101(c) or (e) or an investment company registered under The Investment Company Act of 1940. Section 4.3 SINGLE PURPOSE ENTITY. Borrower covenants and agrees that it has not and shall not and agrees that its general partner(s), if Borrower is a partnership, its managing member(s), if Borrower is a limited liability company, or its principal shareholders, if Borrower is a corporation (in each case, "Principal"), has not and shall not: (a) with respect to Borrower, engage in any business or activity other than the ownership, operation and maintenance of the Property, and activities incidental thereto and with respect to Principal, engage in any business or activity other than the ownership of its interest in Borrower, and activities incidental thereto including the management of the Property; (b) with respect to Borrower, acquire or own any material assets other than (i) the Property, and (ii) such incidental Personal Property as may be necessary for the operation of the Property and with respect to Principal, acquire or own any material asset other than its interest in Borrower; (c) merge into or consolidate with any person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case Lender's consent; (d) fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or without the prior written consent of Lender, amend, modify, terminate or fail to comply with the provisions of Borrower's Partnership Agreement, Articles or Certificate of Incorporation, Articles of Organization or similar organizational documents, as the case may be, or of Principal's Partnership Agreement, Articles or Certificate of Incorporation, Articles of Organization or similar organizational documents, as the case may be, whichever is applicable; (e) own any subsidiary or make any investment in, any person or entity without the consent of Lender; (f) commingle its assets with the assets of any of its members, general partners, affiliates, principals or of any other person or entity; (g) with respect to Borrower, incur any debt, secured or unsecured, direct or contingent (including guaranteeing any obligation), other than the Debt, except for trade payables in the ordinary course of its business of owning and operating the Property, provided that such debt is not evidenced by a note and paid when due and with respect [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 18 - to Principal, incur any debt secured or unsecured, direct or contingent (including guaranteeing any obligations); (h) become insolvent and fail to pay its debts and liabilities from its assets as the same shall become due; (i) fail to maintain its records, books of account and bank accounts separate and apart from those of the members, general partners, principals and affiliates of Borrower or of Principal, as the case may be, the affiliates of a member, general partner or principal of Borrower or Principal, as the case may be, and any other person or entity; (j) enter into any contract or agreement with any member, general partner, principal or affiliate of Borrower or of Principal, as the case may be, Guarantor or Indemnitor, or any member, general partner, principal or affiliate thereof, except upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any member, general partner, principal or affiliate of Borrower or of Principal, as the case may be, Guarantor or Indemnitor, or any member, general partner, principal or affiliate thereof; (k) seek the dissolution or winding up in whole, or in part, of Borrower or of Principal, as the case may be; (l) fail to correct any known misunderstandings regarding the separate identity of Borrower, or of Principal, as the case may be, or any member, general partner, principal or affiliate thereof or any other person; (m) hold itself out to be responsible for the debts of another person; (n) make any loans or advances to any third party, including any member, general partner, principal or affiliate of Borrower, or of Principal, as the case may be, or any member, general partner, principal or affiliate thereof without Lender's prior written consent; (o) fail to file its own tax returns (except that Lender acknowledges that Borrower and Principal will file a consolidated tax return with J. Baker, Inc. which shall provide that Borrower, Principal and J. Baker, Inc. are separate legal entities); (p) agree to, enter into or consummate any transaction which would render Borrower or Principal, as the case may be, unable to furnish the certification or other evidence referred to in Section (b) hereof; (q) fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that Borrower or Principal, as the case may be, is responsible for the debts of any third party (including any member, general partner, [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 19 - principal or affiliate of Borrower, or of Principal, as the case may be, or any member, general partner, principal or affiliate thereof); (r) fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (s) file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors; or (t) share any common logo with or hold itself out as or be considered as a department or division of (i) any general partner, principal, member or affiliate of Borrower or of Principal, as the case may be, (ii) any affiliate of a general partner, principal or member of Borrower or of Principal, as the case may be, or (iii) any other person or entity. Section 4.4 RESTORATION. The following provisions shall apply in connection with the Restoration of the Property: (a) If the Net Proceeds (defined below) shall be less than $75,000 and the costs of completing the Restoration shall be less than $75,000, the Net Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all of the conditions set forth in Subsection (b)(i) are met and Borrower delivers to Lender a written undertaking to expeditiously commence and to satisfactorily complete with due diligence the Restoration in accordance with the terms of this Security Instrument. (b) If the Net Proceeds are equal to or greater than $75,000 or the costs of completing the Restoration is equal to or greater than $75,000, Lender shall make the Net Proceeds available for Restoration in accordance with the provisions of this Subsection 4.4(b). The term "Net Proceeds" for purpose of this Section 4.4 shall mean: (i) the net amount of all insurance proceeds received by Lender pursuant to Subsections (a)(i), (iv), (vi) and (vii) of this Security Instrument as a result of such damage or destruction, after deduction of its reasonable costs and expenses (including, but not limited to, reasonable counsel fees), if any, in collecting the same (the "Insurance Proceeds"), or (ii) the net amount of all awards and payments received by Lender with respect to a taking referenced in Section 3.6 of this Security Instrument, after deduction of its reasonable costs and expenses (including, but not limited to reasonable counsel fees), if any, in collecting the same ("Condemnation Proceeds"), whichever the case may be, available for the Restoration in accordance with the provisions of this Subsection (b). (i) The Net Proceeds shall be made available to Borrower for the Restoration provided that each of the following conditions are met: [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 20 - (A) no Event of Default shall have occurred and be continuing under the Note, this Security Instrument or any of the Other Security Documents; (B) (1) in the event the Net Proceeds are Insurance Proceeds, less than fifty percent (50%) of the total floor area of the Improvements has been damaged, destroyed or rendered unusable as a result of such fire or other casualty or (2) in the event that the Net Proceeds are Condemnation Proceeds, said Condemnation Proceeds do not exceed $200,000; (C) Leases demising in the aggregate at least 50% of the total rentable space in the Property which has been demised under executed and delivered Leases in effect as of the date of the occurrence of such fire or other casualty or taking, whichever the case may be, shall remain in full force and effect during and after the completion of the Restoration; (D) Borrower shall commence the Restoration as soon as reasonably practicable (but in no event later than thirty (30) days after such damage or destruction or taking, whichever the case may be, occurs) and shall diligently pursue the same to satisfactory completion (Restoration shall be deemed commenced upon the filing of a building permit); (E) Lender shall be satisfied that any operating deficits which will be incurred with respect to the Property as a result of the occurrence of any such fire or other casualty or taking, whichever the case may be, will be covered out of (1) the Net Proceeds, (2) the insurance coverage referred to in Subsection (a)(iii), or (3) by other funds of Borrower; (F) Lender shall be satisfied that, upon the completion of the Restoration, the gross cash flow and the net cash flow of the Property will be restored to a level sufficient to cover all carrying costs and operating expenses of the Property, including, without limitation, debt service on the Note at a coverage ratio (after deducting all required reserves as required by Lender from net operating income) of at least 1.2 to 1.0, which coverage ratio shall be determined by Lender in its sole and absolute discretion on the basis of the Applicable Interest Rate (as defined in the Note); (G) Lender shall be satisfied that the Restoration will be completed on or before the earliest to occur of (1) six (6) months prior to the Maturity Date (as defined in the Note), (2) six (6) months after the occurrence of such fire or other casualty, or taking, whichever the case may be, or (3) such time as may be required under applicable zoning law, ordinance, rule or regulation in order to repair and restore the Property to the condition it was in immediately prior to such fire or other casualty [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 21 - or to as nearly as possible the condition it was in immediately prior to such taking, as applicable; (H) Borrower shall execute and deliver to Lender a completion guaranty in form and substance satisfactory to Lender and its counsel pursuant to the provisions of which Borrower shall guaranty to Lender the lien-free completion by Borrower of the Restoration in accordance with the provisions of this Subsection (b); (I) the Property and the use thereof after the Restoration will be in compliance with and permitted under all applicable zoning laws, ordinances, rules and regulations; and (J) the Restoration shall be done and completed by Borrower in an expeditious and diligent fashion and in compliance with all applicable governmental laws, rules and regulations (including, without limitation, all applicable Environmental Laws (defined below); and (K) with respect to a taking of the Property, such taking does not (1) result in the violation of any requirement pursuant to the terms of any Leases or (2) adversely impact the operations and/or the fair market value of the Property, as determined by Lender in its sole discretion. (ii) The Net Proceeds shall be held by Lender and, until disbursed in accordance with the provisions of this Subsection (b), shall constitute additional security for the Obligations. The Net Proceeds shall be disbursed by Lender to, or as directed by, Borrower from time to time during the course of the Restoration, upon receipt of evidence satisfactory to Lender that (A) all materials installed and work and labor performed (except to the extent that they are to be paid for out of the requested disbursement) in connection with the Restoration have been paid for in full, and (B) there exist no notices of pendency, stop orders, mechanic's or materialman's liens or notices of intention to file same, or any other liens or encumbrances of any nature whatsoever on the Property arising out of the Restoration which have not either been fully bonded to the satisfaction of Lender and discharged of record or in the alternative fully insured to the satisfaction of Lender by the title company insuring the lien of this Security Instrument. (iii) All plans and specifications required in connection with the Restoration shall be subject to prior review and acceptance in all respects by Lender and by an independent consulting engineer selected by Lender (the "Restoration Consultant"). Lender shall have the use of the plans and specifications and all permits, licenses and approvals required or obtained in connection with the Restoration. The identity of the contractors, subcontractors and materialmen engaged in the Restoration, as well as the contracts under which they have been engaged, shall be subject to prior review and acceptance by Lender and the Restoration Consultant. All costs and expenses incurred by [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 22 - Lender in connection with making the Net Proceeds available for the Restoration including, without limitation, reasonable counsel fees and disbursements and the Restoration Consultant's fees, shall be paid by Borrower. (iv) In no event shall Lender be obligated to make disbursements of the Net Proceeds in excess of an amount equal to the costs actually incurred from time to time for work in place as part of the Restoration, as certified by the Restoration Consultant, minus the Restoration Retainage. The term "Restoration Retainage" as used in this Subsection (b) shall mean an amount equal to 10% of the costs actually incurred for work in place as part of the Restoration, as certified by the Restoration Consultant, until such time as the Restoration Consultant certifies to Lender that Net Proceeds representing 50% of the required Restoration have been disbursed. There shall be no Restoration Retainage with respect to costs actually incurred by Borrower for work in place in completing the last 50% of the required Restoration. The Restoration Retainage shall in no event, and notwithstanding anything to the contrary set forth above in this Subsection (b), be less than the amount actually held back by Borrower from contractors, subcontractors and materialmen engaged in the Restoration. The Restoration Retainage shall not be released until the Restoration Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection (b) and that all approvals necessary for the re-occupancy and use of the Property have been obtained from all appropriate governmental and quasi-governmental authorities, and Lender receives evidence satisfactory to Lender that the costs of the Restoration have been paid in full or will be paid in full out of the Restoration Retainage, provided, however, that Lender will release the portion of the Restoration Retainage being held with respect to any contractor, subcontractor or materialman engaged in the Restoration as of the date upon which the Restoration Consultant certifies to Lender that the contractor, subcontractor or materialman has satisfactorily completed all work and has supplied all materials in accordance with the provisions of the contractor's, subcontractor's or materialman's contract, and the contractor, subcontractor or materialman delivers the lien waivers and evidence of payment in full of all sums due to the contractor, subcontractor or materialman as may be reasonably requested by Lender or by the title company insuring the lien of this Security Instrument. If required by Lender, the release of any such portion of the Restoration Retainage shall be approved by the surety company, if any, which has issued a payment or performance bond with respect to the contractor, subcontractor or materialman. (v) Lender shall not be obligated to make disbursements of the Net Proceeds more frequently than once every calendar month. (vi) If at any time the Net Proceeds or the undisbursed balance thereof shall not, in the opinion of Lender, be sufficient to pay in full the balance of the costs which are estimated by the Restoration Consultant to be incurred in connection with the completion of the Restoration, Borrower shall deposit the deficiency (the "Net Proceeds Deficiency") with Lender before any further [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 23 - disbursement of the Net Proceeds shall be made. The Net Proceeds Deficiency deposited with Lender shall be held by Lender and shall be disbursed for costs actually incurred in connection with the Restoration on the same conditions applicable to the disbursement of the Net Proceeds, and until so disbursed pursuant to this Subsection (b) shall constitute additional security for the Obligations. (vii) The excess, if any, of the Net Proceeds and the remaining balance, if any, of the Net Proceeds Deficiency deposited with Lender after the Restoration Consultant certifies to Lender that the Restoration has been completed in accordance with the provisions of this Subsection (b), and the receipt by Lender of evidence satisfactory to Lender that all costs incurred in connection with the Restoration have been paid in full, shall be remitted by Lender to Borrower, provided no Event of Default shall have occurred and shall be continuing under the Note, this Security Instrument or any of the Other Security Documents. (c) All Net Proceeds not required (i) to be made available for the Restoration or (ii) to be returned to Borrower as excess Net Proceeds pursuant to Subsection (b)(vii) may be retained and applied by Lender toward the payment of the Debt whether or not then due and payable in such order, priority and proportions as Lender in its discretion shall deem proper or, at the discretion of Lender, the same may be paid, either in whole or in part, to Borrower for such purposes as Lender shall designate, in its discretion. If Lender shall receive and retain Net Proceeds, the lien of this Security Instrument shall be reduced only by the amount thereof received and retained by Lender and actually applied by Lender in reduction of the Debt. Article 5 - REPRESENTATIONS AND WARRANTIES Borrower represents and warrants to Lender that: Section 5.1 WARRANTY OF TITLE. Borrower has good title to the Property and has the right to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the same and that Borrower possesses an unencumbered fee simple absolute estate in the Land and the Improvements and that it owns the Property free and clear of all liens, encumbrances and charges whatsoever except for those exceptions shown in the title insurance policy insuring the lien of this Security Instrument (the "Permitted Exceptions"). Borrower shall forever warrant, defend and preserve the title and the validity and priority of the lien of this Security Instrument and shall forever warrant and defend the same to Lender against the claims of all persons whomsoever. Section 5.2 AUTHORITY. Borrower (and the undersigned representative of Borrower, if any) has full power, authority and legal right to execute this Security Instrument, and to mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey the Property pursuant to the terms hereof and to keep and observe all of the terms of this Security Instrument on Borrower's part to be performed. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 24 - Section 5.3 LEGAL STATUS AND AUTHORITY. Borrower (a) is duly organized, validly existing and in good standing under the laws of its state of organization or incorporation; (b) is duly qualified to transact business and is in good standing in the State where the Property is located; and (c) has all necessary approvals, governmental and otherwise, and full power and authority to own the Property and carry on its business as now conducted and proposed to be conducted. Borrower now has and shall continue to have the full right, power and authority to operate and lease the Property, to encumber the Property as provided herein and to perform all of the other obligations to be performed by Borrower under the Note, this Security Instrument and the Other Security Documents. Section 5.4 VALIDITY OF DOCUMENTS. (a) The execution, delivery and performance of the Note, this Security Instrument and the Other Security Documents and the borrowing evidenced by the Note (i) are within the corporate/partnership/company power of Borrower; (ii) have been authorized by all requisite corporate/partnership/company action; (iii) have received all necessary approvals and consents, corporate, governmental or otherwise; (iv) will not violate, conflict with, result in a breach of or constitute (with notice or lapse of time, or both) a default under any provision of law, any order or judgment of any court or governmental authority, the articles of incorporation, by-laws, partnership or trust agreement, articles of organization, operating agreement, or other governing instrument of Borrower, or any indenture, agreement or other instrument to which Borrower is a party or by which it or any of its assets or the Property is or may be bound or affected; (v) will not result in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of its assets, except the lien and security interest created hereby; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this instrument in appropriate land records in the State where the Property is located and except for Uniform Commercial Code filings relating to the security interest created hereby); and (b) the Note, this Security Instrument and the Other Security Documents constitute the legal, valid and binding obligations of Borrower. Section 5.5 LITIGATION. There is no action, suit or proceeding, judicial, administrative or otherwise (including any condemnation or similar proceeding), pending or, to the best of Borrower's knowledge, threatened or contemplated against, or affecting, Borrower, a Guarantor, if any, an Indemnitor, if any, or the Property. Section 5.6 STATUS OF PROPERTY. (a) No portion of the Improvements is located in an area identified by the Secretary of Housing and Urban Development or any successor thereto as an area having special flood hazards pursuant to the Flood Insurance Acts or, if any portion of the Improvements is located within such area, Borrower has obtained and will maintain the insurance prescribed in Section hereof. (b) Borrower has obtained all necessary certificates, licenses and other approvals, governmental and otherwise, necessary for the operation of the Property and the conduct of its business and all required zoning, building code, land use, environmental and other similar permits or approvals, all of which are in full force and [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 25 - effect as of the date hereof and not subject to revocation, suspension, forfeiture or modification. (c) To the best of Borrower's knowledge after due inquiry and investigation, the Property and the present and contemplated use and occupancy thereof are in full compliance with all applicable zoning ordinances, building codes, land use and environmental laws and other similar laws. (d) The Property is served by all utilities required for the current or contemplated use thereof. All utility service is provided by public utilities and the Property has accepted or is equipped to accept such utility service. (e) All public roads and streets necessary for service of and access to the Property for the current or contemplated use thereof have been completed, are serviceable and all-weather and are physically and legally open for use by the public. (f) The Property is served by public water and sewer systems. (g) The Property is free from damage caused by fire or other casualty. (h) All costs and expenses of any and all labor, materials, supplies and equipment used in the construction of the Improvements have been paid in full. (i) Borrower has paid in full for, and is the owner of, all furnishings, fixtures and equipment (other than tenants' property) used in connection with the operation of the Property, free and clear of any and all security interests, liens or encumbrances, except the lien and security interest created hereby. (j) To the best of Borrower's knowledge after due inquiry and investigation, all liquid and solid waste disposal, septic and sewer systems located on the Property are in a good and safe condition and repair and in compliance with all Applicable Laws. Section 5.7 NO FOREIGN PERSON. Borrower is not a "foreign person" within the meaning of Sections 1445(f)(3) of the Internal Revenue Code of 1986, as amended and the related Treasury Department regulations, including temporary regulations. Section 5.8 SEPARATE TAX LOT. The Property is assessed for real estate tax purposes as one or more wholly independent tax lot or lots, separate from any adjoining land or improvements not constituting a part of such lot or lots, and no other land or improvements is assessed and taxed together with the Property or any portion thereof. Section 5.9 ERISA COMPLIANCE. (a) As of the date hereof and throughout the term of this Security Instrument, (i) Borrower is not and will not be an "employee benefit plan" as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, and (ii) the assets of Borrower do not [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 26 - and will not constitute "plan assets" of one or more such plans for purposes of Title I of ERISA; and (b) As of the date hereof and throughout the term of this Security Instrument (i) Borrower is not and will not be a "governmental plan" within the meaning of Section 3(3) of ERISA and (ii) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of and fiduciary obligations with respect to governmental plans. Section 5.10 LEASES. (a) Borrower is the sole owner of the entire lessor's interest in the Leases; (b) the Leases are valid and enforceable and in full force and effect; (c) all of the Leases are arms-length agreements with bona fide, independent third parties (except, however, with respect to that certain lease dated December 11, 1996 between Borrower, as landlord, and JBI, Inc., as tenant (the "J. Baker Lease")); (d) no party under any Lease is in default; (e) all Rents due have been paid in full; (f) the terms of all alterations, modifications and amendments to the Leases are reflected in the certified occupancy statement delivered to and approved by Lender; (g) none of the Rents reserved in the Leases have been assigned or otherwise pledged or hypothecated; (h) none of the Rents have been collected for more than one (1) month in advance; (i) the premises demised under the Leases have been completed and the tenants under the Leases have accepted the same and have taken possession of the same on a rent-paying basis; (j) there exist no offsets or defenses to the payment of any portion of the Rents; (k) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision; (l) no person or entity has any possessory interest in, or right to occupy, the Property except under and pursuant to a Lease; (m) each Lease is subordinate to this Security Instrument, either pursuant to its terms or a recorded subordination agreement; and (n) no Lease has the benefit of a non-disturbance agreement that would be considered unacceptable to prudent institutional lenders. Section 5.11 FINANCIAL CONDITION. (a) (i) Borrower is solvent, and no bankruptcy, reorganization, insolvency or similar proceeding under any state or federal law with respect to Borrower has been initiated, and (ii) Borrower has received reasonably equivalent value for the granting of this Security Instrument. (b) No petition in bankruptcy has been filed by or against Borrower, JBI, Inc. or J. Baker, Inc., or any principal, general partner or member thereof, in the last seven (7) years, and neither Borrower, JBI, Inc. nor J. Baker, Inc. or any principal, general partner or member thereof, in the last seven (7) years has ever made any assignment for the benefit of creditors or taken advantage of any insolvency act or any act for the benefit of debtors. Section 5.12 BUSINESS PURPOSES. The loan evidenced by the Note secured by the Security Instrument and the Other Security Documents (the "Loan") is solely for the business purpose of Borrower, and is not for personal, family, household, or agricultural purposes. Section 5.13 TAXES. Borrower, any Guarantor and any Indemnitor have filed all federal, state, county, municipal, and city income and other tax returns required to have been filed by them and have paid all taxes and related liabilities which have become due pursuant to such returns or pursuant to any assessments received by them. Neither Borrower, any Guarantor [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 27 - nor any Indemnitor knows of any basis for any additional assessment in respect of any such taxes and related liabilities for prior years. Section 5.14 MAILING ADDRESS. Borrower's mailing address, as set forth in the opening paragraph hereof or as changed in accordance with the provisions hereof, is true and correct. Section 5.15 NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the application for the Loan submitted to Lender (the "Loan Application") and in all financing statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan Application or in satisfaction of the terms thereof, are accurate, complete and correct in all material respects. There has been no adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading. Section 5.16 DISCLOSURE. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. Section 5.17 THIRD PARTY REPRESENTATIONS. Each of the representations and the warranties made by each Guarantor and Indemnitor herein or in any Other Security Document(s) is true and correct in all material respects. Section 5.18 ILLEGAL ACTIVITY. No portion of the Property has been or will be purchased with proceeds of any illegal activity. Section 5.19 CONTRACTS. All contracts, agreements, consents, waivers, documents and writings of every kind or character at any time to which Borrower is a party to be delivered to Lender pursuant to any of the provisions of this Security Instrument are valid and enforceable against Borrower and, to the best knowledge of Borrower, are enforceable against all other parties thereto, and, to Borrower's actual knowledge, in all respects are what they purport to be and, to the best knowledge of Borrower, to the extent that any such writing shall impose any obligation or duty on the party thereto or constitute a waiver of any rights which any such party might otherwise have, said writing shall be valid and enforceable against said party in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally. Article 6 - OBLIGATIONS AND RELIANCES Section 6.1 RELATIONSHIP OF BORROWER AND LENDER. The relationship between Borrower and Lender is solely that of debtor and creditor, and Lender has no fiduciary or other special relationship with Borrower, and no term or condition of any of the Note, this Security Instrument and the Other Security Documents shall be construed so as to deem the relationship between Borrower and Lender to be other than that of debtor and creditor. Section 6.2 NO RELIANCE ON LENDER. Lender will be relying solely upon Borrower's expertise and business plan in connection with the ownership and operation of the [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 28 - Property. Borrower is not relying on Lender's expertise, business acumen or advice in connection with the Property. Section 6.3 NO LENDER OBLIGATIONS. (a) Notwithstanding the provisions of Subsections (f) and (l) or Section , Lender is not undertaking the performance of (i) any obligations under the Leases; or (ii) any obligations with respect to such agreements, contracts, certificates, instruments, franchises, permits, trademarks, licenses and other documents. (b) By accepting or approving anything required to be observed, performed or fulfilled or to be given to Lender pursuant to this Security Instrument, the Note or the Other Security Documents, including without limitation, any officer's certificate, balance sheet, statement of profit and loss or other financial statement, survey, appraisal, or insurance policy, Lender shall not be deemed to have warranted, consented to, or affirmed the sufficiency, the legality or effectiveness of same, and such acceptance or approval thereof shall not constitute any warranty or affirmation with respect thereto by Lender. Section 6.4 RELIANCE. Borrower recognizes and acknowledges that in accepting the Note, this Security Instrument and the Other Security Documents, Lender is expressly and primarily relying on the truth and accuracy of the warranties and representations set forth in Article without any obligation to investigate the Property and notwithstanding any investigation of the Property by Lender; that such reliance existed on the part of Lender prior to the date hereof; that the warranties and representations are a material inducement to Lender in accepting the Note, this Security Instrument and the Other Security Documents; and that Lender would not be willing to make the Loan and accept this Security Instrument in the absence of the warranties and representations as set forth in Article 5. Article 7 - FURTHER ASSURANCES Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC. Borrower forthwith upon the execution and delivery of this Security Instrument and thereafter, from time to time, will cause this Security Instrument and any of the Other Security Documents creating a lien or security interest or evidencing the lien hereof upon the Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and fully to protect and perfect the lien or security interest hereof upon, and the interest of Lender in, the Property. Borrower will pay all taxes, filing, registration or recording fees, and all expenses incident to the preparation, execution, acknowledgment and/or recording of the Note, this Security Instrument, the Other Security Documents, any note or mortgage supplemental hereto, any security instrument with respect to the Property and any instrument of further assurance, and any modification or amendment of the foregoing documents, and all federal, state, county and municipal taxes, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of this Security Instrument, any mortgage supplemental hereto, any security instrument with respect to the Property or any instrument of further assurance, and any modification or amendment of the foregoing documents, except where prohibited by law so to do. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 29 - Section 7.2 FURTHER ACTS, ETC. Borrower will, at the cost of Borrower, and without expense to Lender, do, execute, acknowledge and deliver all and every such further acts, deeds, conveyances, mortgages, assignments, notices of assignments, transfers and assurances as Lender shall, from time to time, reasonably require, for the better assuring, conveying, assigning, transferring, and confirming unto Lender the property and rights hereby mortgaged, granted, bargained, sold, conveyed, confirmed, pledged, assigned, warranted and transferred or intended now or hereafter so to be, or which Borrower may be or may hereafter become bound to convey or assign to Lender, or for carrying out the intention or facilitating the performance of the terms of this Security Instrument or for filing, registering or recording this Security Instrument, or for complying with all Applicable Laws. Borrower, on demand, will execute and deliver and hereby authorizes Lender to execute in the name of Borrower or without the signature of Borrower to the extent Lender may lawfully do so, one or more financing statements, chattel mortgages or other instruments, to evidence more effectively the security interest of Lender in the Property. Borrower grants to Lender an irrevocable power of attorney coupled with an interest for the purpose of exercising and perfecting any and all rights and remedies available to Lender at law and in equity, including without limitation such rights and remedies available to Lender pursuant to this Section . Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP ------------------------------------------------- LAWS. - ---- (a) If any law is enacted or adopted or amended after the date of this Security Instrument which deducts the Debt from the value of the Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on the Debt or Lender's interest in the Property, Borrower will pay the tax, with interest and penalties thereon, if any. If Lender is advised by counsel chosen by it that the payment of tax by Borrower would be unlawful or taxable to Lender or unenforceable or provide the basis for a defense of usury, then Lender shall have the option by written notice of not less than ninety (90) days to declare the Debt immediately due and payable. (b) Borrower will not claim or demand or be entitled to any credit or credits on account of the Debt for any part of the Taxes or Other Charges assessed against the Property, or any part thereof, and no deduction shall otherwise be made or claimed from the assessed value of the Property, or any part thereof, for real estate tax purposes by reason of this Security Instrument or the Debt. If such claim, credit or deduction shall be required by law, Lender shall have the option, by written notice of not less than ninety (90) days, to declare the Debt immediately due and payable. (c) If at any time the United States of America, any State thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to the Note, this Security Instrument, or any of the Other Security Documents or impose any other tax or charge on the same, Borrower will pay for the same, with interest and penalties thereon, if any. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 30 - Section 7.4 ESTOPPEL CERTIFICATES. (a) After request by Lender, Borrower, within ten (10) days, shall furnish Lender or any proposed assignee with a statement, duly acknowledged and certified, setting forth (i) the amount of the original principal amount of the Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest of the Note, (iv) the terms of payment and maturity date of the Note, (v) the date installments of interest and/or principal were last paid, except as provided in such statement, there are no defaults or, to the best of Borrower's knowledge, events which with the passage of time or the giving of notice or both, would constitute an event of default under the Note or the Security Instrument, (vi) that the Note and this Security Instrument are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification, (vii) whether any offsets or defenses exist against the obligations secured hereby and, if any are alleged to exist, a detailed description thereof, (viii) that all Leases are in full force and effect and (provided the Property is not a residential multifamily property) have not been modified (or if modified, setting forth all modifications), (ix) the date to which the Rents thereunder have been paid pursuant to the Leases, (x) whether or not, to the best knowledge of Borrower, any of the lessees under the Leases are in default under the Leases, and, if any of the lessees are in default, setting forth the specific nature of all such defaults, (xi) the amount of security deposits held by Borrower under each Lease and that such amounts are consistent with the amounts required under each Lease, and (xii) as to any other matters reasonably requested by Lender and reasonably related to the Leases, the obligations secured hereby, the Property or this Security Instrument. (b) Borrower shall deliver to Lender, promptly upon request, duly executed estoppel certificates from any one or more lessees as required by Lender attesting to such facts regarding the Lease as Lender may reasonably require, including but not limited to attestations that each Lease covered thereby is in full force and effect with no defaults thereunder on the part of any party, that none of the Rents have been paid more than one month in advance, and that the lessee claims no defense or offset against the full and timely performance of its obligations under the Lease. (c) Upon any transfer or proposed transfer contemplated by Section hereof, at Lender's request, Borrower, any Guarantors and any Indemnitor(s) shall provide an estoppel certificate to the Investor (defined in Section ) or any prospective Investor in such form, substance and detail as Lender, such Investor or prospective Investor may require. Section 7.5 FLOOD INSURANCE. After Lender's request, Borrower shall deliver evidence satisfactory to Lender that no portion of the Improvements is situated in a federally designated "special flood hazard area" or if it is, that Borrower has obtained insurance meeting the requirements of Section 3.3(a)(vii). Section 7.6 SPLITTING OF SECURITY INSTRUMENT. This Security Instrument and the Note shall, at any time until the same shall be fully paid and satisfied, at the sole election of Lender, be split or divided into two or more notes and two or more security [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 31 - instruments, each of which shall cover all or a portion of the Property to be more particularly described therein. To that end, Borrower, upon written request of Lender, shall execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered by the then owner of the Property, to Lender and/or its designee or designees substitute notes and security instruments in such principal amounts, aggregating not more than the then unpaid principal amount of this Security Instrument, and containing terms, provisions and clauses similar to those contained herein and in the Note, and such other documents and instruments as may be required by Lender. Section 7.7 REPLACEMENT DOCUMENTS. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of the Note or any Other Security Document which is not of public record, and, in the case of any such mutilation, upon surrender and cancellation of such Note or Other Security Document, Borrower will issue, in lieu thereof, a replacement Note or Other Security Document, dated the date of such lost, stolen, destroyed or mutilated Note or Other Security Document in the same principal amount thereof and otherwise of like tenor. Article 8 - DUE ON SALE/ENCUMBRANCE Section 8.1 LENDER RELIANCE. Lender will rely on Borrower's ownership of the Property as a means of maintaining the value of the Property as security for repayment of the Debt and the performance of the Other Obligations. Borrower acknowledges that Lender has a valid interest in maintaining the value of the Property so as to ensure that, should Borrower default in the repayment of the Debt or the performance of the Other Obligations, Lender can recover the Debt by a sale of the Property. Section 8.2 NO SALE/ENCUMBRANCE. Borrower agrees that Borrower shall not, without the prior written consent of Lender, sell, convey, mortgage, grant, bargain, encumber, pledge, assign, or otherwise transfer the Property or any part thereof or permit the Property or any part thereof to be sold, conveyed, mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise transferred. Section 8.3 SALE/ENCUMBRANCE DEFINED. A sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Article 8 shall be deemed to include, but not limited to, (a) an installment sales agreement wherein Borrower agrees to sell the Property or any part thereof for a price to be paid in installments; (b) an agreement by Borrower leasing all or a substantial part of the Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, Borrower's right, title and interest in and to any Leases or any Rents; (c) if Borrower, any Guarantor, any Indemnitor, or any general or limited partner or member of Borrower, any Guarantor or any Indemnitor is a corporation, the voluntary or involuntary sale, conveyance, transfer or pledge of such corporation's stock (or the stock of any corporation directly or indirectly controlling such corporation by operation of law or otherwise) or the creation or issuance of new stock by which an aggregate of more than 10% of such corporation's stock shall be vested in a party or parties who are not now stockholders; (d) if Borrower, any Guarantor or any Indemnitor or any general or limited partner or member of [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 32 - Borrower, any Guarantor or any Indemnitor is a limited or general partnership or joint venture, the change, removal or resignation of a general partner or managing partner or the transfer or pledge of the partnership interest of any general partner or managing partner or any profits or proceeds relating to such partnership interest or the voluntary or involuntary sale, conveyance, transfer or pledge of limited partnership interests (or the limited partnership interests of any limited partnership directly or indirectly controlling such limited partnership by operation of law or otherwise) or the creation or issuance of new limited partnership interests, by which an aggregate of more than 10% of such limited partnership interests are held by parties who are not currently limited partners; and (e) if Borrower, any Guarantor, any Indemnitor or any general or limited partner or member of Borrower, any Guarantor or any Indemnitor is a limited liability company, the change, removal or resignation of a managing member or the transfer of the membership interest of any managing member or any profits or proceeds relating to such membership interest or the voluntary or involuntary sale, conveyance, transfer or pledge of membership interests (or the membership interests of any limited liability company directly or indirectly controlling such limited liability company by operation of law or otherwise) or the creation or issuance of new membership interests, by which an aggregate of more than 10% of such membership interests are held by parties who are not currently members. Notwithstanding the foregoing, the following transfer shall not be deemed to be a sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer within the meaning of this Article 8: a transfer by devise or descent or by operation of law upon the death of a member, partner or stockholder of Borrower, any Guarantor or any Indemnitor or any general partner or member thereof. Section 8.4 LENDER'S RIGHTS. Lender reserves the right to condition the consent required hereunder upon a modification of the terms hereof and on assumption of the Note, this Security Instrument and the Other Security Documents as so modified by the proposed transferee, payment of a transfer fee of equal to one percent (1%) of the principal balance of the Note, a $4,000 processing fee, and all of Lender's expenses incurred in connection with such transfer, the approval by a Rating Agency of the proposed transferee, the proposed transferee's continued compliance with the covenants set forth in this Security Instrument, including, without limitation, the covenants in Section 4.3 hereof, or such other conditions as Lender shall determine in its sole discretion to be in the interest of Lender. All of Lender's expenses incurred and the $4,000 processing fee shall be payable by Borrower whether or not Lender consents to the transfer. Lender shall not be required to demonstrate any actual impairment of its security or any increased risk of default hereunder in order to declare the Debt immediately due and payable upon Borrower's sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property without Lender's consent. This provision shall apply to every sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property regardless of whether voluntary or not, or whether or not Lender has consented to any previous sale, conveyance, mortgage, grant, bargain, encumbrance, pledge, assignment, or transfer of the Property. Section 8.5 ONE-TIME TRANSFER. Notwithstanding anything to the contrary contained in this Article 8, Lender shall not unreasonably withhold its consent to a one-time sale, assignment, or other transfer of the Property or a one-time sale or transfer of Borrower or Principal provided that (a) Lender receives thirty (30) days prior written notice of such transfer, (b) no default has occurred and is continuing under this Security Instrument, the Note or the [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 33 - Other Security Documents and (c) upon the satisfaction (in the sole determination of Lender) of such conditions as may be reasonably imposed by Lender, which may include, but shall not be limited to, the following matters: A. Borrower shall pay to Lender a processing fee of $4,000 upon request for loan assumption and a transfer fee equal to 1% of the outstanding principal balance of the Loan upon transfer approval; B. Borrower shall pay any and all out-of-pocket costs incurred in connection with the transfer (including, without limitation, Lender's counsel fees and disbursements and all recording fees, title insurance premiums and mortgage and intangible taxes); C. The proposed transferee (the "Transferee") and Transferee's Principals, as hereinafter defined, must have demonstrated expertise as determined by Lender in owning and operating properties similar in location, size and operation to the Property. The term "Transferee's Principals" shall include Transferee's (I) managing members, general partners or principal shareholders and (II) such other members, partners or shareholders which shall own a 5% or greater interest in Transferee; D. Transferee and Transferee's Principals shall, as of the date of such transfer, have an aggregate net worth and liquidity of not less than that of J. Baker, Inc. as of the date hereof and as of the date of the transfer; E. Transferee, Transferee's Principals and all other entities which may be owned or controlled directly or indirectly by Transferee's Principals ("Related Entities") must not have been a party to any bankruptcy proceeding, voluntary or involuntary, made an assignment for the benefit of creditors or taken advantage of any insolvency act, or any act for the benefit of debtors within seven (7) years prior to the date of the transfer; F. Transferee shall assume all of the obligations of Borrower under the Note, this Security Instrument and the Other Security Documents in a manner satisfactory to Lender in all respects, including, without limitation, by entering into an assumption agreement in form and substance satisfactory to Lender; G. There shall be no material litigation pending against Transferee, Transferee's Principals and Related Entities that is not acceptable to Lender; [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 34 - H. Transferee, Transferee's Principals and Related Entities shall not have defaulted under its or their obligations with respect to any other indebtedness; I. Transferee and Transferee's Principals must be able to satisfy all the covenants set forth in Section 4.3 hereof; J. Transferee shall be approved by such Rating Agencies as selected by Lender; and K. Transferee shall deliver an endorsement to the existing title policy insuring this Security Instrument as modified by the assumption agreement, as a valid first lien on the Property and naming the Transferee as owner of the fee estate of the Property, which endorsement shall insure that as of the recording of the assumption agreement, the Property shall not be subject to any additional exceptions or liens other than those contained in the title policy issued in connection with this Security Instrument. Article 9 - PREPAYMENT Section 9.1 PREPAYMENT BEFORE EVENT OF DEFAULT. The Debt may be prepaid only in strict accordance with the express terms and conditions of the Note including the payment of any prepayment consideration. Section 9.2 PREPAYMENT ON CASUALTY OR CONDEMNATION. Provided no Event of Default exists under the Note, this Security Instrument or the Other Security Documents, in the event of any prepayment of the Debt pursuant to the terms of Sections or hereof during the last thirty-six (36) months prior to the Maturity Date, no Prepayment Consideration (defined in the Note) shall be due in connection therewith, but Borrower shall be responsible for the Interest Shortfall Payment (defined in the Note), if any, and all other amounts due under the Note, this Security Instrument and the Other Security Documents. Section 9.3 PREPAYMENT AFTER EVENT OF DEFAULT. If a Default Prepayment (defined below) occurs, Borrower shall pay to Lender the entire Debt, including without limitation, the following amounts: (a) if the Default Prepayment occurs prior to the time when prepayment of the principal balance of the Note is permitted, an amount equal to the sum of (i) the present value of the interest payments which would have accrued on the principal balance of the Note (which would be outstanding each month assuming scheduled amortization) at the Applicable Interest Rate (as defined in the Note) from the date of such Default Prepayment to the first day prepayment is permitted pursuant to the Note discounted at a rate equal to the Treasury Rate (as defined in the Note) except that such Treasury Rate shall be based on the U.S. Treasury constant maturity most nearly approximating the date upon which prepayment is first permitted pursuant to the Note, and (ii) the Prepayment Consideration (defined in the Note) which would have been payable to Lender as of the [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 35 - first day of the sixth (6th) Loan Year (as defined in the Note) based on the Treasury Rate in effect at the time of such Default Prepayment; and (b) if the Default Prepayment occurs at a time when prepayment of the principal balance of the Note is permitted, the Prepayment Consideration and the Interest Shortfall Payment (defined in the Note), if applicable. For purposes of this Section 9.3, the term "Default Prepayment" shall mean a prepayment of the principal amount of the Note made after the occurrence of any Event of Default or an acceleration of the Maturity Date (as defined in the Note) under any circumstances, including, without limitation, a prepayment occurring in connection with reinstatement of this Security Instrument provided by statute under foreclosure proceedings or exercise of a power of sale, any statutory right of redemption exercised by Borrower or any other party having a statutory right to redeem or prevent foreclosure, any sale in foreclosure or under exercise of a power of sale or otherwise. Article 10 - DEFAULT Section 10.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events shall constitute an "Event of Default": (a) if any portion of the Debt is not paid prior to the tenth (10th) day after the same is due or if the entire Debt is not paid on or before the Maturity Date; (b) if any of the Taxes or Other Charges is not paid when the same is due and payable except to the extent sums sufficient to pay such Taxes and Other Charges have been deposited with Lender in accordance with the terms of this Security Instrument; (c) if the Policies are not kept in full force and effect, or if the Policies are not delivered to Lender upon request; (d) if Borrower violates or does not comply with any of the provisions of Section or Article 12 within thirty (30) days after notice from Lender or if Borrower or Principal, as applicable, violates or does not comply with any of the provisions of Section 4.3 or Article 8; (e) if any representation or warranty of Borrower, any Indemnitor or any person guaranteeing payment of the Debt or any portion thereof or performance by Borrower of any of the terms of this Security Instrument (a "Guarantor"), or any member, general partner, principal or beneficial owner of any of the foregoing, made herein or in the Environmental Indemnity (defined below) or any guaranty, or in any certificate, report, financial statement or other instrument or document furnished to Lender shall have been false or misleading in any material respect when made; (f) if (i) Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor shall commence any case, proceeding or other action (A) [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 36 - under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization, conservatorship or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iii) there shall be commenced against the Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of any order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (iv) the Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or any managing member or general partner of Borrower, or any Guarantor or Indemnitor shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; (g) if Borrower shall be in default under any other mortgage, deed of trust, deed to secure debt or other security agreement covering any part of the Property whether it be superior or junior in lien to this Security Instrument; (h) if the Property becomes subject to any mechanic's, materialman's or other lien other than a lien for local real estate taxes and assessments not then due and payable and the lien shall remain undischarged of record (by payment, bonding or otherwise) for a period of thirty (30) days; (i) if any federal tax lien is filed against Borrower, any member or general partner of Borrower, any Guarantor, any Indemnitor or the Property and same is not discharged of record within thirty (30) days after same is filed; (j) if any condemnation or eminent domain proceeding has been concluded which renders the use or occupancy of the Property economically unfeasible; (k) if (i) Borrower fails to timely provide Lender with the written certification and evidence referred to in Section hereof, or (ii) Borrower consummates a transaction which would cause the Security Instrument or Lender's exercise of its rights under this Security Instrument, the Note or the Other Security Documents to constitute a nonexempt prohibited transaction under ERISA or result in a violation of a state statute [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 37 - regulating governmental plans, subjecting Lender to liability for a violation of ERISA or a state statute; (l) if Borrower shall fail to reimburse Lender on demand, with interest calculated at the Default Rate, for all Insurance Premiums or Taxes, together with interest and penalties imposed thereon, paid by Lender pursuant to this Security Instrument; (m) if Borrower shall fail to deliver to Lender, within ten (10) days after request by Lender, the estoppel certificates required pursuant to the terms of Subsections (a) and (c); (n) if Borrower shall fail to deliver to Lender, within ten (10) days after request by Lender, the statements referred to in Section in accordance with the terms thereof; (o) if any default occurs under that certain environmental indemnity agreement dated the date hereof given by Borrower (at times hereinafter referred to as "Indemnitor(s)") to Lender (the "Environmental Indemnity") and such default continues after the expiration of applicable notice and grace periods, if any; (p) if any default occurs under any guaranty or indemnity executed in connection herewith and such default continues after the expiration of applicable grace periods, if any; or (q) if for more than ten (10) days after notice from Lender, Borrower shall continue to be in default under any other term, covenant or condition of the Note, this Security Instrument or the Other Security Documents in the case of any default which can be cured by the payment of a sum of money or for thirty (30) days after notice from Lender in the case of any other default, provided that if such default cannot reasonably be cured within such thirty (30) day period and Borrower shall have commenced to cure such default within such thirty (30) day period and thereafter diligently and expeditiously proceeds to cure the same, such thirty (30) day period shall be extended for so long as it shall require Borrower in the exercise of due diligence to cure such default, it being agreed that no such extension shall be for a period in excess of sixty (60) days. Section 10.2 LATE PAYMENT CHARGE. If any monthly installment of principal and interest is not paid prior to the tenth (10th) day after the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of such unpaid portion of the outstanding monthly installment of principal and interest then due or the maximum amount permitted by applicable law, to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment, and such amount shall be secured by this Security Instrument and the Other Security Documents. Section 10.3 DEFAULT INTEREST. Borrower will pay, from the date of an Event of Default through the earlier of the date upon which the Event of Default is cured or the date [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 38 - upon which the Debt is paid in full, interest on the unpaid principal balance of the Note at a per annum rate equal to the lesser of (a) five percent (5%) plus the Applicable Interest Rate (as defined in the Note), and (b) the maximum interest rate which Borrower may by law pay or Lender may charge and collect (the "Default Rate"). Article 11 - RIGHTS AND REMEDIES Section 11.1 REMEDIES. Upon the occurrence of any Event of Default, Borrower agrees that Lender may take such action, without notice or demand, as it deems advisable to protect and enforce its rights against Borrower and in and to the Property, including, but not limited to, the following actions, each of which may be pursued concurrently or otherwise, at such time and in such order as Lender may determine, in its sole discretion, without impairing or otherwise affecting the other rights and remedies of Lender: (a) declare the entire unpaid Debt to be immediately due and payable; (b) institute proceedings, judicial or otherwise, for the complete foreclosure of this Security Instrument under any applicable provision of law in which case the Property or any interest therein may be sold for cash or upon credit in one or more parcels or in several interests or portions and in any order or manner; (c) with or without entry, to the extent permitted and pursuant to the procedures provided by applicable law, institute proceedings for the partial foreclosure of this Security Instrument for the portion of the Debt then due and payable, subject to the continuing lien and security interest of this Security Instrument for the balance of the Debt not then due, unimpaired and without loss of priority; (d) sell for cash or upon credit the Property or any part thereof and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale or otherwise, at one or more sales, as an entity or in parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by law; (e) institute an action, suit or proceeding in equity for the specific performance of any covenant, condition or agreement contained herein, in the Note or in the Other Security Documents; (f) recover judgment on the Note either before, during or after any proceedings for the enforcement of this Security Instrument or the Other Security Documents; (g) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Debt and without regard for the solvency of Borrower, any Guarantor, Indemnitor or of any person, firm or other entity liable for the payment of the Debt; [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 39 - (h) subject to any applicable law, the license granted to Borrower under Section shall automatically be revoked and Lender may enter into or upon the Property, either personally or by its agents, nominees or attorneys and dispossess Borrower and its agents and servants therefrom, without liability for trespass, damages or otherwise and exclude Borrower and its agents or servants wholly therefrom, and take possession of all books, records and accounts relating thereto and Borrower agrees to surrender possession of the Property and of such books, records and accounts to Lender upon demand, and thereupon Lender may (i) use, operate, manage, control, insure, maintain, repair, restore and otherwise deal with all and every part of the Property and conduct the business thereat; (ii) complete any construction on the Property in such manner and form as Lender deems advisable; (iii) make alterations, additions, renewals, replacements and improvements to or on the Property; (iv) exercise all rights and powers of Borrower with respect to the Property, whether in the name of Borrower or otherwise, including, without limitation, the right to make, cancel, enforce or modify Leases, obtain and evict tenants, and demand, sue for, collect and receive all Rents of the Property and every part thereof; (v) require Borrower to pay monthly in advance to Lender, or any receiver appointed to collect the Rents, the fair and reasonable rental value for the use and occupation of such part of the Property as may be occupied by Borrower; (vi) require Borrower to vacate and surrender possession of the Property to Lender or to such receiver and, in default thereof, Borrower may be evicted by summary proceedings or otherwise; and (vii) apply the receipts from the Property to the payment of the Debt, in such order, priority and proportions as Lender shall deem appropriate in its sole discretion after deducting therefrom all expenses (including reasonable attorneys' fees) incurred in connection with the aforesaid operations and all amounts necessary to pay the Taxes, Other Charges, insurance and other expenses in connection with the Property, as well as just and reasonable compensation for the services of Lender, its counsel, agents and employees; (i) exercise any and all rights and remedies granted to a secured party upon default under the Uniform Commercial Code, including, without limiting the generality of the foregoing: (i) the right to take possession of the Personal Property or any part thereof, and to take such other measures as Lender may deem necessary for the care, protection and preservation of the Personal Property, and (ii) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower in accordance with the provisions hereof at least five (5) days prior to such action, shall constitute commercially reasonable notice to Borrower; (j) apply any sums then deposited in the Escrow Fund and any other sums held in escrow or otherwise by Lender in accordance with the terms of this Security Instrument or any Other Security Document to the payment of the following items in any order in its uncontrolled discretion: (i) Taxes and Other Charges; (ii) Insurance Premiums; [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 40 - (iii) Interest on the unpaid principal balance of the Note; (iv) Amortization of the unpaid principal balance of the Note; (v) All other sums payable pursuant to the Note, this Security Instrument and the Other Security Documents, including without limitation advances made by Lender pursuant to the terms of this Security Instrument; (k) surrender the Policies maintained pursuant to Article hereof, collect the unearned Insurance Premiums and apply such sums as a credit on the Debt in such priority and proportion as Lender in its discretion shall deem proper, and in connection therewith, Borrower hereby appoints Lender as agent and attorney-in-fact (which is coupled with an interest and is therefore irrevocable) for Borrower to collect such Insurance Premiums; (l) pursue such other remedies as Lender may have under applicable law; or (m) apply the undisbursed balance of any Net Proceeds Deficiency deposit, together with interest thereon, to the payment of the Debt in such order, priority and proportions as Lender shall deem to be appropriate in its discretion. In the event of a sale, by foreclosure, power of sale, or otherwise, of less than all of the Property, this Security Instrument shall continue as a lien and security interest on the remaining portion of the Property unimpaired and without loss of priority. Notwithstanding the provisions of this Section to the contrary, if any Event of Default as described in clause (i) or (ii) of Subsection (f) shall occur, the entire unpaid Debt shall be automatically due and payable, without any further notice, demand or other action by Lender. Section 11.2 APPLICATION OF PROCEEDS. The purchase money, proceeds and avails of any disposition of the Property, or any part thereof, or any other sums collected by Lender pursuant to the Note, this Security Instrument or the Other Security Documents, may be applied by Lender to the payment of the Debt in such priority and proportions as Lender in its discretion shall deem proper. Section 11.3 RIGHT TO CURE DEFAULTS. Upon the occurrence of any Event of Default (unless such Event of Default shall have been cured by Borrower and such cure has been accepted by Lender) or if Borrower fails to make any payment or to do any act as herein provided, Lender may, but without any obligation to do so and without notice to or demand on Borrower and without releasing Borrower from any obligation hereunder, make or do the same in such manner and to such extent as Lender may deem necessary to protect the security hereof. Lender is authorized to enter upon the Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Property or to foreclose this Security Instrument or collect the Debt, and the cost and expense thereof (including reasonable attorneys' fees to the extent permitted by law), with interest as provided in this Section , shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any such action or proceeding shall [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 41 - bear interest at the Default Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and be secured by this Security Instrument and the Other Security Documents and shall be immediately due and payable upon demand by Lender therefor. Section 11.4 ACTIONS AND PROCEEDINGS. Lender has the right to appear in and defend any action or proceeding brought with respect to the Property and to bring any action or proceeding, in the name and on behalf of Borrower, which Lender, in its discretion, decides should be brought to protect its interest in the Property. Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID. Lender shall have the right from time to time to take action to recover any sum or sums which constitute a part of the Debt as the same become due, without regard to whether or not the balance of the Debt shall be due, and without prejudice to the right of Lender thereafter to bring an action of foreclosure, or any other action, for a default or defaults by Borrower existing at the time such earlier action was commenced. Section 11.6 EXAMINATION OF BOOKS AND RECORDS. Lender, its agents, accountants and attorneys shall have the right to examine the records, books, management and other papers of Borrower, Borrower's principals, any tenant under any Lease and any guarantor of any tenant's obligations or of any Guarantor or Indemnitor which reflect upon their financial condition, at the Property or at any office regularly maintained by Borrower, its affiliates or any Guarantor or Indemnitor where the books and records are located. Lender and its agents shall have the right to make copies and extracts from the foregoing records and other papers. In addition, Lender, its agents, accountants and attorneys shall have the right to examine and audit the books and records of Borrower, Borrower's principals, any tenant under any Lease and any guarantor of any tenant's obligations or of any Guarantor or Indemnitor pertaining to the income, expenses and operation of the Property during reasonable business hours at any office of Borrower, Borrower's principals, any tenant under any Lease and any guarantor of any tenant's obligations or any Guarantor or Indemnitor where the books and records are located. Section 11.7 OTHER RIGHTS, ETC. (a) The failure of Lender to insist upon strict performance of any term hereof shall not be deemed to be a waiver of any term of this Security Instrument. Borrower shall not be relieved of Borrower's obligations hereunder by reason of (i) the failure of Lender to comply with any request of Borrower, any Guarantor or any Indemnitor to take any action to foreclose this Security Instrument or otherwise enforce any of the provisions hereof or of the Note or the Other Security Documents, (ii) the release, regardless of consideration, of the whole or any part of the Property, or of any person liable for the Debt or any portion thereof, or (iii) any agreement or stipulation by Lender extending the time of payment or otherwise modifying or supplementing the terms of the Note, this Security Instrument or the Other Security Documents. (b) It is agreed that the risk of loss or damage to the Property is on Borrower, and Lender shall have no liability whatsoever for decline in value of the Property, for failure to maintain the Policies, or for failure to determine whether insurance in force is adequate as to the amount of risks insured. Possession by Lender shall not be deemed an election of judicial [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 42 - relief, if any such possession is requested or obtained, with respect to any Property or collateral not in Lender's possession. (c) Lender may resort for the payment of the Debt to any other security held by Lender in such order and manner as Lender, in its discretion, may elect. Lender may take action to recover the Debt, or any portion thereof, or to enforce any covenant hereof without prejudice to the right of Lender thereafter to foreclose this Security Instrument. The rights of Lender under this Security Instrument shall be separate, distinct and cumulative and none shall be given effect to the exclusion of the others. No act of Lender shall be construed as an election to proceed under any one provision herein to the exclusion of any other provision. Lender shall not be limited exclusively to the rights and remedies herein stated but shall be entitled to every right and remedy now or hereafter afforded at law or in equity. Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY. Lender may release any portion of the Property for such consideration as Lender may require without, as to the remainder of the Property, in any way impairing or affecting the lien or priority of this Security Instrument, or improving the position of any subordinate lienholder with respect thereto, except to the extent that the obligations hereunder shall have been reduced by the actual monetary consideration, if any, received by Lender for such release, and may accept by assignment, pledge or otherwise any other property in place thereof as Lender may require without being accountable for so doing to any other lienholder. This Security Instrument shall continue as a lien and security interest in the remaining portion of the Property. Section 11.9 VIOLATION OF LAWS. If the Property is not in compliance with Applicable Laws, Lender may impose additional requirements upon Borrower in connection herewith including, without limitation, monetary reserves or financial equivalents. Section 11.10 RECOURSE AND CHOICE OF REMEDIES. Notwithstanding any other provision of this Security Instrument, including but not limited to Article 15 hereof, Lender and other Indemnified Parties (defined in Section below) are entitled to enforce the obligations of Borrower, Guarantor and Indemnitor contained in Sections , and without first resorting to or exhausting any security or collateral and without first having recourse to the Note or any of the Property, through foreclosure or acceptance of a deed in lieu of foreclosure or otherwise, and in the event Lender commences a foreclosure action against the Property, Lender is entitled to pursue a deficiency judgment with respect to such obligations against Borrower, any Guarantor and/or Indemnitor. The provisions of Sections , and are exceptions to any non-recourse or exculpation provisions in the Note, this Security Instrument or the Other Security Documents, and Borrower, Guarantor and Indemnitor are fully and personally liable for the obligations pursuant to Subsections , and . The liability of Borrower, Guarantor and Indemnitor is not limited to the original principal amount of the Note. Notwithstanding the foregoing, nothing herein shall inhibit or prevent Lender from foreclosing pursuant to this Security Instrument or exercising any other rights and remedies pursuant to the Note, this Security Instrument and the Other Security Documents, whether simultaneously with foreclosure proceedings or in any other sequence. A separate action or actions may be brought and prosecuted against Borrower, whether or not action is brought against any other person or entity or whether or not any other person or entity is joined in the action or actions. In addition, Lender shall have the right but not the obligation to join and [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 43 - participate in, as a party if it so elects, any administrative or judicial proceedings or actions initiated in connection with any matter addressed in Article or Section . Section 11.11 RIGHT OF ENTRY. Lender and its agents shall have the right to enter and inspect the Property at all reasonable times. Article 12 - ENVIRONMENTAL HAZARDS Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. To the best of Borrower's knowledge after due inquiry and investigation: (a) there are no Hazardous Substances (defined below) or underground storage tanks in, on, or under the Property, except those that are both (i) in compliance with Environmental Laws (defined below) and with permits issued pursuant thereto and (ii) fully disclosed to Lender in writing pursuant to the written reports resulting from the environmental assessments of the Property delivered to Lender (the "Environmental Report"); (b) there are no past, present or threatened Releases (defined below) of Hazardous Substances in, on, under or from the Property except as described in the Environmental Report; (c) there is no threat of any Release of Hazardous Substances migrating to the Property except as described in the Environmental Report; (d) there is no past or present non-compliance with Environmental Laws, or with permits issued pursuant thereto, in connection with the Property except as described in the Environmental Report; (e) except as expressly disclosed in the Environmental Report, Borrower does not know of, and has not received, any written or oral notice or other communication from any person or entity (including but not limited to a governmental entity) relating to Hazardous Substances or Remediation (defined below) thereof, of possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual or potential administrative or judicial proceedings in connection with any of the foregoing; and (f) Borrower has truthfully and fully provided to Lender, in writing, any and all information relating to conditions in, on, under or from the Property that is known to Borrower and that is contained in Borrower's files and records, including but not limited to any reports relating to Hazardous Substances in, on, under or from the Property and/or to the environmental condition of the Property. "Environmental Law" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Substances, relating to liability for or costs of Remediation or prevention of Releases of Hazardous Substances or relating to liability for or costs of other actual or threatened danger to human health or the environment. "Environmental Law" includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Substances Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act. "Environmental Law" also includes, but is not limited [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 44 - to, any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law: conditioning transfer of property upon a negative declaration or other approval of a governmental authority of the environmental condition of the property; requiring notification or disclosure of Releases of Hazardous Substances or other environmental condition of the Property to any governmental authority or other person or entity, whether or not in connection with transfer of title to or interest in property; imposing conditions or requirements in connection with permits or other authorization for lawful activity; relating to nuisance, trespass or other causes of action related to the Property; and relating to wrongful death, personal injury, or property or other damage in connection with any physical condition or use of the Property. "Hazardous Substances" include but are not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Laws or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives. "Release" of any Hazardous Substance includes but is not limited to any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing or other movement of Hazardous Substances. "Remediation" includes but is not limited to any response, remedial, removal, or corrective action, any activity to cleanup, detoxify, decontaminate, contain or otherwise remediate any Hazardous Substance, any actions to prevent, cure or mitigate any Release of any Hazardous Substance, any action to comply with any Environmental Laws or with any permits issued pursuant thereto, any inspection, investigation, study, monitoring, assessment, audit, sampling and testing, laboratory or other analysis, or evaluation relating to any Hazardous Substances or to anything referred to in Article . Section 12.2 ENVIRONMENTAL COVENANTS. Borrower covenants and agrees that: (a) all uses and operations on or of the Property, whether by Borrower or any other person or entity, shall be in compliance with all Environmental Laws and permits issued pursuant thereto; (b) there shall be no Releases of Hazardous Substances in, on, under or from the Property; (c) there shall be no Hazardous Substances in, on, or under the Property, except those that are both (i) in compliance with all Environmental Laws and with permits issued pursuant thereto and (ii) fully disclosed to Lender in writing; (d) Borrower shall keep the Property free and clear of all liens and other encumbrances imposed pursuant to any Environmental Law, whether due to any act or omission of Borrower or any other person or entity (the "Environmental Liens"); (e) Borrower shall, at its sole cost and expense, fully and expeditiously cooperate in all activities pursuant to Section below, including but not limited to providing all relevant information and making knowledgeable persons available for interviews; (f) Borrower shall, at its sole cost and expense, perform any environmental site assessment or other investigation of environmental conditions in connection with the Property, pursuant to any reasonable written request of Lender (including but not limited to sampling, testing and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas), and share with Lender the reports and other results thereof, and Lender and other Indemnified Parties shall be entitled to rely on such reports and other results thereof; (g) Borrower shall, at its sole cost and expense, comply with all reasonable written requests of Lender to (i) reasonably effectuate Remediation of any condition (including but not limited to [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 45 - a Release of a Hazardous Substance) in, on, under or from the Property; (ii) comply with any Environmental Law; (iii) comply with any directive from any governmental authority; and (iv) take any other reasonable action necessary or appropriate for protection of human health or the environment; (h) Borrower shall not do or allow any tenant or other user of the Property to do any act that materially increases the dangers to human health or the environment, poses an unreasonable risk of harm to any person or entity (whether on or off the Property), impairs or may impair the value of the Property, is contrary to any requirement of any insurer, constitutes a public or private nuisance, constitutes waste, or violates any covenant, condition, agreement or easement applicable to the Property; and (i) Borrower shall immediately notify Lender in writing of (A) any presence or Releases or threatened Releases of Hazardous Substances in, on, under, from or migrating towards the Property; (B) any non-compliance with any Environmental Laws related in any way to the Property; (C) any actual or potential Environmental Lien; (D) any required or proposed Remediation of environmental conditions relating to the Property; and (E) any written or oral notice or other communication which Borrower becomes aware from any source whatsoever (including but not limited to a governmental entity) relating in any way to Hazardous Substances or Remediation thereof, possible liability of any person or entity pursuant to any Environmental Law, other environmental conditions in connection with the Property, or any actual or potential administrative or judicial proceedings in connection with anything referred to in this Article . Any failure of Borrower to perform its obligations pursuant to this Section shall constitute waste with respect to the Property. Section 12.3 LENDER'S RIGHTS. Lender and any other person or entity designated by Lender, including but not limited to any receiver, any representative of a governmental entity, and any environmental consultant, shall have the right, but not the obligation, to enter upon the Property at all reasonable times to assess any and all aspects of the environmental condition of the Property and its use, including but not limited to conducting any environmental assessment or audit (the scope of which shall be determined in Lender's sole and absolute discretion) and taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing. Borrower shall cooperate with and provide access to Lender and any such person or entity designated by Lender. Article 13 - INDEMNIFICATION Section 13.1 GENERAL INDEMNIFICATION. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all claims, suits, liabilities (including, without limitation, strict liabilities), actions, proceedings, obligations, debts, damages, losses, costs, expenses, fines, penalties, charges, fees, expenses, judgments, awards, amounts paid in settlement, punitive damages, foreseeable and unforeseeable consequential damages, of whatever kind or nature (including but not limited to reasonable attorneys' fees and other costs of defense) (the "Losses") imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) ownership of this Security Instrument, the Property or any interest therein or receipt of any Rents; (b) any amendment to, or restructuring of, the Debt, and the Note, this Security Instrument, or any Other Security Documents; (c) any and all lawful action that may be taken by Lender in connection with the enforcement of the provisions of this Security Instrument or the Note or any of the Other [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 46 - Security Documents, whether or not suit is filed in connection with same, or in connection with Borrower, any Guarantor or Indemnitor and/or any member, partner, joint venturer or shareholder thereof becoming a party to a voluntary or involuntary federal or state bankruptcy, insolvency or similar proceeding; (d) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (e) any use, nonuse or condition in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets or ways; (f) any failure on the part of Borrower to perform or be in compliance with any of the terms of this Security Instrument; (g) performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof; (h) the failure of any person to file timely with the Internal Revenue Service an accurate Form 1099-B, Statement for Recipients of Proceeds from Real Estate, Broker and Barter Exchange Transactions, which may be required in connection with the Security Instrument, or to supply a copy thereof in a timely fashion to the recipient of the proceeds of the transaction in connection with which this Security Instrument is made; (i) any failure of the Property to be in compliance with any Applicable Laws; (j) the enforcement by any Indemnified Party of the provisions of this Article ; (k) any and all claims and demands whatsoever which may be asserted against Lender by reason of any alleged obligations or undertakings on its part to perform or discharge any of the terms, covenants, or agreements contained in any Lease; (l) the payment of any commission, charge or brokerage fee to anyone which may be payable in connection with the funding of the Loan evidenced by the Note and secured by this Security Instrument; or (m) any misrepresentation made by Borrower in this Security Instrument or any Other Security Document. Any amounts payable to Lender by reason of the application of this Section shall become immediately due and payable and shall bear interest at the Default Rate from the date loss or damage is sustained by Lender until paid. For purposes of this Article , the term "Indemnified Parties" means Lender and any person or entity who is or will have been involved in the origination of the Loan, any person or entity who is or will have been involved in the servicing of the Loan, any person or entity in whose name the encumbrance created by this Security Instrument is or will have been recorded, persons and entities who may hold or acquire or will have held a full or partial interest in the Loan (including, but not limited to, Investors or prospective Investors in the Securities, as well as custodians, trustees and other fiduciaries who hold or have held a full or partial interest in the Loan for the benefit of third parties) as well as the respective directors, officers, shareholders, partners, members, employees, agents, servants, representatives, contractors, subcontractors, affiliates, subsidiaries, participants, successors and assigns of any and all of the foregoing (including but not limited to any other person or entity who holds or acquires or will have held a participation or other full or partial interest in the Loan or the Property, whether during the term of the Loan or as a part of or following a foreclosure of the Loan and including, but not limited to, any successors by merger, consolidation or acquisition of all or a substantial portion of Lender's assets and business). Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses imposed upon or incurred by or asserted against any Indemnified Parties and directly or indirectly arising out of or in any way relating to any tax on the making and/or recording of this Security Instrument, the Note or any of the Other Security Documents. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 47 - Section 13.3 ERISA INDEMNIFICATION. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses (including, without limitation, reasonable attorneys' fees and costs incurred in the investigation, defense, and settlement of Losses incurred in correcting any prohibited transaction or in the sale of a prohibited loan, and in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender's sole discretion) that Lender may incur, directly or indirectly, as a result of a default under Sections or or Subsection (p). Section 13.4 ENVIRONMENTAL INDEMNIFICATION. Borrower shall, at its sole cost and expense, protect, defend, indemnify, release and hold harmless the Indemnified Parties from and against any and all Losses and costs of Remediation (whether or not performed voluntarily), engineers' fees, environmental consultants' fees, and costs of investigation (including but not limited to sampling, testing, and analysis of soil, water, air, building materials and other materials and substances whether solid, liquid or gas) imposed upon or incurred by or asserted against any Indemnified Parties, and directly or indirectly arising out of or in any way relating to any one or more of the following: (a) any presence of any Hazardous Substances in, on, above, or under the Property; (b) any past, present or threatened Release of Hazardous Substances in, on, above, under or from the Property; (c) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Property in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other Release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Substances at any time located in, under, on or above the Property; (d) any activity by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Property in connection with any actual or proposed Remediation of any Hazardous Substances at any time located in, under, on or above the Property, whether or not such Remediation is voluntary or pursuant to court or administrative order, including but not limited to any removal, remedial or corrective action; (e) any past, present or threatened non-compliance or violations of any Environmental Laws (or permits issued pursuant to any Environmental Law) in connection with the Property or operations thereon, including but not limited to any failure by Borrower, any person or entity affiliated with Borrower or any tenant or other user of the Property to comply with any order of any governmental authority in connection with any Environmental Laws; (f) the imposition, recording or filing or the threatened imposition, recording or filing of any Environmental Lien encumbering the Property; (g) any administrative processes or proceedings or judicial proceedings in any way connected with any matter addressed in Article and this Section ; (h) any past, present or threatened injury to, destruction of or loss of natural resources in any way connected with the Property, including but not limited to costs to investigate and assess such injury, destruction or loss; (i) any acts of Borrower or other users of the Property in arranging for disposal or treatment, or arranging with a transporter for transport for disposal or treatment, of Hazardous Substances owned or possessed by such Borrower or other users, at any facility or incineration vessel owned or operated by another person or entity and containing such or similar Hazardous Substances; (j) any acts of Borrower or other users of the Property, in accepting any Hazardous Substances for transport to disposal or treatment facilities, incineration vessels or sites selected by Borrower or such other users, from which there is a Release, or a threatened Release of any Hazardous Substance which causes the incurrence of costs for Remediation; (k) any personal injury, wrongful death, or property [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 48 - damage arising under any statutory or common law or tort law theory in connection with Hazardous Materials or any Environmental Law, including but not limited to damages assessed for the maintenance of a private or public nuisance or for the conducting of an abnormally dangerous activity on or near the Property; and (l) any misrepresentation or inaccuracy in any representation or warranty or material breach or failure to perform any covenants or other obligations pursuant to Article . Section 13.5 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND EXPENSES. Upon written request by any Indemnified Party, Borrower shall defend such Indemnified Party (if requested by any Indemnified Party, in the name of the Indemnified Party) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified Parties may, in their sole and absolute discretion, engage their own attorneys and other professionals to defend or assist them, and, at the option of Indemnified Parties, their attorneys shall act as co-counsel in connection with the resolution of any claim or proceeding. Upon demand, Borrower shall pay or, in the sole and absolute discretion of the Indemnified Parties, reimburse, the Indemnified Parties for the payment of reasonable fees and disbursements of attorneys, engineers, environmental consultants, laboratories and other professionals in connection therewith. Article 14 - WAIVERS Section 14.1 WAIVER OF COUNTERCLAIM. Borrower hereby waives the right to assert a counterclaim, other than a mandatory or compulsory counterclaim, in any action or proceeding brought against it by Lender arising out of or in any way connected with this Security Instrument, the Note, any of the Other Security Documents, or the Obligations. Section 14.2 MARSHALLING AND OTHER MATTERS. Borrower hereby waives, to the extent permitted by law, the benefit of all appraisement, valuation, stay, extension, reinstatement and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale hereunder of the Property or any part thereof or any interest therein. Further, Borrower hereby expressly waives any and all rights of redemption from sale under any order or decree of foreclosure of this Security Instrument on behalf of Borrower, and on behalf of each and every person acquiring any interest in or title to the Property subsequent to the date of this Security Instrument and on behalf of all persons to the extent permitted by applicable law. Section 14.3 WAIVER OF NOTICE. Borrower shall not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Security Instrument specifically and expressly provides for the giving of notice by Lender to Borrower and except with respect to matters for which Lender is required by applicable law to give notice, and Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which this Security Instrument does not specifically and expressly provide for the giving of notice by Lender to Borrower. Section 14.4 WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby expressly waives and releases to the fullest extent permitted by law, the pleading of any statute of limitations as a defense to payment of the Debt or performance of its Other Obligations. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 49 - Section 14.5 SOLE DISCRETION OF LENDER. Wherever pursuant to this Security Instrument (a) Lender exercises any right given to it to approve or disapprove, (b) any arrangement or term is to be satisfactory to Lender, or (c) any other decision or determination is to be made by Lender, the decision of Lender to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Lender, shall be in the sole and absolute discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein. Section 14.6 SURVIVAL. The indemnifications made pursuant to Subsections and and the representations and warranties, covenants, and other obligations arising under Article , shall continue indefinitely in full force and effect and shall survive and shall in no way be impaired by: any satisfaction or other termination of this Security Instrument, any assignment or other transfer of all or any portion of this Security Instrument or Lender's interest in the Property (but, in such case, shall benefit both Indemnified Parties and any assignee or transferee), any exercise of Lender's rights and remedies pursuant hereto including but not limited to foreclosure or acceptance of a deed in lieu of foreclosure, any exercise of any rights and remedies pursuant to the Note or any of the Other Security Documents, any transfer of all or any portion of the Property (whether by Borrower or by Lender following foreclosure or acceptance of a deed in lieu of foreclosure or at any other time), any amendment to this Security Instrument, the Note or the Other Security Documents, and any act or omission that might otherwise be construed as a release or discharge of Borrower from the obligations pursuant hereto. SECTION 14.7 WAIVER OF TRIAL BY JURY. BORROWER ----------------------- HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THE NOTE, THE NOTE, THIS SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. Article 15 - EXCULPATION Section 15.1 EXCULPATION. Except as otherwise provided, Lender shall not enforce the liability and obligation of Borrower to perform and observe the obligations contained in the Note or this Security Instrument by any action or proceeding wherein a money judgment shall be sought against Borrower, except that Lender may bring a foreclosure action, action for specific performance or other appropriate action or proceeding to enable Lender to enforce and realize upon this Security Instrument, the Other Security Documents, and the interest in the Property, the Rents and any other collateral given to Lender created by this Security Instrument and the Other Security Documents; provided, however, that any judgment in any action or proceeding shall be enforceable against Borrower only to the extent of Borrower's interest in the Property, in the Rents and in any other collateral given to Lender. Lender, by accepting the Note and this Security Instrument, agrees that it shall not, except as otherwise provided in [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 50 - Section , sue for, seek or demand any deficiency judgment against Borrower in any action or proceeding, under or by reason of or under or in connection with the Note, the Other Security Documents or this Security Instrument. Section 15.2 RESERVATION OF CERTAIN RIGHTS. The provisions of Section 15.1 shall not (a) constitute a waiver, release or impairment of any obligation evidenced or secured by the Note, the Other Security Documents or this Security Instrument; (b) impair the right of Lender to name Borrower as a party defendant in any action or suit for judicial foreclosure and sale under this Security Instrument; (c) affect the validity or enforceability of any indemnity, guaranty, master lease or similar instrument made in connection with the Note, this Security Instrument, or the Other Security Documents; (d) impair the right of Lender to obtain the appointment of a receiver; (e) impair the enforcement of the Assignment of Leases and Rents executed in connection herewith; or (f) impair the right of Lender to enforce the provisions of Sections , , and of this Security Instrument. Section 15.3 EXCEPTIONS TO EXCULPATION. Notwithstanding the provisions of this Article to the contrary, Borrower shall be personally liable to Lender for the Losses it incurs due to: (i) fraud or intentional misrepresentation by Borrower; (ii) Borrower's misapplication or misappropriation of Rents received by Borrower after the occurrence of an Event of Default; (iii) Borrower's misappropriation of tenant security deposits or Rents collected in advance; (iv) the misapplication or the misappropriation of insurance proceeds or condemnation awards; (v) Borrower's failure to pay Taxes, Other Charges (except to the extent that sums sufficient to pay such amounts have been deposited in escrow with Lender pursuant to the terms of this Security Instrument), charges for labor or materials or other charges that can create liens on the Property; (vi) Borrower's failure to return or to reimburse Lender for all Personal Property taken from the Property by or on behalf of Borrower and not replaced with Personal Property of the same utility and of the same or greater value; (vii) any act of actual waste or arson by Borrower, any principal, affiliate, member or general partner thereof or by any Indemnitor or Guarantor; (viii) any fees or commissions paid by Borrower to any principal, affiliate, member or general partner of Borrower, Indemnitor or Guarantor in violation of the terms of the Note, this Security Instrument or the Other Security Documents; or (ix) Borrower's failure to comply with the provisions of Sections , , and of this Security Instrument. Section 15.4 RECOURSE. Notwithstanding the foregoing, the agreement of Lender not to pursue recourse liability as set forth in Section 15.1 above SHALL BECOME NULL AND VOID and shall be of no further force and effect after the occurrence of an Event of Default relating to the breach of any covenant in the Note, this Security Instrument or any of the Other Loan Documents relating to Borrower's default under Sections (for ten (10) days after notice by Lender), , or 8.1, 8.2, 8.3 or , or in the event of Principal's default under Section 4.3 of this Security Instrument, or if the Property or any part thereof shall become an asset in (i) a voluntary bankruptcy or insolvency proceeding, or (ii) an involuntary bankruptcy or insolvency proceeding which is not dismissed within ninety (90) days of filing. Section 15.5 BANKRUPTCY CLAIMS. Nothing herein shall be deemed to be a waiver of any right which Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for the full amount of the Debt secured by this Security Instrument or to require that all collateral shall continue to secure all of the Debt [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 51 - owing to Lender in accordance with the Note, this Security Instrument and the Other Security Documents. Article 16 - NOTICES Section 16.1 NOTICES. All notices or other written communications hereunder shall be deemed to have been properly given (i) upon delivery, if delivered in person or by facsimile transmission with receipt acknowledged by the recipient thereof and confirmed by telephone by sender, (ii) one (1) Business Day (defined below) after having been deposited for overnight delivery with any reputable overnight courier service, or (iii) three (3) Business Days after having been deposited in any post office or mail depository regularly maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Borrower: JBAK Canton Realty, Inc. 555 Turnpike Street Canton, Massachusetts 02021 Attention: Philip G. Rosenberg Facsimile No.: (617) 821-0614 With a copy to: J. Baker, Inc. Legal Department 555 Turnpike Street Canton, Massachusetts 02021 Attention: Barry Barth, Esq. Facsimile No.: (617) 821-0614 If to Lender: The Chase Manhattan Bank c/o Chase Commercial Mortgage Banking Corp. Servicing Department 380 Madison Avenue 11th Floor New York, New York 10017 Attention: Ms. Janice Smith Facsimile No.: (212) 622-3553 and The Chase Manhattan Bank Legal Department 270 Park Avenue 39th Floor New York, New York 10017 Attention: Ronald A. Wilcox, Esq. Facsimile No.: (212) 270-2934 [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 52 - With a copy to: Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 Attention: Joseph Philip Forte, Esq. Facsimile No.: (212) 912-7751 or addressed as such party may from time to time designate by written notice to the other parties. Either party by notice to the other may designate additional or different addresses for subsequent notices or communications. For purposes of this Subsection, "Business Day" shall mean a day on which commercial banks are not authorized or required by law to close in New York, New York. Article 17 - SERVICE OF PROCESS Section 17.1 CONSENT TO SERVICE. (a) Borrower will maintain a place of business or an agent for service of process in New York, New York or Massachusetts and give prompt notice to Lender of the address of such place of business and of the name and address of any new agent appointed by it, as appropriate. Borrower further agrees that the failure of its agent for service of process to give it notice of any service of process will not impair or affect the validity of such service or of any judgment based thereon. If, despite the foregoing, there is for any reason no agent for service of process of Borrower available to be served, and if it at that time has no place of business in New York, New York or Massachusetts, then Borrower irrevocably consents to service of process by registered or certified mail, postage prepaid, to it at its address given in or pursuant to the first paragraph hereof. (b) Borrower initially and irrevocably designates CT Corporation System, with offices on the date hereof at 2 Oliver Street, Boston, Massachusetts 02109, to receive for and on behalf of Borrower service of process in Massachusetts with respect to this Security Instrument. Section 17.2 SUBMISSION TO JURISDICTION. With respect to any claim or action arising hereunder or under the Note or the Other Security Documents, Borrower (a) irrevocably submits to the nonexclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York, New York, and appellate courts from any thereof, and (b) irrevocably waives any objection which it may have at any time to the laying on venue of any suit, action or proceeding arising out of or relating to this Security Instrument brought in any such court, irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 53 - Section 17.3 JURISDICTION NOT EXCLUSIVE. Nothing in this Security Instrument will be deemed to preclude Lender from bringing an action or proceeding with respect hereto in any other jurisdiction. Article 18 - APPLICABLE LAW Section 18.1 CHOICE OF LAW. THIS SECURITY INSTRUMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, PROVIDED HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OF THIS SECURITY INSTRUMENT, AND THE DETERMINATION OF DEFICIENCY JUDGMENTS, THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL APPLY. Section 18.2 USURY LAWS. This Security Instrument and the Note are subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Debt at a rate which could subject the holder of the Note to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Security Instrument or the Note, Borrower is at any time required or obligated to pay interest on the Debt at a rate in excess of such maximum rate, the rate of interest under the Security Instrument and the Note shall be deemed to be immediately reduced to such maximum rate and the interest payable shall be computed at such maximum rate and all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been payments in reduction of the principal balance of the Note. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding. Section 18.3 PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers and remedies provided in this Security Instrument may be exercised only to the extent that the exercise thereof does not violate any applicable provisions of law and are intended to be limited to the extent necessary so that they will not render this Security Instrument invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Security Instrument or any application thereof shall be invalid or unenforceable, the remainder of this Security Instrument and any other application of the term shall not be affected thereby. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 54 - Article 19 - SECONDARY MARKET Section 19.1 TRANSFER OF LOAN. Lender may, at any time, sell, transfer or assign the Note, this Security Instrument and the Other Security Documents, and any or all servicing rights with respect thereto, or grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (the "Securities"). Lender may forward to each purchaser, transferee, assignee, servicer, participant, or investor in such Securities (collectively, the "Investor") or any Rating Agency rating such Securities and each prospective Investor, all documents and information which Lender now has or may hereafter acquire relating to the Debt and to Borrower, any Guarantor, any Indemnitor(s) and the Property, whether furnished by Borrower, any Guarantor, any Indemnitor(s) or otherwise, as Lender determines necessary or desirable. Borrower, any Guarantor and any Indemnitor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Section, including, without limitation, the delivery of an estoppel certificate required in accordance with Subsection 7.4(c) hereof and such other documents as may be reasonably requested by Lender. Borrower shall also furnish and Borrower, any Guarantor and any Indemnitor consent to Lender furnishing to such Investors or such prospective Investors or such Rating Agency any and all information concerning the Property, the Leases, the financial condition of Borrower, any Guarantor and any Indemnitor as may be requested by Lender, any Investor, any prospective Investor or any Rating Agency in connection with any sale, transfer or participation interest. Article 20 - COSTS Section 20.1 PERFORMANCE AT BORROWER'S EXPENSE. Borrower acknowledges and confirms that Lender shall impose certain administrative processing and/or commitment fees in connection with (a) the extension, renewal, modification, amendment and termination of the Loan, (b) the release or substitution of collateral therefor, (c) obtaining certain consents, waivers and approvals with respect to the Property, or (d) the review of any Lease or proposed Lease or the preparation or review of any subordination, non-disturbance agreement (the occurrence of any of the above shall be called an "Event"). Borrower further acknowledges and confirms that it shall be responsible for the payment of all costs of reappraisal of the Property or any part thereof, whether required by law, regulation, Lender or any governmental or quasi-governmental authority. Borrower hereby acknowledges and agrees to pay, immediately, with or without demand, all such fees (as the same may be increased or decreased from time to time), and any additional fees of a similar type or nature which may be imposed by Lender from time to time, upon the occurrence of any Event or otherwise. Wherever it is provided for herein that Borrower pay any costs and expenses, such costs and expenses shall include, but not be limited to, all legal fees and disbursements of Lender, whether with respect to retained firms, the reimbursement for the expenses of in-house staff or otherwise. Section 20.2 ATTORNEY'S FEES FOR ENFORCEMENT. (a) Borrower shall pay all legal fees incurred by Lender in connection with (i) the preparation of the Note, this Security Instrument and the Other Security Documents and (ii) the items set forth in Section above, and (b) Borrower shall pay to Lender on demand any and all expenses, including legal expenses and attorneys' fees, incurred or paid by Lender in protecting its interest in the Property or [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 55 - Personal Property or in collecting any amount payable hereunder or in enforcing its rights hereunder with respect to the Property or Personal Property, whether or not any legal proceeding is commenced hereunder or thereunder and whether or not any default or Event of Default shall have occurred and is continuing, together with interest thereon at the Default Rate from the date paid or incurred by Lender until such expenses are paid by Borrower. Article 21 - DEFINITIONS Section 21.1 GENERAL DEFINITIONS. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, words used in this Security Instrument may be used interchangeably in singular or plural form and the word "Borrower" shall mean "each Borrower and any subsequent owner or owners of the Property or any part thereof or any interest therein," the word "Lender" shall mean "Lender and any subsequent holder of the Note," the word "Note" shall mean "the Note and any other evidence of indebtedness secured by this Security Instrument," the word "person" shall include an individual, corporation, partnership, limited liability company, trust, unincorporated association, government, governmental authority, and any other entity, the word "Property" shall include any portion of the Property and any interest therein, and the phrases "attorneys' fees" and "counsel fees" shall include any and all attorneys', paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels incurred or paid by Lender in protecting its interest in the Property, the Leases and the Rents and enforcing its rights hereunder. Article 22 - MISCELLANEOUS PROVISIONS Section 22.1 NO ORAL CHANGE. This Security Instrument, and any provisions hereof, may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Section 22.2 LIABILITY. If Borrower consists of more than one person, the obligations and liabilities of each such person hereunder shall be joint and several. This Security Instrument shall be binding upon and inure to the benefit of Borrower and Lender and their respective successors and assigns forever. Section 22.3 INAPPLICABLE PROVISIONS. If any term, covenant or condition of the Note or this Security Instrument is held to be invalid, illegal or unenforceable in any respect, the Note and this Security Instrument shall be construed without such provision. Section 22.4 HEADINGS, ETC. The headings and captions of various Sections of this Security Instrument are for convenience of reference only and are not to be construed as defining or limiting, in any way, the scope or intent of the provisions hereof. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 56 - Section 22.5 DUPLICATE ORIGINALS; COUNTERPARTS. This Security Instrument may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Security Instrument may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Security Instrument. The failure of any party hereto to execute this Security Instrument, or any counterpart hereof, shall not relieve the other signatories from their obligations hereunder. Section 22.6 NUMBER AND GENDER. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa. Section 22.7 SUBROGATION. If any or all of the proceeds of the Note have been used to extinguish, extend or renew any indebtedness heretofore existing against the Property, then, to the extent of the funds so used, Lender shall be subrogated to all of the rights, claims, liens, titles, and interests existing against the Property heretofore held by, or in favor of, the holder of such indebtedness and such former rights, claims, liens, titles, and interests, if any, are not waived but rather are continued in full force and effect in favor of Lender and are merged with the lien and security interest created herein as cumulative security for the repayment of the Debt, the performance and discharge of Borrower's obligations hereunder, under the Note and the Other Security Documents and the performance and discharge of the Other Obligations. Article 23 - SPECIAL MASSACHUSETTS PROVISIONS Section 23.1 In the event of any inconsistencies between the terms and conditions of this Article 23 and the terms and conditions of this Security Instrument, the terms and conditions of this Article 23 shall control and be binding. Section 23.2 The paragraph following the word "RECITALS" is hereby deleted and the following paragraph is substituted therefor: For Consideration Paid, to secure the payment of an indebtedness in the principal sum of FIFTEEN MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($15,500,000) lawful money of the United States of America, to be paid with interest according to a certain note dated the date hereof made by Borrower to Lender (the note, together with all extensions, renewals or modifications thereof being hereinafter collectively called the "Note"), Borrower has mortgaged, given, granted, bargained, sold, aliened, enfeoffed, conveyed, confirmed, pledged, assigned and hypothecated and by these presents does mortgage, give, grant, bargain, sell, alien, enfeoff, convey, confirm, pledge, assign and hypothecate unto Lender WITH MORTGAGE COVENANTS, the Property (as more particularly described in Section 1.1 below); [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 57 - Section 23.3 The words "with covenants" are hereby added after the word "Lender" contained in the second line of Article 1, Section 1.1 entitled "Property Mortgaged." Section 23.4 The words "located in the Town of Canton, County of Norfolk, and Commonwealth of Massachusetts and" are hereby added after the words "real property" in Article 1, Section 1.1(a) entitled "Land." Section 23.5 Intentionally Omitted Section 23.6 The words "fire pipe charges" are hereby added following the words "governmental impositions" in Article 3, Section 3.4(a) entitled "Payment of Taxes, Etc." Section 23.7 The third sentence of Article 3, Section 3.7(a) entitled "Leases and Rents" is deleted in its entirety and the following sentence is substituted therefor: All Leases shall provide that they are subordinate or superior to this Security Instrument as Lender elects and that the Lessee agrees to attorn to the Lender. Section 23.8 The word "right" in the first sentence of Article 5, Section 5.1 entitled "Warranty of Title" is hereby deleted and the following words are substituted therefor: full power, authority and right to execute, deliver and perform its obligations under this Security Instrument and Section 23.9 The following words are hereby added after the words "environmental laws" found in the third line of Article 5, Subsection 5.6(c): "subdivision control laws, rent control and condominium control laws." Section 23.10 The following words are hereby added to the end of Article 10, Section 10.3 entitled "Default Interest": and (c) Lender shall have the STATUTORY POWER OF SALE, as hereinafter provided. If the rate specified in the previous sentence is above the maximum rate permitted by applicable law, the Default Rate shall be the maximum rate permitted by applicable law. Section 23.11 The following language is hereby added to the end of the third sentence of Article 12, Section 12.1 entitled "Environmental Representations and Warranties": M.G.L. c. 21 (Massachusetts Clean Waters Act; Scenic Rivers Act), M.G.L. c. 21C (Massachusetts Hazardous Waste Management Act), M.G.L. c. 21E (Massachusetts Oil and Hazardous Materials Release Prevention and Response Act), M.G.L. c. 130 (Massachusetts Coastal Zone Management Act), M.G.L. c. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 58 - 131 (Massachusetts Wetland Protection Act), M.G.L. c. 30 (Massachusetts Environmental Policy Act), M.G.L. c. 91 (waterways, licensing), M.G.L. c. 111 (air pollution); and in each case all regulations promulgated thereunder. Section 23.12 The word "INTERNAL" is hereby added immediately before the word "LAWS" wherever the word "LAWS" appears in Article 18, Section 18.1 entitled "CHOICE OF LAW." Section 23.13 The words "including, without limitation, any subsequent owner or owners of the equity of redemption in the Property" are hereby added following the words "or any part thereof or any interest therein" in the first sentence of Article 21, Section 21.1 entitled "General Definitions". Section 23.14 Statutory Power of Sale. This Security Instrument is upon the STATUTORY CONDITION and upon the further condition that all covenants and agreements of the Security Instrument in the Note, this Security Instrument and the Other Security Documents, and in all other mortgages, debts and obligations of or from Borrower to or for benefit of Lender shall be kept and fully performed and upon any breach of same, Lender shall have the STATUTORY POWER OF SALE and any other powers given by statute. [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 59 - IN WITNESS WHEREOF, THIS SECURITY INSTRUMENT has been executed by Borrower the day and year first above written. JBAK CANTON REALTY, INC., a Massachusetts corporation By: /s/Alan I. Weinstein Name: Alan I. Weinstein Title: President [NY01:247789.4] 86000-00376 12/23/96 4:57pm - 60 - ACKNOWLEDGEMENTS STATE OF MASSACHUSETTS ) ).ss: COUNTY OF NORFOLK ) On this 27th day of December, 1996, before me appeared Alan I. Weinstein, to me personally known, who being by me duly sworn, did say that he is the President of JBAK CANTON REALTY, INC., a Massachusetts corporation, and that said instrument was signed on behalf of said corporation and said Alan I. Weinstein acknowledged said instrument to be the free act and deed of said corporation. /s/Evelyn S. Clegg Notary Public My Commission Expires: 5/24/2002 [NY01:247789.4] 86000-00376 12/23/96 4:57pm EXHIBIT A (Description of Land) ALL of that certain lot, piece or parcel of land, with the buildings and improvements thereon, situate, lying and being [NY01:247789.4] 86000-00376 12/23/96 4:57pm TABLE OF CONTENTS Page Article 1 - GRANTS OF SECURITY............................................................................- 1 - Section 1.1 PROPERTY MORTGAGED.............................................................- 1 - ------------------ Section 1.2 ASSIGNMENT OF RENTS............................................................- 3 - ------------------- Section 1.3 SECURITY AGREEMENT.............................................................- 4 - ------------------ Section 1.4 PLEDGE OF MONIES HELD..........................................................- 4 - --------------------- Article 2 - DEBT AND OBLIGATIONS SECURED.................................- 4 - Section 2.1 DEBT...........................................................................- 4 - ---- Section 2.2 OTHER OBLIGATIONS..............................................................- 5 - ----------------- Section 2.3 DEBT AND OTHER OBLIGATIONS.....................................................- 5 - -------------------------- Section 2.4 PAYMENTS.......................................................................- 5 - -------- Article 3 - BORROWER COVENANTS............................................................................- 6 - Section 3.1 PAYMENT OF DEBT................................................................- 6 - --------------- Section 3.2 INCORPORATION BY REFERENCE.....................................................- 6 - -------------------------- Section 3.3 INSURANCE......................................................................- 6 - --------- Section 3.4 PAYMENT OF TAXES, ETC.........................................................- 10 - --------------------- Section 3.5 ESCROW FUND...................................................................- 11 - ----------- Section 3.6 CONDEMNATION..................................................................- 11 - ------------ Section 3.7 LEASES AND RENTS..............................................................- 12 - ---------------- Section 3.8 MAINTENANCE OF PROPERTY.......................................................- 14 - ----------------------- Section 3.9 WASTE.........................................................................- 14 - ----- Section 3.10 COMPLIANCE WITH LAWS..........................................................- 14 - -------------------- Section 3.11 BOOKS AND RECORDS.............................................................- 15 - ----------------- Section 3.12 PAYMENT FOR LABOR AND MATERIALS...............................................- 16 - ------------------------------- Section 3.13 PERFORMANCE OF OTHER AGREEMENTS...............................................- 17 - ------------------------------- Article 4 - SPECIAL COVENANTS............................................................................- 17 - Section 4.1 PROPERTY USE..................................................................- 17 - ------------ Section 4.2 ERISA.........................................................................- 17 - ----- Section 4.3 SINGLE PURPOSE ENTITY.........................................................- 18 - --------------------- Section 4.4 RESTORATION...................................................................- 20 - ----------- Article 5 - REPRESENTATIONS AND WARRANTIES...............................- 24 - Section 5.1 WARRANTY OF TITLE.............................................................- 24 - ----------------- Section 5.2 AUTHORITY.....................................................................- 24 - --------- Section 5.3 LEGAL STATUS AND AUTHORITY....................................................- 24 - -------------------------- Section 5.4 VALIDITY OF DOCUMENTS.........................................................- 25 - --------------------- Section 5.5 LITIGATION....................................................................- 25 - ---------- Section 5.6 STATUS OF PROPERTY............................................................- 25 - ------------------ Section 5.7 NO FOREIGN PERSON.............................................................- 26 - ----------------- Section 5.8 SEPARATE TAX LOT..............................................................- 26 - ---------------- Section 5.9 ERISA COMPLIANCE..............................................................- 26 - ---------------- -i- Section 5.10 LEASES........................................................................- 27 - ------ Section 5.11 FINANCIAL CONDITION...........................................................- 27 - ------------------- Section 5.12 BUSINESS PURPOSES.............................................................- 27 - ----------------- Section 5.13 TAXES.........................................................................- 27 - ----- Section 5.14 MAILING ADDRESS...............................................................- 28 - --------------- Section 5.15 NO CHANGE IN FACTS OR CIRCUMSTANCES...........................................- 28 - ----------------------------------- Section 5.16 DISCLOSURE....................................................................- 28 - ---------- Section 5.17 THIRD PARTY REPRESENTATIONS...................................................- 28 - --------------------------- Section 5.18 ILLEGAL ACTIVITY..............................................................- 28 - ---------------- Section 5.19 CONTRACTS.....................................................................- 28 - --------- Article 6 - OBLIGATIONS AND RELIANCES......................................................................- 28 - Section 6.1 RELATIONSHIP OF BORROWER AND LENDER...........................................- 28 - ----------------------------------- Section 6.2 NO RELIANCE ON LENDER.........................................................- 28 - --------------------- Section 6.3 NO LENDER OBLIGATIONS.........................................................- 29 - --------------------- Section 6.4 RELIANCE......................................................................- 29 - -------- Article 7 - FURTHER ASSURANCES...........................................................................- 29 - Section 7.1 RECORDING OF SECURITY INSTRUMENT, ETC.........................................- 29 - ------------------------------------- Section 7.2 FURTHER ACTS, ETC.............................................................- 30 - ----------------- Section 7.3 CHANGES IN TAX, DEBT CREDIT AND DOCUMENTARY STAMP ------------------------------------------------- LAWS..........................................................................- 30 - Section 7.4 ESTOPPEL CERTIFICATES.........................................................- 31 - --------------------- Section 7.5 FLOOD INSURANCE...............................................................- 31 - --------------- Section 7.6 SPLITTING OF SECURITY INSTRUMENT..............................................- 31 - -------------------------------- Section 7.7 REPLACEMENT DOCUMENTS.........................................................- 32 - --------------------- Article 8 - DUE ON SALE/ENCUMBRANCE.......................................................................- 32 - Section 8.1 LENDER RELIANCE...............................................................- 32 - --------------- Section 8.2 NO SALE/ENCUMBRANCE...........................................................- 32 - ------------------- Section 8.3 SALE/ENCUMBRANCE DEFINED......................................................- 32 - ------------------------ Section 8.4 LENDER'S RIGHTS...............................................................- 33 - --------------- Section 8.5 ONE-TIME TRANSFER. ...........................................................- 33 - ----------------- Article 9 - PREPAYMENT.................................................................................- 35 - Section 9.1 PREPAYMENT BEFORE EVENT OF DEFAULT............................................- 35 - ---------------------------------- Section 9.2 PREPAYMENT ON CASUALTY OR CONDEMNATION........................................- 35 - -------------------------------------- Section 9.3 PREPAYMENT AFTER EVENT OF DEFAULT.............................................- 35 - --------------------------------- Article 10 - DEFAULT...................................................................................- 36 - Section 10.1 EVENTS OF DEFAULT.............................................................- 36 - ----------------- Section 10.2 LATE PAYMENT CHARGE...........................................................- 38 - ------------------- Section 10.3 DEFAULT INTEREST..............................................................- 38 - ---------------- Article 11 - RIGHTS AND REMEDIES..........................................................................- 39 - Section 11.1 REMEDIES......................................................................- 39 - -------- Section 11.2 APPLICATION OF PROCEEDS.......................................................- 41 - ----------------------- -ii- Section 11.3 RIGHT TO CURE DEFAULTS........................................................- 41 - ---------------------- Section 11.4 ACTIONS AND PROCEEDINGS.......................................................- 42 - ----------------------- Section 11.5 RECOVERY OF SUMS REQUIRED TO BE PAID..........................................- 42 - ------------------------------------ Section 11.6 EXAMINATION OF BOOKS AND RECORDS..............................................- 42 - -------------------------------- Section 11.7 OTHER RIGHTS, ETC.............................................................- 42 - ----------------- Section 11.8 RIGHT TO RELEASE ANY PORTION OF THE PROPERTY..................................- 43 - -------------------------------------------- Section 11.9 VIOLATION OF LAWS.............................................................- 43 - ----------------- Section 11.10 RECOURSE AND CHOICE OF REMEDIES...............................................- 43 - ------------------------------- Section 11.11 RIGHT OF ENTRY................................................................- 44 - -------------- Article 12 - ENVIRONMENTAL HAZARDS........................................................................- 44 - Section 12.1 ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES..................................- 44 - -------------------------------------------- Section 12.2 ENVIRONMENTAL COVENANTS.......................................................- 45 - ----------------------- Section 12.3 LENDER'S RIGHTS...............................................................- 46 - --------------- Article 13 - INDEMNIFICATION.............................................................................- 46 - Section 13.1 GENERAL INDEMNIFICATION.......................................................- 46 - ----------------------- Section 13.2 MORTGAGE AND/OR INTANGIBLE TAX................................................- 47 - ------------------------------ Section 13.3 ERISA INDEMNIFICATION.........................................................- 47 - --------------------- Section 13.4 ENVIRONMENTAL INDEMNIFICATION.................................................- 48 - ----------------------------- Section 13.5 DUTY TO DEFEND; ATTORNEYS' FEES AND OTHER FEES AND -------------------------------------------------- EXPENSES......................................................................- 49 - Article 14 - WAIVERS...................................................................................- 49 - Section 14.1 WAIVER OF COUNTERCLAIM........................................................- 49 - ---------------------- Section 14.2 MARSHALLING AND OTHER MATTERS.................................................- 49 - ----------------------------- Section 14.3 WAIVER OF NOTICE..............................................................- 49 - ---------------- Section 14.4 WAIVER OF STATUTE OF LIMITATIONS..............................................- 49 - -------------------------------- Section 14.5 SOLE DISCRETION OF LENDER.....................................................- 49 - ------------------------- Section 14.6 SURVIVAL......................................................................- 50 - -------- SECTION 14.7 WAIVER OF TRIAL BY JURY.......................................................- 50 - ----------------------- Article 15 - EXCULPATION................................................................................- 50 - Section 15.1 EXCULPATION...................................................................- 50 - ----------- Section 15.2 RESERVATION OF CERTAIN RIGHTS.................................................- 51 - ----------------------------- Section 15.3 EXCEPTIONS TO EXCULPATION.....................................................- 51 - ------------------------- Section 15.4 RECOURSE......................................................................- 51 - -------- Section 15.5 BANKRUPTCY CLAIMS.............................................................- 51 - ----------------- Article 16 - NOTICES...................................................................................- 52 - Section 16.1 NOTICES.......................................................................- 52 - ------- Article 17 - SERVICE OF PROCESS..........................................................................- 53 - Section 17.1 CONSENT TO SERVICE............................................................- 53 - ------------------ Section 17.2 SUBMISSION TO JURISDICTION....................................................- 53 - -------------------------- Section 17.3 JURISDICTION NOT EXCLUSIVE....................................................- 54 - -------------------------- -iii- Article 18 - APPLICABLE LAW.............................................................................- 54 - Section 18.1 CHOICE OF LAW.................................................................- 54 - ------------- Section 18.2 USURY LAWS....................................................................- 54 - ---------- Section 18.3 PROVISIONS SUBJECT TO APPLICABLE LAW..........................................- 54 - ------------------------------------ Article 19 - SECONDARY MARKET............................................................................- 55 - Section 19.1 TRANSFER OF LOAN..............................................................- 55 - ---------------- Article 20 - COSTS....................................................................................- 55 - Section 20.1 PERFORMANCE AT BORROWER'S EXPENSE.............................................- 55 - --------------------------------- Section 20.2 ATTORNEY'S FEES FOR ENFORCEMENT...............................................- 55 - ------------------------------- Article 21 - DEFINITIONS................................................................................- 56 - Section 21.1 GENERAL DEFINITIONS...........................................................- 56 - ------------------- Article 22 - MISCELLANEOUS PROVISIONS......................................................................- 56 - Section 22.1 NO ORAL CHANGE................................................................- 56 - -------------- Section 22.2 LIABILITY.....................................................................- 56 - --------- Section 22.3 INAPPLICABLE PROVISIONS.......................................................- 56 - ----------------------- Section 22.4 HEADINGS, ETC.................................................................- 56 - ------------- Section 22.5 DUPLICATE ORIGINALS; COUNTERPARTS.............................................- 57 - --------------------------------- Section 22.6 NUMBER AND GENDER.............................................................- 57 - ----------------- Section 22.7 SUBROGATION...................................................................- 57 - ----------- Article 23 - SPECIAL ..................................................................................- 57 - Section 23.1........................................................................................- 57 - Section 23.2........................................................................................- 57 - Section 23.3........................................................................................- 58 - Section 23.4........................................................................................- 58 - Section 23.5........................................................................................- 58 - Section 23.6........................................................................................- 58 - Section 23.7........................................................................................- 58 - Section 23.8........................................................................................- 58 - Section 23.9........................................................................................- 58 - Section 23.10.......................................................................................- 58 - Section 23.11.......................................................................................- 58 - Section 23.12.......................................................................................- 59 - Section 23.13.......................................................................................- 59 - Section 23.14 Statutory Power of Sale..................................................- 59 - DEFINITIONS............................................................................................-v-
-iv- DEFINITIONS The terms set forth below are defined in the following Sections of this Security Instrument: (a) Additional Reserve: Article 3, Subsection 3.7(d); ------------------ (b) Applicable Laws: Article 3, Subsection 3.10(a); --------------- (c) Attorneys' Fees/Counsel Fees: Article 21, Section 21.1; ---------------------------- (d) Bankruptcy Code: Article 1, Subsection 1.1(f); --------------- (e) Borrower: Preamble and Article 21, Section 21.1; -------- (f) Business Day: Article 16, Section 16.1; ------------ (g) Condemnation Proceeds: Article 4, Subsection 4.4(b)(ii); --------------------- (h) Debt: Article 2, Section 2.1; ---- (i) Default Prepayment: Article 9, Section 9.3; ------------------ (j) Default Rate: Article 10, Section 10.3; ------------ (k) Environmental Indemnity: Article 10, Subsection 10.1(q); ----------------------- (l) Environmental Law: Article 12, Section 12.1; ----------------- (m) Environmental Liens: Article 12, Subsection 12.2(d); ------------------- (n) Environmental Report: Article 12, Subsection 12.1(a) -------------------- (o) ERISA: Article 4, Subsection 4.2(a); ----- (p) Escrow Fund: Article 3, Section 3.5; ----------- (q) Event: Article 20, Section 20.1; ----- (r) Event of Default: Article 10, Section 10.1; ---------------- (s) Flood Insurance Acts: Article 3, Subsection 3.3(a)(vii); -------------------- (t) Full Replacement Cost: Article 3, Subsection 3.3(a)(i)(A); --------------------- (u) GAAP: Article 3, Subsection 3.11(a); ---- [NY01:247789.4] 86000-00376 12/23/96 4:57pm -v- (v) Guarantor: Article 10, Subsection 10.1(e); --------- (w) Hazardous Substances: Article 12, Section 12.1; -------------------- (x) Improvements: Article 1, Subsection 1.1(c); ------------ (y) Indemnified Parties: Article 13, Section 13.1; ------------------- (z) Indemnitor(s): Article 10, Subsection 10.1(o); ------------- (aa) Insurance Premiums: Article 3, Subsection 3.3(b); ------------------ (ab) Insurance Proceeds: Article 4, Subsection 4.4(b); ------------------ (ac) Investor: Article 19, Section 19.1; -------- (ad) J. Baker Lease: Article 5, Section 5.10; -------------- (ae) Land: Article 1, Subsection 1.1(a); ---- (af) Lease Guaranty: Article 3, Subsection 3.7(a); -------------- (ag) Leases: Article 1, Subsection 1.1(f); ------ (ah) Lender: Preamble and Article 21, Section 21.1; ------ (ai) Loan: Article 5, Subsection 5.12; ---- (aj) Loan Application: Article 5, Section 5.15; ---------------- (ak) Losses: Article 13, Section 13.1; ------ (al) Net Proceeds: Article 4, Subsection 4.4(b); ------------ (am) Net Proceeds Deficiency: Article 4, Subsection 4.4(b)(vi); ----------------------- (an) Note: Recitals and Article 21, Section 21.1; ---- (ao) Obligations: Article 2, Section 2.3; ----------- (ap) Other Charges: Article 3, Subsection 3.4(a); ------------- (aq) Other Obligations: Article 2, Section 2.2; ----------------- (ar) Other Security Documents: Article 3, Section 3.2; ------------------------ (as) Permitted Exceptions: Article 5, Section 5.1; -------------------- -vi- (at) Person: Article 21, Section 21.1; ------ (au) Personal Property: Article 1, Subsection 1.1(e); ----------------- (av) Policies/Policy: Article 3, Subsection 3.3(b); --------------- (aw) Property: Article 1, Section 1.1 and Article 21, Section --------- 21.1; (ax) Qualified Insurer: Article 3, Subsection 3.3(b); ----------------- (ay) Rating Agency: Article 3, Subsection 3.3(b); ------------- (az) Related Entities: Article 8, Subsection 8.5(c)(E); ---------------- (ba) Release: Article 12, Section 12.1; ------- (bb) Remediation: Article 12, Section 12.1; ----------- (bc) Rents: Article 1, Subsection 1.1(f); ----- (bd) Restoration: Article 3, Subsection 3.3(h); ----------- (be) Restoration Consultant: Article 4, Subsection 4.4(b)(iii); ---------------------- (bf) Restoration Retainage: Article 4, Subsection 4.4(b)(iv); --------------------- (bg) Securities: Article 19, Section 19.1; ---------- (bh) Security Deposits: Article 3, Subsection 3.7(c); ----------------- (bi) Security Instrument: Preamble; ------------------- (bj) Taxes: Article 3, Subsection 3.4(a); ----- (bk) Tenant's Transferee: Article 3, Subsection 3.7(d); ------------------- (bl) Transferee: Article 8, Subsection 8.5(c)(C); ---------- (bm) Transferee's Principals: Article 8, Subsection 8.5(c)(C); ----------------------- (bn) Uniform Commercial Code: Article 1, Subsection 1.1(e) ----------------------- -vii- EX-11 15 COMPUTATION OF PRIMARY & FULLY DILUTED EARNINGS EXHIBIT 11 J. BAKER, INC. AND SUBSIDIARIES Computation of Primary and Fully Diluted Earnings Per Share* Quarter Ended Year Ended February 1, February 3, February 1, February 3, 1997 1996 1997 1996 -------- -------- -------- ------ PRIMARY: Net Earnings $(115,157,548) $ 690,603 $(111,427,903) $(38,602,114) ============= =========== ============= ============ Weighted average number of common shares outstanding 13,892,397 13,872,378 13,887,544 13,858,273 =========== =========== =========== =========== Earnings (Loss) Per Share $(8.290) $0.0498 $(8.024) $(2.790) ============ =========== ============ ============ ASSUMING FULL DILUTION: Net Earnings (Loss) 1 $(115,157,548) $ 690,603 $(111,427,403) $(38,602,114) ============= ========== ============= ============ Weighted average number of common shares outstanding 13,892,397 13,872,378 13,887,544 13,858,273 Dilutive effect of outstanding stock options and warrants 10,935 4,927 13,089 47,272 Dilutive effect of convertible subordin ated debt - - - - ------------- ----------- ------------- ----------- Weighted average number of common shares as adjusted 13,903,332 13,877,305 13,900,633 13,905,545 =========== =========== =========== ========== Earnings (Loss) Per Share $(8.283) $0.005 $(8.016) $(2.776) ============= =========== ============ ===========
1 For the purpose of calculating fully diluted earnings per share for the quarter and year ended January 28, 1995, the conversion of the 7% convertible debt results in an after tax benefit from reduced interest expense. * This calculation is submitted in accordance with Item 601(b)(11) of Regulation S-K. EX-12 16 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 J. BAKER, INC. AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (Dollars in thousands) Fiscal Years Ended ---------------------------------------------------------------------------- January 30, January 29, January 28, February 3, February 1, 1993 1994 1995 1996* 1997** ---------- ---------- ---------- ---------- --------- Historical ratio of earnings to fixed charges Earnings (loss) from continuing operations before taxes and extraordinary item per consolidated statements of earnings $21,076 $36,424 $36,899 $(64,425) $(157,274) Add: Portion of rents representative of the interest factor 6,564 15,227 17,593 17,316 16,283 Interest on indebtedness including the amortization of debt expense and detachable warrant value(1) 8,211 8,146 9,735 10,983 13,056 ------- ------- ------- ------- ------- Earnings (loss) before fixed charges, as adjusted $35,851 $59,797 $64,227 $(36,126) $(127,935) ====== ====== ====== ======= ======== Fixed charges Interest on indebtedness including the amortization of debt expense and detachable warrant value (1) $ 8,211 $ 8,146 $ 9,735 $ 10,983 $ 13,056 ------- -------- ------- ------- ------- Rents $ 19,691 $ 45,680 $ 52,780 $ 51,948 $ 48,850 Portion of rents representative of the interest factor (2) $ 6,564 $ 15,227 $ 17,593 $ 17,316 $ 16,283 ------- ------- ------- ------- ------- Fixed charges (1) + (2) $ 14,775 $ 23,373 $ 27,328 $ 28,299 $ 29,339 ======= ======= ======= ======= ======= Ratio of earnings (loss) to fixed charges 2.43x 2.56x 2.35x (1.28)x (4.36)x ======= ======= ======= ======= =======
(*) 1996 reflects the impact of restructuring charges of $69,300,000. (**) 1997 reflects the impact of restructuring and other non-recurring charges of $122,309,000. EX-21 17 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT State or other Jurisdiction Name under which Name of Incorporation Business is done - -------------------------- --------------------- ----------------- JBAK Canton Realty, Inc. Massachusetts JBAK Canton Realty, Inc. JBI, Inc. Massachusetts JBI, Inc. J. Baker, Inc. Parade of Shoes Shoe Corporation of America JBI Holding Company, Inc.* Delaware JBI Holding Company, Inc. Morse Shoe, Inc.* Delaware Morse Shoe, Inc. Spencer Companies, Inc. Massachusetts Spencer Companies, Inc. The Casual Male, Inc. Massachusetts Casual Male Big & Tall TCM Holding Company, Inc.** Delaware TCM Holding Company, Inc. TCMB&T, Inc. Massachusetts Casual Male Big & Tall WGS Corp. Massachusetts Work 'n Gear
* Subsidiaries of JBI, Inc. ** Subsidiary of The Casual Male, Inc. EX-23 18 INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors J. Baker, Inc. We consent to the incorporation by reference in Registration Statements of J. Baker, Inc. on Form S-8 No. 33-10385, No. 33-20302, No. 33-39425, No. 33-59786, No. 33-59788, No. 33-59790 and No. 33-60605, and on Form S-3 No. 33-51645 and No. 333-2797 of our report dated March 20, 1997 appearing in the Annual Report on Form 10-K of J. Baker, Inc. for the year ended February 1, 1997. /s/ KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Boston, Massachusetts April 29, 1997 EX-27 19 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF J. BAKER, INC. FOR THE YEAR ENDED FEBRUARY 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS FEB-01-1997 FEB-01-1997 3,969,116 0 21,796,137 5,286,617 146,045,496 272,358,747 116,686,446 40,032,801 382,520,803 90,236,386 214,092,084 0 0 6,946,199 65,043,061 382,520,803 897,491,941 897,491,941 542,246,938 542,246,938 0 0 12,802,377 (157,273,903) (45,846,000) (111,427,903) 0 0 0 (111,427,903) (8.02) (8.02)
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