-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Rvy6Ad4BTU4Oe/ltqFihoKftWT9Bvmt7bubM+HVPJug2Ee9M1L0J+F1Pk++k4lzu r0zIaqUr0Z13F7PJ23QihA== 0000950146-95-000185.txt : 19950501 0000950146-95-000185.hdr.sgml : 19950501 ACCESSION NUMBER: 0000950146-95-000185 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950428 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WABAN INC CENTRAL INDEX KEY: 0000850316 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 330109661 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10259 FILM NUMBER: 95532422 BUSINESS ADDRESS: STREET 1: ONE MERCER ROAD CITY: NATICK STATE: MA ZIP: 01760 BUSINESS PHONE: 5086516500 10-K 1 WABAN INC. FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended January 28, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission File Number 1-10259 WABAN INC. (Exact name of registrant as specified in its charter) Delaware 33-0109661 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) One Mercer Road Natick, Massachusetts 01760 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (508) 651-6500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - -------------------- ------------------------ Common Stock, par value $.01 New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange 6-1/2% Convertible Subordinated Debentures due July 1, 2002 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of 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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant on April 1, 1995 was $645,836,000. There were 33,249,154 shares of the Registrant's Common Stock, $.01 par value, outstanding as of April 1, 1995. Documents Incorporated by Reference Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on June 13, 1995 (Part III). PART I Item 1. Business The Company operates two warehouse merchandising businesses: BJ's Wholesale Club ("BJ's") and HomeBase. BJ's introduced the warehouse club concept to New England in 1984 and is the third largest membership warehouse chain nationwide. BJ's sells a narrow assortment of brand-name food and general merchandise within a wide range of product categories. HomeBase is the second largest operator of home improvement warehouse stores in the western United States and offers a very broad assortment of home improvement and building supply products. As of January 28, 1995, the Company operated 62 BJ's warehouse clubs and 77 HomeBase warehouse stores. Both BJ's and HomeBase utilize the efficiencies provided by the warehouse merchandising format to offer their customers first-quality, brand name merchandise at prices substantially below those available through traditional channels of distribution. BJ's and HomeBase both emphasize productivity, efficiency, and disciplined inventory management in order to minimize the cost of carrying and handling merchandise. Each employs sophisticated management information systems to facilitate efficient purchasing, distribution and pricing of inventory. Both chains purchase most of their merchandise directly from manufacturers for shipment to individual warehouses or to consolidation/deconsolidation facilities where truckload shipments are separated and reassembled for immediate delivery to individual warehouse stores. The Company was formed in 1989, when Zayre Corp. (now The TJX Companies, Inc. ("TJX")), as part of its restructuring, combined its BJ's Wholesale Club and HomeBase divisions to form "Waban Inc." In June 1989, TJX distributed all of the Company's outstanding common stock to its shareholders on a pro rata basis. BJ's Wholesale Club General BJ's Wholesale Club introduced the warehouse club concept to New England in 1984 and has since expanded in the New England and Mid-Atlantic states, as well as in southern Florida. BJ's operates 62 warehouse clubs in twelve states and has over 3.2 million members. The table below shows BJ's locations by state.
Number of State Locations New York 13 Massachusetts 11 New Jersey 8 Maryland 6 Virginia 6 Pennsylvania 5 Florida 4 Connecticut 3 New Hampshire 3 Delaware 1 Maine 1 Rhode Island 1 Total 62
Industry Overview Warehouse clubs typically sell a narrow assortment of food and general merchandise within a wide range of product categories. In order to achieve high sales volumes and rapid inventory turnover, merchandise selections are generally limited to items that are brand name leaders in their categories. Since warehouse clubs sell a diversified selection of product categories, they attract customers from a wide range of other traditional wholesale and retail distribution channels, such as supermarkets, discount stores, office supply stores, consumer electronics stores, automotive stores and wholesale distributors and jobbers. The Company believes that it is difficult for these higher cost channels of distribution to effectively compete with the low prices offered by warehouse clubs. Warehouse clubs eliminate many of the merchandise handling costs associated with traditional multiple-step distribution channels by purchasing directly from manufacturers and by storing merchandise on the sales floor rather than in central warehouses. By operating no-frills, self-service warehouse facilities, warehouse clubs have fixturing 1 and operating costs substantially below those of traditional retailers. Two broad groups of customers, individual households and small businesses, have been attracted to the savings on brand name merchandise made possible by the high sales volumes and low operating costs achieved by warehouse clubs. The customers at warehouse clubs are generally limited to members who pay an annual fee. The warehouse club industry has grown from sales of approximately $14 billion in 1988 to approximately $39 billion in 1994, rapidly gaining market share of both food and general merchandise sales. The Company believes that continued growth in the industry's market share will come from the addition of new clubs as well as from sales growth of existing clubs, primarily at the expense of more traditional channels of distribution. The Company's management believes the northeastern United States is underserved by the warehouse club industry, as compared to other areas of the United States where warehouse clubs account for a greater percentage of total retail sales. Expansion Over the last five years BJ's increased the number of its warehouse clubs from 23 to 62.
Warehouse Warehouse Warehouse Warehouse Clubs Clubs Clubs Clubs in Operation Opened Closed in Operation Fiscal Year at Beginning During During at End Ended January of Year the Year the Year of Year 1991 23 5 1 27 1992 27 6 4 29 1993 29 10 -- 39 1994 39 13 -- 52 1995 52 11 1 62
BJ's currently plans to open approximately 12 new warehouse clubs each year over the next several years. The Company expects that virtually all of these new warehouse clubs will be located in the Northeast. BJ's store opening strategy for 1995 (the fiscal year ending January 27, 1996) is focused on filling in existing markets, with expansion in future years planned for both existing and contiguous market areas. Although expansion within existing markets may initially affect sales at existing warehouse clubs adversely, the Company believes that this strategy increases market penetration by increasing the frequency of shopping by current members. In addition, BJ's anticipates improving operational efficiencies in distribution costs and management supervision by concentrating its warehouse clubs geographically. Store Profile The average size of the 62 BJ's warehouse clubs in operation at January 28, 1995 is approximately 110,000 square feet. Including space for parking, a typical BJ's warehouse club requires eight to ten acres of land. BJ's warehouse clubs are located in both free-standing locations and "strip malls." In some locations, BJ's warehouse clubs are combined with other large store retailers in shopping centers known as power centers. Construction and site development costs for a new BJ's warehouse club average approximately $5.0 million. Land acquisition costs for a warehouse club generally range from $2.5 million to $5.5 million, but can be significantly higher in some locations. A new BJ's warehouse club entails an initial capital investment of approximately $2.0 million for fixtures and equipment. In addition to capital expenditures, each new warehouse club requires approximately $2.0 million for inventory (net of accounts payable) and pre-opening expenses. In November 1994 the Company opened two 68,000 square foot warehouse clubs in smaller market areas in upstate New York. The Company will continue to evaluate the effectiveness of this format for less densely populated markets during 1995. Of the twelve new BJ's units planned to be opened in 1995, five or six are expected to be in the 68,000 square foot format in smaller markets. Merchandising BJ's merchandising strategy is to provide its members with a broad range of high quality, brand name merchandise at everyday prices consistently lower than the prices available through traditional wholesalers, discount retailers or supermarkets. BJ's limits specific items in each product line to fast selling styles, sizes and colors and, therefore, carries an average of approximately 3,500 stock-keeping units ("SKUs"). By contrast, supermarkets normally stock 18,000 to 35,000 SKUs. In recent years, food has become an increasing percentage of BJ's sales mix and currently represents approximately 61% of sales. The remaining 39% consists of a wide variety of non-food items. Food categories at 2 BJ's include frozen foods, meat and dairy products, dry grocery items, fresh produce, canned goods, and household paper products and cleaning supplies. BJ's offers fresh meat and bakery departments in nearly all its clubs. General merchandise includes office supplies, office equipment, televisions, stereos, small appliances, auto accessories, tires, jewelry, housewares and apparel. BJ's continually strives to add new products, services and membership benefits to attract new members and to generate incremental sales from existing members. In recent years, for example, BJ's has introduced fresh meat and bakery departments, cellular phones, greeting cards, optical centers, lottery ticket counters, an auto buying service and a travel service. BJ's works closely with manufacturers to develop packaging and sizes which are best suited to selling through the warehouse club format in order to minimize handling costs and to provide increased value to its members. To ensure that its merchandise selection is closely attuned to the tastes of its members, BJ's employs regional buyers, each of whom is responsible for tailoring the product selection in individual warehouse clubs to the regional and ethnic tastes of the local market. Membership Paid membership is an integral part of the warehouse club concept. In addition to providing a source of revenue which permits the Company to offer low prices, membership also reinforces customer loyalty and acts as a screening device, allowing BJ's to concentrate on serving high volume repeat customers. BJ's internal demographic studies indicate that its customers are more likely to be home owners and tend to have incomes, ages and family sizes which are above the average for its trading areas. BJ's has two primary types of members: business members and Inner Circle (household) members. At January 28, 1995, the Company had over 3.2 million members (including supplemental cardholders). BJ's charges an annual membership fee for individuals and qualified businesses of $30 for the primary membership card and provides one free supplemental card to each primary member. Additional supplemental cards for business members cost $15 each. BJ's membership policy is less restrictive than certain of its competitors, who require individual members to belong to certain qualifying groups. The Company believes that its more liberal membership policy is beneficial in helping it to expand awareness of the warehouse club concept and has attracted incremental sales without adversely affecting its costs. BJ's permits members to pay for their purchases by cash, check, Discover card, or a BJ's credit card, which is provided by a major financial institution on a non-recourse basis. BJ's does not accept other national credit cards because of their high fee structure. Advertising BJ's increases customer awareness of its warehouse clubs primarily through public relations efforts, new store marketing programs and direct mail solicitations. BJ's employs a team of dedicated marketing personnel who solicit potential business members and who contact selected community groups to increase the number of members. BJ's also uses one-day passes to introduce non-members to its warehouse clubs. BJ's policy is generally to limit advertising and promotional expenses to new warehouse club openings and to utilize print and electronic media advertising sparingly. The Company uses limited vendor-funded television and radio advertising during the holiday season. These policies result in very low marketing expenses as compared to typical discount retailers and supermarkets. Warehouse Club Operations The Company's ability to achieve profitable operations while offering high quality merchandise at low prices depends upon the efficient operation of its warehouse clubs and high sales volumes. BJ's buys virtually all of its merchandise at volume discounts from manufacturers for shipment either directly to BJ's warehouse clubs or to a consolidation/deconsolidation facility. As a result, BJ's eliminates many of the costs associated with traditional multiple-step distribution channels, including distributors' commissions and the costs of storing merchandise in central distribution facilities. BJ's routes a significant percentage of its non-food merchandise as well as an increasing percentage of food purchases through consolidation/deconsolidation facilities which break down truckload quantity shipments from manufacturers and re-allocate these goods for shipment, generally on a same-day basis, to individual warehouse clubs. This permits BJ's to negotiate better volume discounts and reduces freight expense by combining full 3 truckload merchandise shipments from different vendors to individual warehouse clubs. In addition, by receiving and processing merchandise at a central point, BJ's reduces the number of trucks received at each warehouse club and related receiving costs. BJ's believes that its strategy of opening additional warehouse clubs within existing markets will permit it to realize further efficiencies from its existing consolidation/deconsolidation facilities. BJ's works closely with manufacturers to minimize the amount of handling required once merchandise is received at a warehouse club. Most merchandise is pre-marked by the manufacturer with the universal product code (UPC) so that it does not require ticketing at the warehouse club. In addition, BJ's minimizes labor costs because its warehouse clubs are self-serve. Merchandise for sale is displayed on pallets containing large quantities of each item, thereby reducing labor required for handling, stocking and restocking. Back-up merchandise is generally stored on racks above the sales floor. BJ's goal is to keep at least one day's supply of each item on the selling floor. BJ's has been able to limit inventory losses to levels well below those typical of discount retailers by strictly controlling the exits of its warehouse clubs, by generally limiting customers to members and by using state-of-the-art electronic article surveillance. Problems associated with payments by check have also been insignificant, since the memberships of customers who issue dishonored checks are terminated. Also, bank information from business members is verified prior to the establishment of check purchase limits. Management Information Systems Over the past several years, BJ's has made a significant investment in enhancing the efficiency with which it handles purchases and captures sales information. BJ's was the first warehouse club to introduce scanning devices which work in conjunction with its electronic point of sale (EPOS) terminals. Sales data from the EPOS terminals is continually transmitted to a minicomputer in the warehouse club and transmitted daily to a mainframe computer which provides detailed sales information to the Company's management and merchants. BJ's utilizes a sophisticated merchandise replenishment algorithm to suggest quantities to be re-ordered, which are then monitored daily by BJ's buying staff. BJ's fully integrated MIS system also maintains detailed purchasing data on individual members, permitting BJ's merchants and store managers to track changes in members' buying behavior. Competition BJ's competes with a wide range of national, regional and local retailers and wholesalers selling food or general merchandise in its markets, including supermarkets, general merchandise chains, specialty chains and other warehouse clubs, several of which have significantly greater financial and marketing resources than the Company. Major competitors that operate warehouse clubs include Price-Costco Inc. and Sam's Clubs (a division of Wal-Mart Stores, Inc.). A large number of competitive membership warehouse clubs have opened in the Northeast within the last three years. Fifty-six of BJ's 62 warehouse clubs have at least one competitive membership warehouse club in their trading areas at an average distance of approximately 6 miles. The influx of competitors' units (as well as the addition of new BJ's warehouse clubs) over the past three years has had an adverse effect on BJ's comparable stores' sales. While the Company expects additional competition to continue, it expects the pace of competitive openings will be lower than it has been in the past, in part due to the recent industry consolidation. The Company believes price is the major competitive factor in the markets in which BJ's competes. Other competitive factors include store location, merchandise selection and name recognition. The Company believes that its efficient, low cost form of distribution gives it a significant competitive advantage compared to more traditional channels of wholesale and retail distribution. As a regional chain, BJ's strives to differentiate itself from other membership warehouse club operators by its attention to local buying preferences and seasonality. 4 HomeBase General HomeBase opened its first warehouse store in California in October 1983 and as of January 28, 1995, operated 77 warehouse stores in 10 states (including 4 stores identified for closing as part of HomeBase's restructuring. See "Strategic Initiatives and Restructuring"). HomeBase's warehouse stores are located in the western United States. The table below shows HomeBase's locations by state as of January 28, 1995.
Number of State Locations California 47 Washington 9 Colorado 5 Arizona 4 Oregon 3 Nevada 2 New Mexico 2 Texas 2 Utah 2 Idaho 1 Total 77
Industry Overview Warehouse-format home centers typically provide lower prices than traditional channels of home improvement and building supply product distribution. The warehouse format also generally offers a very broad assortment of home improvement products, combined with a high level of service from knowledgeable, well trained warehouse staff. These factors are communicated to customers through ongoing, aggressive advertising. The warehouse format generally serves two broad customer groups within the home improvement industry. The first group consists of Do-It-Yourself (DIY) customers who are individuals and families that are making purchases and completing projects generally for their own homes on a Do-It-Yourself basis. These customers range from casual to serious, and require varying levels of support in planning and selecting their purchases. The second customer group consists of professional contractors and facility managers who use home improvement and building supply products on a daily basis in their businesses. The Company believes that demographic and lifestyle factors such as the aging of baby boomers, the increase in home-centered activities and the aging housing stock will create growing demand for home improvement products and services. The Company believes that the overall market for home improvement products was approximately $125 billion in 1994. The market for home improvement products is fragmented, with the ten largest home improvement retailers representing approximately 27% of sales in 1994. Over the last ten years, warehouse-format home center retailers have gained significant market share in the United States by offering lower prices, greater product selection and more in-stock merchandise than traditional home center, hardware and lumber yard operators. In addition, warehouse stores have been able to take advantage of economies created by large sales volumes. Strategic Initiatives and Restructuring Last year HomeBase introduced a series of strategic initiatives designed to strengthen its market position in the western United States and improve its profitability. These initiatives included (i) a significant increase in the level of customer service offered at HomeBase stores, through an increase in the number of salespeople, including hiring experienced tradespeople and others with specialized product knowledge in home improvement fields, and enhanced sales and service training for both new and existing store employees, (ii) improvement in gross margin through buying efficiencies created by centralization of the merchandise replenishment function, improved distribution of merchandise to reduce freight costs, and selective price increases, and (iii) an aggressive marketing program to communicate to customers the benefits of shopping at HomeBase and its improved levels of customer service. In the third quarter of 1993 a new management team, led by a senior executive from BJ's, was installed at HomeBase to implement these strategic initiatives. In connection with a restructuring plan, which the Company's Board of Directors approved on November 15, 1993, the Company recorded a pre-tax restructuring charge of $101.1 million in the fourth quarter of 1993 primarily 5 to cover expenses related to the repositioning of HomeBase. The restructuring has enabled HomeBase to focus its management efforts and financial resources on strengthening its competitive position in the western United States. This charge reflects (i) the closing of all eight of the Company's stores in midwestern markets (Chicago and Toledo), which were outside HomeBase's primary market area, (ii) the planned closing of 12 additional stores, 8 of which were closed by January 28, 1995, and (iii) liquidating certain discontinued merchandise. The Company is actively seeking to sell, assign or sublease 7 closed stores, as well as the other 4 stores identified for closing, which were still in operation at January 28, 1995. Expansion HomeBase is currently the largest or second largest home improvement operator in most of the metropolitan markets which it serves. HomeBase's current expansion strategy is oriented towards reinforcing its position in these existing markets and expanding selectively to contiguous markets. The following table shows the number of HomeBase stores opened and closed during the last five years:
Warehouse Warehouse Warehouse Warehouse Stores Stores Stores Stores in Operation Opened Closed in Operation Fiscal Year at Beginning During During at End Ended January of Year the Year the Year of Year 1991 58 8 -- 66 1992 66 7 -- 73 1993 73 13 -- 86 1994 86 5 9 82 1995 82 3 8 77
HomeBase plans to open approximately four warehouse stores (including the relocation of one store) in 1995, which will be located in existing market areas. Sixteen stores have been closed in the last two years in connection with HomeBase's restructuring. An additional four stores in operation as of January 28, 1995 are expected to be closed. Store Profile The average size of the 77 HomeBase warehouse stores in operation at January 28, 1995 was 102,000 square feet. Most HomeBase warehouse stores also utilize additional outside selling space for nursery and garden centers. HomeBase's warehouse stores are located in both free-standing locations and "strip malls." In some locations, HomeBase warehouse stores are combined with membership warehouse clubs or other large store retailers in shopping centers known as power centers. Including space for parking, a typical HomeBase warehouse store requires six to ten acres of land. Construction and site development costs for a new HomeBase warehouse store average $5.0 million. Land acquisition costs for a new warehouse store generally range from $2.0 million to $6.0 million. A new HomeBase warehouse store entails an initial capital investment of approximately $1.5 million for fixtures and equipment. In addition to capital expenditures, each new warehouse store requires an investment of approximately $2.5 million for inventory (net of accounts payable) and pre-opening expenses. Merchandising HomeBase's large product offering provides a broad selection of brand name merchandise to both DIY customers and professional contractors. HomeBase's merchandise selection is broad enough to allow a customer to purchase virtually every item needed to build an entire home. The Company believes that its 28,000 SKU selection is broader than the selection offered by traditional home center competitors. By making use of the operating efficiencies of the warehouse format to maximize productivity, HomeBase believes it is able to provide substantial savings over other channels of home improvement and building supply product distribution. In order to achieve greater operational efficiencies, HomeBase has recently centralized its merchandise replenishment operations and improved its logistics of distribution to reduce freight costs. By centralizing its replenishment activities, the Company believes it has been able to improve the manner in which it acquires products. In addition, this program permits the Company to redeploy store personnel, which increases customer service. Merchandise sold by HomeBase includes lumber, building materials, plumbing supplies and fixtures, electrical materials and fixtures, hand and power tools, hardware, paints, garden supplies, nursery items, home decorative 6 items and related seasonal and household merchandise. HomeBase's brand name orientation allows customers to compare HomeBase's prices to the same items offered by competitors. In selected categories, HomeBase supplements these brand name offerings with high quality private label products at lower prices. Marketing and Advertising HomeBase addresses its primary target customers through a mix of newspaper, direct mail, radio and television advertising. The primary advertising medium is newspaper advertisements, including both freestanding inserts and run-of-press-ads. Television and radio advertising are used to reinforce HomeBase's image of providing superior customer service and offering a broad assortment of merchandise at everyday low prices. Additionally, the Company participates in or hosts a variety of home shows, customer hospitality events and contractor product shows. HomeBase solicits vendor participation in many of its advertising programs. Warehouse Operations HomeBase is committed to providing superior service to every customer. Carefully selected home improvement specialists, many of whom have extensive experience in their respective fields, are available throughout the store to assist DIY customers and professional contractors. HomeBase's project design centers and kitchen design centers feature computer assisted design tools where customers can work with design coordinators to conceptualize and plan virtually any home improvement project. HomeBase believes that it is important not only to address the needs of the existing DIY marketplace, but that it is also important to expand the DIY marketplace by encouraging new DIY customers and upgrading the skills and confidence levels of existing DIY customers. HomeBase provides assistance and training to DIY customers, including regularly scheduled customer clinics on a wide range of home improvement projects. A series of programs has been designed by HomeBase to specifically address the needs of contractors. A majority of HomeBase warehouse stores have Contractor Desks, with staff dedicated to handling contractors' special needs, including the ability to receive faxed orders and pre-assemble them for pick-up, and quickly obtaining special items and sizes. HomeBase will also deliver bulk purchases to job sites for a nominal fee. HomeBase warehouse stores offer extended hours, opening early in the morning to serve professional contractors. HomeBase strives to develop the skills of its store personnel to ensure that customers consistently receive knowledgeable and courteous assistance. HomeBase's training programs have been recently reoriented to emphasize the importance of customer service and to improve store employees' selling skills. HomeBase provides extensive training for its entry level warehouse store personnel through a comprehensive in-house training program that combines on-the-job training with formal seminars and meetings. On an ongoing basis, warehouse store personnel attend frequent in-house training sessions conducted by HomeBase's training staff or by manufacturers' representatives, and they receive sales, product and other information in frequent meetings with their managers. HomeBase's satellite television system (HBTV) permits it to simultaneously broadcast training sessions from its Irvine, California headquarters to every individual warehouse store location. Most of HomeBase's merchandise is purchased from manufacturers for shipment either directly to the selling warehouse store or to consolidation/deconsolidation facilities where large shipments are broken down and separated for transfer to individual warehouse stores, generally on a same-day basis. By operating no-frills warehouse facilities, HomeBase's fixturing and operating costs are kept substantially below those of traditional home improvement retailers. HomeBase offers its own private label credit card to customers under a non-recourse program operated by a major financial institution and also accepts MasterCard, Visa, Discover and American Express. Management Information Systems HomeBase uses a fully integrated management information system to monitor sales, track inventory and provide rapid feedback on the performance of its business. Each HomeBase warehouse store operates point-of-sale- terminals which capture information on each item sold via UPC scanning. Minicomputers at each warehouse store process and consolidate this information during the selling day and transmit it each night to HomeBase's information center via satellite. From this information, the data center produces daily reports that are used to support merchandising, inventory replenishment and promotional decisions. HomeBase's satellite television network broadcasts several times each week to all of HomeBase's warehouse stores. Broadcasts include training sessions, vendor product demonstrations and interactive discussions with HomeBase's management. 7 HomeBase introduced scanning to the home improvement industry and is a leader in implementing electronic data interchange ("EDI"). EDI permits both HomeBase and its vendors to save money and reduce errors by electronically transmitting purchase order information. HomeBase now uses EDI with over 1,000 vendors and plans to continue to expand its use of this technology. Competition HomeBase competes with a wide range of businesses engaged in the wholesale or retail sale of home improvement and building supply merchandise, including home centers, hardware stores, lumber yards and discount stores. The Company believes the major competitive factors in the markets in which HomeBase competes are customer service, price, product selection, location and name recognition. The Company believes that its improving level of customer service, the value offered by HomeBase's low prices and the one-stop shopping available through its full range of home improvement products give it an advantage over many of its traditional home center competitors. The major competitor in HomeBase's market areas that also uses the warehouse merchandising format is The Home Depot, Inc., which has significantly greater financial and marketing resources than the Company. Approximately 87% of HomeBase's warehouse stores currently have at least one warehouse home improvement retailer in their trading areas at an average distance of approximately 3 miles. Approximately 75% of HomeBase's warehouse stores currently compete with Home Depot units. HomeBase also competes with a number of smaller regional operators such as Orchard Supply Hardware Stores Corp., Contractor's Warehouse (a division of Grossman's Inc.) and Eagle Hardware & Garden, Inc. Employees As of January 28, 1995, the Company had approximately 18,000 employees, of whom approximately 2,700 were part-time employees. Approximately 1,250 employees were corporate and divisional management and office support employees; the balance were warehouse personnel. None of the Company's employees is represented by unions. The Company considers its relations with its employees to be excellent. Item 2. Properties The Company operated 139 warehouse locations as of January 28, 1995, of which 105 are leased under long-term leases and 26 are owned. The Company owns the buildings at the remaining eight locations, which are subject to long-term ground leases. The unexpired terms of warehouse location leases range from 4.8 years to 38.9 years, and average approximately 14.3 years. The Company has options to renew all but one of its leases for periods that range from approximately 5 to 50 years and average approximately 18.5 years. These leases require fixed monthly rental payments which are subject to various adjustments. In addition, certain leases require payment of a percentage of the warehouse's gross sales in excess of certain amounts. Most leases require that the Company pay all property taxes, insurance, utilities and other operating costs. The Company's principal executive offices in Natick, Massachusetts, which include the home office of its BJ's division, occupy approximately 125,000 square feet under a lease expiring January 31, 1999, with an option to extend this lease through January 31, 2001. The Company also maintains a home office for its HomeBase division in Irvine, California, occupying approximately 164,000 square feet under a lease expiring July 24, 2004, with options to extend this lease through July 24, 2019. See Note D of Notes to the Consolidated Financial Statements included elsewhere in this report for additional information with respect to the Company's leases. Certain of the Company's locations are financed through long-term secured financings. See Note C of Notes to the Consolidated Financial Statements for additional information with respect to such financings. Listings of BJ's and HomeBase locations within each state are shown on pages 1 and 5, respectively. Item 3. Legal Proceedings The Company is involved in various legal proceedings incident to the character of its business, some of which involve substantial claims. Although it is not possible to predict the outcome of these proceedings, or any claims against the Company related thereto, the Company believes that such proceedings will not, individually or in the aggregate, have a material adverse effect on its financial condition or results of operations. 8 Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of the Company's security holders during the fourth quarter of the fiscal year ended January 28, 1995. Item 4A. Executive Officers of the Registrant The following persons are the executive officers of the Company as of the date hereof:
Office and Employment Name Age During Last Five Years Sumner L. Feldberg 70 Chairman of the Board of the Company since February 1989; Chairman of the Board of The TJX Companies, Inc. ("TJX") since 1989. Herbert J. Zarkin 56 President, Chief Executive Officer and Director of the Company since May 1993; Executive Vice President of the Company (1989-1993); President of BJ's Wholesale Club Division (1990-1993). John J. Nugent 48 Executive Vice President of the Company and President of BJ's Wholesale Club since September 1993; Senior Vice President of BJ's Wholesale Club (1991-1993); Director of Sales Operations of BJ's Wholesale Club (1989-1993). Allan P. Sherman 50 Executive Vice President of the Company since May 1993 and President of HomeBase since September 1993; President of BJ's Wholesale Club (May 1993 to September 1993); Senior Vice President and General Merchandise Manager--Non-Food of BJ's Wholesale Club (August 1991 to May 1993); Vice President and General Merchandise Manager--Non-Food of BJ's Wholesale Club (February 1991 to August 1991); President of My House, a division of Jamesway (1989-1991). Sarah M. Gallivan 52 Employed by the Company since October 1989 and elected Vice President, General Counsel and Secretary of the Company in December 1989. Edward J. Weisberger 53 Senior Vice President, Treasurer and Chief Financial Officer since September 1994; Vice President--Finance of the Company (April 1989 to September 1994).
All officers hold office until the next annual meeting of the Board of Directors in 1995 and until their successors are elected and qualified. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The common stock of the Company is listed on the New York Stock Exchange (symbol WBN). The quarterly high and low stock prices for the fiscal years ended January 28, 1995 and January 29, 1994 were:
Fiscal Year Ended Fiscal Year Ended January 28, 1995 January 29, 1994 Quarter High Low High Low First 20-1/8 14-1/8 17 11-3/4 Second 19 14-1/2 15-1/8 12 Third 20 16-3/4 16 12 Fourth 19-3/4 14-7/8 15-1/4 12-1/4
The approximate number of stockholders of record at February 25, 1995 was 4,500. The Company has not paid any dividends. For restrictions on the payment of dividends, see Note C of Notes to the Consolidated Financial Statements. 9 Item 6. Selected Financial Data
Fiscal Year Ended Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Jan. 25, 1992 Jan. 26, 1991 (53 weeks) (Dollars in Thousands Except Per Share Data) Income Statement Data: Net sales $ 3,650,281 $ 3,589,341 $ 3,357,794 $ 2,783,585 $ 2,409,726 Cost of sales, including buying and occupancy costs 3,110,787 3,086,670 2,881,334 2,399,765 2,076,372 Selling, general and administrative expenses 418,404 423,026 401,905 322,705 288,377 Restructuring charge -- 101,133 -- -- -- Cost of closing BJ's warehouse clubs in Chicago -- -- -- 5,500 -- Discontinuation of HomeClub name and membership program -- -- -- 3,400 8,800 Interest on debt and capital leases (net) 14,898 12,489 6,280 3,292 5,491 Income (loss) before income taxes and cumulative effect of accounting principle changes 106,192 (33,977) 68,275 48,923 30,686 Provision (benefit) for income taxes 41,202 (15,290) 24,033 18,914 12,274 Income (loss) before cumulative effect of accounting principle changes 64,990 (18,687) 44,242 30,009 18,412 Cumulative effect of accounting principle changes -- 905 -- -- -- Net income (loss) $ 64,990 $ (17,782) $ 44,242 $ 30,009 $ 18,412 Income (loss) per common share: Primary earnings per share: Income (loss) before cumulative effect of accounting principle changes $ 1.95 $ (0.56) $ 1.33 $ 1.01 $ 0.64 Cumulative effect of accounting principle changes -- 0.02 -- -- -- Net income (loss) $ 1.95 $ (0.54) $ 1.33 $ 1.01 $ 0.64 Fully diluted earnings per share: Income (loss) before cumulative effect of accounting principle changes $ 1.83 $ (0.56) $ 1.31 $ 1.01 $ 0.64 Cumulative effect of accounting principle changes -- 0.02 -- -- -- Net income (loss) $ 1.83 $ (0.54) $ 1.31 $ 1.01 $ 0.64 Number of common shares for earnings per share computations: Primary 33,405,014 33,082,362 33,191,497 29,807,255 28,597,817 Fully diluted 37,792,893 33,082,362 35,706,763 29,810,348 28,689,256 Balance Sheet Data: Working capital $ 291,767 $ 203,809 $ 285,797 $ 268,559 $ 154,344 Total assets 1,241,931 1,072,994 1,007,014 786,405 579,784 Long-term debt and obligations under capital leases 258,763 174,054 192,630 86,774 29,199 Stockholders' equity 488,089 420,492 436,610 388,645 284,185 Warehouses open at end of year: BJ's Wholesale Club 62 52 39 29 27 HomeBase 77 82 86 73 66
10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's fiscal year ends on the last Saturday in January. The fiscal years ended January 28, 1995 ("1994" or "fiscal 1994") and January 29, 1994 ("1993" or "fiscal 1993") each included 52 weeks. The fiscal year ended January 30, 1993 ("1992" or "fiscal 1992") included 53 weeks. Results of Operations The following table presents selected income statement and segment data for the last three fiscal years:
Fiscal Year Ended January 28, 1995 January 29, 1994 January 30, 1993 (53 weeks) % of % of % of $ Net Sales $ Net Sales $ Net Sales (Dollars in Millions Except Per Share Amounts) Income Statement Data: Net sales $3,650.3 100.0% $3,589.3 100.0% $3,357.8 100.0% Cost of sales, including buying and occupancy costs 3,110.8 85.2 3,086.7 86.0 2,881.3 85.8 Selling, general and administrative expenses 418.4 11.5 423.0 11.8 401.9 12.0 Restructuring charge -- -- 101.1 2.8 -- -- Interest on debt and capital leases (net) 14.9 .4 12.5 .3 6.3 .2 Income (loss) before income taxes and cumulative effect of accounting principle changes 106.2 2.9 (34.0) (.9) 68.3 2.0 Provision (benefit) for income taxes 41.2 1.1 (15.3) (.4) 24.1 .7 Income (loss) before cumulative effect of accounting principle changes 65.0 1.8 (18.7) (.5) 44.2 1.3 Cumulative effect of accounting principle changes -- -- .9 -- -- -- Net income (loss) $ 65.0 1.8% $ (17.8) (.5)% $ 44.2 1.3% Fully diluted net income (loss) per common share $ 1.83 $ (0.54) $ 1.31 Selected Segment Data: BJ's Wholesale Club: Net sales $2,293.1 100.0% $2,003.4 100.0% $1,786.9 100.0% Operating income $ 68.8 3.0% $ 45.2 2.3% $ 35.4 2.0% HomeBase: Net sales $1,357.2 100.0% $1,586.0 100.0 % $1,570.9 100.0% Operating income (loss) $ 60.7 4.5% $ (55.8) (3.5)% $ 47.2 3.0%
The Company's results for the fiscal year ended January 28, 1995 excluded sales and operating income or losses of 16 HomeBase warehouse stores that were closed or were planned to be closed in connection with the Company's restructuring announced in the fourth quarter of 1993, when the Company recorded a $101.1 million pre-tax restructuring charge. Results for 1993 excluded sales and operating income or losses from October 31, 1993 to January 29, 1994 for the eight midwestern HomeBase warehouse stores that closed in that quarter, and from November 28, 1993 to January 29, 1994 for the other 16 HomeBase warehouse stores planned to be closed. Sales from all 24 warehouse stores have been removed from comparable store sales. 11 Sales Total sales of the Company increased by 1.7% from 1993 to 1994 and by 6.9% from 1992 (which contained 53 weeks) to 1993. The increases in both years were due to the opening of new warehouse stores. Reported sales in 1993 included $270 million for the 24 HomeBase warehouse stores included in the restructuring reserve and excluded from 1994's results. Excluding these sales from 1993's results, total sales for the Company increased by 10.0% from 1993 to 1994. Comparable store sales decreases on a same-week basis for the last two fiscal years were as follows:
1994 vs. 1993 vs. 1993 1992 BJ's Wholesale Club (2.5)% (9.9)% HomeBase (1.1)% (1.5)% Total (1.9)% (6.4)%
Comparable store sales at BJ's in both 1994 and 1993 were affected by increased competition and by the opening of new BJ's clubs in the same markets as existing BJ's clubs. Comparable store sales in 1993 were also impacted by the effects of price deflation. Comparable store sales results improved at BJ's over the course of 1994, ranging from a decrease of 3.9% in the first quarter to a decrease of 0.2% in the fourth quarter. HomeBase's comparable store sales were also affected by increased competition in 1994 and 1993, as well as weak economic conditions in California, where HomeBase has its largest concentration of stores. Comparable store sales performance also improved at HomeBase over the course of 1994, ranging from a decrease of 3.4% in the first quarter to an increase of 1.3% in the fourth quarter. Cost of Sales Cost of sales (including buying and occupancy costs) as a percentage of sales was 85.2% in 1994, compared with 86.0% in 1993 and 85.8% in 1992. Although BJ's, a lower margin business than HomeBase, contributed an increasing proportion of sales throughout the period from 1992 to 1994, the cost of sales percentage increased by only .2% in 1993 and decreased by .8% in 1994. Gross selling margins increased at both divisions in 1994, especially at HomeBase. Gross selling margins in 1993 were also higher than the previous year at both divisions, with BJ's recording the greater improvement. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses as a percentage of sales were 11.5% in 1994 versus 11.8% in 1993 and 12.0% in 1992. The ratio of SG&A expenses to sales was lower than the previous year in both 1994 and 1993 primarily because of BJ's increased proportion of consolidated sales. SG&A expenses as a percentage of sales are lower at BJ's than at HomeBase, which offers a higher level of customer service. This more than offset an increase in HomeBase's SG&A expenses as a percentage of sales in 1994, which was due primarily to increased store payroll to provide improved customer service. Restructuring The Company's $101.1 million pre-tax restructuring charge in 1993 related primarily to store closings and the write-down of discontinued inventory at HomeBase. The charge, which was recorded in the fourth quarter of 1993, anticipated the closing of 24 HomeBase warehouse stores. As of January 28, 1995, sixteen of these stores have been closed. Four additional stores are expected to close in the future, which will bring the revised number of HomeBase stores closed in connection with the restructuring to twenty. Four stores that were originally included in the restructuring are not being closed, due to their improved performance. Of the sixteen stores that have been closed, the Company is still obligated under leases for six stores and is attempting to sell one other store that it owns. The reduction in the number of stores to be closed from 24 to 20 will result in lower store closing costs, employee termination costs and losses from the disposal of owned property than originally estimated. However, the portion of the restructuring charge related to HomeBase's net obligations for leased properties after their closing dates is expected to be higher than originally estimated. These changes are expected to offset each other, so the original amount of the restructuring charge of $101.1 million (pre-tax) has not been amended. The cost of liquidating HomeBase's discontinued inventory was in line with the original estimate. Results of the four stores in the restructuring reserve which are still operating will be included in the sales and operating results of all HomeBase stores after January 28, 1995 until they begin closing. The effect on comparable store sales and operating income of including these results is not expected to be material. 12 The balance remaining in the restructuring reserves at January 28, 1995 totalled $40.0 million. Approximately $29 million was reserved for lease obligations (net of sublease income), $8 million for store closing costs and $3 million (which is netted against property held for sale) for losses on the disposal of owned property. This reserve is based on a number of estimates, and actual future costs could vary from these estimates, principally the Company's ability to sublease, assign or sell closed HomeBase locations on anticipated terms. Operating Income BJ's operating income in 1994 was $68.8 million versus $45.2 million in 1993 and $35.4 million in 1992. Operating income in 1993 included a pre-tax charge of $2.2 million related to the relocation of BJ's Syracuse, NY club. Operating income in 1992 included a $1.1 million pre-tax gain from the disposal of real estate properties. BJ's improvement in operating income over the three-year period reflects a shift in the mix of sales from high-ticket, lower margin categories, such as consumer electronics and office equipment, to higher margin categories, efficiencies in merchandise distribution and effective expense control. HomeBase recorded operating income of $60.7 million in 1994 compared with an operating loss of $55.8 million in 1993 and operating income of $47.2 million in 1992. HomeBase's operating loss in 1993 included a pre-tax restructuring charge of $98.5 million and operating losses of $7.6 million for the 24 stores in the restructuring reserve. Excluding these items for purposes of comparison, 1994's operating income of $60.7 million is approximately 21% higher than 1993's $50.3 million. This improvement was due to higher gross margins which more than offset higher store payrolls, reflecting HomeBase's strategic initiative to improve customer service and achieve higher gross margins through a better mix of sales, efficiencies in merchandise distribution and selective price increases. Operating income in 1993 (excluding the restructuring charge) was lower than 1992's operating income by approximately 9%, mainly because of increased payroll and occupancy costs. Interest The components of net interest expense in the last three years were as follows (in millions):
Fiscal Year Ended Jan. 28, 1995 Jan. 29, 1994 Jan. 30, 1993 Interest expense on debt $19.1 $11.4 $ 8.4 Interest and investment income (6.0) (1.5) (4.7) Interest on debt (net) 13.1 9.9 3.7 Interest on capital leases 1.8 2.6 2.6 Interest on debt and capital leases (net) $14.9 $12.5 $ 6.3
The increases in interest expense on debt and in interest and investment income from 1993 to 1994 were due primarily to the issuance of $100 million of 11% Senior Subordinated Notes in May 1994 and the investment of the net proceeds of $97.3 million. Interest expense on debt in 1993 was higher than the previous year mainly because 1992's expense included only a partial year's interest on the borrowing of $108.6 million of 6.5% Convertible Subordinated Debentures through a public offering in July 1992. The proceeds of this borrowing were subsequently invested in the expansion of the Company's businesses. For additional information, see "Liquidity and Capital Resources" below. Income Taxes The Company's income tax provision was 38.8% of pre-tax income in 1994 compared to an income tax benefit of 45.0% in 1993 and a provision of 35.2% in 1992. During the Company's third quarter of 1993, the statutory federal income tax rate for corporations was raised from 34% to 35%, retroactive to January 1, 1993, and the Targeted Jobs Tax Credit was restored retroactive to July 1, 1992. The net effect of the tax law changes on the Company's provision (benefit) for income taxes, which was recorded in the third quarter of 1993, was not material. The Company's provision for income taxes in 1993 included 38.2% of pre-tax income before the restructuring charge and a 40.5% tax benefit from the restructuring charge. The tax rate in 1992 was favorably impacted by a benefit resulting from the difference in the book and tax bases of real estate which was sold. See Note F of Notes to the Consolidated Financial Statements for additional information. Accounting Changes In the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other 13 Than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of these accounting principle changes increased (decreased) after-tax income by the following amounts (in millions):
SFAS No. 109, "Accounting for Income Taxes" $1.6 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," net of tax benefit (.2) SFAS No. 112, "Employers' Accounting for Postemployment Benefits," net of tax benefit (.5) $ .9
Net Income Net income for 1994 was $65.0 million, or $1.83 per share, fully diluted, compared to a net loss of $17.8 million, or $.54 per share, in 1993 and net income of $44.2 million, or $1.31 per share, in 1992. Results for 1993 included the following transactions (in millions):
Income (Expense) Pre-Tax Post-Tax Restructuring charge $(101.1) $(60.2) Cost of relocating BJ's Syracuse, NY club (2.2) (1.3) Operating losses of 24 stores that were subsequently included in the restructuring reserve (7.6) (4.5) Cumulative effect of accounting changes (net) -- .9 $(110.9) $(65.1)
Excluding the items in the preceding table, net income for 1993 was $47.3 million, or $1.37 per share, fully diluted. Compared to this adjusted result, net income for 1994 increased approximately 37% and fully diluted earnings per share increased approximately 34%. Net income in 1993, adjusted for the restructuring charge, the cost of relocating BJ's Syracuse club and the cumulative effect of accounting changes, was $42.8 million, or $1.25 per share, fully diluted. Net income in 1992, adjusted for a post-tax gain of $2.3 million from the disposal of real estate properties at BJ's, was $41.9 million, or $1.25 per share. Liquidity and Capital Resources Net cash provided by operating activities in 1994 was $123.1 million versus $91.0 million in 1993. Excluding cash flow generated by the Company's restructuring, net cash provided by operating activities was $95.6 million in 1994 and $75.8 million in 1993. Cash expended for property additions in 1994 was $111.7 million versus $132.0 million in 1993. The Company opened three new HomeBase warehouse stores and eleven new BJ's clubs, including the relocation of one club in 1994. In the previous fiscal year, the Company opened a total of 18 new stores. Eleven of the new stores opened in 1994 were owned versus ten in 1993. During 1994 the Company also remodeled 11 HomeBase warehouse stores. The Company expects to open approximately 12 additional BJ's clubs and four additional HomeBase warehouse stores (including the relocation of one store) in 1995. Approximately twelve additional HomeBase stores are expected to be remodeled. Capital expenditures are planned to be approximately $165 million in 1995, including an estimated $85 million for new store real estate. The timing and amount of actual openings and expenditures could vary from these estimates due to the complexity of the real estate development process. The Company's restructuring has generated approximately $64 million of cash flow to date, of which approximately $48 million was realized in 1994. In addition to tax benefits, cash has been provided by the sale of inventory and property of closed stores (net of accounts payable and closing costs) and from the liquidation of HomeBase's discontinued inventory. Cash flow from the disposition of the remaining warehouse locations, excluding long-term lease obligations, is expected to be approximately $10 million to $15 million (including tax benefits). The net cash outflow for long-term lease obligations (net of tax benefits) after closing all locations is also expected to approximate $10 million to $15 million over the remaining terms of the leases, which expire at various dates through 2011. In some cases, the Company has made lump sum cash payments to settle lease obligations and may settle other future lease obligations in the same manner when the Company believes it is economically 14 advantageous to do so. The actual amounts of remaining cash flow could vary from the estimates above, depending on certain factors, principally the Company's ability to sublease or sell closed HomeBase locations on anticipated terms. In May 1994 the Company issued $100 million of 11% Senior Subordinated Notes due May 15, 2004. The proceeds (net of expenses) to the Company of approximately $97.3 million will be used primarily to fund the opening of new stores, including the acquisition of real estate and the construction of stores, and for general corporate purposes. The funds have been temporarily invested in high quality securities of less than two-year maturity issued by corporations and governmental entities. On April 7, 1995 the Company entered into an agreement with a group of banks which provides a $150 million line of credit through March 30, 1998. The agreement includes a $20 million sub-facility for standby letters of credit. In addition to a fee of $75,000 upon signing the agreement, the Company is required to pay an annual facility fee of $300,000 (subject to adjustment based upon the Company's fixed charge coverage ratio). Borrowings can be made at prime rate, at LIBOR plus a surcharge (currently 0.45%) that depends on fixed charge coverage, or on a competitive bid basis. The agreement also contains covenants which, among other things, include minimum fixed charge coverage and net worth requirements and a maximum funded debt to capital limitation. The payment of cash dividends on common stock is limited to not more than 25% of the Company's consolidated net income for the immediately preceding fiscal year. There are no compensating balance requirements under the agreement. The Company's cash, cash equivalents and marketable securities totalled $129.0 million as of January 28, 1995. The Company expects that its current resources, together with anticipated cash flow from operations, will be sufficient to finance its operations into fiscal 1996. However, the Company may from time to time seek to obtain additional financing. The Company's cash requirements may vary, based on, among other things, the rate at which it disposes of the HomeBase stores that are included in the restructuring. Seasonality BJ's sales and operating income have been strongest in the Christmas holiday season and lowest in the first quarter of each fiscal year. HomeBase's sales and earnings are typically lower in the first and fourth quarters than they are in the second and third quarters, which correspond to the most active season for home construction. 15 Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page Consolidated Statements of Income for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 17 Consolidated Balance Sheets as of January 28, 1995 and January 29, 1994 18 Consolidated Statements of Cash Flows for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 19 Consolidated Statements of Stockholders' Equity for the fiscal years ended January 28, 1995, January 29, 1994 and January 30, 1993 20 Notes to Consolidated Financial Statements 21 Selected Quarterly Financial Data 31 Report of Independent Accountants 32 Report of Management 32 Schedules: II Valuation and Qualifying Accounts 33 Consent and Report of Independent Accountants 34
16 WABAN INC. CONSOLIDATED STATEMENTS OF INCOME
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 (53 weeks) (In Thousands Except Per Share Amounts) Net sales $3,650,281 $3,589,341 $3,357,794 Cost of sales, including buying and occupancy costs 3,110,787 3,086,670 2,881,334 Selling, general and administrative expenses 418,404 423,026 401,905 Restructuring charge -- 101,133 -- Interest on debt and capital leases (net) 14,898 12,489 6,280 Total expenses 3,544,089 3,623,318 3,289,519 Income (loss) before income taxes and cumulative effect of accounting principle changes 106,192 (33,977) 68,275 Provision (benefit) for income taxes 41,202 (15,290) 24,033 Income (loss) before cumulative effect of accounting principle changes 64,990 (18,687) 44,242 Cumulative effect of accounting principle changes -- 905 -- Net income (loss) $ 64,990 $ (17,782) $ 44,242 Income (loss) per common share: Primary earnings per share: Income (loss) before cumulative effect of accounting principle changes $ 1.95 $ (0.56) $ 1.33 Cumulative effect of accounting principle changes -- 0.02 -- Net income (loss) $ 1.95 $ (0.54) $ 1.33 Fully diluted earnings per share: Income (loss) before cumulative effect of accounting principle changes $ 1.83 $ (0.56) $ 1.31 Cumulative effect of accounting principle changes -- 0.02 -- Net income (loss) $ 1.83 $ (0.54) $ 1.31 Number of common shares for earnings per share computations: Primary 33,405 33,082 33,191 Fully diluted 37,793 33,082 35,707
The accompanying notes are an integral part of the financial statements. 17 WABAN INC. CONSOLIDATED BALANCE SHEETS
January 28, January 29, 1995 1994 (Dollars in Thousands) ASSETS Current assets: Cash and cash equivalents $ 65,040 $ 19,877 Marketable securities 63,933 -- Accounts receivable 51,875 62,447 Merchandise inventories 512,619 505,188 Current deferred income taxes 34,460 36,996 Prepaid expenses 8,992 9,662 Total current assets 736,919 634,170 Property at cost: Land and buildings 289,781 222,522 Leasehold costs and improvements 72,874 59,844 Furniture, fixtures and equipment 237,373 195,740 600,028 478,106 Less accumulated depreciation and amortization 130,245 96,623 469,783 381,483 Property under capital leases 17,129 18,452 Less accumulated amortization 7,150 6,924 9,979 11,528 Property held for sale (net) 12,251 30,247 Deferred income taxes -- 4,967 Other assets 12,999 10,599 Total assets $1,241,931 $1,072,994 LIABILITIES Current liabilities: Current installments of long-term debt $ 12,763 $ 13,814 Accounts payable 249,842 253,232 Restructuring reserve 14,079 29,444 Accrued expenses and other current liabilities 164,945 129,637 Accrued federal and state income taxes 2,536 2,970 Obligations under capital leases due within one year 987 1,264 Total current liabilities 445,152 430,361 Real estate debt 1,752 4,075 General corporate debt 36,000 48,000 Senior subordinated debt 100,000 -- Convertible subordinated debt 108,600 108,600 Obligations under capital leases, less portion due within one year 12,411 13,379 Noncurrent restructuring reserve 22,900 28,642 Other noncurrent liabilities 22,617 19,445 Deferred income taxes 4,410 -- STOCKHOLDERS' EQUITY Common stock, par value $.01, authorized 190,000,000 shares, issued and outstanding 33,186,418 and 33,086,295 shares 332 331 Additional paid-in capital 325,565 322,915 Unrealized holding losses (44) -- Retained earnings 162,236 97,246 Total stockholders' equity 488,089 420,492 Total liabilities and stockholders' equity $1,241,931 $1,072,994
The accompanying notes are an integral part of the financial statements. 18 WABAN INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 (53 weeks) (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 64,990 $ (17,782) $ 44,242 Adjustments to reconcile net income to net cash provided by operating activities: Restructuring charge -- 101,133 -- Depreciation and amortization of property 40,425 37,039 29,823 (Gain) loss on property disposals 2,016 790 (706) Amortization of premium on marketable securities 388 9 2,280 Other non-cash items (net) 1,963 3,102 1,536 Deferred income taxes 11,942 (41,518) (1,825) Increase (decrease) in cash due to changes in: Accounts receivable 10,572 (21,042) (11,580) Merchandise inventories (7,431) 10,048 (128,705) Prepaid expenses 670 (1,121) (3,558) Other assets (net) (318) (1,042) (1,160) Accounts payable (3,390) 14,215 45,280 Restructuring reserves (25,769) (15,850) -- Accrued expenses 24,320 20,411 18,611 Accrued income taxes (434) (953) (487) Other noncurrent liabilities 3,172 3,589 1,705 Net cash provided by (used in) operating activities 123,116 91,028 (4,544) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (120,944) -- (135,274) Sale of marketable securities 37,303 11,839 127,990 Maturity of marketable securities 19,082 5,066 58,610 Property additions (111,704) (131,974) (164,928) Property disposals 16,140 14,839 2,658 Net cash used in investing activities (160,123) (100,230) (110,944) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings of long-term debt, net of issuance costs of $2,747 in FYE 1/95 and $2,569 in FYE 1/93 97,253 -- 106,031 Repayment of long-term debt (15,374) (2,222) (2,051) Repayment of capital lease obligations (1,227) (5,024) (1,020) Proceeds from sale and issuance of common stock 1,518 681 1,815 Net cash provided by (used in) financing activities 82,170 (6,565) 104,775 Net increase (decrease) in cash and cash equivalents 45,163 (15,767) (10,713) Cash and cash equivalents at beginning of year 19,877 35,644 46,357 Cash and cash equivalents at end of year $ 65,040 $ 19,877 $ 35,644 Supplemental cash flow information: Interest paid $ 18,280 $ 13,682 $ 10,226 Income taxes paid 29,723 25,099 26,345 Noncash financing and investing activities: Capital lease obligations -- 329 786
The accompanying notes are an integral part of the financial statements. 19 WABAN INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands Except Per Share Amounts) Common Additional Unrealized Total Stock Paid-In Holding Retained Stockholders' Par Value $.01 Capital Losses Earnings Equity Balance, January 25, 1992 $327 $317,532 $ -- $ 70,786 $388,645 Net income -- -- -- 44,242 44,242 Sale and issuance of common stock 3 3,720 -- -- 3,723 Balance, January 30, 1993 330 321,252 -- 115,028 436,610 Net loss -- -- -- (17,782) (17,782) Sale and issuance of common stock 1 1,663 -- -- 1,664 Balance, January 29, 1994 331 322,915 -- 97,246 420,492 Net income -- -- -- 64,990 64,990 Unrealized holding losses -- -- (44) -- (44) Sale and issuance of common stock 1 2,650 -- -- 2,651 Balance, January 28, 1995 $332 $325,565 $(44) $162,236 $488,089
The accompanying notes are an integral part of the financial statements. 20 WABAN INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Summary of Accounting Policies Basis of Presentation The consolidated financial statements of Waban Inc. (the "Company") include the financial statements of all of the Company's subsidiaries, all of which are wholly-owned. Fiscal Year The Company's fiscal year ends on the last Saturday in January. The fiscal years ended January 28, 1995 ("1994" or "fiscal 1994") and January 29, 1994 ("1993" or "fiscal 1993") each included 52 weeks. The fiscal year ended January 30, 1993 ("1992" or "fiscal 1992") included 53 weeks. Cash Equivalents and Marketable Securities The Company considers highly liquid investments with a maturity of three months or less at time of purchase to be cash equivalents. Investments with maturities exceeding three months are classified as marketable securities. See Notes K and L for further information. Merchandise Inventories Inventories are stated at the lower of cost, determined under the average cost method, or market. The Company recognizes the write-down of slow-moving or obsolete inventory in cost of sales when such write-downs are probable and estimable. At January 29, 1994, merchandise inventories were stated net of a reserve of $9,653,000, established in connection with the Company's restructuring. The balance in this reserve was zero as of January 28, 1995. Property and Equipment Buildings, furniture, fixtures and equipment are depreciated by use of the straight-line method over the estimated useful lives of the assets. Leasehold costs and improvements are amortized by use of the straight-line method over the lease term or their estimated useful life, whichever is shorter. Preopening Costs Preopening costs consist of direct incremental costs of opening a facility and are charged to operations within the fiscal year that a new warehouse store or club opens. Membership Fees Membership fees are included in revenue when received, but not before a warehouse club opens. Interest on Debt and Capital Leases Interest on debt and capital leases in the Statement of Income is presented net of interest income and investment income of $5,979,000 in 1994, $1,507,000 in 1993 and $4,743,000 in 1992. Capitalized Interest The Company capitalizes interest related to the development of owned facilities. Interest in the amount of $2,134,000, $2,773,000 and $2,441,000 was capitalized in 1994, 1993 and 1992, respectively. Net Income Per Common Share Primary and fully diluted net income per common share are based on the weighted average number of common and common equivalent shares and other dilutive securities outstanding in each year. A. Cumulative Effect of Accounting Principle Changes Effective January 31, 1993 (the first day of fiscal 1993), the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment Benefits." The cumulative effect of these accounting principle changes increased (decreased) after-tax income by the following amounts (in thousands): 21
SFAS No. 109, "Accounting for Income Taxes" $1,616 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," net of tax benefit of $138 (210) SFAS No. 112, "Employers' Accounting for Postemployment Benefits," net of tax benefit of $328 (501) $ 905
B. Restructuring Reserve In the fourth quarter of 1993 the Company recorded a pre-tax restructuring charge of $101.1 million ($60.2 million post-tax) primarily related to repositioning its HomeBase division, which included: 1) closing all eight HomeBase warehouses in the midwestern markets of Chicago and Toledo; 2) closing or relocating an additional 16 HomeBase warehouses which had limited potential for long-term profitability. This group of warehouses consisted mostly of older units which did not have desirable locations or were not suitable for the current HomeBase prototype; 3) liquidating discontinued merchandise; and 4) related administrative expenses. As of January 28, 1995, sixteen HomeBase stores have been closed in connection with the restructuring, including the entire midwestern market. Four additional stores are expected to close in the future, which will bring the number of HomeBase stores closed in connection with the restructuring to twenty. Four stores that were originally included in the restructuring are not being closed, due to their improved performance. The discontinued merchandise has been liquidated. The amount of the original restructuring charge has not been amended. The Company believes that the balance remaining in the reserve is appropriate to cover future liabilities related to stores which have been closed, but have not been subleased or sold, and the four additional stores that are expected to be closed. In addition to the restructuring reserves included in current and noncurrent liabilities in the balance sheets, property held for sale was stated net of a reserve for write-down of $2,974,000 at January 28, 1995 and $17,479,000 at January 29, 1994. Merchandise inventories were stated net of a reserve of $9,653,000 at January 29, 1994. C. Debt At January 28, 1995 and January 29, 1994, long-term debt, exclusive of current installments, consisted of the following:
January 28, January 29, 1995 1994 (In Thousands) Real estate debt, interest at 8.25% to 9.25%, maturing through March 1, 2003 $ 1,752 $ 4,075 General Corporate Debt: Senior notes, interest at 9.58%, maturing May 31, 1995 through May 31, 1998 $ 36,000 $ 48,000 Senior Subordinated Debt: Senior subordinated notes, interest at 11%, maturing May 15, 2004 $100,000 $ -- Convertible Subordinated Debt: Convertible debentures, interest at 6.5%, maturing July 1, 2002 $108,600 $108,600
22 The aggregate maturities of long-term debt outstanding at January 28, 1995 were as follows:
Real General Senior Convertible Estate Corporate Subordinated Subordinated Fiscal Years Ending January Debt Debt Debt Debt Total (In Thousands) 1997 $ 828 $12,000 $ -- $ -- $ 12,828 1998 474 12,000 -- -- 12,474 1999 72 12,000 -- -- 12,072 2000 79 -- -- -- 79 Later years 299 -- 100,000 108,600 208,899 Total $1,752 $36,000 $100,000 $108,600 $246,352
As of January 28, 1995, real estate debt was collateralized by land and buildings with a net book value of $17,397,000. In May 1994, the Company issued $100 million of 11% senior subordinated notes due May 15, 2004. The Company's 9.58% unsecured senior notes are payable in five annual installments of $12 million each, which began May 31, 1994. The 6.5% convertible subordinated debentures are convertible into the Company's common stock at a conversion price of $24.75 per share. The Company's senior note, senior subordinated debt and bank credit agreements contain covenants which, among other things, include minimum working capital, net worth and fixed charge coverage requirements and a maximum funded debt to capital limitation. Under the most restrictive requirement, cash dividends are limited to not more than 25% of the Company's consolidated net income for the immediately preceding fiscal year. At January 28, 1995, the Company had letter of credit facilities of approximately $37.0 million primarily to support the purchase of inventories, of which approximately $23.0 million were outstanding. On April 7, 1995 the Company entered into an agreement with a group of banks which provides a $150 million line of credit through March 30, 1998. The agreement includes a $20 million sub-facility for standby letters of credit. In addition to a fee of $75,000 upon signing the agreement, the Company is required to pay an annual facility fee of $300,000 (subject to adjustment based upon the Company's fixed charge coverage ratio). Borrowings can be made at prime rate, at LIBOR plus a surcharge (currently 0.45%) that depends on fixed charge coverage, or on a competitive bid basis. There are no compensating balance requirements under this agreement. D. Commitments and Contingencies The Company is obligated under long-term leases for the rental of real estate and fixtures and equipment, some of which are classified as capital leases pursuant to SFAS No. 13. In addition, the Company is generally required to pay insurance, real estate taxes and other operating expenses and, in some cases, additional rentals based on a percentage of sales or increases in the Consumer Price Index. The real estate leases range up to 45 years and have varying renewal options. The fixture and equipment leases range up to 7 years. Future minimum lease payments as of January 28, 1995 were:
Capital Operating Fiscal Years Ending January Leases Leases (In Thousands) 1996 $ 2,614 $ 99,533 1997 2,181 101,789 1998 1,831 104,335 1999 1,859 103,949 2000 1,882 102,760 Later years 19,371 1,069,791 Total minimum lease payments 29,738 $1,582,157 Less amount representing interest 16,340 Present value of net minimum capital lease payments $13,398
23 Rental expense under operating leases (including contingent rentals which were not material) amounted to $87,366,000, $90,699,000 and $81,006,000 in 1994, 1993 and 1992, respectively. These amounts exclude rent of $12.5 million and $3.6 million charged to the restructuring reserve in 1994 and 1993, respectively. The table of future minimum lease payments above includes lease commitments for six HomeBase stores which have closed in connection with HomeBase's restructuring as of January 28, 1995, but which were not subleased or assigned at that date. As of January 28, 1995, the Company was also contingently liable on one HomeBase warehouse store lease that was assigned to a third party; the Company believes that this contingent liability will not have a material effect on the Company's financial condition. The Company is involved in various legal proceedings incident to the character of its business, some of which involve substantial claims. Although it is not possible to predict the outcome of these proceedings, or any claims against the Company related thereto, the Company believes that such proceedings will not, individually or in the aggregate, have a material adverse effect on its financial condition or results of operations. E. Capital Stock, Stock Options and Stock Purchase Plans Under its Stock Incentive Plan, the Company has granted certain key employees options, which expire five to ten years from the grant date, to purchase common stock at prices equal to 100% of market price on the grant date. Options outstanding are exercisable over various periods generally starting one year after the grant date. At January 28, 1995, 676,220 shares were exercisable under the Stock Incentive Plan. Option activity during the past three years was as follows:
Number of Option Prices Options Fiscal Year Ended January 30, 1993: Options granted $18.75-$25.625 590,550 Options exercised $ 6.25-$15.875 (113,520) Cancellations $ 6.25-$25.625 (61,259) Outstanding at January 30, 1993 $ 6.25-$25.625 1,615,281 Fiscal Year Ended January 29, 1994: Options granted $12.625-$13.375 908,131 Options exercised $ 6.25-$9.125 (78,165) Cancellations $ 8.125-$25.625 (942,346) Outstanding at January 29, 1994 $ 6.25-$25.625 1,502,901 Fiscal Year Ended January 28, 1995: Options granted $ 16.625-$19.25 1,427,200 Options exercised $ 6.25-$15.875 (119,873) Cancellations $ 6.25-$25.625 (267,499) Outstanding at January 28, 1995 $ 6.25-$25.625 2,542,729
The Company has also issued, at no cost, restricted stock awards to certain key employees under its Stock Incentive Plan. The restrictions on the transferability of those shares tied to Company performance lapse over periods that range up to eight years; for other awards, restrictions on the sale of shares lapse over periods that range up to four years. The market price of restricted stock issued is charged to income ratably over the period during which the restrictions lapse. In 1994, 1993 and 1992 the Company issued 5,500, 237,250 and 160,250 restricted shares, respectively; 24,500, 229,145 and 2,125 restricted shares were returned to the Company and cancelled in 1994, 1993 and 1992, respectively. As of January 28, 1995 and January 29, 1994, respectively, 309,309 and 1,450,010 shares were reserved for future stock awards under the Company's Stock Incentive Plan. In 1989 the Company adopted a shareholder rights plan designed to discourage attempts to acquire the Company on terms not approved by the Board of Directors. Under the plan, shareholders were issued one Right for each share of common stock owned, which entitles them to purchase 1/100 share of Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at an exercise price of $75. The Company has 24 designated 1,900,000 shares of Series A Preferred Stock for use under the rights plan; none has been issued. Generally the terms of the Series A Preferred Stock are designed so that each 1/100 share of Series A Preferred Stock is the economic equivalent of one share of the Company's common stock. In the event any person acquires 15% or more of the Company's outstanding stock, the Rights become exercisable for the number of common shares which, at the time, would have a market value of two times the exercise price of the Right. The Company has authorized 10,000,000 shares of preferred stock, $.01 par value, of which no shares have been issued. F. Income Taxes Effective January 31, 1993 (the first day of fiscal 1993), the Company adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 changed the Company's method of accounting for income taxes from the income statement approach prescribed by Accounting Principles Board Opinion No. 11 to an assets and liabilities approach. The cumulative effect of this accounting change was to increase net income by $1,616,000 in 1993 (See Note A). As permitted by SFAS No. 109, prior years' financial statements were not restated. During the third quarter of 1993, the statutory federal income tax rate for corporations was raised from 34% to 35%, retroactive to January 1, 1993, and the Targeted Jobs Tax Credit was restored retroactive to July 1, 1992. The net effect of the tax law changes on the Company's provision (benefit) for income taxes, which was recorded in the third quarter of 1993, was not material. The provision (benefit) for income taxes on income (loss) before the cumulative effect of accounting changes includes the following:
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 (In Thousands) Federal Current $23,979 $ 18,450 $ 20,523 Deferred 8,957 (29,555) (1,442) State Current 5,887 3,665 5,335 Deferred 2,379 (7,850) (383) Total income tax provision (benefit) $41,202 $(15,290) $ 24,033
The following is a reconciliation of the statutory federal income tax rates and the effective income tax rates on income (loss) before the cumulative effect of accounting principle changes:
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 Statutory federal income tax rates 35% (35)% 34% State income taxes, net of federal tax benefit 5 (8) 5 Benefit from sale of real estate -- -- (2) Targeted jobs tax credit (1) (3) (1) Other -- 1 (1) Effective income tax rates 39% (45)% 35%
Significant components of the Company's deferred tax assets and liabilities as of January 28, 1995 and January 29, 1994 are as follows: 25
January 28, January 29, 1995 1994 (In Thousands) Deferred tax assets: Self-insurance reserves $20,061 $14,032 Rental step liabilities 7,625 7,116 Restructuring reserves 16,181 32,993 Capital leases 1,385 1,261 Compensation and benefits 5,370 4,664 Other 5,456 4,175 Total deferred tax assets 56,078 64,241 Deferred tax liabilities: Accelerated depreciation-property 25,608 21,805 Other 420 473 Total deferred tax liabilities 26,028 22,278 Net deferred tax assets $30,050 $41,963
The Company has not established a valuation allowance because its deferred tax assets can be realized by offsetting taxable income mainly in the carryback period, and also against deferred tax liabilities and future taxable income, which management believes will more likely than not be earned, based on the Company's historical earnings record. For 1992, the deferred tax provision was computed in accordance with Accounting Principles Opinion No.11 and represents the effects of timing differences between financial and income tax reporting. The following is a summary of the major items comprising federal and state deferred income tax expense in that year:
Fiscal Year Ended January 30, 1993 (In Thousands) Accelerated depreciation $ 1,746 Insurance liabilities (4,368) Discontinuation of HomeClub name and membership program 1,702 Rental step adjustments (564) Other (341) Total $(1,825)
G. Pensions The Company has a non-contributory defined benefit retirement plan covering full-time employees who have attained twenty-one years of age and have completed one year of service. Benefits are based on compensation earned in each year of service. During 1992, the Board of Directors voted that no benefits would accrue under this plan after July 4, 1992. No gain or loss resulted from the curtailment of this plan. In December 1993, the Company terminated its unfunded defined benefit plan which provided additional retirement benefits for certain key employees. The net income effect of the termination and settlement of this plan was not material. The Company also has a non-contributory retirement plan covering directors who are not employees or officers of the Company. Net periodic pension cost under the Company's plans, presented in accordance with SFAS No. 87, includes the following components (in thousands): 26
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 Service cost $ 209 $ 451 $ 722 Interest cost on projected benefit obligation 435 592 656 Actual return on assets (73) (380) (157) Net amortization and deferrals (264) 21 (81) Net pension cost $ 307 $ 684 $1,140
The following table sets forth the funded status of the Company's defined benefit pension plan for full-time employees as of January 28, 1995 and January 29, 1994 (amounts related to the Directors' plan are immaterial) in accordance with SFAS No. 87 (in thousands):
January 28, 1995 January 29, 1994 Actuarial present value of accumulated benefit obligation: Vested benefits $4,622 $ 4,790 Nonvested benefits 474 940 $5,096 $ 5,730 Projected benefit obligation $5,096 $ 5,730 Plan assets at fair market value 5,106 4,880 Projected benefit obligation in excess of (less than) plan assets (10) 850 Prior service cost reduction not yet recognized 17 34 Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions (891) (1,431) Minimum liability adjustment -- 1,397 Accrued (prepaid) pension cost included in balance sheets $ (884) $ 850
The weighted average discount rates used in determining the actuarial present value of the projected benefit obligation were 8.0% and 7.5%, respectively, in 1994 and 1993. The expected long-term rate of return on assets used was 9.0% and 9.5%, respectively, in 1994 and 1993. The Company's funding policy is to contribute annually an amount allowable for federal income tax purposes. Pension plan assets consist primarily of equity and fixed income securities. Effective on July 4, 1992, the Company's 401(k) Savings Plans were amended so that participating employees may make pre-tax contributions up to 15% of covered compensation. The Company matches employee contributions at 100% of the first one percent of covered compensation and 50% of the next four percent, payable at the end of the year. Before the amendment became effective, participating employees could make pre-tax contributions up to 10% of covered compensation, and the Company matched contributions of the first five percent of covered compensation at rates ranging from 25% to 50%. The Company's expense under these plans was $3,561,000 in 1994, $3,277,000 in 1993 and $2,216,000 in 1992. In 1994, the Company established a non-contributory defined contribution retirement plan for certain key employees. Under the plan, the Company funds annual retirement contributions for the designated participants, on an after-tax basis. For 1994, the Company's contribution equalled 5% of the participants' base salary. Participants become fully vested in their contribution accounts at the end of the fiscal year in which they complete four years of service. The Company's expense under this plan was $875,000 in 1994. H. Postretirement Medical Benefits The Company sponsors a defined benefit postretirement medical plan that covers employees and their spouses who retire after age 55 with at least 10 years of service, who are not eligible for Medicare, and who participated in a Company-sponsored medical plan. Amounts contributed by retired employees under this plan are based on years of service prior to retirement. The plan is not funded. 27 SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires employers to recognize postretirement benefits over the periods during which employees render services rather than at the time benefits are paid. SFAS No. 106 was implemented by the Company by recognizing the transition obligation of $348,000 in the first quarter of 1993. Net periodic postretirement medical benefit cost for the fiscal years ended January 28, 1995 and January 29, 1994, presented in accordance with SFAS No. 106, includes the following components:
Fiscal Year Ended January 28, January 29, 1995 1994 (In Thousands) Service cost $128 $100 Interest cost 42 38 Net periodic postretirement benefit cost $170 $138
The following table sets forth the status of the Company's postretirement medical plan and the amount recognized in the Company's balance sheets at January 28, 1995 and January 29, 1994 in accordance with SFAS No. 106:
January 28, January 29, 1995 1994 (In Thousands) Accumulated postretirement benefit obligation: Retired participants $ -- $ -- Fully eligible active participants 37 11 Other active participants 387 424 Unfunded accumulated postretirement benefit obligation 424 435 Unrecognized net gain 232 51 Accrued postretirement benefit cost included in balance sheet $656 $486
For measurement purposes as of January 29, 1994, an annual rate of increase in the per capita cost of medical coverage of 10% in 1994 grading down to 5% after 10 years was assumed. Increasing the assumed health care cost trend rate one percentage point would increase the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1994 by $33,000 and would increase the accumulated postretirement benefit obligation as of January 28, 1995 by $76,000. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 8.0% as of January 28, 1995 and 7.5% as of January 29, 1994. I. Accrued Expenses and Other Current Liabilities The major components of accrued expenses and other current liabilities are as follows:
January 28, January 29, 1995 1994 (In Thousands) Employee compensation $ 25,783 $ 18,995 Self-insurance reserves 49,756 34,472 Fixed asset additions 23,674 12,443 Sales and use taxes, rent, utilities, advertising and other 65,732 63,727 $164,945 $129,637
The Company's reported expense and reserves for insurance are derived from estimated ultimate cost based upon individual claim file reserves. The Company maintains insurance coverage for individual occurrences above $250,000 for worker's compensation and general liability, and above $200,000 for group medical claims. 28 J. Selected Information by Major Business Segment
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 (53 weeks) (In Thousands) Net sales: BJ's Wholesale Club $2,293,091 $2,003,385 $1,786,916 HomeBase 1,357,190 1,585,956 1,570,878 $3,650,281 $3,589,341 $3,357,794 Operating income (loss): BJ's Wholesale Club $ 68,804 $ 45,216 $ 35,366 HomeBase (net of $98,533 restructuring charge in FYE 1/94) 60,706 (55,805) 47,170 General corporate expense (including $2,600 restructuring charge in FYE 1/94) (8,420) (10,899) (7,981) 121,090 (21,488) 74,555 Interest on debt and capital leases (net) (14,898) (12,489) (6,280) Income (loss) before income taxes and cumulative effect of accounting principle changes $ 106,192 $ (33,977) $ 68,275 Identifiable assets: BJ's Wholesale Club $ 579,423 $ 501,230 $ 364,154 HomeBase 533,535 551,887 590,344 Corporate (cash, cash equivalents and marketable securities) 128,973 19,877 52,516 $1,241,931 $1,072,994 $1,007,014 Depreciation and amortization: BJ's Wholesale Club $ 22,529 $ 16,825 $ 11,362 HomeBase 17,896 20,214 18,461 $ 40,425 $ 37,039 $ 29,823 Capital expenditures: BJ's Wholesale Club $ 71,017 $ 95,170 $ 89,765 HomeBase 51,918 37,974 76,083 $ 122,935 $ 133,144 $ 165,848
K. Investments in Marketable Securities The Company classifies all of its investments in marketable securities as available-for-sale securities in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Marketable securities at January 28, 1995 included the following:
Gross Gross Amortized Unrealized Unrealized Aggregate Cost Basis Holding Gains Holding Losses Fair Value (In Thousands) Debt securities issued by states or their political subdivisions $54,017 $35 $(108) $53,944 Corporate debt securities 9,989 -- -- 9,989 $64,006 $35 $(108) $63,933
29 The contractual maturities of marketable securities at January 28, 1995 were as follows:
Amortized Aggregate Cost Basis Fair Value (In Thousands) Less than one year $47,421 $47,384 1-5 years 16,585 16,549 $64,006 $63,933
Proceeds and gross realized losses on the sale of marketable securities for the year ended January 28, 1995 were $37.3 million and $165,000, respectively. The specific identification method is used as the basis for computing realized gains or losses on the sale of marketable securities. The increase in unrealized holding losses (net of taxes) for the year was $44,000. L. Disclosures about Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents The carrying amount approximates fair value because of the short maturity of these instruments. Marketable Securities The fair value of the Company's marketable securities is based on quoted values provided by an independent pricing service utilized by broker dealers and mutual fund companies. Real Estate Debt and General Corporate Debt The fair value of the Company's real estate debt and general corporate debt is estimated based on the current rates for similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Subordinated Debt The fair value of the Company's subordinated debt is based on quoted market prices. The estimated fair values of the Company's financial instruments are as follows (in thousands):
January 28, 1995 January 29, 1994 Carrying Fair Carrying Fair Amount Value Amount Value Cash and cash equivalents $ 65,040 $ 65,040 $ 19,877 $ 19,877 Marketable securities 63,933 63,933 -- -- Real estate debt (2,515) (2,611) (5,889) (6,287) General corporate debt (48,000) (48,422) (60,000) (65,085) Senior subordinated debt (100,000) (97,500) -- -- Convertible subordinated debt (108,600) (97,740) (108,600) (102,627)
30 M. Selected Quarterly Financial Data (Unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter (In Thousands Except Per Share Amounts) Fiscal year ended January 28, 1995 Net sales $820,840 $951,804 $905,606 $972,031 Gross earnings (a) 117,105 143,448 130,718 148,223 Net income 9,129 21,142 13,399 21,320 Per common share, fully diluted .27 .59 .38 .59 Fiscal year ended January 29, 1994 Net sales $834,225 $967,209 $897,646 $890,261 Gross earnings (a) 113,379 137,438 124,169 127,685 Income (loss) before cumulative effect of accounting principle changes 4,425 13,704 8,087 (44,903)(b) Per common share, fully diluted .13 .39 .24 (1.36)(b) Net income 5,330 13,704 8,087 (44,903)(b) Per common share, fully diluted .16 .39 .24 (1.36)(b)
(a) Gross earnings equals net sales less cost of sales, including buying and occupancy costs. (b) Includes a post-tax restructuring charge of $60.2 million and a $1.3 million post-tax charge for relocating one BJ's Wholesale Club warehouse. Excluding these items, fully diluted earnings per share would have been $.47. N. Relationship with The TJX Companies, Inc. ("TJX") The Company was formed in 1989, when Zayre Corp. (now TJX), as part of its restructuring, combined its BJ's Wholesale Club and HomeBase divisions to form Waban Inc. In connection with the spin-off from TJX (the "Spin-Off"), the Company and TJX entered into a Distribution Agreement and a Services Agreement. The Distribution Agreement provides for, among other things, (i) the division between the Company and TJX of certain liabilities, and (ii) certain other agreements governing the relationship between the Company and TJX following the Spin-Off. Under the Distribution Agreement, TJX assumed certain liabilities relating to the Company's business for the period prior to the Spin-Off. In general, the Company assumed responsibility for all post-Spin-Off liabilities relating to its business. TJX retained liability for insured claims arising before the Spin-Off and in 1999 will receive from (or pay to) the Company the amount by which TJX's costs at the end of this 10-year period exceed (or are less than) the reserve amount agreed to. Pursuant to the Services Agreement, TJX provided certain services, primarily data processing, for which the Company paid TJX $7,616,000, $6,483,000 and $5,547,000 in 1994, 1993 and 1992, respectively. The Company has elected to continue to purchase data processing and certain other services through 1997. 31 Coopers & Lybrand Coopers & Lybrand L.L.P a professional services firm REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Waban Inc.: We have audited the accompanying consolidated balance sheets of Waban Inc. and subsidiaries as of January 28, 1995 and January 29, 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 28, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Waban Inc. and subsidiaries as of January 28, 1995 and January 29, 1994 and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 28, 1995 in conformity with generally accepted accounting principles. As discussed in Notes A, F and H to the Consolidated Financial Statements, the Company changed its methods of accounting for postretirement benefits other than pensions, for postemployment benefits and for income taxes in the fiscal year ended January 29, 1994. [Signature of Coopers & Lybrand L.L.P] Boston, Massachusetts February 27, 1995, except as to the information in the last paragraph in Note C, for which the date is April 7, 1995. REPORT OF MANAGEMENT The financial statements and related financial information in this annual report have been prepared by and are the responsibility of management. The financial statements were prepared in accordance with generally accepted accounting principles and necessarily include amounts which are based upon judgments and estimates made by management. The Company maintains a system of internal controls designed to provide, at appropriate cost, reasonable assurance that assets are safeguarded, transactions are executed in accordance with management's authorization and the accounting records may be relied upon for the preparation of financial statements. The accounting and control systems are continually reviewed by management and modified as necessary in response to changing business conditions and the recommendations of the Company's internal auditors and independent public accountants. The Audit Committee, which is comprised of members of the Board of Directors who are neither officers nor employees, meets periodically with management, the internal auditors and the independent public accountants to review matters relating to the Company's financial reporting, the adequacy of internal accounting control and the scope and results of audit work. The internal auditors and the independent public accountants have free access to the Committee. The financial statements have been audited by Coopers & Lybrand, whose opinion as to their fair presentation in accordance with generally accepted accounting principles appears above. [Signature of Herbert J. Zarkin] Herbert J. Zarkin President and Chief Executive Officer [Signature of Edward J. Weisberger] Edward J. Weisberger Senior Vice President and Chief Financial Officer February 27, 1995 32 WABAN INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS For the Fiscal Years Ended January 28, 1995 and January 29, 1994 (Dollars In Thousands)
Column C Column A Column B Additions Column D Column E (1) (2) Charged to Balance at Charged to Other Balance at Beginning Costs and Accounts-- Deductions-- End of Description of Period Expenses Describe (c) Describe Period Year ended January 28, 1995: Reserve for write-down of discontinued inventories $ 9,653 $ -- $ -- $ 9,653(a) $ -- Reserve for write-down of property held for sale 17,479 -- (4,662) 9,843(a) 2,974 Restructuring reserve 29,444 -- 1,955 17,320(b) 14,079 Noncurrent restructuring reserve 28,642 -- 2,707 8,449 22,900 $85,218 $ -- $ -- $45,265 $39,953 Year ended January 29, 1994: Reserve for write-down of discontinued inventories $ -- $ 9,766 $ -- $ 113(a) $ 9,653 Reserve for write-down of property held for sale -- 17,431 -- (48)(a) 17,479 Restructuring reserve -- 45,294 -- 15,850(b) 29,444 Noncurrent restructuring reserve -- 28,642 -- -- 28,642 $ -- $101,133 $ -- $15,915 $85,218
(a) Net loss on sale or disposal of discontinued inventory and property held for sale in connection with the Company's restructuring. (b) Other costs and expenses incurred in connection with the Company's restructuring, mainly operating losses, closing costs and settlement of lease obligations in HomeBase warehouse stores closed or to be closed. (c) Reclassification of components of restructuring reserve. 33 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Waban Inc. on Form S-8 (File Nos. 33-29473 and 33-40155) of our reports dated February 27, 1995, except as to the information in the last paragraph in Note C, for which the date is April 7, 1995, on our audits of the consolidated financial statements and financial statement schedules of Waban Inc. as of January 28, 1995 and January 29, 1994, and for the three years ended January 28, 1995, January 29, 1994 and January 30, 1993, which reports are included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. Boston, Massachusetts April 28, 1995 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Waban Inc.: Our report on the consolidated financial statements of Waban Inc. and Subsidiaries is included in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed herein. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. Boston, Massachusetts February 27, 1995, except as to the information in the last paragraph in Note C, for which the date is April 7, 1995. 34 Item 9. Disagreements on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant The Company will file with the Securities and Exchange Commission a definitive Proxy Statement no later than 120 days after the close of its fiscal year ended January 28, 1995 (the "Proxy Statement"). The information required by this Item and not given in Item 4A, Executive Officers of the Registrant, is incorporated by reference from the Proxy Statement. Item 11. Executive Compensation The information required by this Item is incorporated by reference from the Proxy Statement. However, information under "Executive Compensation Committee Report" and "Performance Graph" in this Proxy Statement is not so incorporated. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is incorporated by reference from the Proxy Statement. Item 13. Certain Relationships and Related Transactions The information required by this Item is incorporated by reference from the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K A. The Financial Statements and Financial Statement Schedules filed as part of this report are listed and indexed on page 16. Schedules other than those listed in the index have been omitted because they are not applicable or the required information has been included elsewhere in this report. B. Listed below are all Exhibits filed as part of this report. Certain Exhibits are incorporated by reference to documents previously filed by the Registrant with the Securities and Exchange Commission pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended. Exhibit No. Exhibit - ----------- ------- 3.1 Restated Certificate of Incorporation of the Company (1) 3.2 By-laws, as amended, of the Company (2) 4.1 Instruments Defining Rights of Security Holders (See Exhibits 3.1, 3.2, 4.2, 4.3 and 10.15) 4.2 Rights Agreement dated as of May 23, 1989 between the Company and Morgan Shareholder Services Trust Company, as Rights Agent (1) 4.3 Indenture dated as of July 1, 1992 between the Company and Continental Bank, National Association, as Trustee, with respect to 6 1/2% Convertible Subordinated Debentures due July 1, 2002 (6) 10.1 Services Agreement, as amended, dated as of May 1, 1989 between the Company and Zayre Corp. (2) 10.1a Agreement dated as of January 28, 1993 between the Company and The TJX Companies, Inc. extending the Services Agreement referred to in Exhibit 10.1 (7) 10.2 Distribution Agreement dated as of May 1, 1989 between the Company and Zayre Corp. (1) 10.3 Waban Inc. 1989 Stock Incentive Plan, as amended through June 13, 1991* (5) 10.4 Waban Inc. Executive Retirement Plan* (10) 10.5 Waban Inc. Retirement Plan for Directors, as amended September 17, 1990* (3) 35 10.6 Waban Inc. General Deferred Compensation Plan* (2) 10.7 Waban Inc. Growth Incentive Plan* (10) 10.8 Executive Services Agreement dated as of June 1, 1989 between the Company and Zayre Corp. with respect to Sumner L. Feldberg* (2) 10.9 Executive Services Agreement dated as of June 1, 1989 between the Company and Zayre Corp. with respect to Arthur F. Loewy* (2) 10.9a Amendment dated as of January 29, 1994 between the Company and The TJX Companies, Inc. to Executive Services Agreement with respect to Arthur F. Loewy referred to in Exhibit 10.9* (10) 10.10 Employment Agreement dated as of May 25, 1993 with Herbert J. Zarkin* (10) 10.10a Change of Control Severance Agreement dated as of May 25, 1993 with Herbert J. Zarkin* (10) 10.11 Employment Agreement dated as of February 1, 1994 with John J. Nugent* (11) 10.12 Employment Agreement dated as of September 29, 1994 with Edward J. Weisberger* (13) 10.13 Employment Agreement dated as of February 1, 1994 with Dale N. Garth* (11) 10.13a Separation Agreement dated as of September 28, 1994 with Dale N. Garth* (13) 10.14 Employment Agreement dated as of September 29, 1993 with Allan P. Sherman* (10) 10.14a Change of Control Severance Agreement dated as of September 29, 1993 with Allan P. Sherman* (10) 10.14b Loan Agreement dated as of January 19, 1994 with Allan P. Sherman* (10) 10.14c Promissory Note dated as of January 19, 1994 from Allan P. Sherman to the Company* (10) 10.15 Form of Indemnification Agreement between the Company and its officers and directors* (2) 10.16 Form of Change of Control Severance Agreement between the Company and officers of the Company* (11) 10.17 Note Purchase Agreement dated as of June 15, 1991 with respect to 9.58% Senior Notes due May 31,1998 (4) 10.17a Amendment dated as of December 16, 1991 to Note Purchase Agreement dated as of June 15, 1991 referred to in Exhibit 10.18 (5) 10.17b Second Amendment and Waiver dated as of March 28, 1994 to Note Purchase Agreement dated as of June 15, 1991 (11) 10.17c Third Amendment and Waiver dated as of September 29, 1994 to Note Purchase Agreement dated as of June 15, 1991 (13) 10.18 Indenture dated as of May 15, 1994 between the Company and The First National Bank of Boston, as Trustee, with respect to 11% Senior Subordinated Notes due May 15, 2004 (12) 10.19 Credit Agreement dated as of April 4, 1995 among the Company and certain banks 10.20 Agreement dated as of January 24, 1995 between the Company and The TJX Companies, Inc. 11.0 Statement regarding computation of per share earnings 21.0 Subsidiaries of the Company *Management contract or other compensatory plan or arrangement. (1) Incorporated herein by reference to the Registrant's Form 10 (#1-10259) (2) Incorporated herein by reference to the Registrant's Form 10-K for the fiscal year ended January 27, 1990 (3) Incorporated herein by reference to the Registrant's Form 10-Q for the fiscal quarter ended October 27, 1990 (4) Incorporated herein by reference to the Registrant's Form 10-Q for the fiscal quarter ended July 27, 1991 (5) Incorporated herein by reference to the Registrant's Form 10-K for the fiscal year ended January 25, 1992 (6) Incorporated herein by reference to the Registrant's Form S-3 (#33-48423) 36 (7) Incorporated herein by reference to the Registrant's Form 10-K for the fiscal year ended January 30, 1993 (8) Incorporated herein by reference to the Registrant's Form 10-Q for the fiscal quarter ended July 31, 1993 (9) Incorporated herein by reference to the Registrant's Form 10-Q for the fiscal quarter ended October 30, 1993 (10) Incorporated herein by reference to the Registrant's Form 10-K for the fiscal year ended January 29, 1994 (11) Incorporated herein by reference to the Registrant's Form 10-Q for the fiscal quarter ended April 30, 1994 (12) Incorporated herein by reference to the Registrant's Form S-3 (#33- 52665) (13) Incorporated herein by reference to the Registrant's Form 10-Q for the fiscal quarter ended October 29, 1994 C. The Registrant has not filed any reports on Form 8-K during the last quarter of the period covered by this Report. 37 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. WABAN INC. Dated: April 28, 1995 /s/ HERBERT J. ZARKIN Herbert J. Zarkin President and Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ HERBERT J. ZARKIN /s/ SUMNER L. FELDBERG Herbert J. Zarkin, President Sumner L. Feldberg, Chairman Principal Executive Officer and Director of the Board and Director /s/ EDWARD J. WEISBERGER /s/ S. JAMES COPPERSMITH Edward J. Weisberger, Senior Vice President S. James Coppersmith, Director and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ STANLEY H. FELDBERG /s/ KERRY L. HAMILTON Stanley H. Feldberg, Director Kerry L. Hamilton, Director /s/ ALLYN L. LEVY /s/ ARTHUR F. LOEWY Allyn L. Levy, Director Arthur F. Loewy, Director /s/ THOMAS J. SHIELDS /s/ LORNE R. WAXLAX Thomas J. Shields, Director Lorne R. Waxlax, Director Dated: April 28, 1995 38 EX-10.19 2 MATERIAL CONTRACTS CREDIT AGREEMENT AMONG WABAN INC., THE LENDERS PARTY HERETO, THE FIRST NATIONAL BANK OF BOSTON, SHAWMUT BANK, N.A. AND WELLS FARGO BANK, NATIONAL ASSOCIATION, as Co-Agents AND THE FIRST NATIONAL BANK OF CHICAGO, as Agent Dated as of April 4, 1995 TABLE OF CONTENTS ARTICLE I - DEFINITIONS .............................................. 1 ARTICLE II - THE CREDITS ............................................. 13 2.1. Description of Facility ................................. 13 2.2. Availability of Facility ................................ 13 2.3. Committed Advances ...................................... 13 2.3.1. Commitment ....................................... 13 2.3.2. Ratable Loans; Types of Advances ................. 13 2.3.3. Minimum Amount of Each Committed Advance ......... 14 2.3.4. Applicable Margin ................................ 14 2.3.5. Method of Selecting Types and Interest Periods for New Committed Advances .............................. 15 2.3.6. Conversion and Continuation of Outstanding Committed Advances ...................................... 15 2.4. Competitive Bid Advances ................................ 15 2.4.1. Competitive Bid Option; Repayment of Competitive Bid Advances ............................................ 15 2.4.2. Competitive Bid Quote Request .................... 16 2.4.3. Invitation for Competitive Bid Quotes ............ 16 2.4.4. Submission and Contents of Competitive Bid Quotes .................................................. 16 2.4.5. Notice to Borrower ............................... 17 2.4.6. Acceptance and Notice by Borrower ................ 17 2.4.7. Allocation by the Agent .......................... 18 2.5. Method of Borrowing ..................................... 18 2.6. Fees .................................................... 18 2.6.1. Facility Fee ..................................... 18 2.6.2. Upfront Fee ...................................... 18 2.6.3. Agent Fees ....................................... 19 2.7. Reductions in Aggregate Commitment; Principal Payments ................................................ 19 2.7.1. Reductions in Aggregate Commitment ............... 19 2.7.2. Principal Payments ............................... 19 2.8. Changes in Interest Rate, etc ........................... 19 2.9. Rates Applicable After Default .......................... 19 2.10. Method of Payment ....................................... 20 2.11. Notes; Telephonic Notices ............................... 20 2.12. Interest Payment Dates; Interest and Fee Basis .......... 20 2.13. Notification by Agent ................................... 20 2.14. Lending Installations ................................... 21 2.15. Non-Receipt of Funds by the Agent ....................... 21 2.16. Withholding Tax Exemption ............................... 21 2.17. Extension of Termination Date ........................... 21 2.18. Change in Circumstances ................................. 22 2.18.1. Yield Protection ................................ 22 2.18.2. Changes in Capital Adequacy Regulations ......... 22 2.18.3. Availability of Types of Advances ............... 23 2.18.4. Funding Indemnification ......................... 23 2.18.5. Mitigation of Additional Costs; Replacement of Lenders .................................. 23 2.18.6. Lender Statements; Survival of Indemnity ........ 24 ARTICLE III - THE LETTER OF CREDIT SUBFACILITY ....................... 24 3.1. Obligation to Issue ..................................... 24 3.2. Types and Amounts ....................................... 24 3.3. Conditions .............................................. 25 3.4. Procedure for Issuance of Facility Letters of Credit .................................................. 25 3.5. Reimbursement Obligations; Duties of Issuing Banks ................................................... 26 3.6. Participation ........................................... 27 3.7. Payment of Reimbursement Obligations .................... 28 3.8. Compensation for Facility Letters of Credit ............. 28 ARTICLE IV - CONDITIONS PRECEDENT .................................... 29 4.1. Initial Advance ......................................... 29 4.2. Each Advance or Issuance of a Facility Letter of Credit .................................................. 30 ARTICLE V - REPRESENTATIONS AND WARRANTIES ........................... 30 5.1. Corporate Existence and Standing ........................ 30 5.2. Authorization and Validity .............................. 31 5.3. No Conflict; Government Consent ......................... 31 5.4. Financial Statements .................................... 31 5.5. Material Adverse Change ................................. 31 5.6. Taxes ................................................... 31 5.7. Litigation and Contingent Obligations ................... 31 5.8. Subsidiaries ............................................ 32 5.9. ERISA ................................................... 32 5.10. Accuracy of Information ................................. 32 5.11. Regulation U ............................................ 32 5.12. Material Agreements ..................................... 32 5.13. Compliance With Laws .................................... 32 5.14. Ownership of Properties ................................. 32 5.15. Investment Company Act .................................. 32 5.16. Public Utility Holding Company Act ...................... 33 5.17. Other Indebtedness ...................................... 33 5.18. Post-Retirement Benefits ................................ 33 5.19. Insurance ............................................... 33 ARTICLE VI - COVENANTS ............................................... 33 6.1. Financial Reporting ..................................... 33 6.2. Use of Proceeds ......................................... 34 6.3. Notice of Default ....................................... 35 6.4. Conduct of Business ..................................... 35 6.5. Taxes ................................................... 35 6.6. Insurance ............................................... 35 6.7. Compliance with Laws .................................... 35 6.8. Maintenance of Properties ............................... 35 6.9. Inspection .............................................. 35 6.10. Dividends ............................................... 35 6.11. Indebtedness ............................................ 36 6.12. Merger .................................................. 37 6.13. Sale of Assets .......................................... 37 6.14. Letters of Credit ....................................... 38 6.15. Investments and Acquisitions ............................ 38 6.16. Liens ................................................... 40 6.17. Affiliates .............................................. 42 6.18. Subordinated Indebtedness ............................... 42 6.19. Rate Hedging Obligations ................................ 42 6.20. Financial Covenants ..................................... 42 6.20.1. Funded Debt to Capital Ratio .................... 42 6.20.2. Fixed Charge Coverage Ratio ..................... 42 6.20.3. Tangible Net Worth .............................. 42 6.21. Subsidiary Guaranties ................................... 43 6.22. Intercompany Indebtedness ............................... 43 ARTICLE VII - DEFAULTS ............................................... 43 ARTICLE VIII - ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES ........ 44 8.1. Acceleration ............................................ 44 8.2. Amendments .............................................. 45 8.3. Preservation of Rights .................................. 46 ARTICLE IX - GENERAL PROVISIONS ...................................... 46 9.1. Survival of Representations ............................. 46 9.2. Governmental Regulation ................................. 46 9.3. Taxes ................................................... 46 9.4. Headings ................................................ 46 9.5. Entire Agreement ........................................ 46 9.6. Several Obligations; Benefits of this Agreement ......... 46 9.7. Expenses; Indemnification ............................... 47 9.8. Numbers of Documents .................................... 47 9.9. Accounting .............................................. 47 9.10. Severability of Provisions .............................. 47 9.11. Nonliability of Lenders ................................. 47 9.12. CHOICE OF LAW ........................................... 47 9.13. CONSENT TO JURISDICTION ................................. 48 9.14. WAIVER OF JURY TRIAL .................................... 48 9.15. Confidentiality ......................................... 48 ARTICLE X - THE AGENT ................................................ 48 10.1. Appointment ............................................. 48 10.2. Powers .................................................. 48 10.3. General Immunity ........................................ 49 10.4. No Responsibility for Loans, Recitals, etc .............. 49 10.5. Action on Instructions of Lenders ....................... 49 10.6. Employment of Agents and Counsel ........................ 49 10.7. Reliance on Documents; Counsel .......................... 49 10.8. Agent's Reimbursement and Indemnification ............... 49 10.9. Rights as a Lender ...................................... 50 10.l0. Lender Credit Decision .................................. 50 10.11. Successor Agent ......................................... 50 ARTICLE XI - SETOFF; RATABLE PAYMENTS ................................ 51 11.1. Setoff .................................................. 51 11.2. Ratable Payments ........................................ 51 ARTICLE XII - BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS. 51 12.1. Successors and Assigns .................................. 51 12.2. Participations .......................................... 52 12.2.1. Permitted Participants; Effect .................. 52 12.2.2. Voting Rights ................................... 52 12.2.3. Benefit of Setoff ............................... 52 12.3. Assignments ............................................. 52 12.3.1. Permitted Assignments ........................... 52 12.3.2. Effect; Effective Date .......................... 53 12.4. Dissemination of Information ............................ 53 12.5. Tax Treatment ........................................... 53 ARTICLE XIII - NOTICES ............................................... 54 13.1. Giving Notice ........................................... 54 13.2. Change of Address ....................................... 54 ARTICLE XIV - COUNTERPARTS ........................................... 54 EXHIBITS EXHIBIT "A-1" - COMMITTED NOTE ....................................... 59 EXHIBIT "A-2" - COMPETITIVE BID NOTE ................................. 61 EXHIBIT "B" - COMPETITIVE BID QUOTE REQUEST ........................ 63 EXHIBIT "C" - INVITATION FOR COMPETITIVE BID QUOTES ................ 64 EXHIBIT "D" - COMPETITIVE BID QUOTE ................................ 65 EXHIBIT "E" - FORM OF OPINION ...................................... 67 EXHIBIT "F" - LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION ....... 69 EXHIBIT "G" - COMPLIANCE CERTIFICATE ............................... 70 EXHIBIT "H" - ASSIGNMENT AGREEMENT ................................. 72 EXHIBIT "I" - SUBSIDIARY GUARANTY .................................. 80 SCHEDULES SCHEDULE "1" - PERCENTAGES ........................................... 86 SCHEDULE "2" - SUBSIDIARIES AND OTHER INVESTMENTS .................... 87 SCHEDULE "3" - INDEBTEDNESS AND LIENS ................................ 89 SCHEDULE "4" - EXISTING FACILITY LETTERS OF CREDIT ................... 90 CREDIT AGREEMENT This Agreement, dated as of April 4, 1995, is among Waban Inc., the Lenders and The First National Bank of Chicago, as Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS As used in this Agreement: "Absolute Rate" means, with respect to a Loan made by a given Lender for the relevant Absolute Rate Interest Period, the rate of interest per annum (rounded to the nearest 1/100 of 1%) offered by such Lender and accepted by the Borrower pursuant to Section 2.4.6. "Absolute Rate Advance" means a borrowing hereunder consisting of the aggregate amount of the several Absolute Rate Loans made by some or all of the Lenders to the Borrower at the same time and for the same Absolute Rate Interest Period. "Absolute Rate Auction" means a solicitation of Competitive Bid Quotes setting forth Absolute Rates pursuant to Section 2.4. "Absolute Rate Interest Period" means, with respect to an Absolute Rate Advance or an Absolute Rate Loan, a period of not less than 30 and not more than 180 days commencing on a Business Day selected by the Borrower pursuant to this Agreement, but in no event extending beyond the Termination Date. If such Absolute Rate Interest Period would end on a day which is not a Business Day, such Absolute Rate Interest Period shall end on the next succeeding Business Day. "Absolute Rate Loan" means a Loan which bears interest at an Absolute Rate. "Acquisition" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or any of its Subsidiaries (i) acquires any going business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership interests of a partnership. "Active Subsidiary" means a Subsidiary that has total assets of at least $500,000. "Advance" means a borrowing hereunder consisting of the aggregate amount of the several Loans made by some or all of the Lenders to the Borrower of the same Type (or on the same interest basis in the case of Competitive Bid Advances) and, in the case of Fixed Rate Advances, for the same Interest Period and includes both a Committed Advance and a Competitive Bid Advance. "Affiliate" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. "Agent" means The First National Bank of Chicago in its capacity as agent for the Lenders pursuant to Article X, and not in its individual capacity as a Lender, and any successor Agent appointed pursuant to Article X. "Aggregate Available Commitment" means at any time the Aggregate Commitment minus the Facility Letter of Credit Obligations. "Aggregate Commitment" means $150,000,000, as such amount may be reduced from time to time pursuant to the terms hereof. "Agreement" means this credit agreement, as it may be amended or modified and in effect from time to time. "Agreement Accounting Principles" means generally accepted accounting principles as in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.4. "Alternate Base Rate" means, for any day, a rate of interest per annum equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum. "Alternate Base Rate Advance" means an Advance which bears interest at the Alternate Base Rate. "Alternate Base Rate Loan" means a Loan which bears interest at the Alternate Base Rate. "Applicable Margin" means, at any date of determination thereof with respect to any Eurodollar Committed Advance, the facility fees payable pursuant to Section 2.6.1 and the Facility Letter of Credit Fees, the respective rates per annum for such Eurodollar Committed Advance, facility fees and Facility Letter of Credit Fees calculated in accordance with the terms of Section 2.3.4. "Article" means an article of this Agreement unless another document is specifically referenced. "Authorized Officer" means any of the Chairman, President, Chief Financial Officer, Treasurer or any Vice President-Finance of the Borrower, acting singly, as such Authorized Officers may be modified from time to time in writing by the Agent and a then existing Authorized Officer of the Borrower. "Borrower" means Waban Inc., a Delaware corporation, and its successors and assigns. "Borrowing Date" means a date on which an Advance is made hereunder. "Business Day" means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago and New York for the conduct of substantially all of their commercial lending activities and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day (other than a Saturday or Sunday) on which banks generally are open in Chicago for the conduct of substantially all of their commercial lending activities. "Capital" means, as of any date of determination, the sum of Tangible Net Worth plus Funded Debt plus the outstanding principal amount of Convertible Subordinated Debt. "Capitalized Lease" of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "Change in Control" means the acquisition by any Person, or two or more Persons acting in concert (a "group"), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 40% or more of the outstanding shares of voting stock of the Borrower. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. "Commitment" means, for each Lender, the obligation of such Lender to make Committed Loans and participate in Facility Letters of Credit equal to its Percentage of the Aggregate Commitment. "Committed Advance" means a borrowing hereunder consisting of the aggregate amount of the several Committed Loans made by the Lenders to the Borrower at the same time, of the same Type and, in the case of Eurodollar Committed Advances, for the same Interest Period. "Committed Borrowing Notice" is defined in Section 2.3.5. "Committed Loan" means a Loan made by a Lender pursuant to Section 2.3. "Committed Note" means a promissory note in substantially the form of Exhibit "A-1" hereto, with appropriate insertions, duly executed and delivered to the Agent by the Borrower for the account of a Lender and payable to the order of such Lender in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Competitive Bid Acceptance Notice" is defined in Section 2.4.6. "Competitive Bid Advance" means a borrowing hereunder consisting of the aggregate amount of the several Competitive Bid Loans made by some or all of the Lenders to the Borrower at the same time, at the same interest basis, and for the same Interest Period. "Competitive Bid Loan" means a Eurodollar Bid Rate Loan or an Absolute Rate Loan, as the case may be. "Competitive Bid Margin" means the margin above or below the applicable Eurodollar Base Rate offered for a Eurodollar Bid Rate Loan, expressed as a percentage (rounded to the nearest 1/100 of 1%) to be added or subtracted from such Eurodollar Base Rate. "Competitive Bid Note" means a promissory note in substantially the form of Exhibit "A-2" hereto, with appropriate insertions, duly executed and delivered to the Agent by the Borrower for the account of a Lender and payable to the order of such Lender, including any amendment, modification, renewal or replacement of such promissory note. "Competitive Bid Quote" means a Competitive Bid Quote substantially in the form of Exhibit "D" hereto completed and delivered by a Lender to the Agent in accordance with Section 2.4.4. "Competitive Bid Quote Request" means a Competitive Bid Quote Request substantially in the form of Exhibit "B" hereto completed and delivered by the Borrower to the Agent in accordance with Section 2.4.2. "Condemnation" is defined in Section 7.8. "Contingent Obligation" of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement or take-or-pay contract (but does not include any (i) application for a Letter of Credit or (ii) obligation of any Person to pay the purchase price of real estate, subject to the satisfaction of customary conditions precedent, contracted for in the ordinary course of business). "Conversion/Continuation Notice" is defined in Section 2.3.6. "Convertible Subordinated Debt" means that certain $108,600,000 of 6.5% Convertible Subordinated Debentures Due 2002 issued pursuant to an Indenture, dated as of July 1, 1992, between the Borrower, as issuer and Bank of America Illinois (f/k/a Continental Bank, National Association), as Trustee. "Controlled Group" means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code. "Corporate Base Rate" means a rate per annum equal to the corporate base rate of interest announced by First Chicago from time to time, changing when and as said corporate base rate changes. "Current Maturities" means, as of any date of determination, the sum of all amounts which were due and payable within 12 months prior to such date with respect to any Indebtedness with an original term in excess of one year (it being understood that Indebtedness under this Agreement shall not be included), all determined on a consolidated basis for the Borrower and its Subsidiaries. "Default" means an event described in Article VII. "EBITR" means, for any period, earnings before interest expense, income taxes and Rentals, all determined on a consolidated basis for the Borrower and its Subsidiaries. "Effective Date" is defined in Section 4.1. "ERISA" means the Employee Retirement Income Security Act of l974, as amended from time to time, and any rule or regulation issued thereunder. "Eurodollar Advance" means a Eurodollar Committed Advance or a Eurodollar Bid Rate Advance, as applicable. "Eurodollar Auction" means a solicitation of Competitive Bid Quotes setting forth Competitive Bid Margins pursuant to Section 2.4. "Eurodollar Base Rate" means, with respect to a Eurodollar Advance for the relevant Eurodollar Interest Period, the rate determined by the Agent to be the rate at which deposits in U.S. dollars are offered by First Chicago to first-class banks in the London interbank market at approximately 11 a.m. (London time) two Business Days prior to the first day of such Eurodollar Interest Period, in the approximate amount of First Chicago's relevant Eurodollar Loan, or, in the case of a Eurodollar Bid Rate Advance, the amount of the Eurodollar Bid Rate Advance requested by the Borrower, and having a maturity approximately equal to such Eurodollar Interest Period. "Eurodollar Bid Rate" means, with respect to a Eurodollar Bid Rate Loan made by a given Lender for the relevant Eurodollar Interest Period, the sum of (i) the Eurodollar Base Rate and (ii) the Competitive Bid Margin offered by such Lender and accepted by the Borrower pursuant to Section 2.4.6. "Eurodollar Bid Rate Advance" means a Competitive Bid Advance which bears interest at a Eurodollar Bid Rate. "Eurodollar Bid Rate Loan" means a Competitive Bid Loan which bears interest at a Eurodollar Bid Rate. "Eurodollar Committed Advance" means an Advance which bears interest at a Eurodollar Rate requested by the Borrower pursuant to Section 2.3. "Eurodollar Committed Loan" means a Loan which bears interest at a Eurodollar Rate requested by the Borrower pursuant to Section 2.3. "Eurodollar Interest Period" means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. Such Eurodollar Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided, however, that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Eurodollar Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If a Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall end on the next succeeding Business Day, provided, however, that if said next succeeding Business Day falls in a new calendar month, such Eurodollar Interest Period shall end on the immediately preceding Business Day. "Eurodollar Loan" means a Eurodollar Committed Loan or a Eurodollar Bid Rate Loan, as applicable. "Eurodollar Rate" means, with respect to a Eurodollar Committed Advance for the relevant Eurodollar Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to such Eurodollar Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to such Eurodollar Interest Period, plus (ii) the Applicable Margin plus (iii) at any time that, and so long as, the outstanding Advances exceed 50% of the Aggregate Commitment, .10% per annum. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "Extension Date" is defined in Section 2.17. "Extension Request" is defined in Section 2.17. "Facility Letter of Credit" means an irrevocable standby Letter of Credit issued by (i) The First National Bank of Boston prior to the date hereof and listed on Schedule "4" hereto or (ii) an Issuing Bank pursuant to Section 3.1. "Facility Letter of Credit Fee" is defined in Section 3.8. "Facility Letter of Credit Obligations" means, as at the time of determination thereof, all liabilities, whether actual or contingent, of the Borrower with respect to Facility Letters of Credit, including the sum of (a) the Reimbursement Obligations and (b) the aggregate undrawn face amount of the then outstanding Facility Letters of Credit. "Federal Funds Effective Rate" means, for any day, an interest rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. (Chicago time) on such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by the Agent in its sole discretion. "First Chicago" means The First National Bank of Chicago in its individual capacity, and its successors. "Fixed Charge Coverage Ratio" means a ratio of (i) EBITR for such fiscal quarter and the three immediately preceding fiscal quarters to (ii) the sum of interest expense and Rentals for such fiscal quarter and the three immediately preceding fiscal quarters plus Current Maturities as of the end of such fiscal quarter, all determined on a consolidated basis for the Borrower and its Subsidiaries. "Fixed Rate" means the Eurodollar Rate, the Eurodollar Bid Rate or the Absolute Rate. "Fixed Rate Advance" means an Advance which bears interest at a Fixed Rate. "Fixed Rate Loan" means a Loan which bears interest at a Fixed Rate. "Funded Debt" means, as of any date of determination, for the Borrower and its Subsidiaries on a consolidated basis, the sum of (i) the outstanding principal amount of all Indebtedness plus (ii) the product of eight (8) times Rentals (for the twelve (12) months prior to the date of determination) minus (iii) the outstanding principal amount of Convertible Subordinated Debt. "Indebtedness" of a Person means such Person's (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of Property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (iii) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi) net liabilities under Rate Hedging Obligations, (vii) unreimbursed draws under Letters of Credit and (viii) Contingent Obligations. "Interest Period" means a Eurodollar Interest Period or an Absolute Rate Interest Period. "Investment" of a Person means any loan, advance (other than advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person. "Investment Subsidiary" means Natick Security Corp., a Massachusetts corporation and a Wholly-Owned Subsidiary of the Borrower, and its successors. "Invitation for Competitive Bid Quotes" means an Invitation for Competitive Bid Quotes substantially in the form of Exhibit "C" hereto, completed and delivered by the Agent to the Lenders in accordance with Section 2.4.3. "Issuance Date" is defined in Section 3.4(a). "Issuance Notice" is defined in Section 3.4(c). "Issuing Bank" means, with respect to each Facility Letter of Credit, First Chicago or such other Lender selected by the Borrower to issue such Facility Letter of Credit so long as such other Lender consents to act in such capacity. "Lenders" means the lending institutions listed on the signature pages of this Agreement and their respective successors and assigns. "Lending Installation" means, with respect to a Lender or the Agent, any office, branch, subsidiary or affiliate of such Lender or the Agent. "Letter of Credit" of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable. "Letter of Credit Request" is defined in Section 3.4(a). "Level I Status" is defined in Section 2.3.4. "Level II Status" is defined in Section 2.3.4. "Level III Status" is defined in Section 2.3.4. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "Loan" means, with respect to a Lender, such Lender's portion of any Advance. "Loan Documents" means this Agreement, the Notes and the Facility Letters of Credit. "Material Adverse Effect" means a material adverse effect on (i) the business, Property, condition (financial or otherwise), results of operations, or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents, or (iii) the validity or enforceability of any of the Loan Documents or the rights or remedies of the Agent or the Lenders thereunder. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions. "Net Income" means, for any period, the net income (or loss) of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with Agreement Accounting Principles; provided, however, that to the extent reported as a separate item on the Borrower's financial statements delivered pursuant to Section 6.1, there shall be excluded (i) the income (or loss) of any Affiliate of the Borrower or other Person (other than a Subsidiary of the Borrower) in which any Person (other than the Borrower or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Borrower, or any of its Subsidiaries by such Affiliate or other Person during such period and (ii) the income (or loss) of any Person accrued prior to the date such Person becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries or that Person's assets are acquired by the Borrower or any of its Subsidiaries. "Net Worth" means the aggregate amount of shareholders equity as determined from a consolidated balance sheet of the Borrower and its Subsidiaries, prepared in accordance with Agreement Accounting Principles. "Notes" means, collectively, the Competitive Bid Notes and the Committed Notes; and "Note" means any one of the Notes. "Notice of Assignment" is defined in Section 12.3.2. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, the Facility Letter of Credit Obligations, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations of the Borrower to the Lenders or to any Lender, the Agent or any indemnified party hereunder arising under the Loan Documents. "Operating Subsidiaries" means HomeClub, Inc. of Texas, a Delaware corporation, HomeClub, Inc., a Nevada corporation, and any other Wholly-Owned Subsidiary of the Borrower formed after the date hereof for the purpose of owning and operating retail stores in states in which the Borrower has determined that there are tax advantages to operating retail stores in such state through a Wholly-Owned Subsidiary. "Participants" is defined in Section 12.2.1. "Payment Date" means the last day of each March, June, September and December. "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. "Percentage" means, for each Lender the percentage set forth opposite its name on Schedule "1" attached hereto, as such percentage (and such schedule) may be modified from time to time pursuant to the terms hereof, including but not limited to the provisions of Section 12.3.2. "Permitted Investments" means Investments in any of the following: (i) Short-term obligations of, or fully guaranteed by, the United States of America; (ii) Commercial paper rated A-2 or better by Standard and Poor's Corporation or P-2 or better by Moody's Investors Service, Inc. and securities commonly known as "short-term bank notes" issued by any Lender denominated in United States dollars which at the time of purchase have been rated and the ratings for which are not less than P-2 if rated by Moody's Investors Services, Inc., and not less than A-2 if rated by Standard and Poor's Corporation; (iii) Demand deposit accounts maintained in the ordinary course of business; (iv) Certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000; (v) Tax-free government securities rated "A" or better as rated by Standard and Poor's Corporation or Moody's Investors Service, Inc. and government securities mutual funds which have a weighted average life of less than two (2) years; (vi) Corporate debt securities rated "A" or better as rated by Standard and Poor's Corporation or Moody's Investors Service, Inc. that mature within two (2) years from the date the Investment is made by the Borrower or any of its Subsidiaries; (vii) Collateralized mortgage obligations rated "A" or better as rated by Standard and Poor's Corporation or Moody's Investors Service, Inc. with an average life less than two (2) years; provided that after giving effect to any such Investment, the aggregate cost of all such Investments does not exceed $50,000,000; (viii) Money market preferred stock investments rated "A" or better as rated by Standard and Poor's Corporation or Moody's Investors Service, Inc.; provided that after giving effect to any such Investment, the aggregate cost of all such Investments does not exceed $50,000,000; (ix) Repurchase agreements relating to a security which is rated "A" or better as rated by Standard and Poor's Corporation or Moody's Investors Service, Inc. that mature within two (2) years from the date the Investment is made by the Borrower or any of its Subsidiaries; provided that after giving effect to any such Investment, the aggregate cost of all such Investments does not exceed $50,000,000; and (x) Tax free government securities rated "SP2" or better by Standard and Poor's Corporation or "MIG2" or better by Moody's Investors Service, Inc. with an average life of less than two (2) years; provided, that after giving effect to any such Investment, the aggregate cost of all such Investments does not exceed $50,000,000. "Person" means any natural person, corporation, firm, joint venture, limited liability company, partnership, association, enterprise, trust or other entity or organization, or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any member of the Controlled Group may have any liability. "Property" of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person. "Purchasers" is defined in Section 12.3.1. "Rate Hedging Agreements" of a Person means (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "Rate Hedging Obligations" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under Rate Hedging Agreements. "Real Estate Subsidiary" means any Wholly-Owned Subsidiary of the Borrower now existing or formed after the date hereof for the purpose of purchasing, developing and/or carrying real estate and which conducts no business other than that which is incidental to purchasing, developing and/or carrying real estate. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reimbursement Obligations" means, at any time, the aggregate of the obligations of the Borrower to the Lenders, the Issuing Banks and the Agent in respect of all unreimbursed payments or disbursements made by the Lenders, the Issuing Banks and the Agent under or in respect of the Facility Letters of Credit. "Rentals" means all rental expense of the Borrower and its Subsidiaries paid under operating leases. "Reorganization" means a transaction or a series of related transactions which would consist of a one time transfer by the Borrower of substantially all of its assets to one or more Wholly-Owned Subsidiaries, divided among such Wholly-Owned Subsidiaries on the same basis as the Borrower's divisions are then comprised. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "Required Lenders" means Lenders whose Commitments, in the aggregate, are equal to at least 60% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Lenders in the aggregate holding at least 60% of the sum of (i) the aggregate unpaid principal amount of the outstanding Advances plus (ii) the Facility Letter of Credit Obligations. "Reserve Requirement" means, with respect to a Eurodollar Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities. "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Senior Subordinated Debt" means that certain $100,000,000 of 11% Senior Subordinated Notes due May 15, 2004 issued pursuant to an Indenture, dated as of May 11, 1994, between the Borrower, as Issuer and The First National Bank of Boston, as Trustee. "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Status" means, at any date of determination thereof, whichever of Level I Status, Level II Status or Level III Status exists at such date. "Subordinated Indebtedness" means the Convertible Subordinated Debt and the Senior Subordinated Debt. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled or of which such Person, directly or indirectly, is the general partner. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "Substantial Portion" means, with respect to the Property of the Borrower and its Subsidiaries, Property which represents more than 10% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated financial statements of the Borrower and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made. "Tangible Net Worth" means Net Worth minus Intangible Assets. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining Net Worth) of (i) all write-ups (other than write-ups resulting from foreign currency translations) subsequent to January 28, 1995 in the book value of any asset owned by the Borrower or a consolidated Subsidiary, (ii) all investments in unconsolidated Subsidiaries and all equity investments in Persons which are not Subsidiaries and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible items. "Termination Date" means March 30, 1998, as the same may be extended pursuant to Section 2.17, or such earlier date on which the Agreement is terminated by the parties hereto. "Trademark Subsidiaries" means Natick Corporation, a Delaware corporation, Fullerton Corporation, a Delaware corporation, and any other Wholly-Owned Subsidiary of the Borrower formed after the date hereof for the purpose of owning trademarks and/or other intellectual property and whose income is primarily derived from royalties received from the Borrower and its Subsidiaries for the use of such trademarks and/or other intellectual property. "Transferee" is defined in Section 12.4. "Type" means, with respect to any Loan or Advance, its nature as an Alternate Base Rate Advance or Loan, Eurodollar Committed Advance or Loan, Eurodollar Bid Rate Advance or Loan or Absolute Rate Advance or Loan. "Unfunded Liabilities" means the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans. "Unmatured Default" means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default. "Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the outstanding voting securities of which (other than director qualifying shares) shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. ARTICLE II THE CREDITS 2.1. Description of Facility. Upon the terms and subject to the conditions set forth in this Credit Agreement, the Lenders hereby grant to the Borrower a revolving credit facility pursuant to which: (i) each Lender severally agrees to make Committed Loans to the Borrower in accordance with Section 2.3; and (ii) each Lender may, in its sole discretion, make bids to make Competitive Bid Loans to the Borrower in accordance with Section 2.4; provided that in no event may the aggregate principal amount of all outstanding Advances exceed the Aggregate Available Commitment. 2.2. Availability of Facility. Subject to all of the terms and conditions of this Agreement, the facility is available from the date of this Agreement to the Termination Date, and the Borrower may borrow, repay and reborrow at any time prior to the Termination Date. 2.3. Committed Advances. 2.3.1. Commitment. From and including the date of this Agreement and prior to the Termination Date, each Lender severally agrees, on the terms and conditions set forth in this Agreement, to make Committed Loans to the Borrower from time to time in amounts not to exceed in the aggregate at any one time outstanding (after giving effect to the intended use of proceeds of any Committed Advance used to repay any outstanding Reimbursement Obligations) an amount equal to such Lender's Percentage of the Aggregate Available Commitment. The Commitments to lend hereunder shall expire on the Termination Date. 2.3.2. Ratable Loans; Types of Advances. Each Committed Advance hereunder shall consist of Loans made from the several Lenders ratably in proportion to the ratio that their respective Commitments bear to the Aggregate Commitment. The Committed Advances may be Alternate Base Rate Advances or Eurodollar Committed Advances, or a combination thereof, selected by the Borrower in accordance with Sections 2.3.5 and 2.3.6; provided, however, that there shall not be more than six Eurodollar Committed Advances outstanding at any one time. Committed Advances shall be evidenced by the Committed Notes. 2.3.3. Minimum Amount of Each Committed Advance.Each Committed Advance shall be in the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof); provided, however, that any Alternate Base Rate Advance may be in the amount of the unused Aggregate Available Commitment. 2.3.4. Applicable Margin. The Applicable Margin set forth below with respect to each Eurodollar Committed Advance and for facility fees and Facility Letter of Credit Fees payable hereunder, shall be subject to adjustment (upwards or downwards, as appropriate) based on the Borrower's Status as at the end of each fiscal quarter in accordance with the table set forth below. The Borrower's Status as at the last day of each fiscal quarter shall be determined from the then most recent annual or quarterly financial statements of the Borrower delivered with the compliance certificate required pursuant to Section 6.1(iii) (collectively, the "Financials"). The adjustment, if any, to the Applicable Margin shall take place on, and be effective from and after, the fifth Business Day following the date on which the Agent has received the Financials. In the event that the Borrower shall at any time fail to furnish to the Lenders the Financials within the time limitations specified by Section 6.1, then the Borrower's Status shall be Level III Status from the date of such failure until five Business Days after such Financials are so delivered. Notwithstanding anything to the contrary contained herein, the Borrower's Status as of the Effective Date shall be determined based on the compliance certificate delivered pursuant to Section 4.1. Applicable Margin Level I Status Level II Status Level III Status Eurodollar Rate .40% .45% .525% Facility Letter of Credit Fee .40% .45% .525% Facility Fee .15% .20% .225% For purposes of this Agreement, the Borrower's Status will be determined based on the following definitions: "Level I Status" exists at any date if, as of the last day of the fiscal quarter of the Borrower referred to in the Financials, the Fixed Charge Coverage Ratio is greater than 1.80 to 1.0. "Level II Status" exists at any date if, as of the last day of the fiscal quarter of the Borrower referred to in the Financials, (i) the requirements necessary to achieve Level I Status shall not have been satisfied and (ii) the Fixed Charge Coverage Ratio is greater than 1.65 to 1.0. "Level III Status" exists at any date if the requirements necessary to achieve Level I Status or Level II Status shall not have been satisfied. 2.3.5. Method of Selecting Types and Interest Periods for New Committed Advances. The Borrower shall select the Type of Committed Advance, and in the case of each Eurodollar Committed Advance the Interest Period applicable thereto, for each such Committed Advance. The Borrower shall give the Agent irrevocable notice (a "Committed Borrowing Notice") not later than 10:00 a.m. (Chicago time) on the Borrowing Date for each Alternate Base Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Committed Advance, specifying: (i) the Borrowing Date, which shall be a Business Day, of such Committed Advance, (ii) the aggregate amount of such Committed Advance, (iii) the Type of Committed Advance selected, and (iv) in the case of each Eurodollar Committed Advance, the Interest Period applicable thereto. 2.3.6. Conversion and Continuation of Outstanding Committed Advances. Alternate Base Rate Advances shall continue as Alternate Base Rate Advances unless and until such Alternate Base Rate Advances are converted into Eurodollar Committed Advances. Each Eurodollar Committed Advance shall continue as a Eurodollar Committed Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Committed Advance shall be automatically converted into an Alternate Base Rate Advance unless such Eurodollar Committed Advance is paid by the Borrower or the Borrower shall have given the Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Committed Advance continue as a Eurodollar Committed Advance for the same or another Interest Period. Subject to the terms of Section 2.3.3, the Borrower may elect from time to time to convert all or any part of an Alternate Base Rate Advance into a Eurodollar Committed Advance. The Borrower shall give the Agent irrevocable notice (a "Conversion/Continuation Notice") of each conversion of an Alternate Base Rate Advance or continuation of a Eurodollar Committed Advance not later than 10:00 a.m. (Chicago time) at least three Business Days prior to the date of the requested conversion or continuation, specifying: (i) the requested date, which shall be a Business Day, of such conversion or continuation; (ii) the aggregate amount and Type of the Committed Advance which is to be converted or continued; and (iii) the amount and Type(s) of Committed Advance(s) into which such Committed Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Committed Advance, the duration of the Interest Period applicable thereto. 2.4. Competitive Bid Advances. 2.4.1. Competitive Bid Option; Repayment of Competitive Bid Advances. In addition to Committed Advances pursuant to Section 2.3, but subject to all of the terms and conditions of this Agreement (including, without limitation, the limitation set forth in Section 2.1 as to the maximum aggregate principal amount of all outstanding Advances hereunder), the Borrower may, as set forth in this Section 2.4, request the Lenders, prior to the Termination Date, to make offers to make Competitive Bid Advances to the Borrower. Each Lender may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section 2.4. No Lender shall at any time be liable for the Competitive Bid Loans of any other Lender made hereunder. Competitive Bid Advances shall be evidenced by the Competitive Bid Notes. Each Competitive Bid Advance shall be repaid in full by the Borrower on the last day of the Interest Period applicable thereto. 2.4.2. Competitive Bid Quote Request. When the Borrower wishes to request offers to make Competitive Bid Loans under this Section 2.4, the Borrower shall transmit to the Agent by telecopy a Competitive Bid Quote Request so as to be received no later than (x) 10:00 a.m., Chicago time, at least five Business Days prior to the Borrowing Date proposed therein, in the case of a Eurodollar Auction, or (y) 9:00 a.m., Chicago time, at least one Business Day prior to the Borrowing Date proposed therein, in the case of an Absolute Rate Auction, specifying in accordance with all of the terms of this Credit Agreement: (i) the proposed Borrowing Date for the proposed Competitive Bid Advance; (ii) the aggregate principal amount of such Competitive Bid Advance; (iii) whether the Competitive Bid Quotes requested are to set forth a Competitive Bid Margin or an Absolute Rate, or both; and (iv) the Interest Period applicable thereto. The Borrower may request offers to make Competitive Bid Loans for more than one Interest Period and for a Eurodollar Auction and an Absolute Rate Auction in a single Competitive Bid Quote Request. No Competitive Bid Quote Request shall be given within five Business Days (or upon reasonable prior notice to the Lenders, such other number of days as the Borrower and the Agent may agree) of any other Competitive Bid Quote Request. Each Competitive Bid Quote Request shall be in a minimum amount of $5,000,000 or a larger multiple of $1,000,000. A Competitive Bid Quote Request that does not conform substantially to the format of Exhibit "B" hereto shall be rejected, and the Agent shall promptly notify the Borrower of such rejection by telecopy. 2.4.3. Invitation for Competitive Bid Quotes. Promptly upon receipt of a Competitive Bid Quote Request that is not rejected pursuant to Section 2.4.2, the Agent shall send to each of the Lenders by telecopy an Invitation for Competitive Bid Quotes which shall constitute an invitation by the Borrower to each Lender to submit Competitive Bid Quotes offering to make the Competitive Bid Loans to which such Competitive Bid Quote Request relates in accordance with this Section 2.4. 2.4.4. Submission and Contents of Competitive Bid Quotes. (a) Each Lender may, in its sole discretion, submit a Competitive Bid Quote containing an offer or offers to make Competitive Bid Loans in response to any Invitation for Competitive Bid Quotes. Each Competitive Bid Quote must comply with the requirements of this Section 2.4.4 and must be submitted to the Agent by telecopy at its offices specified in or pursuant to Article XIII not later than (i) (A) 12:45 p.m., Chicago time, in the case of First Chicago and (B) 1:00 p.m., Chicago time, in the case of each other Lender, at least four Business Days prior to the proposed Borrowing Date in the case of a Eurodollar Auction, or (ii) (A) 8:45 a.m., Chicago time, in the case of First Chicago and (B) 9:00 a.m., Chicago time, in the case of each other Lender, on the proposed Borrowing Date in the case of an Absolute Rate Auction (or, in any such case upon reasonable prior notice to the Lenders, such other time and date as the Borrower and the Agent may agree; provided that First Chicago shall always be required to submit its Competitive Bid Quotes not less than fifteen minutes prior to the other Lenders). Subject to Articles IV and VIII, any Competitive Bid Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower. (b) Each Competitive Bid Quote shall in any case specify: (i) the proposed Borrowing Date, which shall be the same as that set forth in the applicable Invitation for Competitive Bid Quotes; (ii) the principal amount of the Competitive Bid Loan for which each such offer is being made, (1) which principal amount may be greater than, less than or equal to the Commitment of the quoting Lender, but in no case greater than the unutilized Aggregate Available Commitment, (2) which principal amount must be at least $5,000,000 and in integral multiples of $1,000,000, and (3) which principal amount may not exceed the principal amount of Competitive Bid Loans for which offers were requested; (iii) in the case of a Eurodollar Auction, the Competitive Bid Margin offered for each such Competitive Bid Loan; (iv) the minimum or maximum amount, if any, of the Competitive Bid Loan which may be accepted by the Borrower; (v) in the case of an Absolute Rate Auction, the Absolute Rate offered for each such Competitive Bid Loan; (vi) the applicable Interest Period; and (vii) the identity of the quoting Lender. (c) The Agent shall reject any Competitive Bid Quote that: (i) is not substantially in the form of Exhibit "D" hereto or does not specify all of the information required by Section 2.4.4(b); (ii) contains qualifying, conditional or similar language, other than any such language contained in Exhibit "D" hereto; (iii) proposes terms other than or in addition to those set forth in the applicable Invitation for Competitive Bid Quotes; or (iv) arrives after the time set forth in Section 2.4.4(a). (d) If any Competitive Bid Quote shall be rejected pursuant to Section 2.4.4(c), then the Agent shall notify the Borrower and the relevant Lender of such rejection as soon as practicable. 2.4.5. Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (i) of any Competitive Bid Quote submitted by a Lender that is in accordance with Section 2.4.4 and (ii) of any Competitive Bid Quote that is in accordance with Section 2.4.4 and amends, modifies or is otherwise inconsistent with a previous Competitive Bid Quote submitted by such Lender with respect to the same Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall be disregarded by the Agent unless such subsequent Competitive Bid Quote specifically states that it is submitted solely to correct a manifest error in such former Competitive Bid Quote. The Agent's notice to the Borrower shall specify the aggregate principal amount of Competitive Bid Loans for which offers have been received for each Interest Period specified in the related Competitive Bid Quote Request and the respective principal amounts and Competitive Bid Margins or Absolute Rates, as the case may be, so offered. 2.4.6. Acceptance and Notice by Borrower. Subject to the receipt of the notice from the Agent referred to in Section 2.4.5, not later than (i) 10:00 a.m. (Chicago time) at least three Business Days prior to the proposed Borrowing Date, in the case of a Eurodollar Auction or (ii) 10:00 a.m. (Chicago time) on the proposed Borrowing Date, in the case of an Absolute Rate Auction, the Borrower shall notify the Agent of the Borrower's acceptance or rejection of the offers so notified to it pursuant to Section 2.4.5; provided, however, that the failure by the Borrower to give such notice to the Agent shall be deemed to be a rejection by the Borrower of all such offers. In the case of acceptance, such notice (a "Competitive Bid Acceptance Notice") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept or reject any Competitive Bid Quote in whole or in part (subject to the terms of Section 2.4.4(b)(iv)); provided that: (i) the aggregate principal amount of each Competitive Bid Advance may not exceed the applicable amount set forth in the related Competitive Bid Quote Request; (ii) acceptance of offers may only be made on the basis of ascending Competitive Bid Margins or Absolute Rates, as the case may be; and (iii) the Borrower may not accept any offer of the type described in Section 2.4.4(c) or that otherwise fails to comply with the requirements of this Agreement for the purpose of obtaining a Competitive Bid Loan under this Agreement. 2.4.7. Allocation by the Agent. If offers are made by two or more Lenders with the same Competitive Bid Margins or Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which offers are permitted to be accepted for the related Interest Period, the principal amount of Competitive Bid Loans in respect of which such offers are accepted shall be allocated by the Agent among such Lenders as nearly as possible (in such multiples as the Agent may deem appropriate) in proportion to the aggregate principal amount of such offers; provided, however, that no Lender shall be allocated a portion of any Competitive Bid Advance which is less than the minimum amount which such Lender has indicated that it is willing to accept. Allocations by the Agent of the amounts of Competitive Bid Loans shall be conclusive in the absence of manifest error. The Agent shall promptly, but in any event on the same Business Day in the case of Eurodollar Bid Rate Advances, and by 11:00 a.m. (Chicago time) on the same Business Day in the case of Absolute Rate Advances, notify each Lender of its receipt of a Competitive Bid Acceptance Notice and the aggregate principal amount of each Competitive Bid Advance allocated to each participating Lender. 2.5. Method of Borrowing. On each Borrowing Date, each Lender shall make available its Loan or Loans, if any, not later than 1:00 p.m., Chicago time, in funds immediately available to the Agent, in Chicago, Illinois at its address specified pursuant to Article XIII. The Agent will make the funds so received from the Lenders available to the Borrower at the Agent's aforesaid address. Notwithstanding the foregoing provisions of this Section 2.5, to the extent that a Loan made by a Lender matures on the Borrowing Date of a requested Loan, such Lender shall apply the proceeds of the Loan it is then making to the repayment of principal of the maturing Loan. 2.6. Fees.In addition to the Facility Letter of Credit Fees and issuance fees identified in Section 3.8, the Borrower agrees to pay the following fees: 2.6.1. Facility Fee. The Borrower agrees to pay to the Agent for the account of each Lender, for the period from the date hereof to and including the Termination Date, a facility fee equal to the product of (i) such Lender's Commitment times (ii) the percentage indicated as the Applicable Margin for the facility fee, payable on each Payment Date hereafter, on the Termination Date and on the effective date of any termination of the obligations of the Lenders to make Loans and participate in Facility Letters of Credit hereunder. 2.6.2. Upfront Fee. The Borrower agrees to pay to the Agent, for the account of Lenders, an upfront fee on the Effective Date equal to .05% of the Aggregate Commitment (to be shared among the Lenders in accordance with their Percentages). 2.6.3. Agent Fees. The Borrower agrees to pay certain fees to the Agent on the dates and in the amounts set forth in that certain fee letter between the Borrower and the Agent dated February 1, 1995, as it may be amended from time to time. 2.7. Reductions in Aggregate Commitment; Principal Payments. 2.7.1. Reductions in Aggregate Commitment. The Borrower may permanently reduce the Aggregate Commitment in whole, or in part ratably among the Lenders in a minimum aggregate amount of $10,000,000, upon at least three Business Days' written notice to the Agent, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Aggregate Commitment may not be reduced below the sum of (i) the aggregate principal amount of the outstanding Advances plus (ii) the Facility Letter of Credit Obligations. 2.7.2. Principal Payments. (i) Optional Payments. The Borrower may from time to time pay, without penalty or premium, all outstanding Alternate Base Rate Advances, or, in a minimum aggregate amount of $1,000,000 or any integral multiple of $1,000,000 in excess thereof, any portion of the outstanding Alternate Base Rate Advances upon one Business Day's prior notice to the Agent. A Eurodollar Committed Advance may be paid in full by the Borrower upon three Business Days' prior written notice to the Agent; provided that the Borrower compensates the Lenders as required pursuant to Section 2.18.4. A Fixed Rate Advance, other than a Eurodollar Committed Advance (as described above), may not be paid prior to the last day of the applicable Interest Period. (ii) Termination. Any outstanding Advances and all other unpaid Obligations shall be paid in full by the Borrower on the Termination Date. 2.8. Changes in Interest Rate, etc.Each Alternate Base Rate Advance shall bear interest on the outstanding principal amount thereof, for each day from and including the date such Advance is made or is converted from a Eurodollar Committed Advance into an Alternate Base Rate Advance pursuant to Section 2.3.6 to but excluding the date it becomes due or is converted into a Eurodollar Committed Advance pursuant to Section 2.3.6 hereof, at a rate per annum equal to the Alternate Base Rate for such day. Changes in the rate of interest on that portion of any Advance maintained as an Alternate Base Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. Each Fixed Rate Advance shall bear interest from and including the first day of the Interest Period applicable thereto to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such Fixed Rate Advance. No Interest Period may end after the Termination Date. 2.9. Rates Applicable After Default. Notwithstanding anything to the contrary contained in Section 2.3.5 or 2.3.6, during the continuance of a Default or Unmatured Default no Advance may be made as, converted into or continued as a Eurodollar Committed Advance unless otherwise consented to by the Required Lenders. During the continuance of a Default the Required Lenders may, at their option, by notice to the Borrower, declare that (i) each Fixed Rate Advance shall bear interest for the remainder of the applicable Interest Period at the rate otherwise applicable to such Interest Period plus 2% per annum and (ii) each Alternate Base Rate Advance shall bear interest at a rate per annum equal to the Alternate Base Rate otherwise applicable to the Alternate Base Rate Advance plus 2% per annum. While any such declaration is in effect, interest shall be payable in accordance with Section 2.12 and on demand. 2.10. Method of Payment.All payments of the Obligations hereunder shall be made, without setoff, deduction, or counterclaim, in immediately available funds to the Agent at the Agent's address specified pursuant to Article XIII, or at any other Lending Installation of the Agent specified in writing by the Agent to the Borrower, by noon (local time) on the date when due and shall be applied ratably by the Agent among the Lenders. Each payment delivered to the Agent for the account of any Lender shall be delivered promptly by the Agent to such Lender in the same type of funds that the Agent received at its address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Agent from such Lender. The Agent is hereby authorized to charge the account of the Borrower maintained with First Chicago for each payment of principal, interest and fees as it becomes due hereunder. 2.11. Notes; Telephonic Notices.Each Lender is hereby authorized to record the principal amount of each of its Loans and each repayment on the schedule attached to its Notes; provided, however, that the failure to so record shall not affect the Borrower's obligations under such Notes. The Borrower hereby authorizes the Lenders and the Agent to extend, convert or continue Advances, effect selections of Types of Advances and to transfer funds, and authorizes the Issuing Bank to issue Facility Letters of Credit, based on telephonic notices made by any person or persons the Agent or any Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Agent a written confirmation, if such confirmation is requested by the Agent or any Lender, of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Agent and the Lenders, the records of the Agent and the Lenders shall govern absent manifest error. 2.12. Interest Payment Dates; Interest and Fee Basis. Interest accrued on each Alternate Base Rate Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof, on any date on which the Alternate Base Rate Advance is prepaid, whether due to acceleration or otherwise, and at maturity. Interest accrued on that portion of the outstanding principal amount of any Alternate Base Rate Advance converted into a Eurodollar Committed Advance on a day other than a Payment Date shall be payable on the date of conversion. Interest accrued on each Fixed Rate Advance shall be payable on the last day of its applicable Interest Period, on any date on which the Fixed Rate Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest accrued on each Fixed Rate Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest and fees shall be calculated for actual days elapsed on the basis of a 360-day year. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon(local time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.13. Notification by Agent.Promptly after receipt thereof, the Agent will notify each Lender of the contents of each Aggregate Commitment reduction notice, Committed Borrowing Notice, Competitive Bid Acceptance Notice, Conversion/Continuation Notice, Letter of Credit Request, Issuance Notice and repayment notice received by it hereunder. The Agent will notify each Lender affected thereby of the interest rate applicable to each Fixed Rate Advance promptly upon determination of such interest rate and will give each Lender prompt notice of each change in the Alternate Base Rate. 2.14. Lending Installations. Each Lender may book its Loans at any Lending Installation selected by such Lender and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Lender for the benefit of such Lending Installation. Each Lender may, by written or telex notice to the Agent and the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.15. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender, as the case may be, notifies the Agent prior to the date on which it is scheduled to make payment to the Agent of (i) in the case of a Lender, the proceeds of a Committed Loan or its share of the unreimbursed amount pursuant to Section 3.6(b) or (ii) in the case of the Borrower, a payment of principal, interest or fees to the Agent for the account of the Lenders, that it does not intend to make such payment, the Agent may assume that such payment has been made. The Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Lender or the Borrower, as the case may be, has not in fact made such payment to the Agent, the recipient of such payment shall, on demand by the Agent, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to (i) in the case of payment by a Lender, the Federal Funds Effective Rate for such day or (ii) in the case of payment by the Borrower, the interest rate applicable to the relevant Loan. 2.16. Withholding Tax Exemption. At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Lender, each Lender that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form 1001 or 4224, certifying in either case that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Lender which so delivers a Form 1001 or 4224 further undertakes to deliver to each of the Borrower and the Agent two additional copies of such form (or a successor form) on or before the date that such form expires (currently, three successive calendar years for Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Lender is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such form with respect to it and such Lender advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax. 2.17. Extension of Termination Date. The Borrower may request a one year extension of the Termination Date by submitting a request for an extension to the Agent (an "Extension Request") no more than 60 days prior to each May 31 (other than in 1995 or the year in which the then existing Termination Date falls). The Borrower may submit up to two Extension Requests pursuant to this Section 2.17. The Extension Request must specify the date (which must be at least 30 days after the Extension Request is delivered to the Agent) as of which the Lenders must respond to the Extension Request (the "Extension Date"). Promptly upon receipt of an Extension Request, the Agent shall notify each Lender of the contents thereof and shall request each Lender to approve the Extension Request. Each Lender approving the Extension Request shall deliver its written consent no later than the Extension Date. Any consent delivered by a Lender to the Agent prior to the Extension Date may be revoked prior to the Extension Date by the Lender giving written notice of such revocation to the Agent before the Extension Date. If the consent of each of the Lenders is received by the Agent and remains in effect on the Extension Date, the Termination Date shall automatically be deemed to have been extended by one year and the Agent shall promptly notify the Borrower and each Lender of the new Termination Date. 2.18. Change in Circumstances. 2.18.1. Yield Protection. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or the compliance of any Lender therewith, (i) subjects any Lender or any applicable Lending Installation to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding federal taxation of the overall net income of any Lender or applicable Lending Installation), or changes the basis of taxation of payments to any Lender in respect of its Loans, its interest in the Facility Letters of Credit or other amounts due it hereunder, or (ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender or any applicable Lending Installation (other than reserves and assessments taken into account in determining the interest rate applicable to Fixed Rate Advances), or (iii) imposes any other condition the result of which is to increase the cost to any Lender or any applicable Lending Installation of making, funding, issuing, participating in or maintaining loans or letters of credit or reduces any amount receivable by any Lender or any applicable Lending Installation in connection with loans or letters of credit, or requires any Lender or any applicable Lending Installation to make any payment calculated by reference to the amount of loans held, letters of credit issued or participated in or interest received by it, by an amount deemed material by such Lender, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender that portion of such increased expense incurred or reduction in an amount received which such Lender determines is attributable to making, funding and maintaining its Loans, its interest in the Facility Letters of Credit, and its Commitment; provided, however, that the Borrower shall not be liable for any such increased expense incurred or reduction in an amount received which arose with respect to any period of time more than 120 days prior to the date that such Lender makes demand therefor. 2.18.2. Changes in Capital Adequacy Regulations. If a Lender determines the amount of capital required to be maintained by such Lender, any Lending Installation of such Lender or any corporation controlling such Lender is increased as a result of a Change, then, within 15 days of demand by such Lender, the Borrower shall pay such Lender the amount necessary to compensate for any shortfall in the rate of return on the portion of such increased capital which such Lender determines is attributable to this Agreement, its Loans, its interest in the Facility Letters of Credit, or its obligation to make Loans, participate in or issue Facility Letters of Credit hereunder (after taking into account such Lender's policies as to capital adequacy). "Change" means (i) any change after the date of this Agreement in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any other law, governmental or quasi-governmental rule, regulation, policy, guideline, interpretation, or directive (whether or not having the force of law) after the date of this Agreement which affects the amount of capital required or expected to be maintained by any Lender or any Lending Installation or any corporation controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based capital guidelines in effect in the United States on the date of this Agreement, including transition rules, and (ii) the corresponding capital regulations promulgated by regulatory authorities outside the United States implementing the July 1988 report of the Basle Committee on Banking Regulation and Supervisory Practices Entitled "International Convergence of Capital Measurements and Capital Standards," including transition rules, and any amendments to such regulations adopted prior to the date of this Agreement. 2.18.3. Availability of Types of Advances. If any Lender determines that maintenance of any of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, the Agent shall suspend the availability of the affected Type of Advance and require any Eurodollar Advances of the affected Type to be repaid; or if the Required Lenders determine that (i) deposits of a type or maturity appropriate to match fund Eurodollar Advances are not available, the Agent shall suspend the availability of the affected Type of Advance with respect to any Eurodollar Advances made after the date of any such determination, or (ii) an interest rate applicable to a Type of Advance does not accurately reflect the cost of making a Eurodollar Advance of such Type, then, if for any reason whatsoever the provisions of Section 2.18.1 are inapplicable, the Agent shall suspend the availability of the affected Type of Advance with respect to any Eurodollar Advances made after the date of any such determination. 2.18.4. Funding Indemnification. If any payment of a Fixed Rate Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Fixed Rate Advance is not made on the date specified by the Borrower for any reason other than default by the Lenders, the Borrower will indemnify each Lender for any loss or cost incurred by it resulting therefrom, including, without limitation, any loss or cost in liquidating or employing deposits acquired to fund or maintain the Fixed Rate Advance. 2.18.5. Mitigation of Additional Costs; Replacement of Lenders. If, in respect of any Lender, circumstances arise which would or would upon the giving of notice result in: (i) an increase in the liability of the Borrower to such Lender under Section 2.18.1 or 2.18.2, (ii) the unavailability of a Type of Committed Advance under Section 2.18.3, or (iii) a Lender being incapable of receiving payments without deduction or withholding of United States federal income tax; then, without in any way limiting, reducing or otherwise qualifying the Borrower's obligations under any of the Sections referred to above in this Section 2.18.5, such Lender shall promptly upon becoming aware of such circumstances notify the Agent thereof and such Lender shall, in consultation with the Agent and the Borrower and to the extent that it can do so without disadvantaging itself, take such reasonable steps as may be reasonably open to it to mitigate the effects of such circumstances (including, without limitation, the designation of an alternate Lending Installation or the transfer of its Loans to another Lending Installation). If and so long as a Lender has been unable to take, or has not taken, steps acceptable to the Borrower to mitigate the effect of the circumstances in question or if a Lender has refused to consent to an Extension Request or the Borrower's request to permit the Reorganization pursuant to Section 6.13, such Lender shall be obliged, at the request of the Borrower, to assign all its rights and obligations hereunder to another Person nominated by the Borrower with the approval of the Agent (which shall not be unreasonably withheld) and willing to participate in the facility in place of such Lender; provided that such Person satisfies all of the requirements of this Agreement including, but not limited to, providing the forms required by Sections 2.16 and 12.3.2. Notwithstanding any such assignment, the obligations of the Borrower under Sections 2.18.1, 2.18.2 and 9.7 shall survive any such assignment and be enforceable by such Lender. 2.18.6. Lender Statements; Survival of Indemnity. Each Lender shall deliver a written statement of such Lender as to the amount due, if any, under Sections 2.18.1, 2.18.2 or 2.18.4. Such written statement shall set forth in reasonable detail the calculations upon which such Lender determined such amount and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable on demand after receipt by the Borrower of the written statement. The obligations of the Borrower under Sections 2.18.1, 2.18.2 and 2.18.4 shall survive payment of the Obligations and termination of this Agreement. ARTICLE III THE LETTER OF CREDIT SUBFACILITY 3.1. Obligation to Issue. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, each Issuing Bank hereby agrees to issue for the account of the Borrower through such of the Issuing Bank's branches as it and the Borrower may jointly agree, one or more Facility Letters of Credit in accordance with this Article III, from time to time during the period, commencing on the Effective Date and ending on the Business Day prior to the Termination Date. 3.2. Types and Amounts. The issuance of a Facility Letter of Credit shall be subject to the following conditions: (a) the aggregate maximum amount then available for drawing under Letters of Credit issued by such Issuing Bank, after giving effect to the Facility Letter of Credit requested hereunder, shall not exceed any limit imposed by law or regulation upon such Issuing Bank; (b) after giving effect thereto, the sum of (a) the aggregate unpaid principal balance of the Advances plus (b) the Facility Letter of Credit Obligations do not exceed the Aggregate Commitment as then in effect; (c) it does not have an expiration date after the Termination Date; (d) it does not have an expiration date more than twelve (12) months after the date of its issuance or extension; or (e) the Facility Letter of Credit Obligations, after giving effect to any Facility Letter of Credit requested hereunder, do not exceed $20,000,000. 3.3. Conditions. In addition to being subject to the satisfaction of the conditions contained in Section 4.2, the obligation of an Issuing Bank to issue any Facility Letter of Credit is subject to the satisfaction in full of the following conditions: (a) the Borrower shall have delivered to such Issuing Bank at such times and in such manner as such Issuing Bank may reasonably prescribe such documents and materials as may be required pursuant to the terms of the proposed Facility Letter of Credit (it being understood that if any inconsistency exists between such documents and the Loan Documents, the terms of the Loan Documents shall control) and the proposed Facility Letter of Credit shall be reasonably satisfactory to the Issuing Bank as to form and content; (b) as of the date of issuance, no order, judgment or decree of any court, arbitrator or governmental authority shall purport by its terms to enjoin or restrain such Issuing Bank from issuing the requested Facility Letter of Credit and no law, rule or regulation applicable to that Issuing Bank and no request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over that Issuing Bank shall prohibit or request that such Issuing Bank refrain from the issuance of Letters of Credit generally or the issuance of the requested Facility Letter or Credit in particular; and (c) the Issuing Bank and the Borrower having agreed on the fee referred to in Section 3.8(b). 3.4. Procedure for Issuance of Facility Letters of Credit. (a) The Borrower shall give the Issuing Bank and the Agent at least two (2) Business Days' prior written notice of any requested issuance of a Facility Letter of Credit under this Agreement (a "Letter of Credit Request") (except that, in lieu of such written notice, the Borrower may give the Issuing Bank and the Agent telephonic notice of such request if confirmed in writing by delivery to the Issuing Bank and the Agent (i) immediately (A) of a telecopy of the written notice required hereunder which has been signed by an Authorized Officer or (B) of a telex containing all information required to be contained in such written notice and (ii) promptly (but in no event later than the requested date of issuance) of the written notice required hereunder containing the original signature of an Authorized Officer); such notice shall be irrevocable and shall specify: (1) the stated amount of the Facility Letter of Credit requested (which stated amount shall not be less than $500,000); (2) the effective date (which day shall be a Business Day) of issuance of such requested Facility Letter of Credit (the "Issuance Date"); (3) the date on which such requested Facility Letter of Credit is to expire (which date shall be a Business Day and shall in no event be later than the earlier of the Termination Date and a date which is twelve (12) months after the Issuance Date); (4) the name of the Issuing Bank chosen by the Borrower as the issuer of the requested Facility Letter of Credit; (5) the purpose for which such Facility Letter of Credit is to be issued; and (6) the Person for whose benefit the requested Facility Letter of Credit is to be issued. At the time such request is made, the Borrower shall also provide the Agent and the Issuing Bank with a copy of the form of the Facility Letter of Credit it is requesting be issued. Such notice, to be effective, must be received by such Issuing Bank and the Agent not later than 2:00 p.m. (Chicago time) on the last Business Day on which notice can be given under this Section 3.4(a). (b) Subject to the terms and conditions of this Article III and provided that the applicable conditions set forth in Section 4.2 hereof have been satisfied, such Issuing Bank shall, on the Issuance Date, issue a Facility Letter of Credit on behalf of the Borrower in accordance with the Issuing Bank's usual and customary business practices unless the Issuing Bank has actually received (i) written notice from the Borrower specifically revoking the Letter of Credit Request with respect to such Facility Letter of Credit, (ii) written notice from a Lender, which complies with the provisions of Section 3.6(a) or (iii) written or telephonic notice from the Agent stating that the issuance of such Facility Letter of Credit would violate Section 3.2. (c) Each Issuing Bank shall give the Agent and the Borrower written or telex notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance of a Facility Letter of Credit (the "Issuance Notice"). (d) An Issuing Bank shall not extend or amend any Facility Letter of Credit or allow any Facility Letter of Credit to be automatically extended unless the requirements of this Agreement are met as though a new Facility Letter of Credit was being requested and issued. 3.5. Reimbursement Obligations; Duties of Issuing Banks. (a) (i) Each Issuing Bank shall promptly notify the Borrower and the Agent of any draw under a Facility Letter of Credit and the Borrower shall reimburse such Issuing Bank in accordance with Section 3.7; and (ii) any Reimbursement Obligation with respect to any Facility Letter of Credit shall bear interest from the date of the relevant drawings under the pertinent Facility Letter of Credit until payment in full is received by the pertinent Issuing Bank at (A) the Alternate Base Rate until the next succeeding Business Day and (B) the Default interest rate for Alternate Base Rate Advances calculated in accordance with Section 2.9 for each day thereafter. (b) Any action taken or omitted to be taken by an Issuing Bank under or in connection with any Facility Letter of Credit, if taken or omitted in the absence of willful misconduct or gross negligence, shall not put that Issuing Bank under any resulting liability to any Lender or, assuming that such Issuing Bank has complied with the procedures specified in Section 3.4, all conditions to the issuance of a Facility Letter of Credit have been satisfied and such Lender has not given a notice contemplated by Section 3.6(a) that continues in full force and effect, relieve that Lender of its obligations hereunder to that Issuing Bank. In determining whether to pay under any Facility Letter of Credit, an Issuing Bank shall have no obligation relative to the Lenders other than to confirm that any documents required to be delivered under such Letter of Credit appear to have been delivered in compliance and that they appear to comply on their face, with the requirements of such Letter of Credit. 3.6. Participation. (a) Immediately upon (i) the Effective Date for those Facility Letters of Credit issued prior to such date and (ii) issuance by an Issuing Bank of any Facility Letter of Credit in accordance with the procedures set forth in Section 3.4, each Lender shall be deemed to have irrevocably and unconditionally purchased and received from that Issuing Bank, without recourse, representation or warranty, an undivided interest and participation equal to its Percentage in such Facility Letter of Credit (including, without limitation, all obligations of the Borrower with respect thereto) and any security therefor or guaranty pertaining thereto; provided, that a Letter of Credit issued by any Issuing Bank shall not be deemed to be a Facility Letter of Credit for purposes of this Section 3.6 if (A) such Letter of Credit has an expiration date which is after the Termination Date or (B) such Issuing Bank shall have received written notice from any Lender on or before the Business Day prior to the date of its issuance of such Letter of Credit that one or more of the conditions to the issuance of a Facility Letter of Credit is not then satisfied, and, in the event an Issuing Bank receives such a notice, it shall have no further obligation to issue any Facility Letter of Credit until such notice is withdrawn by that Lender or it receives a notice from the Agent that such condition has been effectively waived in accordance with the provisions of this Agreement. (b) In the event that any Issuing Bank makes any payment under any Facility Letter of Credit and the Borrower shall not have repaid such amount to such Issuing Bank pursuant to Section 3.7 hereof, such Issuing Bank shall promptly notify the Agent, which shall promptly notify each Lender, of such failure, and each Lender shall promptly and unconditionally pay to the Agent for the account of such Issuing Bank the amount of such Lender's Percentage of the unreimbursed amount of such payment, and the Agent shall promptly pay such amount to the Issuing Bank. The failure of any Lender to make available to the Agent for the account of any Issuing Bank its Percentage of the unreimbursed amount of any such payment shall not relieve any other Lender of its obligation hereunder to make available to the Agent for the account of such Issuing Bank its Percentage of the unreimbursed amount of any payment on the date such payment is to be made, but no Lender shall be responsible for the failure of any other Lender to make available to the Agent its Percentage of the unreimbursed amount of any payment on the date such payment is to be made. (c) Whenever an Issuing Bank receives a payment on account of a Reimbursement Obligation, including any interest thereon, it shall promptly pay to the Agent and the Agent shall promptly pay to each Lender which has funded its participating interest therein, in immediately available funds, an amount equal to such Lender's Percentage thereof. (d) Upon the request of the Agent or any Lender, an Issuing Bank shall furnish to such Agent or Lender copies of any Facility Letter of Credit to which that Issuing Bank is party and such other documentation as may reasonably be requested by the Agent or Lender. (e) The obligations of a Lender to make payments to the Agent for the account of each Issuing Bank with respect to a Facility Letter of Credit shall be absolute, unconditional and irrevocable, not subject to any counterclaim, set-off, qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances. 3.7. Payment of Reimbursement Obligations. (a) The Borrower agrees to pay to each Issuing Bank the amount of all Reimbursement Obligations, interest and other amounts payable to such Issuing Bank under or in connection with any Facility Letter of Credit immediately when due (and in any event shall reimburse an Issuing Bank for drawings under a Facility Letter of Credit issued by it no later than the next succeeding Business Day after the payment by that Issuing Bank), irrespective of any claim, set-off, defense or other right which the Borrower or any Subsidiary may have at any time against any Issuing Bank or any other Person, under all circumstances, including without limitation any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against a beneficiary named in a Facility Letter of Credit or any transferee of any Facility Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Issuing Bank, any Lender, or any other Person, whether in connection with this Agreement, any Facility Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between the Borrower or any Subsidiary and the beneficiary named in any Facility Letter of Credit); (iii) any draft, certificate or any other document presented under the Facility Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (v) the occurrence of any Default or Unmatured Default. (b) In the event any payment by the Borrower or any Subsidiary received by an Issuing Bank with respect to a Facility Letter of Credit and distributed by the Agent to the Lenders on account of their participations is thereafter set aside, avoided or recovered from that Issuing Bank in connection with any receivership, liquidation, reorganization or bankruptcy proceeding, each Lender which received such distribution shall, upon demand by that Issuing Bank, contribute such Lender's Percentage of the amount set aside, avoided or recovered together with interest at the rate required to be paid by that Issuing Bank upon the amount required to be repaid by it. 3.8. Compensation for Facility Letters of Credit. (a) The Borrower shall pay to the Agent, for the ratable account of the Lenders, based upon the Lenders' respective Percentages, a fee (the "Facility Letter of Credit Fee") with respect to each Facility Letter of Credit, in an amount equal to the product of the average daily undrawn amount of such Facility Letter of Credit times the percentage indicated as the Applicable Margin for the Facility Letter of Credit Fee, for the period from the Issuance Date thereof to but including the final expiration date thereof. The Facility Letter of Credit Fee shall be due and payable in arrears on each Payment Date and, to the extent any such fees are then due and unpaid, on the Termination Date. The Agent shall promptly remit such Facility Letter of Credit Fees, when paid, to the other Lenders in accordance with their Percentages thereof. (b) Each Issuing Bank shall have the right to receive solely for its own account such amounts as it and the Borrower may agree, in writing, to pay to such Issuing Bank with respect to issuance fees for any Facility Letter of Credit. In addition, each Issuing Bank shall be entitled to receive its reasonable out-of-pocket costs of issuing and servicing Facility Letters of Credit. ARTICLE IV CONDITIONS PRECEDENT 4.1. Initial Advance. The Lenders shall not be required to make the initial Advance and, if the initial advance shall not have been made, an Issuing Bank shall not be obligated to issue any Facility Letter of Credit hereunder unless the Borrower has furnished to the Agent with sufficient copies for the Lenders the following items (and the date upon which all such items shall have been so furnished is referred to as the "Effective Date"): (i) Copies of the articles of incorporation of the Borrower, together with all amendments, and a certificate of good standing, both certified by the appropriate governmental officer in its jurisdiction of incorporation. (ii) Copies, certified by the Secretary or Assistant Secretary of the Borrower, of its by-laws and of its Board of Directors' resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Lender) authorizing the execution of the Loan Documents. (iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Borrower, which shall identify by name and title and bear the signature of the officers of the Borrower authorized to sign the Loan Documents and to make borrowings and request Facility Letters of Credit hereunder, upon which certificate the Agent and the Lenders shall be entitled to rely until informed of any change in writing by the Borrower. (iv) A completed compliance certificate, in substantially the form of Exhibit "G" attached hereto, signed by the chief financial officer of the Borrower and dated as of the Effective Date. (v) A written opinion or opinions of the Borrower's counsel, addressed to the Lenders covering in substance those items contained in Exhibit "E" hereto. (vi) Notes payable to the order of each of the Lenders. (vii) Fully executed originals of this Agreement. (viii) Written money transfer instructions, in substantially the form of Exhibit "F" hereto, addressed to the Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Agent may have reasonably requested. (ix) Payment of all fees described in Section 2.6, which are required to be paid on the Effective Date. (x) Such other documents as any Lender or its counsel may have reasonably requested. 4.2. Each Advance or Issuance of a Facility Letter of Credit. The Lenders shall not be required to make any Advance (other than an Advance that, after giving effect thereto and to the application of the proceeds thereof, does not increase the aggregate amount of outstanding Advances) and an Issuing Bank shall not be obligated to issue any Facility Letter of Credit, unless on the applicable Borrowing Date or Issuance Date: (i) There exists no Default or Unmatured Default. (ii) The representations and warranties contained in Article V are true and correct as of such Borrowing Date or Issuance Date except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall be true and correct on and as of such earlier date (other than the representation and warranty made under Section 5.4, which shall be deemed to refer to the most recent annual audited financial statements furnished to the Lenders pursuant to Section 6.1(i) hereof). (iii) All legal matters incident to the making of such Advance or issuance of such Facility Letter of Credit shall be satisfactory to the Lenders and their counsel. Each Borrowing Notice with respect to each such Advance and each Letter of Credit Request with respect to each Facility Letter of Credit shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 4.2(i) and (ii) have been satisfied. Any Lender or Issuing Bank may require a duly completed compliance certificate in substantially the form of Exhibit "G" hereto as a condition to making an Advance or issuing a Facility Letter of Credit. ARTICLE V REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Lenders that: 5.1. Corporate Existence and Standing. Each of the Borrower and its Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to have such requisite authority would not have a Material Adverse Effect. 5.2. Authorization and Validity. The Borrower has the corporate power and authority and legal right to execute and deliver the Loan Documents and to perform its obligations thereunder. The execution and delivery by the Borrower of the Loan Documents and the performance of its obligations thereunder have been duly authorized by proper corporate proceedings, and the Loan Documents constitute legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 5.3. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of the Loan Documents, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof will violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries or the Borrower's or any Subsidiary's articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in the creation or imposition of any Lien in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument or agreement. No order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority, or any subdivision thereof, is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, any of the Loan Documents. 5.4. Financial Statements. The January 29, 1994 and the draft January 28, 1995 consolidated financial statements of the Borrower and its Subsidiaries heretofore delivered to the Lenders were prepared in accordance with generally accepted accounting principles in effect on the date such statements were prepared and fairly present the consolidated financial condition and operations of the Borrower and its Subsidiaries at such date and the consolidated results of their operations for the period then ended. 5.5. Material Adverse Change. Since January 28, 1995, there has been no change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 5.6. Taxes.The Borrower and its Subsidiaries have filed all United States federal tax returns and all other tax returns which are required to be filed and have paid all taxes due pursuant to said returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, except such taxes, if any, as are being contested in good faith and as to which adequate reserves have been provided. The United States income tax returns of the Borrower and its Subsidiaries have been audited by the Internal Revenue Service through the fiscal year ended January 25, 1992, for which no tax liens have been filed and no claims are being asserted. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of any taxes or other governmental charges are adequate. 5.7. Litigation and Contingent Obligations. Except as disclosed to the Lenders in writing prior to the Effective Date, there is no litigation, arbitration, governmental investigation, proceeding or inquiry pending or, to the knowledge of any of their officers, threatened against or affecting the Borrower or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. The Borrower has no material contingent obligations not provided for or disclosed in the financial statements referred to in Section 5.4. 5.8. Subsidiaries. As of the date of this Agreement, Schedule "2" hereto contains an accurate list of all of the presently existing Subsidiaries of the Borrower, setting forth their respective jurisdictions of incorporation and the percentage of their respective capital stock owned by the Borrower or other Subsidiaries. All of the issued and outstanding shares of capital stock of such Subsidiaries have been duly authorized and issued and are fully paid and non-assessable. 5.9. ERISA. There are no Unfunded Liabilities for any Single Employer Plans. Neither the Borrower nor any other member of the Controlled Group has incurred, or is reasonably expected to incur, any withdrawal liability to Multiemployer Plans. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Borrower nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to reorganize or terminate any Plan for which the Borrower or other member of the Controlled Group has any Unfunded Liability. 5.10. Accuracy of Information. No information, exhibit or report furnished by the Borrower or any of its Subsidiaries to the Agent or to any Lender in connection with the negotiation of, or compliance with, the Loan Documents contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statements contained therein not misleading. 5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes less than 25% of those assets of the Borrower and its Subsidiaries which are subject to any limitation on sale, pledge, or other restriction hereunder. 5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a party to any agreement or instrument or subject to any charter or other corporate restriction which could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in (i) any agreement to which it is a party, which default could reasonably be expected to have a Material Adverse Effect or (ii) any agreement or instrument evidencing or governing Indebtedness. 5.13. Compliance With Laws.The Borrower and its Subsidiaries have complied in all material respects with all applicable material statutes, rules, regulations, orders and restrictions of any domestic or foreign government or any instrumentality or agency thereof, having jurisdiction over the conduct of their respective businesses or the ownership of their respective Property. Neither the Borrower nor any Subsidiary has received any notice to the effect that its operations are not in material compliance with any of the requirements of applicable federal, state and local environmental, health and safety statutes and regulations or the subject of any federal or state investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, which non-compliance or remedial action could reasonably be expected to have a Material Adverse Effect. 5.14. Ownership of Properties. Except as set forth on Schedule "3" hereto, on the date of this Agreement, the Borrower and its Subsidiaries will have good title, free of all Liens other than those permitted by Section 6.16, to all of the Property and assets reflected in the financial statements as owned by it. 5.15. Investment Company Act. Neither the Borrower nor any Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 5.16. Public Utility Holding Company Act. Neither the Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.17. Other Indebtedness. The Obligations constitute senior indebtedness which is entitled to the benefits of the subordination provisions of all outstanding Subordinated Indebtedness. The Obligations shall rank at least pari passu in right of payment and security and in all other respects with all other unsubordinated Indebtedness, except, as it relates to security, for the Liens permitted by Section 6.16. 5.18. Post-Retirement Benefits. The present value of the expected cost of post-retirement medical and insurance benefits payable by the Borrower and its Subsidiaries to its employees and former employees, as estimated by the Borrower in accordance with procedures and assumptions deemed reasonable by the Required Lenders, does not exceed $2,000,000. 5.19. Insurance. The property and casualty insurance program carried by the Borrower is adequate for its business needs. ARTICLE VI COVENANTS During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing: 6.1. Financial Reporting. The Borrower will maintain, for itself and each Subsidiary, a system of accounting established and administered in accordance with generally accepted accounting principles, and furnish to the Lenders: (i) Within 90 days after the close of each of its fiscal years, an unqualified audit report certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with Agreement Accounting Principles on a consolidated basis for itself and the Subsidiaries, including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows, accompanied by any management letter prepared by said accountants. (ii) Within 50 days after the close of the first three quarterly periods of each of its fiscal years, for itself and the Subsidiaries, a consolidated unaudited balance sheet as at the close of each such period and consolidated profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer. (iii) Together with the financial statements required hereunder, a compliance certificate in substantially the form of Exhibit "G" hereto signed by its chief financial officer showing the calculations necessary to determine compliance with this Agreement and stating that no Default or Unmatured Default exists, or if any Default or Unmatured Default exists, stating the nature and status thereof. (iv) Within 270 days after the close of each fiscal year, a statement of the Unfunded Liabilities of each Single Employer Plan, certified as correct by an actuary enrolled under ERISA. (v) As soon as possible and in any event within 10 days after the Borrower knows that any Reportable Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Reportable Event and the action which the Borrower proposes to take with respect thereto. (vi) As soon as possible and in any event within 10 days after receipt by the Borrower, a copy of (a) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the release by the Borrower, any of its Subsidiaries, or any other Person of any toxic or hazardous waste or substance into the environment, and (b) any notice alleging any violation of any federal, state or local environmental, health or safety law or regulation by the Borrower or any of its Subsidiaries, which, in the case of clause (a) or (b), could reasonably be expected to have a Material Adverse Effect. (vii) As soon as available, but in any event on or before the last day of the first fiscal quarter of each fiscal year of the Borrower, a copy of the plan and forecast (including a one year projected consolidated balance sheet, income statement and funds flow statement) of the Borrower for such fiscal year. (viii) For any fiscal quarter during which the Borrower has created a new Subsidiary or terminated the existence of any existing Subsidiary as may be permitted hereunder, together with the financial statements required hereunder covering such period, a certificate signed by an Authorized Officer attaching a revised Schedule "2" which modifies the list of Subsidiaries contained therein to show any such additions and deletions (which revised Schedule shall replace the old Schedule and shall be deemed to have become part of the Agreement), the delivery of which shall be deemed to be a representation and warranty of the Borrower as to the accuracy of such revised Schedule. (ix) Promptly upon the furnishing thereof to the shareholders of the Borrower, copies of all financial statements, reports and proxy statements so furnished. (x) Promptly upon the filing thereof, copies (excluding exhibits) of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission. (xi) Such other information (including non-financial information) as the Agent or any Lender may from time to time reasonably request. 6.2. Use of Proceeds.The Borrower will use the Facility Letters of Credit and the proceeds of the Advances for general corporate purposes and to repay outstanding Advances and Reimbursement Obligations. The Borrower will not, nor will it permit any Subsidiary to, use any of the Facility Letters of Credit or the proceeds of the Advances to purchase or carry any "margin stock" (as defined in Regulation U), except that the Borrower may repurchase shares of its common stock in a so-called open market purchase program or similar transaction to the extent permitted hereunder. 6.3. Notice of Default.The Borrower will, and will cause each Subsidiary to, give prompt notice in writing to the Lenders of the occurrence of any Default or Unmatured Default and of any other development, financial or otherwise, which could reasonably be expected to have a Material Adverse Effect. 6.4. Conduct of Business. The Borrower will, and will cause each Active Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and to do all things necessary to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except where the failure to conduct business, remain incorporated or have such requisite authority would not have a Material Adverse Effect. 6.5. Taxes.The Borrower will, and will cause each Subsidiary to, pay when due all taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. 6.6. Insurance. The Borrower will, and will cause each Subsidiary to, maintain with financially sound and reputable insurance companies (and/or through a self insurance program) insurance on all their Property in such amounts (and/or with such reserves) and covering such risks as is consistent with sound business practice, and the Borrower will furnish to any Lender upon request full information as to the insurance carried. 6.7. Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply in all material respects with all material laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject. 6.8. Maintenance of Properties. The Borrower will, and will cause each Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property which is used or useful in the business of the Borrower or any of its Subsidiaries in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times. 6.9. Inspection. The Borrower will, and will cause each Subsidiary to, permit the Lenders, by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers at such reasonable times and intervals as the Lenders may designate. 6.10. Dividends. The Borrower will not, nor will it permit any Subsidiary to, declare or pay any dividends on its capital stock (other than dividends payable in its own capital stock) or redeem, repurchase or otherwise acquire or retire any of its capital stock at any time outstanding, except that (i) any Subsidiary may declare and pay dividends to the Borrower or to a Wholly-Owned Subsidiary and (ii) the Borrower may (a) purchase or otherwise acquire shares of its capital stock with the proceeds received from the issue of new shares of its capital stock, (b) repurchase for cash shares of common stock issued under the Borrower's 1989 Stock Incentive Plan or the 1995 Director Stock Option Plan, as from time to time in effect, provided that the aggregate amount of repurchases permitted by this clause shall not exceed $2,000,000, (c) so long as prior to and after giving effect thereto no Default or Unmatured Default shall exist, repurchase shares of its common stock in a so-called open market purchase program or similar transaction and (d) so long as prior to and after giving effect thereto no Default or Unmatured Default shall exist, declare and pay dividends on shares of its outstanding common stock in any fiscal year commencing with the Borrower's 1995 fiscal year not exceeding in the aggregate twenty-five percent (25%) of Net Income for the immediately preceding fiscal year. 6.11. Indebtedness. The Borrower will not, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except: (i) The Loans and the Reimbursement Obligations. (ii) Indebtedness existing on the date hereof and described in Schedule "3" hereto. (iii) Contingent Obligations (a) by endorsement of instruments for deposit or collection in the ordinary course of business, (b) to purchase real property from another Person or guaranties incurred in the ordinary course of business in connection with the purchase or lease of stores or distribution centers, provided that (A) not less than eighty percent (80%) of the total square footage of each such store or distribution center so purchased or leased shall be utilized by the Borrower and its Subsidiaries and (B) the aggregate amount of such Contingent Obligations pursuant to this clause (b) at any time outstanding shall not exceed $50,000,000 and (c) consisting of guaranties incurred by the Borrower to support operating leases and/or Indebtedness incurred by any Subsidiary permitted by Section 6.11 (vii) or (viii). (iv) Subordinated Indebtedness. (v) Bankers' acceptances utilized in the ordinary course of business to purchase inventory. (vi) Indebtedness of one or more special purpose Wholly-Owned Subsidiaries in connection with a transfer by the Borrower or a Wholly-Owned Subsidiary of interests in accounts or notes receivable on a limited recourse basis, provided that (a) such transfer qualifies as a sale under generally accepted accounting principles and (b) any such Indebtedness, at any time outstanding, does not exceed $100,000,000 in the aggregate. (vii) Capitalized Leases entered into by the Borrower or any Real Estate Subsidiary not to exceed, at any time outstanding, $100,000,000 in the aggregate. (viii) Indebtedness, at any time outstanding, of the Borrower or any Real Estate Subsidiary incurred in the ordinary course of business in connection with real property not to exceed $200,000,000 in the aggregate. (ix) Indebtedness of the Operating Subsidiaries to the Borrower in an aggregate amount not to exceed ten percent (10%) of the Borrower's consolidated assets. (x) So long as (i) the sum of (a) the aggregate unpaid principal balance of the Advances plus (b) the Facility Letter of Credit Obligations is less than (ii) $50,000,000, Indebtedness of the Investment Subsidiary owed to the Borrower. (xi) Indebtedness incurred by the Borrower and owed to any Subsidiary (other than a Trademark Subsidiary). (xii) Indebtedness owed to the Trademark Subsidiaries; provided, that the aggregate amount of such Indebtedness does not exceed the cumulative royalties earned by the Trademark Subsidiaries. (xiii) Additional Indebtedness, at any time outstanding, not to exceed $125,000,000 in the aggregate; provided that no more than $50,000,000 of such Indebtedness may be incurred by or exist at the Borrower's Subsidiaries. 6.12. Merger. The Borrower will not, nor will it permit any Subsidiary to, merge or consolidate with or into any other Person, except that: (i) a Subsidiary may merge with and into the Borrower or a Wholly-Owned Subsidiary; (ii) the Borrower may merge or consolidate with any Person which is in a business related to the Borrower's business; and (iii) any Subsidiary of the Borrower may merge or consolidate with or into another Person in a transaction constituting (A) a disposition of assets by the Borrower so long as such disposition is permitted by Section 6.13 hereof or (B) an Acquisition so long as such Acquisition is permitted by Section 6.15, provided that in each such case, (a) immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default or Unmatured Default and, (b) in the case of any such merger or consolidation to which the Borrower is a party, the Borrower is the surviving corporation. 6.13. Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of its Property, to any other Person except: (i) for sales of inventory and obsolete, worn out or no longer useful equipment in the ordinary course of business; (ii) that (A) any Subsidiary may sell, lease or otherwise dispose of assets to any other Subsidiary or to the Borrower and (B) the Borrower may transfer liquor licenses owned by the Borrower or other permits obtained by the Borrower and used in the operation of any of the stores to any such Subsidiary; (iii) for any transfer of an interest in accounts or notes receivable on a limited recourse basis, provided that such transfer qualifies as a sale under generally accepted accounting principles; (iv) for leases, sales or other dispositions of its Property that, together with all other Property of the Borrower and its Subsidiaries previously leased, sold or disposed of (other than dispositions permitted under clauses (i), (ii) and (iii) above) as permitted by this Section during the twelve-month period ending with the month in which any such lease, sale or other disposition occurs, do not constitute a Substantial Portion of the Property of the Borrower and its Subsidiaries; (v) pursuant to the Reorganization, provided that the Borrower has received the prior written consent of the Lenders; it being understood that (a) each Lender's decision on whether or not to consent will be conditioned on, among other things, (i) delivery of (A) satisfactory pro-forma financial statements, (B) satisfactory guaranties from each of the new Wholly-Owned Subsidiaries, (C) a satisfactory solvency opinion from a nationally recognized appraisal firm with respect to the Borrower and each of the new Wholly- Owned Subsidiaries (after giving effect to its guaranty) and (D) satisfactory opinions of counsel with respect to such guaranties, (ii) to the extent such Wholly-Owned Subsidiaries will be providing guaranties to the holders of the Subordinated Indebtedness, the subordination provisions contained in such guaranties shall be satisfactory to such Lender and its counsel and (iii) all legal matters incident to the Reorganization and the giving of guaranties by the new Wholly-Owned Subsidiaries being satisfactory to such Lender and its counsel and (b) if consent of the Lenders is received, an amendment to this Agreement (modifying the covenants as may be appropriate based on the Reorganization) shall be promptly negotiated and consummated, provided that in each such case, immediately after giving effect thereto, no event shall have occurred and be continuing that constitutes a Default or an Unmatured Default. 6.14. Letters of Credit. The Borrower will not, nor will it permit any Subsidiary to, apply for or become liable upon any Letter of Credit, except for: (i) Facility Letters of Credit; (ii) other standby Letters of Credit, provided that the aggregate amount of issued but undrawn standby Letters of Credit (which are not Facility Letters of Credit) and all unreimbursed drawings thereunder shall not at any time exceed $25,000,000; and (iii) commercial Letters of Credit utilized in the ordinary course of business to purchase inventory, provided that the aggregate amount of issued but undrawn commercial Letters of Credit shall not at any time exceed ten percent (10%) of the value of the Borrower's consolidated merchandise inventory. 6.15. Investments and Acquisitions. The Borrower will not, nor will it permit any Subsidiary to, (a) make or suffer to exist any Investments (including without limitation, loans and advances to, and other Investments in, Subsidiaries), or commitments therefor, or to create any Subsidiary or to become or remain a partner in any partnership or joint venture, except: (i) Existing (A) Investments in Subsidiaries as of January 28, 1995 and (B) other Investments in existence on the date hereof, and in both cases, described in Schedule "2" hereto. (ii) Permitted Investments. (iii) Investments consisting of loans to participants, or the purchase of securities of the Borrower from participants, made pursuant to the provisions of any employee benefit plan, including without limitation the Borrower's 1989 Stock Incentive Plan or the 1995 Director Stock Option Plan; (iv) Investments consisting of stock or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or other claims due or owing to the Borrower or any Subsidiary or as security for any such Indebtedness or claim; (v) Loans made by the Borrower in connection with the development of new retail establishments or distribution centers for the Borrower; provided that the aggregate outstanding amount of all such loans, as and when any such loan is made, shall not exceed five percent (5%) of the Borrower's consolidated assets as of the last day of the most recently ended fiscal quarter of the Borrower. (vi) Investments made by the Borrower in the Operating Subsidiaries; provided that the aggregate amount of all such Investments, as and when any such Investment is made, shall not exceed ten percent (10%) of the Borrower's consolidated assets as of the last day of the most recently ended fiscal quarter of the Borrower. (vii) So long as (i) the sum of (a) the aggregate unpaid principal balance of the Advances plus (b) the Facility Letter of Credit Obligations is less than (ii) $50,000,000, Investments made by the Borrower in the Investment Subsidiary for the purpose of making Permitted Investments. (viii) Investments made by any Subsidiary (other than a Trademark Subsidiary) in the Borrower. (ix) Investments made by the Trademark Subsidiaries in the Borrower and/or its Subsidiaries; provided, that the aggregate amount of such loans does not exceed the cumulative royalties earned by the Trademark Subsidiaries. (x) Investments made by the Borrower or any Trademark Subsidiary in any Real Estate Subsidiary, so long as, for any such Real Estate Subsidiary, the sum of such Investments plus any other Indebtedness of such Real Estate Subsidiary does not exceed 105% of the acquisition cost of the real estate owned by such Real Estate Subsidiary. (xi) Investments made by means of a merger or consolidation permitted by Section 6.12 hereof. (xii) For the Borrower only: any Investment consisting of (A) the acquisition of stock or other equity interests which constitutes an Acquisition permitted pursuant to the terms of Section 6.15(b); (B) the creation of any new Subsidiary to act as the purchaser in an Acquisition permitted pursuant to the terms of Section 6.15(b); and (C) an Investment in a Subsidiary for the purpose of facilitating an Acquisition permitted pursuant to the terms of Section 6.15(b), provided, however, that the aggregate amount of such Investments made since the Effective Date is less than thirty percent (30%) of Tangible Net Worth. (xiii) The creation of any new Wholly-Owned Subsidiary. (xiv) Investments in one or more special purpose entities made in connection with a transfer by the Borrower or a Wholly-Owned Subsidiary of interests in accounts or notes receivable on a limited recourse basis, provided that (a) such transfer qualifies as a sale under generally accepted accounting principles and (b) any such Investments, at any time outstanding, do not exceed $100,000,000 in the aggregate. (xv) Additional Investments, at any time outstanding, not to exceed $10,000,000 in the aggregate. (b) make any Acquisition of any Person, except for an Acquisition: (i) for which the board of directors of the Person being acquired has approved the terms of the Acquisition, (ii) the purchase price of which (including assumed liabilities for borrowed money), when added to the purchase price of all other Acquisitions made during the same fiscal year, is less than twenty five percent (25%) of the Borrower's consolidated assets as of the beginning of such fiscal year, (iii) the giving effect to which will not cause a Default or an Unmatured Default and (iv) for which the Borrower has first provided the Lenders with (a) financial information with respect to the entity to be acquired (including historical financial statements, pro-forma statements after giving effect to the Acquisition and projections) and (b) to the extent available, a detailed description of the entity to be acquired, its products, markets served and customer concentrations. 6.16. Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the Property of the Borrower or any of its Subsidiaries, except: (i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books. (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business. (iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation. (iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries. (v) Liens existing on the date hereof and described in Schedule "3" hereto. (vi) Liens incurred in connection with purchase money financing of Property in the ordinary course of business, provided that such Liens shall attach solely to the Property acquired and any improvement thereon and shall not attach to any other Property. (vii) Liens existing on Property acquired by the Borrower or any of its Subsidiaries at the time of its Acquisition, so long as such Lien was not created in contemplation of such Acquisition. (viii) The following Liens arising in the course of merchandising operations: (A) trust receipt or floor plan or other title retention or security agreements or arrangements entered into in connection with the purchase of inventory, the aggregate principal amount of the Indebtedness secured by which does not exceed two percent (2%) of the value of the inventory of the Borrower and its Subsidiaries, (B) sales on layaway plans whereby the customer acquires the merchandise only upon full payment therefor, or (C) Liens customary in connection with bankers' acceptances entered into in connection with the purchase of inventory, provided that no such Lien permitted by this clause (C) shall secure any Indebtedness incurred to refinance the payment of any such bankers' acceptance, and provided further that the principal amount of Indebtedness secured by Liens permitted by this clause (C) shall not exceed fifteen percent (15%) of the value of the Borrower's consolidated merchandise inventories. (ix) Liens resulting from commitments of the Borrower and its Subsidiaries under Capitalized Leases. (x) Liens incurred in connection with any transfer of an interest in accounts or notes receivable, that at the time of such transfer, qualified as a sale under generally accepted accounting principles. (xi) Liens under leases of personalty or real estate to which the Borrower and any of its Subsidiaries is a party, provided that such Liens (A) do not attach to inventory held for sale in leased stores or warehouses except only after bankruptcy, insolvency or similar events to the extent of any landlord's lien, (B) are not incurred in connection with the borrowing of money or the obtaining of advances or credit by the Borrower or any of its Subsidiaries, and (C) do not in the aggregate materially detract from the value of the Property of the Borrower and its Subsidiaries or materially impair the use thereof in the operation of their respective businesses. (xii) Liens incidental to the conduct of the business of the Borrower or any of its Subsidiaries which do not cover accounts receivable, cover only de minimis amounts of inventory sold to the Borrower and its Subsidiaries by certain suppliers to secure the amounts owing such suppliers for the same, are not incurred in connection with the borrowing of money or the obtaining of advances or credits or in connection with the acquisition of real property or machinery or equipment except incidental to the acquisition of business properties as a whole or as a going concern, and which do not in the aggregate materially detract from the value of the Property of the Borrower or any of its Subsidiaries or materially impair the use thereof in the operation of their respective businesses. (xiii) Liens granted by any Subsidiary to the Borrower or a Wholly-Owned Subsidiary to secure loans from the Borrower or such Wholly-Owned Subsidiary, which loans were permitted by Section 6.15(a). (xiv) Liens on real property which relate to Indebtedness permitted by Section 6.11(viii). (xv) In addition to Liens otherwise permitted by this Section 6.16, Liens on assets of the Borrower and its Subsidiaries securing obligations not exceeding $10,000,000 in the aggregate at any time outstanding. 6.17. Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction (including, without limitation, the purchase or sale of any Property or service) with, or make any payment or transfer to, any Affiliate (other than the Borrower or a Wholly-Owned Subsidiary with respect to transactions other than the sale, transfer or other disposition of assets) except in the ordinary course of business and pursuant to the reasonable requirements of the Borrower's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Borrower or such Subsidiary than the Borrower or such Subsidiary would obtain in a comparable arms-length transaction. 6.18. Subordinated Indebtedness. The Borrower will not, and will not permit any Subsidiary to, (i) make any amendment or modification to the indenture, note or other agreement evidencing or governing any Subordinated Indebtedness (except that the Borrower may amend the Indenture relating to the Convertible Subordinated Debt in order to modify Article Thirteen thereof to include provisions which would permit the Borrower to transfer substantially all of its assets to two Wholly-Owned Subsidiaries and have such Persons guarantee the Convertible Subordinated Debt on a subordinated basis), or (ii) directly or indirectly voluntarily prepay, defease or in substance defease, purchase, redeem, retire or otherwise acquire, any Subordinated Indebtedness, except that so long as after giving effect thereto no Default or Unmatured Default shall exist, the Borrower may prepay up to $5,000,000 of Subordinated Indebtedness in the aggregate. 6.19. Rate Hedging Obligations. The Borrower will not, and will not permit any Subsidiary to, enter into or remain liable upon any Rate Hedging Obligations, except for Rate Hedging Obligations in a notional amount not to exceed $50,000,000. 6.20. Financial Covenants. The Borrower shall maintain, for itself and its Subsidiaries on a consolidated basis, each of the following financial covenants, each calculated in accordance with Agreement Accounting Principles. 6.20.1. Funded Debt to Capital Ratio. The Borrower shall maintain, on a consolidated basis, as of the end of each fiscal quarter a ratio of Funded Debt to Capital not exceeding .65 to 1.0. 6.20.2. Fixed Charge Coverage Ratio. The Borrower shall maintain, on a consolidated basis, as of the end of each fiscal quarter a Fixed Charge Coverage Ratio greater than 1.50 to 1.0. 6.20.3. Tangible Net Worth. The Borrower shall maintain, on a consolidated basis, at all times a Tangible Net Worth that is greater than or equal to the sum of (i) $425,000,000 plus (ii) 50% of the Borrower's quarterly Net Income, if positive, for each fiscal quarter ending after the Effective Date plus (iii) 50% of the aggregate net proceeds of any equity offering received by the Borrower after the date of this Agreement minus (iv) the lesser of (a) fifty percent (50%) of the aggregate amount paid by the Borrower after the date of this Agreement for stock repurchases or (b) $25,000,000. 6.21. Subsidiary Guaranties. If any Subsidiary (other than the Investment Subsidiary or a Real Estate Subsidiary) has assets which in the aggregate have a book value equal to or greater than 10% of the book value of the Borrower's total assets determined on a consolidated basis as at the end of any fiscal quarter, the Borrower shall cause such Subsidiary to deliver to the Agent, on behalf of the Lenders, within 30 days after the end of any such fiscal quarter (i) an executed guaranty in substantially the form attached hereto as Exhibit "I" and (ii) an opinion of counsel to such Subsidiary that such guaranty has been duly executed and delivered and is a legal, valid and binding obligation of such Subsidiary enforceable in accordance with its terms (subject to customary exceptions). 6.22. Intercompany Indebtedness. After the occurrence and during the continuance of a Default or an Unmatured Default, the Borrower will not prepay, defease or in substance defease, purchase, redeem, retire or otherwise acquire, any Indebtedness owed to any Subsidiary. ARTICLE VII DEFAULTS The occurrence of any one or more of the following events shall constitute a Default: 7.1.Any representation or warranty made or deemed made by or on behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or in connection with this Agreement, any Loan, any Facility Letter of Credit, or any certificate or information delivered in connection with this Agreement or any other Loan Document shall be materially false on the date as of which made. 7.2. Nonpayment of principal of any Note when due, nonpayment of any Reimbursement Obligation when due, or nonpayment of interest upon any Note or of any fee or other obligations under any of the Loan Documents within five days after the same becomes due. 7.3. The breach by the Borrower of any of the terms or provisions of Section 6.2, 6.3, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.16, 6.18, 6.19, 6.20, 6.21 or 6.22. 7.4. The breach by the Borrower (other than a breach which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms or provisions of this Agreement which is not remedied within 20 days after written notice from the Agent or any Lender. 7.5. Failure of the Borrower or any of its Subsidiaries to pay any Indebtedness with a principal amount in excess of $10,000,000 when due; or the default by the Borrower or any of its Subsidiaries in the performance of any material term, provision or condition contained in any agreement under which any Indebtedness with a principal amount in excess of $12,000,000 was created or is governed, or any other material event shall occur or material condition shall exist (and in each case shall be continuing), the effect of which is to cause, or to permit the holder or holders of such Indebtedness to cause, such Indebtedness to become due prior to its stated maturity; or any Indebtedness with a principal amount in excess of $10,000,000 of the Borrower or any of its Subsidiaries shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the stated maturity thereof; or the Borrower or any of its Subsidiaries shall not pay, or admit in writing its inability to pay, its debts generally as they become due. 7.6. The Borrower or any of its Active Subsidiaries shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any of its Property which constitutes a Substantial Portion, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate action to authorize or effect any of the foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good faith any appointment or proceeding described in Section 7.7. 7.7. Without the application, approval or consent of the Borrower or any of its Active Subsidiaries, a receiver, trustee, examiner, liquidator or similar official shall be appointed for the Borrower or any of its Active Subsidiaries or any of its Property which constitutes a Substantial Portion, or a proceeding described in Section 7.6(iv) shall be instituted against the Borrower or any of its Active Subsidiaries and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 consecutive days. 7.8. Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of (each a "Condemnation"), all or any portion of the Property of the Borrower and its Subsidiaries which, when taken together with all other Property of the Borrower and its Subsidiaries so condemned, seized, appropriated, or taken custody or control of, during the twelve-month period ending with the month in which any such Condemnation occurs, constitutes a Substantial Portion. 7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money, which is not stayed on appeal or otherwise being appropriately contested in good faith and which, when added to all other similar judgments or orders for the payment of money, exceeds $10,000,000. 7.10. Any Change in Control shall occur. ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs with respect to the Borrower, the obligations of the Lenders to make Loans and of an Issuing Bank to issue Facility Letters of Credit hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Agent or any Lender. If any other Default occurs, the Required Lenders may terminate or suspend the obligations of the Lenders to make Loans and of an Issuing Bank to issue Facility Letters of Credit hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. In addition to the foregoing following the occurrence of a Default, so long as any Facility Letter of Credit has not been fully drawn and has not been cancelled or expired by its terms, upon demand by the Agent the Borrower shall pay to the Agent, for the benefit of the Lenders, cash in an amount equal to the aggregate undrawn face amount of all outstanding Facility Letters of Credit and all fees and other amounts due or which may become due with respect thereto, to be applied to such Obligations. If any such Facility Letter of Credit is subsequently cancelled or expires by its terms without having been fully drawn, the Agent and the Lenders shall promptly account to the Borrower for any amount required to be paid to the Borrower on account thereof. If, within 30 days after acceleration of the maturity of the Obligations or termination of the obligations of the Lenders to make Loans and of an Issuing Bank to issue Facility Letters of Credit hereunder as a result of any Default (other than any Default as described in Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Lenders (in their sole discretion) shall so direct, the Agent shall, by notice to the Borrower, rescind and annul such acceleration and/or termination. 8.2. Amendments. Subject to the provisions of this Article VIII, the Required Lenders (or the Agent with the consent in writing of the Required Lenders) and the Borrower may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lenders or the Borrower hereunder or waiving any Default hereunder; provided, however, that no such supplemental agreement shall, without the consent of each Lender directly or indirectly affected thereby: (i) Extend the maturity of any Loan or Note or forgive all or any portion of the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon. (ii) Reduce the percentage specified in the definition of Required Lenders. (iii) Extend the Termination Date, or reduce the amount or extend the payment date for, the mandatory payments required under Section 2.7.2(ii), or increase the amount of the Commitment of any Lender hereunder, or permit the Borrower to assign its rights under this Agreement. (iv) Amend (a) this Section 8.2 or (b) Section 3.2, 3.4(b), 3.6(a), 6.13(v), 7.6 or 7.7. (v) Increase the maximum drawable amount or extend the expiration date of any outstanding Facility Letter of Credit (other than in accordance with Article III) or reduce the principal amount of or extend the time of payment of any Reimbursement Obligation or fee associated with any Facility Letter of Credit. (vi) Release any guarantor of any Obligations or, release all or substantially all of the collateral, if any, securing any Obligations. No amendment of any provision of this Agreement relating to the Agent shall be effective without the written consent of the Agent. The Agent may waive payment of the fee required under Section 12.3.2 without obtaining the consent of any other party to this Agreement. 8.3. Preservation of Rights. No delay or omission of the Lenders or the Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Loan or the issuance of a Facility Letter of Credit notwithstanding the existence of a Default or the inability of the Borrower to satisfy the conditions precedent to such Loan or Facility Letter of Credit shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lenders required pursuant to Section 8.2, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Agent and the Lenders until the Obligations have been paid in full. ARTICLE IX GENERAL PROVISIONS 9.1. Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Notes and the making of the Loans and the issuance of the Facility Letters of Credit herein contemplated. 9.2. Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 9.3. Taxes. Any taxes (excluding federal income taxes on the overall net income of any Lender) or other similar assessments or charges made by any governmental or revenue authority in respect of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 9.4. Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 9.5. Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower, the Agent and the Lenders and supersede all prior agreements and understandings among the Borrower, the Agent and the Lenders relating to the subject matter thereof. 9.6. Several Obligations; Benefits of this Agreement. The respective obligations of the Lenders hereunder are several and not joint and no Lender shall be the partner or agent of any other (except to the extent to which the Agent is authorized to act as such). The failure of any Lender to perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder, but no Lender shall be responsible for the failure of any other Lender to perform its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) paid or incurred by the Agent in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Agent and the Lenders for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent and the Lenders, which attorneys may be employees of the Agent or the Lenders) paid or incurred by the Agent or any Lender in connection with the collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Agent and each Lender, its directors, officers and employees (each, an "indemnified party") against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Lender is a party thereto, collectively, the "losses") which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby, the direct or indirect application or proposed application of the proceeds of any Loan or the use or intended use of any Facility Letter of Credit hereunder or the issuance or performance under or the participation in any Facility Letter of Credit, except that the Borrower shall not be liable for any portion of the losses resulting from the gross negligence or wilful misconduct of any indemnified party as determined in a final judgment by a court of competent jurisdiction. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 9.8. Numbers of Documents. All statements, notices, closing documents, and requests hereunder shall be furnished to the Agent with sufficient counterparts so that the Agent may furnish one to each of the Lenders. 9.9. Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. 9.10. Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 9.11. Nonliability of Lenders. The relationship between the Borrower and the Lenders and the Agent shall be solely that of borrower and lender. Neither the Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9.13. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS. 9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 9.15. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower pursuant to this Agreement in confidence, except for disclosure (i) to its Affiliates and other Lenders and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Lender or to a Transferee, (iii) to regulatory officials, (iv) to any Person as requested pursuant to or as required by law, regulation, or legal process, (v) to any Person in connection with any legal proceeding to which that Lender is a party, and (vi) permitted by Section 12.4; provided that in connection with any disclosure pursuant to clauses (i), (ii) or (vi), such Lender shall instruct such Persons to treat the information in a confidential manner. ARTICLE X THE AGENT 10.1. Appointment. The First National Bank of Chicago is hereby appointed Agent hereunder and under each other Loan Document, and each of the Lenders irrevocably authorizes the Agent to act as the agent of such Lender. The Agent agrees to act as such upon the express conditions contained in this Article X. The Agent shall not have a fiduciary relationship in respect of the Borrower or any Lender by reason of this Agreement. 10.2. Powers. The Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Agent shall have no implied duties to the Lenders, or any obligation to the Lenders to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Agent. 10.3. General Immunity. Neither the Agent nor any of its directors, officers, agents or employees shall be liable to the Borrower, the Lenders or any Lender for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct. 10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document, including, without limitation, any agreement by an obligor to furnish information directly to each Lender; (iii) the satisfaction of any condition specified in Article IV, except receipt of items required to be delivered to the Agent; (iv) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith; or (v) the value, sufficiency, creation, perfection or priority of any interest in any collateral security. The Agent shall have no duty to disclose to the Lenders information that is not required to be furnished by the Borrower to the Agent at such time, but is voluntarily furnished by the Borrower to the Agent (either in its capacity as Agent or in its individual capacity). 10.5. Action on Instructions of Lenders. The Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Lenders, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and on all holders of Notes. The Agent shall be fully justified in failing or refusing to take any action hereunder and under any other Loan Document unless it shall first be indemnified to its satisfaction by the Lenders pro rata against any and all liability, cost and expense that it may incur by reason of taking or continuing to take any such action. 10.6. Employment of Agents and Counsel. The Agent may execute any of its duties as Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Lenders, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document. 10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Agent, which counsel may be employees of the Agent. 10.8. Agent's Reimbursement and Indemnification. The Lenders agree to reimburse and indemnify the Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Borrower for which the Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other reasonable expenses incurred by the Agent on behalf of the Lenders, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. The obligations of the Lenders under this Section 10.8 shall survive payment of the Obligations and termination of this Agreement. 10.9. Rights as a Lender. In the event the Agent is a Lender (including its capacity as an Issuing Bank), the Agent shall have the same rights and powers hereunder and under any other Loan Document as any Lender and may exercise the same as though it were not the Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a Lender, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent may accept deposits from, lend money to, and generally engage in any kind of trust, debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby from engaging with any other Person. The Agent, in its individual capacity, is not obligated to remain a Lender; provided that at any time that the Agent is not a Lender, the Agent agrees to resign in accordance with Section 10.11 upon the request of the Borrower or the Required Lenders. 10.l0. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 10.11. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower, such resignation to be effective upon the appointment of a successor Agent or, if no successor Agent has been appointed, forty-five days after the retiring Agent gives notice of its intention to resign. Upon any such resignation, the Required Lenders shall have the right to appoint, on behalf of the Borrower and the Lenders, a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders within thirty days after the resigning Agent's giving notice of its intention to resign, then the resigning Agent may appoint, on behalf of the Borrower and the Lenders, a successor Agent. If the Agent has resigned and no successor Agent has been appointed, the Lenders may perform all the duties of the Agent hereunder and the Borrower shall make all payments in respect of the Obligations to the applicable Lender and for all other purposes shall deal directly with the Lenders. No successor Agent shall be deemed to be appointed hereunder until such successor Agent has accepted the appointment. Any such successor Agent shall be a commercial bank having capital and retained earnings of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the effectiveness of the resignation of the Agent, the resigning Agent shall be discharged from its duties and obligations hereunder and under the Loan Documents. After the effectiveness of the resignation of an Agent, the provisions of this Article X shall continue in effect for the benefit of such Agent in respect of any actions taken or omitted to be taken by it while it was acting as the Agent hereunder and under the other Loan Documents. ARTICLE XI SETOFF; RATABLE PAYMENTS 11.1. Setoff. In addition to, and without limitation of, any rights of the Lenders under applicable law, if the Borrower becomes insolvent, however evidenced, or any Default or Unmatured Default occurs, any and all deposits (including all account balances, whether provisional or final and whether or not collected or available) and any other Indebtedness at any time held or owing by any Lender to or for the credit or account of the Borrower may be offset and applied toward the payment of the Obligations owing to such Lender, whether or not the Obligations, or any part hereof, shall then be due. 11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has payment made to it upon its share of any Advance or Reimbursement Obligation (other than payments received pursuant to Sections 2.18.1, 2.18.2 or 2.18.4) in a greater proportion than that received by any other Lender, such Lender agrees, promptly upon demand, to purchase a portion of that Advance or Reimbursement Obligation held by the other Lenders so that after such purchase each Lender will hold its ratable proportion of that Advance or Reimbursement Obligation. If any Lender, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Lender agrees, promptly upon demand, to take such action necessary such that all Lenders share in the benefits of such collateral ratably in proportion to their Loans. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made. ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 12.1. Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lenders and their respective successors and assigns, except that (i) the Borrower shall not have the right to assign its rights or obligations under the Loan Documents and (ii) any assignment by any Lender must be made in compliance with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may at any time, without the consent of the Borrower or the Agent, assign all or any portion of its rights under this Agreement and its Notes to a Federal Reserve Bank; provided, however, that no such assignment shall release the transferor Lender from its obligations hereunder. The Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor. 12.2.Participations. 12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in any Loan owing to such Lender, any Note held by such Lender, any interest in Facility Letters of Credit, any Commitment of such Lender or any other interest of such Lender under the Loan Documents. In the event of any such sale by a Lender of participating interests to a Participant, such Lender's obligations under the Loan Documents shall remain unchanged, such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, such Lender shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if such Lender had not sold such participating interests, and the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents. 12.2.2. Voting Rights. Each Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Loan, Facility Letter of Credit or Commitment in which such Participant has an interest which forgives principal, interest or fees or reduces the interest rate or fees payable with respect to any such Loan, Facility Letter of Credit or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Loan, Facility Letter of Credit or Commitment, releases any guarantor of any such Loan or Facility Letter of Credit or releases any substantial portion of collateral, if any, securing any such Loan or Facility Letter of Credit. 12.2.3. Benefit of Setoff. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Lender under the Loan Documents, provided that each Lender shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Lenders agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1, agrees to share with each Lender, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Lender. 12.3.Assignments. 12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other entities (excluding entities registered under the Investment Company Act of 1940) with a net worth and/or capital and surplus of at least $500,000,000 ("Purchasers") all or any part of its rights and obligations under the Loan Documents; provided, however, that (i) any such assignment shall be in a minimum amount of at least $5,000,000 and (ii) if a Default has occurred and is continuing, the restriction against assignments to entities registered under the Investment Company Act of 1940 shall not apply. Such assignment shall be substantially in the form of Exhibit "H" hereto or in such other form as may be agreed to by the parties thereto. The consent of the Borrower and the Agent shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Lender or an Affiliate thereof; provided, however, that if a Default has occurred and is continuing, the consent of the Borrower shall not be required. Such consent shall not be unreasonably withheld. 12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a notice of assignment, substantially in the form attached as Annex "I" to Exhibit "H" hereto (a "Notice of Assignment"), together with any consents required by Section 12.3.1, and (ii) payment of a $3,000 fee to the Agent for processing such assignment, such assignment shall become effective on the effective date specified in such Notice of Assignment. The Notice of Assignment shall contain a representation by the Purchaser to the effect that none of the consideration used to make the purchase of the Commitment, Facility Letters of Credit and Loans under the applicable assignment agreement are "plan assets" as defined under ERISA and that the rights and interests of the Purchaser in and under the Loan Documents will not be "plan assets" under ERISA. On and after the effective date of such assignment, such Purchaser shall for all purposes be a Lender party to this Agreement and any other Loan Document executed by the Lenders and shall have all the rights and obligations of a Lender under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required to release the transferor Lender with respect to the Percentage of the Aggregate Commitment, Facility Letters of Credit and Loans assigned to such Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and the Borrower shall make appropriate arrangements so that replacement Notes are issued to such transferor Lender and new Notes or, as appropriate, replacement Notes, are issued to such Purchaser, in each case in principal amounts reflecting their Commitment, as adjusted pursuant to such assignment. In addition, within a reasonable time after the effective date of any assignment, the Agent shall, and is hereby authorized and directed to, revise Schedule "1" reflecting the revised Percentages of each of the Lenders and shall distribute such revised Schedule "1" to each of the Lenders and the Borrower and such revised Schedule "1" shall replace the old Schedule "1" and become part of this Agreement. 12.4. Dissemination of Information. The Borrower authorizes each Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Lender's possession concerning the creditworthiness of the Borrower and its Subsidiaries; provided that each Transferee and prospective Transferee agrees in writing, prior to such disclosure, to be bound by Section 9.15 of this Agreement. 12.5. Tax Treatment. If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.16. ARTICLE XIII NOTICES 13.1. Giving Notice. Except as otherwise permitted by Section 2.11 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). 13.2. Change of Address. The Borrower, the Agent and any Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XIV COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower, the Agent and the Lenders and each party has notified the Agent by telex or telephone, that it has taken such action. {Rest of page intentionally left blank} IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed this Agreement as of the date first above written. WABAN INC. By: /s/ Edward J. Weisberger Print Name: Edward J. Weisberger Title: Senior Vice President, Chief Financial Officer One Mercer Road P.O. Box 9600 Natick, MA 01760 Phone: (508) 651-6500 Fax: (508) 651-6623 Attention: Edward J. Weisberger, Chief Financial Officer THE FIRST NATIONAL BANK OF CHICAGO, Individually and as Agent By: /s/ John Runger Print Name: John Runger Title: V.P./Senior Corporate Banker One First National Plaza Chicago, Illinois 60670 Phone: (312) 732-7101 Fax: (312) 732-1117 Attention: John D. Runger, Vice President THE FIRST NATIONAL BANK OF BOSTON, Individually and as Co-Agent By: /s/ Mitchell B. Feldman Print Name: Mitchell B. Feldman Title:Director 100 Federal Street Mail Stop 01-09-04 Boston, MA 02110 Phone:(617) 434-5760 Fax: (617) 434-0637 Attention: Mitchell B. Feldman, Director SHAWMUT BANK, N.A., Individually and as Co-Agent By: /s/ Gerry Sheehan Print Name: Gerry Sheehan Title: Assistant Vice President National Banking Group/Retailing Team One Federal Street, Mail Code OF-0305 Boston, MA 02211 Phone:(617) 292-2845 Fax: (617) 292-2619 Attention: Mr. Gerry Sheehan, Assistant Vice President WELLS FARGO BANK, NATIONAL ASSOCIATION, Individually and as Co-Agent By: /s/ Lenny L. Mason Print Name: Lenny L. Mason Title: Assistant Vice President Corporate Banking Group 420 Montgomery St., 9th Floor San Francisco, CA 94163 Phone:(415) 396-5997 Fax: (415) 421-1352 Attention: Lenny L. Mason, Assistant Vice President BANK HAPOALIM, B.M. By: /s/ Nancy S. Lushan Print Name: Nancy S. Lushan Title: V.P. By: /s/ Jeffrey J. DiSandro Print Name: Jeffrey J. DiSandro Title: A.V.P. Boston Branch 70 Federal Street Boston, MA 02110 Phone:(617) 457-1811 Fax: (617) 542-0015 Attention: Ms. Nancy Lushan, Vice President FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: /s/ Dennis J. Diczok Print Name: Dennis J. Diczok Title: Managing Director First Union Capital Markets Group One First Union Center, TW-10 Charlotte, NC 28288-0745 Phone:(704) 383-7630 Fax: (704) 374-2802 Attention: Mr. Dennis J. Diczok, Managing Director LTCB TRUST COMPANY By: /s/ Noboru Kubota Print Name: Noboru Kubota Title: Senior Vice President 165 Broadway New York, NY 10006 Phone:(212) 335-4533 Fax: (212) 608-2371 Attention: Mr. Theodor R. Koerner, II, Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ Kwan L. Grays Print Name: Kwan L. Grays Title: Commercial Banking Officer 335 Madison Avenue New York, NY 10017 Phone:(212) 557-5334 Fax: (212) 557-5461 Attention: Mr. Kwan Grays, Commercial Banking Officer FLEET BANK OF MASSACHUSETTS, N.A. By: /s/ Roger C. Boucher Print Name: Roger C. Boucher Title: Vice President Fleet Center Mail Stop MA BO FO4B 75 State Street Boston, MA 02109-1810 Phone:(617) 346-1577 Fax: (617) 346-1679 Attention: Mr. Roger C. Boucher, Vice President, National Corporate Group EX-10.20 3 AGREEMENT AGREEMENT This agreement dated as of this 24th day of January 1995 is entered into by and between The TJX Companies, Inc., a Delaware corporation ("TJX"), and Waban Inc., a Delaware corporation ("Waban"). WHEREAS, Waban has requested TJX to provide certain computer services (the "Computing Services") to Waban during fiscal years ending on the last Saturday of January of each of 1996, 1997 and 1998; and WHEREAS, TJX has agreed to provide such services. NOW THEREFORE, in consideration of the promises contained herein, the parties agree as follows: 1. Term. The term of this Agreement shall terminate upon the later of (i) the last day of Fiscal 1998 (January 31, 1998) (the "initial term") or (ii) if the parties agree to an extension hereof as provided below (the "Extension Period"), the last day of such Extension Period. Neither party shall have the right to terminate this Agreement during the initial term. If Waban wishes to extend the term of this Agreement for an additional one year term, Waban shall so notify TJX in writing of its planned computer usage requirements for such additional one year term no later than July 1 of the year which is one year prior to the year in which this Agreement (whether or not extended) would otherwise terminate. If TJX agrees to such an extension, TJX shall, no later than 60 days after receipt of Waban's notification, notify Waban in writing of TJX's estimated rates for such additional one year term and Waban shall have 30 days to indicate its acceptance of such rates. Additional one year extensions may be requested in the succeeding year(s) and agreed to in the same manner as provided in this Section 1. If TJX declines to provide Computing Services during the Extension Period, or if Waban chooses not to accept TJX's offer for the Extension Period, Waban shall have 30 days after the date on which TJX declines to provide such services or notifies Waban of TJX's estimated rates to elect an extension of services for an additional period of four months beyond the termination of the then current term (the "Tail") by providing TJX with its planned requirements for the Tail. TJX shall be obligated to provide Computing Services during the Tail at the same rates that were in effect for the one year period prior to the beginning of the Tail. 2. Usage Requirements. Attached hereto as Attachment I are Waban's computer usage requirements for fiscal 1996 and estimates of its usage requirements for fiscal 1997 and fiscal 1998. Such requirements are hereinafter sometimes referred to collectively as the "planned amounts" or the "planned requirements." By July 1 of each year of the term beginning July 1, 1995, Waban shall deliver to TJX a computer usage plan for its requirements for Computing Services through the end of the following fiscal year, and an estimate of its requirements for the fiscal year following such fiscal year. (For example, on or before July 1, 1995, Waban shall deliver its requirements for fiscal 1997 and an estimate of its requirements for fiscal 1998.) It is understood that Waban's computer usage requirements for fiscal 1997 and fiscal 1998 may not be less than 90% of its estimates for each such year included in Attachment I and may not exceed 200% of its estimates for each such year unless TJX agrees to provide services at such increased level. Waban's computer usage plan will be sufficiently detailed to allow TJX to provide its rates for Computing Services for the next following fiscal year and Waban's estimate for requirements during the additional fiscal year will be sufficiently detailed to allow TJX to provide an estimate of its rates for Computing Services for such additional fiscal year and to estimate its hardware needs for such additional fiscal year. As soon as practicable, but no later than September 1 of each year (provided TJX has received such planned requirements by July 1), TJX will notify Waban in writing of the rates for Computing Services during the next following fiscal year and an estimate of the rates TJX expects during such additional fiscal year. It is understood that the estimate of rates for the additional fiscal year is a good faith estimate only and that definitive initial rates for such period will be established following July 1 of the following year in accordance with the procedures set forth above. 3. Calculation of Rates. Waban's planned requirements (as well as the planned requirements for all users of TJX's computing services) for each fiscal year shall be the basis upon which TJX will set Waban's rates for such fiscal year. Attached hereto in Attachment II are the rates for Computing Services for fiscal 1996 and estimated rates (based on preliminary estimates of usage for all users of TJX's Computing Services) for fiscal 1997 and fiscal 1998. Waban acknowledges that TJX's Chadwick's of Boston division shall receive a discount on its rates of 30% on computing services in Fiscal 1996; a discount of 20% in Fiscal 1997; and a discount of 10% in Fiscal 1998. The charges for any fiscal year shall be subject to adjustment as provided in Section 4. If during any fiscal year, TJX realizes that its actual costs are significantly different from its estimates thereof then in effect for purposes of calculating rates hereunder, then TJX shall provide Waban with a new estimate of rates for such fiscal year and shall either (i) invoice Waban for Computing Services theretofore provided based on the revised estimates for sums in excess of sums already paid since the beginning of such fiscal year (in the event of increased rates estimates) or (ii) give Waban an appropriate credit (in the event that the revised rates are lower). In any event, subsequent rates shall be based upon such revised estimates. Notwithstanding the foregoing provisions of this paragraph, in the event that (i) TJX's businesses exceed 110% of their planned requirements for any such fiscal year and as a result thereof TJX added to its data processing system hardware or system software and (ii) Waban did not exceed 120% of its planned requirements for such fiscal year (or, if there was an excess, such excess did not pertain to the usage of such hardware or system software), then Waban shall not be charged additional fees with respect to such fiscal year for any costs with respect to such additional hardware or system software. TJX agrees that Waban's rates for each fiscal year shall be based on usage of Computing Services equal to 100% of the planned requirements in Waban's computer usage plan for each fiscal quarter of each fiscal year. If Waban's computer usage plan does not provide requirements by fiscal quarter, then fiscal year planned requirements will be divided equally to arrive at fiscal quarter requirements. If Waban's actual usage requirements exceed 120% of its planned requirements for a fiscal quarter and the requirements of TJX's businesses do not exceed 110% of TJX's planned requirements for such fiscal quarter (or any such excess usage does not pertain to hardware or system software used by Waban), then TJX will be entitled to increase amounts billed to Waban to recover its additional costs resulting from Waban's excess usage. In the event that Waban's actual usage for any fiscal quarter is less than 80% of its planned requirements, Waban shall pay to TJX an amount based on the rate for 80% of such planned requirements. TJX shall use reasonable efforts to satisfy requirements in excess of 120% of Waban's planned requirements consistent with TJX's responsibilities to meet the computer services needs of the TJX divisions. TJX agrees that it will not change the basic methodology used to determine rates during a fiscal year except in connection with new Computing Services arising during such fiscal year that were not included by Waban in its computer usage plan submitted by Waban to TJX for such fiscal year. TJX may, however, change such methodology with respect to a following fiscal year at the time it presents Waban with its estimate of rates (i.e., on September 1 preceding such following fiscal year), and TJX shall inform Waban of the change at the time. Without limiting the generality of the next preceding sentence, if during any fiscal year TJX adds to or upgrades its data processing system hardware or systems software based on the needs of TJX's businesses, then the methodology used to determine rates for the following fiscal year shall be appropriately adjusted to include changes in Waban's rate reflecting usage of such hardware or software. During the initial term, TJX will discount the rates charged Waban for CPU, Print, Microfiche, Data Entry and Payroll Processing by 15%. During the initial term TJX will discount the Host Connect rate by 75% for all remote connections supported directly by Waban employees. In addition, at the end of each fiscal year during the initial term, TJX shall credit Waban with the amount of $333,334 on the invoice applicable to the last month of the fiscal year. 4. Reconciliation. Within thirty days after the end of each fiscal year, TJX shall reconcile the actual costs pertaining to the provision of the Computing Services for such fiscal year and determine the pro rata amount paid by each user. If the reconciliation shows that the actual costs exceeded the rates charged and paid during such fiscal year, Waban shall within 30 days of TJX's invoice therefor pay to TJX Waban's pro rata share of the difference. If the reconciliation shows that the actual costs were less than the rates charged and paid, TJX shall pay Waban Waban's pro rata share of the difference within 30 days after the completion of the reconciliation. 5. Software Licenses. TJX shall promptly notify Waban upon its receipt of any notice that a third party intends to increase its software license fees as a result of the provision by TJX of the Computing Services. In such event, TJX shall appoint Waban as its agent to negotiate the amount of such increase and shall cooperate with Waban to ensure that all additional license rights (other than those already held by TJX, which shall not be affected) are in the name of, or freely assignable (without the payment of additional consideration) to, Waban. If TJX is required to incur additional software license fees then such fees shall be charged to Waban (it being understood that such fees are not included in the rates appearing on Schedule II hereto and will not be included in the subsequent rates determined pursuant to Section 3 hereof). 6. Performance Levels. The performance levels for the Computing Services provided to Waban shall be no less than those specified on Attachment III. Notwithstanding the foregoing, TJX shall not be required to maintain the performance levels for Computing Services to the extent that it is unable to maintain them for itself and its operating units for reasons beyond its control. In the event that TJX is unable to meet the performance levels for Computing Services for reasons beyond its control, TJX shall provide Waban the same levels and quality of Computing Services that it provides to itself and its operating units and shall use its best efforts to alleviate any condition causing a diminution in such performance levels. TJX acknowledges that TJX has in place a disaster recovery contract pursuant to which mainframe production services will be available at a secondary site within 24 hours of declaration of a disaster. 7. Invoices; Audit Rights. TJX shall render to Waban each month, within 30 days after the end of the month or as soon as practicable thereafter, an invoice for the charges for Computing Services incurred during the previous month showing usage by billing category. Such invoice shall be payable within thirty days of its receipt by Waban. Waban shall be entitled, upon request and at reasonable times and places, to audit the books and records of TJX that relate to (i) the Computing Services and (ii) the charges appearing on any invoice. In addition, Waban shall be entitled to similar audit rights with respect to the methodology used by TJX to determine the rates established pursuant to Section 3 hereof. 8. Ownership of Waban Data, etc. Waban shall be the owner of all of its data. TJX shall maintain such data in confidence pursuant to Section 10 hereof and make no use of such Waban data or allow anyone other than Waban access to it except for TJX personnel (including agents) who require access thereto in order to perform the obligations to Waban under this Agreement. 9. Delivery of Software. Upon Waban's request, TJX shall deliver to Waban within a reasonable period after such request the following items with respect to all applications, utility routines, utility programs and/or systems software developed by TJX and used in connection with the Computing Services provided hereunder to Waban in which no third party has any rights: (a) One copy of object code or other executable code on magnetic media. (b) One copy of source code on magnetic media. (c) One copy of any documentation, including source documentation, maintenance documentation and other documentation, for such software to the extent then available. Waban shall pay TJX for its reasonable additional costs relating to such delivery of software. 10. Confidentiality of Information. TJX will not reveal to third parties or use for its own purposes the information of Waban stored within its computer system or accessible within its communications network and will use the same security precautions as it uses to prevent disclosure to third parties of TJX proprietary information to prevent disclosure to third parties of Waban information stored in its computer system or accessible over its corporate communications network. After the termination of this Agreement, TJX will return to Waban or, at Waban's written direction, destroy and certify destruction of all tapes and other media or records containing any Waban data. The provisions of this Section 10 shall survive the termination of the Agreement. 11. Coordinating Committee. For the purpose of providing and continuing the harmonious relationship between TJX and Waban, each party shall appoint at least one individual to coordinate and review the relationship between the two companies and their performance under this Agreement, as well as strategic planning and technology changes. These individuals shall meet periodically, no less frequently than monthly, to discuss operations under this Agreement and any problems arising hereunder. 12. Independent Contractor Status. TJX shall perform services under this Agreement as an independent contractor and not as an agent of Waban or any other relationship. 13. Limitation of Liability. Neither TJX, nor any of its officers, employees, agents or affiliates, shall in any event be liable for the defense of claims, actions, causes of action, losses, expenses or for any damages including reasonable attorneys' fees, which are caused by, arise out of or result from TJX's (or any such officers', employees', agents' or affiliates') performance or failure to perform any of its obligations under this Agreement, other than those claims, actions, causes of action, losses, expenses and damages caused by or arising out of or resulting from TJX's willful misconduct or gross negligence. Waban hereby agrees to defend, indemnify, and hold harmless TJX for all damages, losses and expenses, including reasonable attorneys' fees, incurred by TJX as a result of the provision by TJX pursuant to this Agreement of the Computing Services, other than costs or damages incurred by TJX as a result of its willful misconduct or gross negligence. TJX hereby agrees to defend, indemnify and hold Waban harmless for all damages, losses and expenses, including reasonable attorneys' fees, incurred by Waban as a result of TJX's willful misconduct or gross negligence in providing Computing Services to Waban pursuant to this Agreement. Notwithstanding the foregoing, neither party shall be liable to the other for indirect or consequential damages, including without limitation, loss of profits or revenues. Waban acknowledges that because this Agreement cannot be terminated during the initial term, Waban agrees that in any circumstance in which Waban terminates receiving services under the Agreement (other than as a result of TJX's material default) Waban shall continue to pay all charges otherwise due hereunder, as if there had been no termination, and, that for purposes of computing charges, Waban's usage will be deemed to be not less than 90% of its estimates for fiscal 1997 and fiscal 1998 and 100% of its requirements for fiscal 1996, all as set forth in Attachment I hereto. 14. Assignment. This Agreement shall not be assignable, directly or indirectly, by either party without the prior written consent of the other party. Notwithstanding the foregoing, this Agreement may be assigned by either party to a corporate affiliate or to a related party that would result from either party entering into any agreement which provides for the acquisition of all of its assets or the merger of all of its assets with those of a third party, provided that, with respect to any such assignment, the assigning party remains fully liable for the performance of all of its obligations under this Agreement. 15. Notices. Any notice or other communication in connection with this Agreement shall be deemed to be delivered if in writing (or in the form of a telecopy) addressed or transmitted as provided below and if either (i) actually delivered at such address, (ii) in the case of a letter, three business days shall have elapsed after the same shall have been deposited in the United States mail, postage prepaid and registered or certified, or (iii) if in the form of a telecopy, when the receiving party gives telephonic notice of complete and legible receipt to: Waban at: One Mercer Road Natick, MA 01760 Telecopy Number: (508) 651-6623 Attention: Chief Financial Officer TJX at: 770 Cochituate Road Framingham, MA 01701 Telecopy Number: (508) 390-2199 Attention: Chief Financial Officer 16. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the Commonwealth of Massachusetts without giving effect to any choice or conflict of law provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 17. Amendments. This Agreement may not be modified or amended except by an agreement in writing signed by the parties. 18. Entire Agreement. This Agreement represents the entire agreement between the parties hereby and supersedes all prior negotiations, representations or agreements either written or oral including, but not limited to, letters of intent and correspondence between the parties. 19. Titles and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be part of or to affect the meaning of interpretation of this Agreement. 20. Exhibits and Schedules. The Attachments shall be construed with and as an integral part of thisAgreement to the same extent as if the same had been set forth verbatim herein. IN WITNESS WHEREOF, TJX and Waban have caused this Agreement to be duly executed by their respective officers, each of whom is fully authorized, all as of the day and year first above written. The TJX Companies, Inc. By: /s/ Donald G. Campbell Senior Vice President - Finance and Chief Financial Officer Waban Inc. By: /s/ Herbert J. Zarkin President and Chief Executive Officer ATTACHMENT I WABAN INC. FYE 1996 COMPUTER USAGE REQUIREMENTS AND ESTIMATES FOR FYE 1997 AND FYE 1998 REQUIREMENTS CPU HOURS FY '96 FY '97 FY '98 Total CPU 8,243 10,139 12,167 Print Lines (000's) Total Print (000's lines) 2,470 3,088 3,705 Other Payroll Checks (000's) 538 646* 762* Microfiche (000's) 215 258* 310* Data Entry (000's) 1,352 1,622* 1,947* Host Connections - H.O 6,144 6,267 6,392 Host Connections - Clubs 5,070 6,350 7,627 * For the purposes of Section 2 of the Agreement, the following is the expected low end range of volume for the following categories: FY '97 FY '98 Payroll Checks (000's) 572 0 Microfiche (000's) 133 0 Data Entry (000's) 1,174 720 ATTACHMENT II COMPUTER SERVICES and RATES: The computer services listed below will be provided to Waban by TJX during fiscal year 1996 at the rates indicated in the FY'96 column below and subject to the terms and conditions of the Agreement. The estimated rates for fiscal years 1997 and 1998 are informational only. The rates for fiscal years 1997 and 1998 will be set in accordance with the terms of the Agreement.
ESTIMATED ESTIMATED RATE RATE RATE 1. Computer Processing FY '96 FY '97 FY '98 a. Per CPU Hour (3090-400E) $ 455.00 $ 425.00 $ 400.00 Per CPU Hour (3090-600S) 548.00 512.00 482.00 Per CPU Hour (3090-600J) 595.00 556.00 523.00 Per CPU Hour (9000-820) 1321.00 1234.00 1161.00 b. Per Thousand 1-up PRINT Lines .44 .43 .43 Per Thousand 2-up PRINT Lines .26 .26 .26 Per Thousand Remote PRINT Lines .02 .02 .02 c. Per MicroFiche .43 .43 .43 d. Per Data Entry record .041 .041 .041 Per D/E Floppy File 9.80 9.80 9.80 e. Per Payroll Check .35 .36 .36 NOTE: Should a Central Processing Unit (CPU) other than one of those listed above be used to process the Waban workload, the rate per hour will be determined based on the proportional speed of the unlisted CPU. 2. Computer Services a. Per Monthly Host Connect Unit-H.O. $ 48.00 $ 48.00 $ 48.00 b. Per Monthly Host Connect Unit-Club 24.00 24.00 24.00 c. Per Monthly Unplanned Disk Device 400.00 400.00 400.00 3. Computer Rate Discounts a. Discount on Computer Processing Rates (1a thru 1e) 15.0% 15.0% 15.0% b. Discount on Host Connect Rate (2a&b) 75.0% 75.0% 75.0% (Waban will handle all communication cabling and equipment support within each Waban building). 4. Other Available Services/Charges Remote Comm. Usage Rate: $0.25 per Thousand records transmitted (line charges will be paid by Waban) Payroll Prog. Support: $50.00 per billable hour (for all hours which exceed the Waban annual allocation) Unplanned Projects: Support provided based on time & materials cost
ATTACHMENT III PERFORMANCE LEVELS FOR COMPUTING SERVICES SERVICE LEVEL ITEM PERFORMANCE GOAL * Hardware/Software Availability 99.5 percent On-Line Application Availability 98.0 percent TSO System Availability 99.5 percent Report Delivery On Schedule 98.0 percent RESPONSE TIME TARGETS: IMS (95th Percentile) 4.0 seconds CICS (95th Percentile) 4.0 seconds TSO (95th Percentile) 3.0 seconds * - These performance goals (which will be calculated on a monthly basis) assume Waban's conformance with TJX's operating standards. EX-11 4 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Exhibit 11 WABAN INC. AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE The computation of net income available and adjusted shares outstanding follows:
Fiscal Year Ended January 28, January 29, January 30, 1995 1994 1993 Net income as reported $64,990,000 $(17,782,000) $44,242,000 Net income used for primary computation $64,990,000 $(17,782,000) $44,242,000 Add (where dilutive): Tax effected interest and amortization of debt expense on convertible debt 4,347,000 - 2,560,000 Net income used for fully diluted computation $69,337,000 $(17,782,000) $46,802,000 Weighted average number of common shares outstanding 33,142,641 33,082,362 32,869,945 Add (where dilutive): Assumed exercise of those options that are common stock equivalents net of treasury shares deemed to have been repurchased 262,373 - 321,552 Weighted average number of common and common equivalent shares outstanding, used for primary computation 33,405,014 33,082,362 33,191,497 Add (where dilutive): Assumed exercise of convertible securities 4,387,879 - 2,515,266 Adjusted shares outstanding used for fully diluted computation 37,792,893 33,082,362 35,706,763
EX-21 5 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries The following is a list of Subsidiaries of Waban Inc. as of April 1, 1995: State of Incorporation ---------------------- HomeClub, Inc. Nevada HomeClub, Inc. of Texas Delaware Fullerton Corporation Delaware Natick Security Corp. Massachusetts Natick Corporation Delaware HCI Development Corp. California HomeClub First Realty Corp. Colorado Natick First Realty Corp. Connecticut Natick Second Realty Corp. Massachusetts Natick Third Realty Corp. New Jersey Natick Fourth Realty Corp. New Jersey Natick Fifth Realty Corp. Maryland Natick Sixth Realty Corp. Connecticut Natick MA Realty Corp. Massachusetts Natick NH Realty Corp. New Hampshire Natick NY Realty Corp. New York HCWA Realty Corp. Washington HCCA Realty Corp. California Natick NY 1992 Realty Corp. New York Natick PA Realty Corp. Pennsylvania Natick VA Realty Corp. Virginia HBNM Realty Corp. New Mexico Natick Portsmouth Realty Corp. New Hampshire HBCA 1993 Realty Corp. California HBOR Realty Corp. Oregon HBUT Realty Corp. Utah HCWA 1993 Realty Corp. Washington Natick NJ Realty Corp. New Jersey Natick NJ 1993 Realty Corp. New Jersey Natick NJ 1994 Realty Corp. New Jersey BJ's PA Distribution Center, Inc. Pennsylvania BJ's MA Distribution Center, Inc. Massachusetts Natick CT Realty Corp. Connecticut HBCO Realty Corp. Colorado HBNM 1994 Realty Corp. New Mexico HBCO 1994 Realty Corp. Colorado Natick ME 1995 Realty Corp. Maine Natick NY 1995 Realty Corp. New York Natick MA 1995 Realty Corp. Massachusetts Natick NH 1994 Realty Corp. New Hampshire Natick PA 1995 Realty Corp. Pennsylvania CWC Beverages Corp. Connecticut FWC Beverages Corp. Florida JWC Beverages Corp. New Jersey Mormax Beverages Corp. Delaware Mormax Corporation Massachusetts RWC Beverages Corp. Rhode Island YWC Beverages Corp. New York EX-27 6 ART. 5 FDS FOR 10-K
5 This schedule contains summary financial information extracted from the Waban Inc. consolidated statements of income and consolidated balance sheets filed with the Form 10-K for the year ended January 28, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS JAN-28-1995 JAN-28-1995 65,040 63,933 51,875 0 512,619 736,919 617,157 137,395 1,241,931 445,152 258,763 332 0 0 487,757 1,241,931 3,650,281 3,650,281 3,110,787 3,110,787 418,404 0 14,898 106,192 41,202 64,990 0 0 0 64,990 1.95 1.83
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