-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vjkv2BxH17kyR1XOnEm7fhTCf8Mov4YViNR3aBpu9h0hFSZa6mKqnCHiWs6ZvYB4 3oZRoY5P3veeLjoVGp3aKQ== 0000908737-97-000035.txt : 19970203 0000908737-97-000035.hdr.sgml : 19970203 ACCESSION NUMBER: 0000908737-97-000035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961102 FILED AS OF DATE: 19970131 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRAL TRACTOR FARM & COUNTRY INC CENTRAL INDEX KEY: 0000928156 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-BUILDING MATERIALS, HARDWARE, GARDEN SUPPLY [5200] IRS NUMBER: 421425562 STATE OF INCORPORATION: DE FISCAL YEAR END: 1029 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24902 FILM NUMBER: 97516122 BUSINESS ADDRESS: STREET 1: 3915 DELAWARE AVE CITY: DES MOINES STATE: IA ZIP: 50316 BUSINESS PHONE: 5152663101 MAIL ADDRESS: STREET 1: 3915 DELAWARE AVE CITY: DES MOINES STATE: IA ZIP: 50316 10-K 1 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 November 2, 1996 - --- Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from _________ to _________ Commission file number 0-24902 CENTRAL TRACTOR FARM & COUNTRY, INC. Delaware 42-1425562 (State of incorporation) (I.R.S. Employer I.D. No.) 3915 Delaware Avenue Des Moines, Iowa 50316-0330 (515) 266-3101 (Address and telephone number of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 (quoted on The Nasdaq National Market System) ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price on January 29, 1997 was approximately $50,247,411. As of January 6, 1997 10,670,892 shares of the registrant's Common Stock were outstanding.
CENTRAL TRACTOR FARM & COUNTRY, INC. INDEX TO ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED NOVEMBER 2, 1996 Page PART I Item 1. Business................................................................. 1 Item 2. Properties............................................................... 7 Item 3. Legal Proceedings........................................................ 8 Item 4. Submission of Matters to a Vote of Security-Holders...................... 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.... 9 Item 6. Selected Financial Data.................................................. 10 Item 7. Management's Discussion and Analysis of Financial Condition 11 and Results of Operations............................................. 11 Item 8. Financial Statements and Supplementary Data.............................. 15 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.................................................. 15 PART III Item 10. Directors and Executive Officers of the Registrant....................... 16 Item 11. Executive Compensation................................................... 18 Item 12. Security Ownership of Certain Beneficial Owners and Management........... 22 Item 13. Certain Relationships and Related Transactions........................... 23 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......... 24
References herein to "fiscal" years are references to Central Tractor Farm & Country, Inc.'s 52- or 53-week fiscal year, which ends on the Saturday nearest October 31 in that year. ITEM 1. BUSINESS Overview Central Tractor Farm & Country, Inc., a Delaware corporation (the "Company" or "CT"), is an agricultural specialty retailer with 112 stores (as of December 31, 1996) serving the agricultural, hardware and related needs of rural consumers, especially part-time and full-time farmers, hobby gardeners, skilled tradespersons and do-it-yourself ("DIY") customers. CT was founded in 1935 and has established itself as a market leader in the agricultural specialty market, having strong name recognition and a loyal customer base. The Company's stores offer a wide selection of agricultural products such as tractor parts and accessories, specialty hardware and paint, lawn and garden items, rural automotive parts and accessories, workwear, pet supplies and general consumer merchandise. The Company has also established national visibility for its products and services through its catalog operation, which has an annual circulation of approximately 550,000. Big Bear Farm Stores Acquisition In May 1996, the Company acquired 31 retail stores and certain net operating assets from Big Bear Farm Stores, Inc. ("Big Bear"), a privately owned specialty retailer, for $5.7 million. The Company is converting these locations to the CT format at an additional investment (including inventory) of approximately $6.3 million. As of December 31, 1996, 14 locations had already been converted at an approximate cost of $3.3 million; the 17 remaining locations will be converted at an estimated cost of $3.0 million. Management believes this conversion process will be completed by the Spring of 1997. With locations in Iowa, Minnesota and Wisconsin, the Big Bear stores added geographic diversity to CT's Northeastern focus. The Acquisition On November 27, 1996, JWC Acquisitions I, Inc. ("JWCAC") an indirect subsidiary of J.W. Childs Equity Partners, L.P. ("Childs") entered into agreements (the "Securities Purchase") with certain affiliates of Butler Capital Corporation (collectively, "BCC") and with certain members of CT's management (the "Management Shareholders") pursuant to which JWCAC agreed to purchase at a price of $14.00 per share 100% of BCC's shares and approximately 36.4% of the Management Shareholders' Shares, representing approximately 64.0% and 1.4% of the Company's outstanding common stock, respectively (collectively, the "Securities Purchases"). In connection with the execution of the Securities Purchase Agreements, JWCAC, its parent corporation CT Holding, Inc. ("Holding") and Childs entered into an agreement and plan of merger (the "Merger Agreement") with the Company, pursuant to which JWCAC will be merged with and into the Company (the "Merger") for merger consideration of $14.25 per share (the "Merge Consideration"). As of January 2, 1997, JWCAC had consummated the Securities Purchases and paid related expenses utilizing $65.4 million of cash equity contributed to JWCAC by Holding and $35.1 million of borrowings under an interim margin loan facility (the "Margin Loan Facility") provided by a group of lenders with NationsBank, N.A. ("NationsBank"), as administrative agent, and Fleet National Bank ("Fleet"), as co-agent. Holding funded its equity contribution by issuing $10.0 million of preferred stock (the "Preferred Stock") and $55.4 million of common stock, of which $60.3 million was purchased by Childs and its affiliates. In connection with the Securities Purchases, the Company entered into a new term loan (the "New Term Loan") and a new revolving credit facility (the "New Revolving Credit Facility") with Fleet, as administrative agent, and NationsBank, as co-agent, (collectively, the "New Credit Facility") and used a portion of such facility to refinance existing debt of the Company, including a $16.0 million convertible note held by BCC. In connection with the Merger, (i) the Company will become the wholly owned subsidiary of Holding, (ii) the Management Shareholders will exchange $3.9 million in equity securities of the Company for equity securities of Holding and (iii) the shareholders of the Company (other than JWCAC, persons pursuing dissenters' rights and the Management 1 Shareholders) will receive the Merger Consideration. CT has filed a registration statement with the Securities and Exchange Commission for a $100.0 million Senior Note offering. The proceeds of the offering will be used to pay the Merger Consideration, repay the Margin Loan Facility, pay down a portion of the revolving borrowings under the New Credit Facility and pay related fees and expenses. Expansion Plan Since the beginning of fiscal 1993, the Company has increased the number of its retail stores from 47 to 112. From fiscal 1993 through fiscal 1994, the Company opened ten new stores, acquired one store and closed three stores. In fiscal 1995, the Company opened 10 new stores and acquired one store. In fiscal 1996, the Company opened 14 new stores and acquired 31 stores from Big Bear. Subsequent to fiscal 1996, the Company has opened one new store. The Company plans to open an additional 31 stores in the next three years through further penetration of the Northeastern and Midwestern United States markets and through expansion into the Southeastern United States. Management intends to achieve this growth through new store openings and selective acquisitions. The Company expects to open one additional store in fiscal 1997 and complete the conversion of the remaining 17 Big Bear stores to the CT format by the Spring of 1997. On a preliminary basis, the Company has identified potential new markets outside of its existing markets that management believes are attractive candidates for one or more new CT stores, The number of actual new CT store openings in the next three years may differ materially from the Company's current projections if the Company makes a major acquisition or is unable to find attractive store locations to rent at reasonable prices, negotiate acceptable lease terms or acquire small regional farm store chains at reasonable prices. The Company seeks to locate stores in high traffic shopping districts whenever possible in order to attract customers who prefer to do much of their shopping at one time and place. As with its existing stores, the Company intends to lease its new stores. The estimated cash required to open a new, leased, large prototype store is $850,000 and the estimated cash required to open a new, leased, small prototype store averages $600,000 (in each case, including inventory net of accounts payable and excluding an average of approximately $125,000 in pre-opening expenses). Of these estimated cash expenditures, approximately half is used for initial inventory (net of accounts payable), and the balance is used for capital expenditures, principally leasehold improvements, fixtures and equipment. CT stores typically generate positive cash flow in their first year of operation. The Company also intends to continue to opportunistically relocate existing CT stores. These relocations reflect, in most cases, the expiration of an existing lease coupled with an opportunity to move to a more demographically and/or physically attractive site. The Company relocated two stores during fiscal 1996. 2 Retail Stores CT stores focus on agricultural and agricultural related products. The Company segments its merchandising mix into seven key product categories: agricultural products (including tractor parts and accessories), specialty hardware, lawn and garden products, which are available in several product categories, represent approximately 8% of total store sales. Sale of agricultural and related products represent approximately 60% of CT's total net sales. The growth and percentage of total store sales for each retail product category for fiscal 1994, fiscal 1995, and fiscal 1996, and a description of each product category, are set forth below:
Fiscal Year -------------------------------------------- 1994 1995 1996 ---- ---- ---- Agricultural (including tractor parts 21.6% 23.2% 24.0% and accessories) Specialty Hardware 21.2% 21.6% 20.6% Lawn & Garden 20.2% 19.3% 19.6% Workwear 7.7% 7.3% 8.4% Rural Automotive Parts & Accessories 16.8% 16.0% 14.8% Pet Supplies 4.9% 5.4% 6.3% General Consumer 7.6% 7.2% 6.4% ---- ----- ---- 100.0% 100.0% 100.00% ====== ====== =======
Agricultural Products. CT stores' agricultural product line consists of approximately 6,000 stock keeping units ("SKUs") supplying the needs of the part-time and full-time farmer, including tractor parts, tillage and harvesting parts, fencing materials and animal health supplies. This product line consists largely of consumable products and other items requiring replacements on a regular basis. This product line accounted for $47.1 million, $55.9 million and $67.3 million of the Company's total revenue in fiscal years 1994, 1995 and 1996, respectively. CT emphasizes consumable agricultural supplies that are purchased frequently by its customers and does not sell heavy equipment such as tractors or combines. Specialty Hardware. CT's speciality hardware line consists of approximately 9,000 SKUs with an emphasis on products with agricultural applications. These products accounted for $46.4 million, $51.9 million, and $57.9 million of the Company's total revenue in fiscal years 1994, 1995 and 1996, respectively. CT stores carry a broad range of high-quality hardware with an emphasis on recognized branded professional products, including hand tools, power tools, mechanical tools, electrical products, including outdoor lighting, security lighting and motors, welders, air compressors, generators, paints, (as well as a competitively-priced private- label brand), plumbing supplies and heating/energy equipment, including stoves, space heaters and fans. Lawn and Garden Products. CT's lawn and garden products consist of approximately 2,000 SKUs, including lawn and garden tools, nursery stock, fertilizers, lawn fencing and weed killers. These products accounted for $44.2 million, $46.3 million and $54.8 million of the Company's total revenue in fiscal years 1994, 1995 and 1996, respectively. To differentiate itself from other retailers, CT also stocks a selection of lawn mowers ranging from competitively priced items to full-featured riding lawn mowers. CT assembles and tests the lawn mowers and sells a full assortment of parts for follow-up service needs. CT stores offer seasonal bedding plants, trees and shrubs in their garden centers. Workwear. CT's workwear products, including products sold under the Carhartt, Walls and Iron Age brand names, are targeted at the specialized needs of its outdoor-oriented customers who require high quality functional apparel. This product category consists of approximately 2,000 SKUs, including premium quality insulated outerwear, overalls, flannel shirts and work jeans. These products accounted for $16.8 million, $17.6 million, and $23.5 million of the Company's net sales in fiscal years 1994, 1995, and 1996, 3 respectively. The Company has been expanding its workwear line in its new stores to include quality non-insulated workwear, bib overalls, twill pants and hunting clothing. Rural Automotive Parts and Accessories. CT's rural automotive parts and accessories consist of approximately 3,000 SKUs, including a core selection of automotive parts, batteries and accessories for rural vehicles, primarily for pick-up trucks and tractors. The products accounted for $36.6 million, $38.4 million and $41.4 million of the Company's total revenue in fiscal years 1994, 1995 and 1996. CT also stocks a small assortment of general automotive items as a convenience to its customer, including oil and lubrication products and anti-freeze. In addition to brand name products, certain of the Company's automotive products are offered under CT's own private label. Pet Supplies. CT's pet supplies consist of approximately 1,000 SKUs, including dog and cat foods, wild bird feed, and rabbit supplies. These products account for $10.6 million, $13.0 million, and $17.7 million of the Company's net sales in fiscal years 1994, 1995, and 1996, respectively. The pet supplies sold by CT include economically priced large sizes, such as 50 pound bags of dog food. Certain of these items are sold under CT's private label. CT has been expanding its pet supplies product category. General Consumer Products. CT's general consumer products line consists of approximately 1,000 SKUs, including farm replicas and collectible toys, hunting accessories, camping items and outdoor living needs. These products accounted for $16.6 million, $17.2 million, and $17.8 million of the Company's net sales in fiscal years 1994, 1995, and 1996, respectively. CT stores also offer seasonal merchandise such as charcoal grills and coolers in the summer. Store Operations The Company utilizes large and small store formats in order to enable management to enhance CT's return on investment in light of varying population density. The Company's small stores average 11,000 square feet of indoor selling space and had average comparable store sales of $2.5 million in fiscal 1996. The large stores average 22,000 square feet of indoor selling space and had average comparable store sales of $4.4 million in fiscal 1996. Small stores generally carry a smaller selection of workwear and seasonal and other general consumer products than large stores. In addition, the Company looks for store sites that have 15,000 to 20,000 square feet of outdoor selling space. This outdoor selling space is primarily used for displaying lawn and garden products, fencing, tractor accessories and livestock watering and feeding equipment. Both CT prototype stores are designed to provide customers with ease in locating desired products and are clean and colorful in order to provide an overall enjoyable shopping environment. The use of informative directional signing adds to the ease of the customer's shopping experience. Plan-o-grams are utilized to set merchandise assortments in the seven core product categories to ensure uniformity of presentation, ease of shopping for the customer and to facilitate inventory management, replenishment and restocking. The agricultural products department is prominently featured in each store and is identified by the parts desks. The parts desk is the focal point for CT's new and used tractor parts program. In addition , the parts desk enables CT to offer a high level of customer service, ranging from answering technical questions regarding various products to the special ordering of hard to find parts. Each parts desk is managed by the store's agricultural product specialist who has access to the CT catalog and other inventory sources to quickly obtain needed parts. Each store is managed by a store manager who is responsible for all aspects of the store operations, including the hiring and training of store associates, work scheduling, inventory control, expense control, customer service and associate morale. Typically, the store manager is supported by an assistant manager and core department heads, along with an average of 18 sales associates. Store operations are coordinated through nine district managers each of whom is currently responsible for eleven to fifteen retail stores. In addition, the 4 Company has developed and implemented consistent store standards, processes and best practices for the chain. The Company has established an internal store management training program which focuses training on store operations, systems, financial matters, human resources and sales. To support the Company's planned expansion and its management training programs, the Company has implemented a long-range personnel plan that provides for internal promotions, coupled with recruitment of college graduates and hiring of individuals with previous retail experience. Store associates receive training which emphasizes customer service, sales, product knowledge and store procedures. All CT store operations' management, including district managers, store managers and assistant managers are compensated based on job performance, and participate in an incentive program, which is based on the store/district exceeding a targeted level of profitability. The Company also has established an incentive program for all store associates that focuses on sales and profitability. Other Operations The CT catalog offers a broad assortment of new, used and rebuilt tractor parts and agricultural componentry, including approximately 20,000 SKUs. In fiscal 1996, catalog sales were $7.3 million. The catalog will be distributed nationally to approximately 550,000 households in rural and agricultural communities in fiscal 1997. The breadth of this distribution provides the Company with name recognition among agricultural consumers in areas outside of its core geographical markets. As a consequence, the Company anticipates some customer familiarity with the Company when it expands into new areas. The Company also sells tractor parts and other items, on a wholesale basis, to other agricultural retailers and distributors. In recent years, the Company has been reducing the number of products offered and the number of customers served by this unit. In fiscal 1996, the Company's wholesale business generated sales of $5.4 million. Purchasing and Distribution The Company maintains a staff of six merchandise buyers, each of whom is responsible for specific product categories, at its headquarters in Des Moines, Iowa. The purchasing and inventory control process is controlled centrally by the Company's point of sale ("POS") and automatic replenishment systems. See "-- Corporate Offices and Management Information Systems." The Company purchases its merchandise from approximately 1,500 vendors, none of which accounted for more than 10% of the Company's purchases during fiscal 1996. The Company generally maintains multiple sources of supply for its products in order to minimize the risk of supply disruption and to improve its negotiating position. The Company has no long-term contractual commitments with any of its vendors. The Company operates a 135,000 square-foot distribution center in Des Moines, Iowa and a 155,000 square-foot distribution center in Youngstown, Ohio, from which it currently supplies the majority of its retail stores' inventory needs. The Des Moines facility is used to handle the small part items and to receive purchases sourced from vendors located in the Midwest. The Youngstown facility serves primarily as a flow-through distribution station. Approximately 35% of total purchases, consisting mainly of high volume commodity are shipped by vendors directly to individual store locations. Merchandise from the distribution centers is shipped to each store through supply orders generated by an automated replenishment system. The Company transports most of its merchandise to each store once a week from both the distribution centers through a major contract carrier. The contract carrier's truck fleet delivers all warehouse shipments and most of the truckloads of merchandise which is shipped directly from vendors to store locations. The Company expects that its current distribution facilities will be sufficient to accommodate its planned expansion through fiscal 1999. 5 Corporate Offices and Management Information Systems To facilitate the Company's expansion plan and to maintain consistent store operations, CT has centralized specific functions of its operations, including accounting, the development of policies and procedures, store layouts, visual merchandise presentation, inventory management, merchandise procurement and allocations, marketing and advertising, human resources and real estate. This centralization effectively utilizes the experience and resources of the Company's senior management and provides a high level of consistency throughout the chain. The Company has invested considerable resources in its management information and control systems, which were developed beginning in 1981 and have been expanded and improved yearly. These systems provide support for the purchase and distribution of merchandise and help to improve the manner in which CT stores, the corporate offices and distribution centers are operated. All CT stores (including all of the acquired Big Bear stores) use the Company's POS system to capture sales information at the SKU level. Through the POS system, the Company can monitor customer purchases and inventory levels with respect to every item of merchandise in each store daily. The company has implemented scanning capabilities in the receiving process of its distribution centers and currently plans to expand this to the picking and shipping process. Electronic Data Interchange ("EDI") is used to send purchase orders to certain of its largest suppliers. CT intends to expand its use of EDI will be expanded to communicate invoicing, shipments and sales activity to and from most major suppliers. The Company also has an automated inventory replenishment system which uses POS information, and facilitates the timely replenishment of both the stores and the warehouses. The sales and inventory information used in this system is updated on a daily basis. This system also provides for minimum stocking levels for lower volume items enabling CT to carry a large number of SKUs at a minimum of inventory carrying expense. Competition The Company faces competition primarily from other chain and single-store agricultural specialty retailers, general merchandise retailers and home centers. Some of these competitors have substantially greater financial and other resources than the Company. Currently, most of the Company's stores do not compete directly in the markets of other agricultural specialty retail chains. However, the Company's expansion plans will likely result in new stores being located in markets currently served by one or more of these chains, and there can be no assurance that these chains, certain of which have announced expansion plans, will not expand into the Company's markets. Expansion by the Company into markets currently served by its competitors or expansion by competitors into the Company's markets could have material adverse effect on the Company's business, financial condition or results of operation. In addition, the Company competes in over 90% of its markets (which the Company defines as a 30 mile radius around a store) with general merchandise retailers and/or home centers and expects these retailers to be in many of the markets targeted for expansion. The Company believes that its merchandise mix and level of customer service successfully differentiate it form general merchandise retailers and home center, and as a result the Company has to date been able to operate profitably despite competition from general merchandise retailers and home centers. However, in the past certain general merchandise retailers and home centers have modified their product mix and marketing strategies in a apparent effort to compete more effectively in the Company's markets. There can be no assurances that these efforts will not continue or that the Company will continue to be able to compete successfully against current and future competition. Advertising and Promotions The Company's primary advertising occurs through the bi-weekly distribution of approximately 2.5 million color circulars distributed as newspaper inserts, at CT stores and by direct mail. In order to focus its marketing 6 on the many farmers in CT's markets, the Company also advertises in geographically zoned editions of leading farming industry magazines. In addition, the Company runs periodic special events promoted through local flyers, circulars and radio advertising. Seasonality Unlike many specialty retailers, the Company has historically generated positive operating income in each of its four fiscal quarters. However, because the Company is an agricultural specialty retailer, its sales necessarily fluctuate with the seasonal needs of the agricultural community. The Company responds to this seasonality by attempting to manage inventory levels (and the associated working capital requirements) to meet expected demand, and by varying its use of part-time employees. Historically, the Company's sales and operating income have been highest in the third quarter of each fiscal year due to the farming industry's planting season and the sale of seasonal products. Working capital needs are highest during the second quarter. The Company expects these trends to continue for the foreseeable future. Employees As of November 2, 1996, CT had approximately 2,492 employees (approximately 1,171 in full-time and approximately 1,321 in part-time positions). The company believes its relations with its employees is good. ITEM 2. PROPERTIES As of December 31, 1996, the Company had 112 retail stores located in 16 states as follows: State Number of Stores New York 22 Iowa 21 Pennsylvania 17 Minnesota 12 Virginia 7 Ohio 6 Kentucky 5 Maryland 4 Indiana 4 Wisconsin 4 Tennessee 3 Missouri 2 New Jersey 2 Delaware 1 Massachusetts 1 Vermont 1 --- Total 112 All of the Company's 112 stores, its corporate headquarters and two distribution centers are leased. The Company's corporate headquarters are located adjacent to its distribution center in Des Moines, Iowa. The Company generally negotiates retail store leases with an initial term between five and seven years, with two or three renewal periods of five years each, exercisable at the Company's option. In fiscal 1996, the Company paid an average of $5.03 per square foot in retail store occupancy expenses, including rent, taxes, common area charges, repairs and maintenance. Rent expenses generally do not vary based on sales, and generally increase 10-15% at the beginning of each option period. 7 The Company leases its corporate offices and distribution facility in Des Moines and 16 of its stores from the former owner of the Company prior to 1988, and certain of his family members and affiliates. The Company believes that, on average, the rental rates and other terms of these leases are no less favorable to the Company than could have been obtained from other third party lessors. Each of these leases is due to expire by their terms on or before fiscal 2006 subject to options to renew exercisable at the discretion of the Company. ITEM 3. LEGAL PROCEEDINGS The Company has been notified by the U.S. Environmental Protection Agency that it may have potential liability for cleanup costs associated with the cleanup of a dumpsite near Owensburg, Kentucky. To date, the only articles of waste identified as possibly once belonging to the Company are certain empty battery acid containers. The Company also has been notified that it is a fourth-party defendant of a Superfund action pending in the United States District Court . The action alleges the Company contributed retail and office waste which may have contained hazardous substances to a landfill in Adams County, Pennsylvania. The Company believes that any liability it might have as a result of these actions would be as a de minimis contributor and will not have a material effect on the Company's financial position, liquidity or results of operations. The Company is not a party to any other legal proceedings, other than routine claims and lawsuits arising in the ordinary course of business. The Company does not believe that such claims and lawsuits, individually or in the aggregate, will have a material adverse effect on the Company's business. Compliance with federal, state and local laws and regulations pertaining to the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not anticipated to have, a material effect upon the capital expenditures, earnings or competitive position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Central Tractor Farm & Country Common Stock, par value $.01 per share, is traded on the NASDAQ National Market System under the symbol CTFC. Stock price quotations are printed daily in major newspapers. As of January 7, 1996, there were approximately 1,000 stockholders of record of Central Tractor Farm & Country Common Stock. The Company has not paid any cash dividends on the Common Stock. Although the Company may pay limited cash dividends on the Common Stock after consummation of the Acquisition, the Company's ability to pay cash dividends is restricted by the New Credit Facility. Quarterly Common Stock Prices First Second Third Fourth Quarter Quarter Quarter Quarter ----------------------------------------------------------- 1996 High $11.25 $16.25 $14.63 $12.50 Low $ 6.75 $10.50 $11.75 $ 9.13 1995 High $17.25 $16.00 $13.25 $12.00 Low $14.25 $12.00 $ 9.75 $ 8.50 9 ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year End --------------------------------------------------------------------------------- November 2, October 28, October 29, October 30, October 31, 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- (In thousands, except share data) Net sales $293,020 $251,703 $231,064 $202,589 $198,055 Income from continuing 8,744 8,185 5,181 3,270 1,464 operations Income per share from $ 0.80 $ 0.74 $ 0.66 $ 0.42 $ 0.19 continuing operations Number of stores at end 111 66 55 50 47 of period (1) Comparable store sales 222 224 240 218 210 per square foot of indoor selling space (2) Comparable store sales 1.0% (1.6%) 10.0% 4.2% 5.4% increases(decreases)(3) Balance Sheet Data (at end of period) Working capital $ 63,803 $ 62,496 $ 50,442 $ 37,055 $ 34,167 Total Assets 159,238 149,977 139,416 113,241 111,446 Long-term debt, less 17,341 16,862 16,959 37,536 37,881 current portion (4) Stockholders' equity 90,063 81,277 75,735 24,287 22,840 (1) Net of three store closings in fiscal 1994. (2) Comparable sales per square foot of indoor selling space and calculated by dividing store sales by total indoor selling square footage for stores open and operated by CT at least twelve months in the period. (3) Percentage change in store sales as compared to sales for the same stores for the prior year for stores open and operated by CT for at least twelve months in each year. The 1.0% increase in comparable store sales in 1996 has been adjusted to reflect a comparable 52 week year. Comparable store sales grew 2.9% without such adjustment. (4) Excluding, in fiscal 1995 and prior years, long-term debt from discontinued o perations. See footnote (10) in the Notes to Consolidated Financial Statements. 10 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operation should be read in conjunction with the selected consolidated financial data and the consolidated financial statements of the Company and related notes thereto. Results of Operations The following table sets forth, for the periods indicated, certain items in the Company's Statement of Income expressed as a percentage of net sales: Fiscal Year Ended ------------------------------------------- November 2, October 28, October 29, 1996 1995 1994 ------------- ------------ ---------- Net sales 100.0% 100.0% 100.0% Gross profit 29.3 29.5 30.1 Selling, general and administrative expenses 23.3 23.2 23.6 Amortization of intangibles 0.3 0.3 0.4 ------ ----- ----- Operating income 5.7 6.0 6.1 Interest expense 0.6 0.5 2.1 ------ ----- ----- Income (loss) before income tax 5.1 5.5 4.0 Income taxes 2.1 2.3 1.8 ------ ----- ----- Income (loss) from continuing operations 3.0% 3.2% 2.2% ====== ===== ===== Fiscal 1996 Compared to Fiscal 1995 Net Sales for the fiscal year ended November 2, 1996 were $293.0 million, an increase of $41.3 million, or 16.4%, as compared to net sales for the fiscal year ended October 28, 1995 of $251.7 million. This increase was due to a comparable store sales increase of approximately 1.0% (net of sales attributable to an extra (53rd) week in fiscal 1996), sales during such extra week, the opening of 14 new stores in fiscal 1996, a full year of operations for the eleven new stores opened in fiscal 1995 as compared to a partial year for those stores during fiscal 1995 and the acquisition of the Big Bear stores in May 1996. The increase in comparable store sales was primarily due to a comparable store sales increase of 13.8% during the fourth quarter of fiscal 1996 as compared to the fourth quarter of fiscal 1995. This increase in comparable store sales during the fourth quarter was the result of normal weather conditions during fiscal 1996 as compared to unusual and severe drought conditions during fiscal 1995. Gross profit for fiscal 1996 was $85.8 million, an increase of $11.4 million, or 15.3%, as compared to $74.4 million for fiscal 1995. Gross profit as a percentage of sales was 29.3% for fiscal 1996, as compared to 29.5% for fiscal 1995. This decrease is primarily attributable to the sale of lower margin products in the Big Bear stores prior to their conversion to the CT store format. Selling, general, and administrative expenses for fiscal 1996, were $68.2 million, an increase of $9.9 million, or 17.0%, for fiscal 1995. This increase was due primarily to costs related to new store openings and costs related to stores acquired and operated in the Big Bear acquisition. Selling, general, and administrative expenses as a percentage of sales increased to 23.3% in fiscal 1996 as compared to 23.2% in fiscal 1995. This 11 increase is attributable to higher selling, general and administrative expenses as a percentage of sales at the new Big Bear stores, partially offset by a decrease in selling, general and administrative expenses as a percentage of sales at CT's existing stores. Management expects that the completion of the conversion of the Big Bear stores to the CT store format will improve selling, general and administrative expenses as a percentage of sales. Amortization of intangibles was $0.9 million for fiscal 1996 and 1995. Operating income for fiscal 1996, was $16.7 million, an increase of $1.5 million, or 9.5%, as compared to fiscal 1995. Operating income as a percentage of sales decreased to 5.7% in fiscal 1996 from 6.0% in fiscal 1995. The decrease resulted from the factors affecting sales, gross profit, and selling, general and administrative expenses discussed above. Interest expense for fiscal 1996 was $1.7 million, an increase of $0.4 million, or 27.7% as compared to $1.3 million for fiscal 1995. This increase was primarily due to an increase in interest related to short-term borrowings under the Company's line of credit agreement. Income tax expense related to continuing operations for fiscal 1996, was $6.2 million, an increase of $0.5 million, or 8.8% as compared to 5.7 million for fiscal 1995. Income taxes as a percentage of pretax earnings were 41.7% in fiscal 1996 as compared to 41.1% in fiscal 1995. This increase was primarily due to the effect of a reduction of prior year over accrual in fiscal 1995. Fiscal 1995 Compared to Fiscal 1994 Net Sales for the fiscal year ended October 28, 1995 were $251.7 million, an increase of $20.6 million, or 8.9%, as compared to net sales for the fiscal year ended October 29, 1994 of $231.1 million. This increase was due in the opening of eleven new stores in fiscal 1995 and a full year of operations for the eight new stores opened in fiscal 1994, partially offset by a comparable store sales decrease of 1.6% and the closing of three stores during the latter part of fiscal 1994. The 1.6% decrease in comparable store sales was primarily a result of unusual and severe drought conditions throughout fiscal 1995 and generally unfavorable economic conditions in the Northeast where most of the Company's retail stores were located. Gross profit for fiscal 1995 was $74.4 million, an increase of $4.9 million, or 6.9% as compared to $69.5 million for fiscal 1994. Gross profit as a percentage of sales was 29.5% for fiscal 1995, as compared to 30.1% for fiscal 1994. The decrease in gross profit percentage was primarily the result of increased promotional sales in fiscal 1995 at a lower gross margin, which was offset by improvement in distribution costs. Selling general and administrative expenses for fiscal 1995 were $58.3 million, an increase of $3.8 million, or 6.9%, as compared to $54.5 for fiscal 1994. This increase was due primarily to increased costs related to new store openings, partially offset by a reduction in costs due to the closing of three stores in fiscal 1994 and a reduction in incentive compensation costs. Selling, general and administrative expenses as a percentage of sales decreased to 23.2% in fiscal 1995, as compared to 23.6% in fiscal 1994, reflecting the decrease in incentive compensation expenses as a percentage of sales partially offset by higher selling, general and administrative expenses as a percentage of sales in new stores. Amortization of intangibles was $0.9 million for fiscal 1995 and $0.8 million for fiscal 1994. Operating income for fiscal 1995 was $15.2 million, an increase of $1.0 million, or 7.5%, as compared to $14.2 for fiscal 1994. Operating income as a percentage of sales decreased to 6.0% in fiscal 1995 from 6.1% in fiscal 1994. The decrease resulted from the factors affecting sales, gross profit, and selling, general and administrative expenses discussed above. 12 Interest expense for fiscal 1995 was $1.3 million, a decrease of $3.5 million, or 72.7% as compared to $4.8 million for fiscal 1994. This was primarily due to the reduction in long-term debt resulting from the debt prepaid with the proceeds from the initial public offering completed in October 1994. Income tax expense related to continuing operations for fiscal 1995 was $5.7 million, an increase of $1.5 million or 36.3%, as compared to $4.2 million for fiscal 1994. Income taxes as a percentage of pretax earnings were 41.1% in fiscal 1995 as compared to 44.8% in fiscal 1994. This decrease was primarily due to the effect of a proportionately lower amount of non-deductible goodwill amortization and a reduction of prior year over accrual. Discontinued operations represent the results of operations of the Company's former subsidiary, Herschel Corporation ("Herschel"), a manufacturer and distributor of non-original equipment sickle bar cutting parts, tractor parts, tillage and other agricultural componentry. Discontinued operations generated net income of $0.8 million in fiscal 1995, as compared to a net loss of $0.7 million in fiscal 1994. The sale of Herschel, which was completed on December 6, 1995, resulted in an estimated net loss on the sale of $3.4 million, net of an income tax benefit of $0.7 million, which was reflected in the Company's financial statements for fiscal 1995. Liquidity and Capital Resources In addition to cash to fund operations, CT's primary on-going cash requirements are those necessary for the Company's expansion and relocation programs, including inventory purchases and capital expenditures. The Company's primary sources of liquidity are funds provided from operations, borrowings pursuant to the Company's revolving credit facilities and short term trade credit. On November 2, 1996, the Company had working capital of $63.8 million, an increase of $1.3 million, as compared to working capital of $62.5 million on October 28, 1995. This increase resulted primarily from an increase in inventory and a decrease in borrowings under the Company's revolving credit facility, partially offset by a decrease in the net assets of Herschel and an increase in accounts payable. On November 2, 1996, the Company's inventories were $107.2 million, an increase of $13.3 million, as compared to $93.9 million at October 28, 1995. This increase reflected inventory for new stores and inventory for the stores acquired in the Big bear acquisition. The increase in inventory was funded with cash from operations, short-term trade credit and proceeds of approximately $13.5 million from the sale of the net assets of Herschel, including the repayment of approximately $2.1 million in advances. Continuing operation of the Company (before payment of income taxes) generated $10.3 million of net cash in fiscal 1996, used $1.1 million of net cash in fiscal 1995 and generated $0.6 million of net cash in fiscal 1994. The increase in net cash generated in fiscal 1996, as compared to fiscal 1995, resulted primarily from a smaller increase in inventory and an increase in income from continuing operations before income taxes, partially offset by a reduction in accounts payable in fiscal 1996, as compared to an increase in fiscal 1995. The decrease in net cash generated in fiscal 1995, as compared to fiscal 1994, resulted primarily from an increase in income from continuing operations before income taxes. The Company's capital expenditures were $8.8 million and $6.3 million for fiscal 1996 and 1995, respectively. The majority of capital expenditures were for store fixtures, equipment and leasehold improvements for new and existing stores. The Company expects its capital expenditures for fiscal 1997 to be approximately $5.3 million in connection with renewal and replacement costs at existing stores and distribution centers, conversion of the Big Bear stores and the opening of two new stores. The Company completed the acquisition of 31 store locations and certain net operating assets of Big Bear on May 31, 1996. The stores are being converted to the CT format with a projected completion in April 1997. The Big Bear stores average 11,000 square feet and fit the Company's small store prototype. The total investment in the 31 stores including acquisition cost, additional capital investments and working capital needs and conversion costs is expected to be approximately $12.0 million. In addition, the conversion process requires each store to be closed for approximately three weeks. The acquisition and the additional investments made to date were funded with cash 13 form operations and borrowings under the Company's revolving credit facility. The Company anticipates utilizing the New Credit Facility and cash from operations to fund the additional investments. The Company's former revolving credit facility contained a commitment, expiring February 1, 1998, to provide revolving loans of $25.0 million from November 1 through May 31 of each year and $12.0 million from June 1 through October 31 of each year. At November 2, 1996 and October 28, 1995, the Company had $3.7 million and $6.8 million, respectively, of borrowings outstanding under such revolving credit facility. The maximum amount of borrowings outstanding during fiscal 1996 and 1995 was $11.9 million and $15.6 million, respectively. On December 23, 1996, such revolving credit facility was replaced by the New Credit Facility, which consists of an $8.0 million. five-year term facility, which was fully funded, and a $30.0 million revolving credit facility, under which $17.3 million was outstanding as of December 23, 1996. The Company anticipates that approximately $1.8 million of the proceeds of the offering described below will be used to repay revolving borrowings under the New Credit Facility. The New Credit Facility will mature on December 31, 2001. Borrowings under the New Credit Facility will bear interest at rates based upon prime or Eurodollar rates plus an applicable margin. Loans under the New Credit Facility will be guaranteed by any and all future subsidiaries of the Company and will be secured by security interests in substantially all of the assets of the Company and its subsidiaries, as well as the capital stock of the Company. The Company is party to an agreement and plan of merger pursuant to which it is to become the wholly owned subsidiary (the "Acquisition") of CT Holding, Inc. ("Holding"), an indirect subsidiary of J.W. Childs Equity Partners, L.P. Holding is a holding company with no significant assets or operations other than through its investment in the Company. Part of the financing for the Acquisition will be raised by an offering of $100 million of debt securities (the "Notes") to be made by the Company. After the closing, Holding's primary source of funds will be dividends and other advances and transfers of funds from the Company. The Company's ability to make dividends and other advances and transfer of funds will be subject to the terms of the New Credit Facility, the Notes and other agreements to which the Company becomes a party from time to time. The Notes and the New Credit Facility permit the Company (subject to certain conditions) to pay cash dividends to Holding in an amount sufficient to permit Holding to fund certain expenses incurred in the ordinary course of business. The Company anticipates that its principal uses of cash following the Acquisition will be working capital requirements, debt service requirements and capital expenditures, as well as expenditures relating to acquisitions. Based upon current and anticipated levels of operations, the Company believes that its cash flow from operations, together with amounts available under the New Credit Facility, will be adequate to meet its anticipated requirements in the foreseeable future for working capital, capital expenditures and interest payments. The Company expects that if it were to pursue a significant acquisition, it would arrange prior to the acquisition any additional debt or equity financing required to fund the acquisition. No discussions with respect to any significant acquisition are ongoing. There can be no assurance, however, that the Company's business will continue to generate sufficient cash flow form operations in the future to service its debt, and the Company may be required to refinance all or a portion of its existing debt or to obtain additional financing or to reduce its capital spending. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained. The inability to obtain additional financing could have a material adverse effect on the Company. Seasonality Unlike many specialty retailers, the Company has historically generated positive operating income in each of its four fiscal quarters. However, because the Company is an agricultural specialty retailer, its sales necessarily fluctuate with the seasonal needs of the agricultural community. The Company responds to this seasonality by attempting to manage inventory levels (and the associated working capital requirements) to meet expected demand, and by varying its use of part-time employees. Historically, the Company's sales and operating income have been highest in the third quarter of each fiscal tear due to the farming industry's planting season and the sale of seasonal 14 products. Working capital needs are highest during the second quarter. The Company expects these trends to continue for the foreseeable future. Inflation Management does not believe its operations have been materially affected by inflation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included at pages F-1 through F-20. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age and position of each of the Company's directors, directors designate expected to assume office upon consummation of the Acquisition, executive officers and other significant employees. All of the Company's officers are elected annually and serve at the discretion of the Board of Directors.
Name Age Positions James T. McKitrick 51 President, Chief Executive Officer, Director Dean Longnecker 49 Executive Vice President, Finance, Secretary, Director John W. Childs 55 Director Designate Jerry D. Horn 59 Director Designate Steven G. Segal 36 Director Designate Adam L. Suttin 29 Director Designate Jeffrey D. Swartz 36 Director Designate William E. Watts 43 Director Designate George D. Miller 54 Senior Vice President, Merchandising Denny Starr 43 Senior Vice President, Finance Jeffrey A. Stanton 44 Vice President, Human Resources David E. Enos 36 Vice President, Management Information Systems Daniel Cunningham 60 Vice President, New, Used and Rebuilt Tractor Parts Jack P. Feichtner 50 Vice President, Advertising and Marketing Glenn S. Kraiss 63 Director (1) Daryl L. Lansdale 55 Director (1) Francis J. Palamara 70 Director (1) (1) It is anticipated the Messrs. Kraiss, Lansdale and Palamara will resign upon consummation of the Acquisition.
James T. McKitrick President and Chief Executive Officer joined the Company in July 1992. He has over 30 years experience in retailing, including 20 years at Kmart Corporation. Prior to joining CT, Mr. McKitrick was President and Chief Executive Officer of Builder's Emporium, a California-based home improvement center chain. Previously, he was with Ames Department Stores from 1987 through 1990, were he held the positions of Executive Vice President, Chairman of Zayre Discount Store Division, and President and Chief Executive Officer of G.C. Murphy Division, a $900 million variety store chain. Mr. McKitrick also served as President and Chief Executive Officer of Warehouse Club, Inc. from 1986 through 1987 and Executive Vice President of Merchandising for T.G.&Y. Stores Company from 1984 through 1986. From 1963 through 1984, Mr. McKitrick was with the Kmart Corporation. Dean Longnecker, Executive Vice President of Finance, has held his current position since 1985. He joined CT in 1980 as Controller. Mr. Longnecker was employed at Payless Cashways 1973 until 1980, most recently as Treasurer. He received a B.S. from Iowa State University in 1970 and C.P.A. in 1972. John W. Childs has been President of J.W. Childs Associates, L.P. since July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from May 1987, most recently holding the position of Senior Managing Director. He is a director of Big V Supermarkets, Inc., Cinnabon, Inc., The Edison Project, Inc., Personal Care Group, Inc., and Select Beverages, Inc. Jerry D. Horn has been Chairman of the Board of General Nutrition Companies, Inc., a 3,000 store vitamin and nutritional supplement retail chain operating under the GNC name, since October 1991 and, prior to that, held 16 various positions with its predecessor since 1985. Mr. Horn is also a director of Chadwick-Miller, Inc. and Cinnabon, Inc. and Managing Director of J.W. Childs Associates, L.P. since July 1995. Steven G. Segal has been a Managing Director of J.W. Childs Associates, L.P. since July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from August 1987, most recently holding the position of Managing Director. He is a director of Big V Supermarkets, Inc., Cinnabon, Inc. and Fitz and Floyd, Inc. Adam L. Suttin has been a Vice President of J.W. Childs Associates, L.P. since July 1995. Prior to that time, he was an executive at Thomas H. Lee Company from August 1989, most recently holding the position of Associate. He is a director of Personal Care Group, Inc. Jeffrey D. Swartz has been Chief Operating Officer of Timberland Co., a manufacturer and marketer of branded footwear and apparel, since May 1991, and has worked for that company in various positions since June 1986. William E. Watts has been President, Chief Executive Officer and a Director of General Nutrition Companies, Inc. since October 1991 and, prior to that, held various positions with its predecessor since 1984. George D. Miller, Senior Vice President, Merchandising, joined CT in June 1996. Previously, he was Vice President, Merchandising, with Home Base, a California-based home improvement center chain from 1993 through 1996. Mr. Miller was employed by Sears, Roebuck & Company from 1968 through 1993, most recently as Senior Merchandise Manager. He received B.S. and M.B.A. degrees from Indiana University. Denny Starr, Senior Vice President, Finance joined the Company in October 1989 as Assistant Controller. He previously served as Assistant Controller of The Witten Group, from 1986 through 1989, a holding company with operations in manufacturing, real estate and finance. He was an Audit Manager with McGladrey & Pullen from 1982 until 1986. Mr. Starr received his B.A. from the University of Iowa in 1982 and C.P.A. in 1982. Jeffery A. Stanton has served as Vice President, Human Resources since June 1992. Previously, he was employed by R.R. Donnelly & Sons and Meredith/Burda Corporation from 1985 through 1992, as well as Reichardt's Inc. from 1972 through 1985, a specialty retailer. Mr Stanton received a B.B.A. degree from the University of Iowa in 1972 . David E. Enos, Vice President, Management Information Systems/Logistics, has held his current position since 1990. Mr. Enos joined CT in 1981. Previously, he was employed at Meredith/Burda Corporation from 1979 through 1981. He received an A.A.S. degree in Data Processing from DMACC in 1979. Daniel Cunningham, Vice President, Used and Rebuilt Tractor Parts joined CT in 1958. Mr. Cunningham has held several positions within the Company, including store operations, mail order and the Company's tractor parts area. Mr. Cunningham was promoted to his current position in 1991. Jack P. Feichtner, Vice President Advertising and Marketing, joined CT in July 1995. He was previously with Kmart Corporation for 27 years, where his most recent position was Director, Advertising. Glenn S. Kraiss has served as a director for CT since May 1996. Mr. Kraiss joined the Walgreen Company in 1950 and is currently Executive Vice President, Store Operations. Mr. Kraiss held several management positions with the Walgreen Company prior to being assigned to his current position in 1978. Daryl L. Lansdale has served as a director since May 1995. Mr. Lansdale has been the President and Chief Executive Officer of Lil' Things, a specialty retailer, since 1996. He was previously employed by Scotty's, Inc., a home improvement retail company from 1988 until 1996, most recently as Chairman and Chief Executive Officer. Mr. Lansdale served as a President and Chief Executive Officer of the Southwest Division of Lone Star Hardware, Inc. from 1987 to 1988. From 1976 to 1987, Mr. Lansdale was employed by the Central Home Center Division of W.R. 17 Grace and Company, where his most recent position was President and Chief Executive Officer. Mr. Lansdale also serves as a director on other companies. Francis J. Palamara has served as a director of the Company since August 1994 and is a member of the Audit Committee and the Compensation Committee. Mr. Palamara joined ARAMARK, a diversified service company, in 1981 and served as its Executive Vice President-Finance until 1988 and as a member of the Board of Directors from 1981 to 1992. Mr Palamara served as Executive Vice President and Chief Operating Officer of the New York Stock Exchange from 1972 to 1978. He was Executive Vice President of Pittson Company from 1971 to 1972 and from 1978 to 1981, when he also served on the Board of Directors. Mr. Palamara is on the board of directors of Gintel Funds, XTRA Corporation, a transportation equipment leasing company, and the Glenmede Funds. ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth compensation earned for all services rendered to the Company during fiscal 1994, fiscal 1995, and fiscal 1996, as applicable, by the Company's chief executive officer, the two other executive officers who were employed by the Company as such at the end of fiscal 1996, the one former executive officer that served as such during fiscal 1996 but who resigned subsequent to the end of fiscal 1996 (collectively, the "Named Executives").
Long-Term Compensation Annual Compensation Awards ------------------------------------------- -------------- Number of Securities All Other Name and Principal Fiscal Salary(1) Bonus Underlying Compensation Position at November 2, 1996 Year ($) ($) Options ($) - ---------------------------- ------------ -------------- -------------- -------------- -------------- James T. McKitrick 1996 365,000 91,250 -- 9,863(2) President, Chief 1995 350,000 70,000 -- 4,357(2) Executive Officer 1994 325,000 162,500 158,939 9,953(2) Dean Longnecker 1996 234,000 58,500 -- 5,131(2) Executive Vice 1995 225,000 45,000 15,000 4,152(2) President, Finance 1994 196,686 147,890 4,565 7,524(2) George D. Miller (3) 1996 108,462 15,190 60,000 5,128(4) Senior Vice 1995 -- -- -- -- President, Merchandising 1994 -- -- -- -- Don Walter (5) 1996 155,000 12,480 -- 5,213(2) Senior Vice 1995 153,750 24,800 -- 29,570(6) President, Operations 1994 115,433 46,500 26,850 17,460(4) (1) Includes compensation deferred at the Named Executive's election under the Company's Profit Sharing Plan. (2) Represents amounts contributed by the Company during each fiscal year, as applicable, to the Named Executive's Profit Sharing Plan account. (3) Mr. Miller joined the Company in May 1996. (4) Represents payments or reimbursement of certain moving and relocating expenses. (5) Mr. Walter resigned his position with the Company effective December 1, 1996. (6) Represents amounts contributed by the Company during each fiscal year, as applicable, to the Named Executive's Profit Sharing Plan account and also represents payments or reimbursement of certain moving and relocating expenses.
Option Grants in Last Fiscal Year The table below shows information regarding grants of stock options, if any, made to the Named Executives during fiscal 1996. The amounts shown for each of the Named Executives as potential realizable values are based on arbitrarily assumed annualized rates of stock price appreciation of five percent and ten percent over the full term 18 of the options, pursuant to applicable Securities and Exchange Commission ("SEC") regulations. Actual gains, if any, on option exercises are dependent on the future performance of the Common Stock and overall stock market conditions.
Individual Grants ------------------------------------------------------------------------------ Potential Realizable Value at Assumed Annual Rates of Stock Price % of Total Appreciation for Name Number Options Option Term of Granted to Exercise or -------------------------------- Options Employees in Base Price Expiration 5% 10% Granted Fiscal Year ($/Share) Date ($) ($) ------------- ------------------ ------------------ ----------------- ---------------- ------------ George D. Miller 60,000 73% 13.25 5-29-06 499,800 1,267,200 (1) Such options become exercisable at the rate of 12,000 shares on each anniversary of the original date of grant. The latest date on which this option may be exercised is May 28, 2006.
Aggregated Option Exercises in Last Fiscal Year-End Option Values The following table summarizes for each of the Named Executives the total number and value of unexercised options, if any, held at November 2, 1996. For this purpose, the value of unexercised, in-the-money options at fiscal year-end is the difference between the exercise price and the closing sale price of the underlying Common Stock on November 2, 1996. There can be no assurance that these values will be realized. No options were exercised during fiscal 1996.
Number of Securities Underlying Value of Unexercised Unexercised Options In-the-Money Options at Fiscal Year-End at Fiscal Year-End(1) ----------------------------- ------------------------------- Exercisable Unexercisable Exercisable Unexercisable Name (Number) (Number) ($) ($) - ---- ------------- --------------- --------------- --------------- James T. McKitrick...................... 206,517 180,663 1,708,189 583,444 Dean Longnecker......................... 4,565 15,000 -- -- George D. Miller........................ -- 60,000 -- -- Don Walter.............................. 12,410 14,440 -- -- (1) In-the-money options for which the fair market value of the underlying securities exceeds the exercise or base price of the option.
Employment Arrangements with Executive Officers Mr. McKitrick is currently employed as President and Chief Executive Officer pursuant to an employment agreement dated September 16, 1994. Under this agreement, Mr. McKitrick currently receives a salary of $365,000, subject to increases determined annually by the compensation committee (which increases must at least equal increases in the consumer price index). In addition, Mr. McKitrick is eligible for an annual bonus of up to 60% of his salary, based on financial targets and non-quantitative performance objectives established by the compensation committee at the beginning of each fiscal year. If his employment is terminated by the company other than for cause of because of death or disability, or because the Company either removed him or failed to elect him as President and Chief Executive Officer, the Company will pay to Mr. McKitrick his base salary (reduced by compensation received from other businesses) from the date of termination to the later of November 1, 1997 and the first anniversary of such termination. Pursuant to the employment agreement, Mr. McKitrick was granted an option to acquire, at an exercise price equal to the initial public offering price, up to 112,512 shares of Common Stock on the seventh 19 anniversary of the original date of grant, with accelerated vesting in fiscal 1996 through 1998 EBIT targets are met. Mr McKitrick's employment agreement also contains certain confidentiality and non-competition requirements . Mr. Longnecker is employed as Executive Vice President, Finance pursuant to an agreement dated September 16, 1994. Under this agreement, Mr. Longnecker currently receives a salary of $234,000, subject to salary increases determined annually by the compensation committee (which increases must at least equal increases in the consumer price index). in addition, Mr. Longnecker is eligible for an annual bonus of up to 48% of his salary, based on financial targets and non-quantitative performance objectives established by the compensation committee at the beginning of the fiscal year. If his employment is terminated by the Company other than for cause of because of death or disability, or because the Company either removed him or failed to retain him as Executive Vice president, Finance, the Company will pay to Mr. Longnecker his base salary (reduced by compensation received from other businesses) from the date of termination to the first anniversary of such termination. Mr. Longnecker's employment agreement also contains certain confidentiality and non-competition provisions. Mr. Miller is employed as Senior Vice President, Merchandising pursuant to an agreement dated May 6, 1996. Under this agreement, Mr. Miller currently receives a salary of $175,000, subject to salary increases determined annually by the compensation committee (which increases must at least equal increases in the consumer price index). in addition, Mr. Miller is eligible for an annual bonus of up to 48% of his salary, based on financial targets and non- quantitative performance objectives established by the compensation committee at the beginning of the fiscal year. If his employment is terminated by the Company other than for cause of because of death or disability, or because the Company either removed him or failed to retain him as Senior Vice President, Merchandising, the Company will pay to Mr. Miller his base salary (reduced by compensation received from other businesses) from the date of termination to the later of May 28, 1998 and the first anniversary of such termination. Mr. Miller's employment agreement also contains certain confidentiality and non-competition provisions. Additionally, as part of the Acquisition, on January 2, 1997, James T. McKitrick and G. Dean Longnecker sold to JWCAC, for 14.00 per share, 81,810 and 64,489 shares, respectively, of the Company's outstanding common stock, in accordance with the terms of the Securities Purchase Agreements entered into at the same time as the Merger Agreement. Additionally, the Securities Purchase Agreements provide that at the closing of the Merger, Mr. McKitrick will exchange outstanding options to purchase 183,935 shares of Company common stock having an aggregate exercise price of $0.6 million for options to acquire shares of Holding common stock valued at $2.6 million and that Mr. Longnecker will exchange 71,429 shares of Company common stock for shares of Holding common stock valued at $1.0 million. The Securities Purchase Agreements also contain provisions regarding the continued employment of Messrs. McKitrick and Longnecker in their current capacities after the Merger (the "New Employment Agreements"). Mr. McKitrick's New Employment Agreement provides for a base salary of $385,000, and Mr. Longnecker's provides for a base salary of $250,000, subject in each case to annual increases as determined by the Board of Directors (which increases must at least equal increases in the consumer price index). Additionally, Messrs. McKitrick and Longnecker are eligible for annual cash bonuses if the Company achieves certain operation cash flow targets, which bonuses are not subject to any ceilings contained in the New Employment Agreements. Mr. McKitrick's New Employment agreement provides for severance payments equal to his base salary for 18 months if his employment is terminated (other than in the case of death, disability or for cause) or if he is not reelected as President and Chief Executive Officer, reduced by any compensation he should earn during such 18- month period from other businesses. Mr. Longnecker's New Employment Agreement provides for severance payments equal to his base salary for 12 months if his employment is terminated (other than in the case of death, disability or for cause) or if he is not reelected as Executive Vice President, Finance, not subject however, to reduction for any compensation earned from other businesses. The New Employment Agreements also contemplated that Messrs. McKitrick and Longnecker will participate along with other management personnel in two stock option plans of Holding involving 4.5% of Holding's outstanding common stock and common stock equivalents on a fully diluted basis, respectively. Allocations of options among the management group are to be made in the first instance by the Chief Executive Officer of the 20 Company, subject to ratification by Holding's Board of Directors. Such allocations have not been made as of the date of this Prospectus. The management stock options will be subject to vesting based on the Company's achievement of certain operating cash flow targets. Additionally, the New Employment Agreements contemplate that Messrs. McKitrick and Longnecker will receive additional stock options which vest if the Company is sold within six years after the effective time of the Merger and the realized value of the common equity of the original investment group in Holding should equal of exceed ten times the value thereof at the time of the Merger. Mr. McKitrick's and Mr. Longnecker's options under this program are to acquire an aggregate number of shares of common stock of Holding equal to 1.25% and 0.75%, respectively, of the total outstanding common stock and common stock equivalents of Holding on a fully diluted basis. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of such reports. SEC regulations require the Company to disclose failures known to it to file such reports on a timely basis. Based upon material provided to the Company, Mr. Mckitrick failed to report on a timely basis one transaction entered into by his wife. 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the beneficial ownership of the Common Stock as of January 2, 1997 by each person known to the Company to be the beneficial owner of more than five percent of the Common Stock, each director and director designate of the Company, each Named Executive and all directors and executive officers of the Company as a group. Upon consummation of the Merger, the Company will become a wholly owned subsidiary of Holding. Except as otherwise indicated, the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares. The business address for each executive officer of the Company is in care of the Company. Shares Beneficially Name and Address Owned Percent - ---------------- ------------ ----------- JWC Acquisition I, Inc. CT Holding, Inc. JWC Equity Funding, Inc. J.W. Childs Equity Partners, L.P. J.W. Childs Advisors, L.P. J.W. Childs Associates, L.P. J.W. Childs Associates, Inc. (1)..................... 7,208,551 66.1% James T. McKitrick (2)............................... 307,770 2.8 Dean Longnecker (3).................................. 102,194 * John W. Childs (1)................................... 7,208,551 66.1 Jerry D. Horn (1).................................... 7,208,551 66.1 c/o General Nutrition Companies, Inc. 921 Penn Avenue Pittsburgh, PA 15222 Steven G. Segal (1)............................. 7,208,551 66.1 Adam L. Suttin (1).............................. 7,208,551 66.1 Jeffrey D. Swartz............................... 0 * c/o The Timberland Company 200 Domain Drive Stratham, NH 03885 William E. Watts................................ 0 * c/o General Nutrition Companies, Inc. 921 Penn Avenue Pittsburgh, PA 15222 George D. Miller (4)............................ 60,000 * Don Walter (5).................................. 26,850 * Glenn Kraiss (6)................................ 5,000 * 1979 Abbots Ford Barrington, IL 60013 Daryl Lansdale (7).............................. 7,000 * 5300 Recker Highway Winter Haven, FL 33882 Francis J. Palamara (8).............................. 9,000 * P.O. Box 44024 3110 East Maryland Phoenix, AZ 85016 All Directors and executive officers as a group (7 persons) (9)......................... 517,814 4.7 - ---------------------- * Less than 1.0% (1) Represents 6,978,028 shares owned by JWC Acquisition I, Inc., a Delaware corporation ("JWCAC") and an additional 230,523 shares subject to a warrant owned by JWCAC and exercisable within 60 days. CT Holding, Inc., JWC Equity Funding, Inc., J.W. Childs Equity Partners, L.P., J.W. Childs Advisors L.P., J.W. Childs Associates, L.P., J.W. Childs Associates, Inc. and Messrs. Childs, Horn, Segal and Suttin may each be deemed to beneficially own shares owned or deemed beneficially owned by JWCAC. Each of the foregoing, except Mr. Horn, has a business address c/o J.W. Childs Associates, L.P., One Federal Street, Boston, MA 02110. 22 (2) Includes 305,370 shares subject to stock options exercisable within 60 days. Includes 2,400 shares beneficially owned by Mr. McKitrick's wife, as to which Mr. McKitrick disclaims beneficial ownership. (3) Includes 19,565 shares subject to stock options exercisable within 60 days. Includes 11,000 shares beneficially owned by Mr. Longnecker's wife and 200 shares beneficially owned by Mr. Longnecker's son, as to which Mr. Longnecker disclaims beneficial ownership. (4) Includes 60,000 shares subject to stock options exercisable within 60 days. (5) Includes 26,850 shares subject to stock options exercisable within 60 days. (6) Includes 5,000 shares subject to stock options exercisable within 60 days. (7) Includes 7,000 shares subject to stock options exercisable within 60 days. (8) Includes 9,000 share subject to stock options exercisable within 60 days. (9) Includes 459,635 shares subject to stock options exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Two of the Company's suppliers, Iron age Corporation ("Iron Age") and Walls Industries, Inc. ("Walls"), are controlled by certain BCC affiliates. Iron Age is a manufacturer and distributor of work boots and protective footwear. Walls is a manufacturer of insulated and non-insulated workwear, rugged outdoor and hunting apparel and casual outerwear. The Company believes that the terms of its purchases from Iron Age and Walls are at least as favorable to the Company as could be obtained from other suppliers. In fiscal 1996, the Company's purchases from Iron Age and Walls totaled $4.7 and $1.6 million respectively. At the affective time of the merger, it is contemplated that the Company and Holding will enter into a management agreement with Associates providing for payment by the Company to Associates of (i) a $1.7 million closing fee in consideration of Associates' services regarding the planning, structuring and negotiation of the acquisition and (ii) an annual management fee of $240,000 in consideration of Associates' ongoing provision of certain consulting and management advisory services. Payments under this management agreement may be made only to the extent permitted by the New Credit Facility and the Indenture. The management agreement is expected to be for a five-year term, automatically renewable for successive extension terms of one year, unless associates or Holding shall give notice of termination. Additionally, Messrs., McKitrick and Longnecker are parties to Stockholders Agreement dated as of December 23, 1996, applicable to all shares of Holding common stock or vested options to acquire such common stock held now or hereafter acquired by them. The Stockholders Agreement, among other terms, permits Holding to "call" their shares and vested options on their termination of employment for any reason. Additionally, if Mr. McKitrick or Mr. Longnecker is terminated for any reason other than for cause or without good reason (as those terms are defined in the Stockholders Agreement), he has the right to "put" his shares or vested option to Holding. Depending on the circumstances, the price for shares of Holding common stock purchased in connection with a call or put under the Stockholders Agreement will, in general, be cost, six times EBITDA or seven times EBITDA. The put and call features of the Stockholders Agreement terminate on completion of a public offering of Holding common stock with aggregate net proceeds of $50.0 million or more. Also, in connection with the consummation of the acquisition, the Company will loan $250,000 to George miller to partially fund his investment in Holding common stock. The loan will be due in ten years and require payments of interest only prior to maturity at the applicable interest rate under the New Credit Facility. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this Report: 1. Financial Statements. See the Index to Financial Statements appearing at page F-1. 2. Financial Statement Schedules. The following Consolidated Financial Statement Schedule is included at page F-21: Schedule II - Valuation and Qualifying Accounts No other Financial Statement Schedules have been presented since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits. The following exhibits are filed with this Annual Report on Form 10-K or incorporated herein by reference. Exhibit No. Description 3(i).1 -- Restated Certificate of Incorporation, filed as exhibit 3(i).1 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 3(i).2 -- Certificated of Merger dated October 5, 1994, filed as exhibit 3(i).2 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 3(ii) -- By-Laws of the Company, filed as exhibit 3(ii) to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 4.1 -- Form of Common Stock Certificate of the Company, filed as exhibit 4.1 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 4.2 -- Exchange Agreement dated October 14, 1994, among the Company, Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., and Mezzanine Lending Associates III, L.P., filed as exhibit 4.2 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 24 4.3 -- Form of 7% Convertible Subordinated Note due 2002 (contained as Exhibit 2 to the Exchange Agreement filed as Exhibit 4.2), filed as exhibit 4.3 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.1 -- Credit Agreement dated January 28, 1994 among the Company, Herschel Corporation and First Bank National association, filed as exhibit 10.1 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.2 -- Stockholder's Agreement, dated October 14, 1994, among the Company, Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., and Mezzanine Lending Associates III, L.P., and the individual stockholders party thereto, filed as exhibit10.2 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.3 -- Form of Stock Option Agreement of the Company with respect to options issued prior to Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.4 -- 1994 Stock Incentive Plan, filed as exhibit 10.4 Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.5 -- Employment Agreement between the Company and James T. McKitrick dated as of September 16, 1994, filed as exhibit 10.5 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.6 -- Employment Agreement between the Company and Dean Longnecker dated as of September 16, 1994, filed as exhibit 10.6 to the Company's Registration Statement on Form S-1 (File #33- 82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.7 -- Employment Agreement between the Company and Michael London dated as of September 16, 1994, filed as exhibit 10.7 to the Company's Registration Statement on Form S-1 (File #33- 82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.8 -- Warrant dated August 31, 1993, registered in the name of BCC Industrial Services, Inc., filed as exhibit 10.8 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.9 -- Merger Agreement dated as of September 14, 1994 between the Company and Central Tractor Farm & Country, Inc., an Iowa Corporation, filed as exhibit 10.9 to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 10.10 -- 1994 Directors' Stock Option Plan, filed as exhibit 10.10 to the to the Company's Registration Statement on Form S-1 (File #33-82620) originally filed on August 9, 1994 and incorporated herein by reference. 25 10.11 -- First Amendment to Credit Agreement dated December 3, 1994 among the Company, Herschel Corporation and First Bank National Association, filed as exhibit 10.11 to the Company's 10-K originally filed on January 26, 1996 and incorporated herein by reference. 10.12 -- Second Amendment to Credit Agreement dated May 16, 1995 among the Company, Herschel Corporation and First Bank National Association, filed as exhibit 10.12 to the Company's 10-K originally filed on January 26, 1996 and incorporated herein by reference. 10.13 -- Third Amendment to Credit Agreement dated December 1, 1995 among the Company and First Bank National Association, filed as exhibit 10.13 to the Company's 10-K originally filed on January 26, 1996 and incorporated herein by reference. 10.14 -- Asset Purchase Agreement By and Between Alamo Group (USA) inc. (the "Buyer") and Herschel Corporation and Central Tractor Farm and Country, Inc. (the "Sellers") dated December 4, 1995 filed as exhibit 10.14 to the Company's 10-K originally filed on January 26, 1996 and incorporated herein by reference. 10.15 -- Asset Purchase Agreement By and Between Central Tractor Farm & Country, Inc., (the "Buyer") and Big Bear Farm Stores, Inc. (the "Seller") dated May 22, 1996, filed as exhibit 10.15 to the Company's 10-Q originally filed on September 9, 1996 and incorporated herein by reference. 10.16 -- Agreement Plan of Merger dated November 27, 1996 by and among Central Tractor Farm & Country, Inc., J.W. Childs Equity Partners, L.P., JWC Holdings I, Inc., and JWC Acquisition I, Inc., filed as an exhibit to the Company's 8-K originally filed on December 3, 1996 and incorporated herein by reference. 10.17 -- Securities Purchase Agreement dated as of November 27, 1996 by and among Central Tractor Farm & Country, Inc., J.W. Childs Equity Partners, L.P., JWC Holdings I, Inc., and JWC Acquisition I, Inc., filed as an exhibit to the Company's 8-K originally filed on December 3, 1996 and incorporated herein by reference. 10.18 -- Securities Purchase Agreement, dated as of November 6, 1996, by and among Mezzanine Lending Associates I, L.P., Mezzanine Lending Associates II, L.P., Mezzanine Lending associates III, L.P., Senior Lending Associates I, L.P., BCC Industrial Services, JWC Acquisition I, Inc., J.W. Childs Equity Partners, L.P., Central Tractor Farm & Country, Inc. filed as an exhibit to JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein by reference. 10.19 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and Mr. James T. McKitrick, filed as an exhibit to JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein by reference. 10.20 -- Letter Agreement, dated as of November 27, 1996 between JWC Acquisition I, Inc. and Mr. G. Dean Longnecker, filed as an exhibit to JWCAC's Schedule 13D originally filed on December 9, 1996 and incorporated herein by reference. 10.21 -- Employment Agreement between the Company and George D. Miller dated May 6, 1996, filed as exhibit 10.25 to the Company's Registration Statement on Form S-1 (File #333-19613) originally filed on January 10, 1997 and incorporated herein by reference.. 26 10.22 -- Credit Agreement dated as of December 23, 1996 among the Company, Holding, JWCAC, certain banks, financial institutions and other lenders listed therein, Fleet, as administrative agent, and NationsBank, as co-agent. 11 -- Statement Regarding Computation of Per Share Earnings 21 -- Subsidiaries of the Company. 23.1 -- Consent of Ernst & Young, LLP (b) Reports on Form 8-K Filed During the Last Quarter of Fiscal 1996 None. (c) See Item 14(a)(3) of this report. (d) See Item 14(a)(2) of this report. 27 INDEX TO FINANCIAL STATEMENTS Report of Ernst & Young LLP.................................................F-2 Consolidated Balance Sheets as of October 29, 1994, October 28, 1995 and November 2, 1996.....................................................F-4 Consolidated Statements of Income for fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996....................................F-5 Consolidated Statements of Changes in Stockholders' Equity for fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996......F-6 Consolidated Statements of Cash Flows for fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996..............................F-7 Notes to Consolidated Financial Statements..................................F-9 F-1 REPORT OF INDEPENDENT AUDITORS The Board of Directors Central Tractor Farm & Country, Inc. We have audited the accompanying consolidated balance sheets of Central Tractor Farm & Country, Inc. as of October 29, 1994, October 28, 1995 and November 2, 1996, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the years then ended. Our audit also included the financial statement schedules listed in Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 Central Tractor Farm & Country, Inc. at October 29, 1994, October 28, 1995 and November 2, 1996, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Des Moines, Iowa December 6, 1996 F-2
CENTRAL TRACTOR FARM & COUNTRY, INC. CONSOLIDATED BALANCE SHEETS (In thousands) October 29, October 28, November 1994 1995 2, 1996 ---------------- ---------------- ---------------- Assets Current assets: Cash and cash equivalents $ 2,582 $ 3,094 $ 3,809 Receivable from sale of common stock (Note 6) 6,703 -- -- Trade receivables, less allowances of $168 in 1994, $72 in 1995 and $50 in 1996 1,469 883 992 Inventory 75,044 93,874 107,203 Deferred income taxes (Note 7) 172 -- -- Other 1,511 1,383 2,368 Net assets of discontinued operations (Note 10) 8,113 13,520 -- --------- --------- --------- Total current assets 95,594 112,754 114,372 Property, improvements and equipment: Leasehold improvements 7,740 9,988 12,803 Furniture and fixtures 14,614 18,253 23,766 Capitalized property rights (Note 5) 2,508 2,508 2,859 Automobiles and trucks 499 817 1,065 --------- --------- --------- 25,361 31,566 40,493 Less allowances for depreciation and amortization 10,917 13,339 16,036 --------- --------- --------- 14,444 18,227 24,457 Goodwill, net of amortization of $3,490 in 1994, $4,014 in 1995 and $4,592 in 1996 17,454 16,930 19,018 Other intangible assets, net of amortization of $2,406 in 1994, $2,527 in 1995 and $2,759 in 1996 1,630 1,406 1,016 Other assets 775 660 375 Noncurrent assets of discontinued operations 9,519 -- -- --------- --------- --------- Total assets $ 139,416 $ 149,977 $ 159,238 ========= ========= =========
F-3
CENTRAL TRACTOR FARM & COUNTRY, INC. CONSOLIDATED BALANCE SHEETS (continued) (In thousands) October 29, October 28, November 1994 1995 2, 1996 ------------------ ---------------- ---------------- Liabilities and stockholders' equity Current liabilities: Bank line of credit (Note 3) $ 977 $ 6,789 $ 3,669 Accounts payable 37,557 39,150 41,081 Accrued payroll and bonuses 4,438 2,553 3,631 Deferred income taxes (Note 7) -- -- 913 Accrued income taxes 140 163 4 Other accrued expenses 1,482 1,506 1,101 Current portion of long-term debt and capital lease obligations 558 97 170 --------- --------- --------- Total current liabilities 45,152 50,258 50,569 Long-term debt, less current portion (Notes 2 and 4) 16,017 16,000 16,000 Capital lease obligations, less current portion (Note 5) 942 862 1,341 Deferred income taxes (Note 7) 1,570 1,580 1,265 --------- --------- --------- Total liabilities 63,681 68,700 69,175 Stockholders' equity (Notes 3 and 6): Preferred stock, $.01 par value: authorized shares -5,000,000; none issued or outstanding -- -- -- Common stock, $.01 par value: authorized shares - 45,000,000; issued and outstanding shares - 10,576,676 in 1994, 10,576,676 in 1995 and 10,589,082 in 1996 106 106 106 Stock warrant outstanding 665 665 665 Additional paid-in capital 69,667 69,667 69,709 Retained earnings 5,297 10,839 19,583 --------- --------- --------- Total stockholders' equity 75,735 81,277 90,063 Commitments (Notes 5 and 8) -- -- -- --------- --------- --------- Total liabilities and stockholders' equity $ 139,416 $ 149,977 $ 159,238 ========= ========= =========
See accompanying notes F-4
CENTRAL TRACTOR FARM & COUNTRY, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Fiscal year ended --------------------------------------------------- October 29, October 28, November 2, 1994 1995 1996 ---------------- ---------------- ---------------- Net sales $ 231,064 $ 251,703 $ 293,020 Cost of sales 161,523 177,340 207,228 --------- --------- --------- Gross profit 69,541 74,363 85,792 Selling, general and administrative expenses, including amounts with related parties (Note 2) 54,548 58,294 68,197 Amortization of intangibles 841 862 938 --------- --------- --------- Operating income 14,152 15,207 16,657 Interest expense, including amounts with related parties (Note 2) 4,774 1,302 1,663 --------- --------- --------- Income from continuing operations before income taxes and extraordinary item 9,378 13,905 14,994 Income taxes (Note 7) 4,197 5,720 6,250 --------- --------- --------- Income from continuing operations before extraordinary item 5,181 8,185 8,744 Discontinued operations (Notes 7 and 10): Income (loss) from discontinued operations, net of income taxes (benefit) of $(340) in 1994 and $474 in 1995 (745) 812 -- Loss on sale of Herschel Corporation, net of $665 income tax benefit -- (3,455) -- --------- --------- -------- Loss from discontinued operations (745) (2,643) -- --------- --------- -------- Income before extraordinary item 4,436 5,542 8,744 Extraordinary loss on early extinguishment of debt, net of income tax benefit of $2,073 (Note 6) 3,110 -- -- --------- --------- --------- Net income $ 1,326 $ 5,542 $ 8,744 ========= ========= ========= Per share (Note 1): Income from continuing operations before extraordinary item $0.66 $0.74 $0.80 Discontinued operations: Income (loss) from operations (0.10) 0.07 -- Loss on sale -- (0.31) -- Extraordinary loss (0.40) -- -- Net income 0.17 0.50 0.80 Weighted average common and common equivalent shares outstanding (Note 1) 7,791 11,019 10,986
See accompanying notes. F-5
CENTRAL TRACTOR FARM & COUNTRY, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands) Fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996 Note Stock Additional Receivable Total Common Warrant Paid-In from Retained Stockholders' Stock Outstanding Capital Stockholder Earnings Equity ---------- ----------- ----------- ----------- ----------- ----------- Stockholders' equity at October 30, 1993 $ 70 $ 665 $ 19,664 $ (83) $ 3,971 $ 24,287 Repurchase of common stock -- -- (70) -- -- (70) Reduction in notes from stockholders -- -- -- 83 -- 83 Issuance of common stock in connection with the Company's initial public offering, net of offering expenses (Note 6) 36 -- 50,073 -- -- 50,109 Net income -- -- -- -- 1,326 1,326 ------ ------- ------- ------- ------- ------- Stockholders' equity at October 29, 1994 106 665 69,667 -- 5,297 75,735 Net income -- -- -- -- 5,542 5,542 ------ ------- ------- ------- ------- ------- Stockholders' equity at October 28, 1995 106 665 69,667 -- 10,839 81,277 Exercise of common stock options -- -- 42 -- -- 42 Net income -- -- -- -- 8,744 8,744 ------ ------- ------- ------- ------- ------- Stockholders' equity at November 2, 1996 $ 106 $ 665 $69,709 $ -- $19,583 $90,063 ====== ======= ======= ======= ======= =======
See accompanying notes. F-6
CENTRAL TRACTOR FARM & COUNTRY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) October 29, October 28, November 2, 1994 1995 1996 ---------------- --------------- --------------- Operating activities Income from continuing operations before income taxes and extraordinary item $ 9,378 $ 13,905 $ 14,994 Adjustments to reconcile pretax income from continuing operations to net cash provided by (used in) continuing operations: Depreciation and amortization of property, improvements and equipment 2,206 2,523 3,056 Amortization of intangibles and other deferred assets 1,180 862 998 Loss on sale of assets 143 24 20 Deferred interest 109 -- -- Changes in operating assets and liabilities: Trade receivables (362) 586 83 Inventory (23,345) (18,830) (4,549) Other current assets (330) 128 (972) Accounts payable 11,371 1,593 (3,806) Accrued expenses 269 (1,861) 445 --------- --------- -------- 619 (1,070) 10,269 Income (loss) from discontinued operations before income taxes (1,085) 1,286 -- Adjustments to reconcile pretax income(loss) from discontinued operations to net cash provided by discontinued operations: Depreciation and amortization of property, improvements and equipment 559 559 -- Amortization of intangibles 561 561 -- Deferred interest 336 -- -- Changes in operating assets and liabilities (1,321) (651) 13,520 --------- --------- -------- (950) 1,755 13,520 Extraordinary loss on early extinguishment of debt before income taxes (5,183) -- -- Income taxes paid, net (1,815) (5,324) (5,675) --------- --------- -------- Net cash provided by (used in) operating activities (7,329) (4,639) 18,114
F-7
CENTRAL TRACTOR FARM & COUNTRY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In thousands) October 29, October 28, November 2, 1994 1995 1996 ---------------- --------------- --------------- Investing activities Purchases of property, improvements and equipment $ (5,207) $ (6,339) $ (8,789) Acquisition of certain net assets of Big Bear (Note 11) -- -- (5,650) Other (54) (74) 255 Discontinued operations (255) (400) -- --------- --------- -------- Net cash used in investing activities (5,516) (6,813) (14,184) Financing activities Repurchase of common stock (70) -- -- Proceeds from sale of assets -- 7 -- Borrowings under line of credit 39,025 67,020 86,782 Repayments on line of credit (38,048) (61,208) (89,902) Payments on long-term debt (37,757) (372) (17) Payments on capitalized lease obligations (244) (186) (120) Proceeds from issuance of common stock 43,406 6,703 42 --------- -------- --------- Net cash provided by (used in) financing activities 6,312 11,964 (3,215) --------- --------- -------- Net increase (decrease) in cash and cash equivalents (6,533) 512 715 Cash and cash equivalents at beginning of period 9,115 2,582 3,094 --------- --------- -------- Cash and cash equivalents at end of period $ 2,582 $ 3,094 $ 3,809 ========= ========= ======== Supplemental disclosures of cash flow information Cash paid during the period for interest $ 7,925 $ 1,491 $ 1,991 Supplemental schedule of noncash investing and financing activities Receivable from sale of common stock 6,703 -- --
See accompanying notes. F-8 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the fiscal years ended October 29, 1994, October 28, 1995 and November 2, 1996 1. Summary of Accounting Policies and Other Matters Business and Principles of Consolidation Central Tractor Farm & Country, Inc. and subsidiaries (the Company) is an agricultural specialty retailer which operates retail stores primarily located in the Midwest and Northeastern United States. The Company also sells merchandise on a wholesale basis under various distributor agreements throughout the United States. With the sale of the net operating assets of Herschel Corporation, a wholly-owned subsidiary of the Company, continuing operations constitute one business segment for financial reporting purposes. The Company operates on a 52-53 week fiscal year ending on the Saturday nearest to October 31. All significant intercompany transactions have been eliminated from the consolidated financial statements. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments, including repurchase agreements and commercial paper, are carried at cost, which approximates market. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Trade Receivables Most of the Company's retail sales are cash or credit card sales, while wholesale sales are generally on account. Concentrations of credit risk with respect to trade receivables are limited due to the number of customers of the Company and their geographic dispersion. The allowance for doubtful accounts is based on a current analysis of receivable delinquencies and historical loss experience. Inventory Inventory is recorded at cost, including warehousing and freight costs, determined principally by the last-in, first-out (LIFO) method, which is not in excess of market. The Company reviews its inventory for slow-moving, obsolete or otherwise unsalable items on a regular basis throughout the year, including at the time of physical inventory counts. Provision is made for any estimated losses to be incurred with respect to slow-moving, obsolete or otherwise unsalable inventory as such inventory is identified. Inventories valued using the LIFO method were approximately $3,926,000, $4,851,000 and $5,081,000 at October 29, 1994, October 28, 1995 and November 2, 1996, respectively, less than the amounts of such inventories valued at current cost. F-9 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. Summary of Accounting Policies and Other Matters (continued) Property, Improvements and Equipment Property, improvements and equipment are carried at cost less allowances for depreciation and amortization. Depreciation and amortization expense is computed primarily on a basis of the straight-line method over the estimated useful lives of the assets as follows: Leasehold improvements (not in excess of underlying lease terms) 5 to 20 years Furniture and fixtures 5 to 15 years Automobiles and trucks 3 to 10 years
Certain long-term lease transactions have been accounted for as capital leases. The property rights recorded under direct financing leases are amortized on a straight-line basis over the lesser of the useful life or the respective terms of the leases. Goodwill and Other Intangible Assets Goodwill is being amortized utilizing the straight-line method principally over periods of 40 years. Other intangible assets are being amortized over the periods of expected benefit, ranging from 5 to 24 years. The carrying value of goodwill and other intangibles is reviewed continually to determine whether any impairment has occurred. This review takes into consideration the recoverability of the unamortized amounts based on the estimated undiscounted cash flows of the related business lines. Deferred Income Taxes The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on the difference between financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rates. Deferred income tax expenses or credits are based on the changes in the asset or liability from period to period. Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value of financial instruments: Cash equivalents, short-term investments, accounts receivable and payable, and bank line of credit: Carrying amounts reported in the Company's consolidated balance sheets based on historical cost approximate estimated fair value for these instruments, due to their short-term nature. The fair value of the convertible long-term debt is estimated to approximate its carrying value as of November 2, 1996 and was based on the estimated market price for this security as of that date. Returns and Warranties Costs relating to merchandise returns from sales at retail stores and through distributors are not significant and are accounted for as they occur. F-10 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1. Summary of Accounting Policies and Other Matters (continued) Catalogs, Sale Flyers and Advertising Costs The direct cost of printing and mailing the Company's annual mail order catalog is deferred and amortized against mail order revenues over the year the catalog is in use. The direct cost of printing and distributing sale flyers is deferred and amortized over the life of the flyer which is generally two weeks or less. Other advertising costs are expensed as incurred. Unamortized amounts relating to the costs of the annual catalog and periodic sale flyers is immaterial at each fiscal year-end. Advertising expenses were approximately $6,184,000, $7,228,000 and $8,841,000 for fiscal 1994, 1995 and 1996, respectively. Store Pre-Opening Costs Direct costs, which consist principally of rent, employee compensation and travel costs for merchandise set-up and supplies, incurred in setting up new stores for opening are deferred and amortized over the first twenty-six weeks of store operations. The amount of unamortized store pre-opening costs at October 29, 1994, October 28, 1995 and November 2, 1996, amounted to $502,000, $431,000 and $1,123,000, respectively. Earnings Per Share Per share earnings is based on the weighted average number of shares of common stock and common stock equivalents outstanding and assuming all stock options issued prior to the Company's initial public offering and the stock warrant were outstanding at the beginning of each respective year. The dilutive effect of outstanding stock options and the stock warrant were determined based upon the Treasury Stock Method. Fully diluted earnings per share did not vary significantly from earnings per share as presented. Emerging Accounting Issues The Company is not aware of any accounting standards which have been issued and which will require the Company to change its current accounting policies or adopt new policies, the effect of which would be material to the Company's financial statements. 2. Transactions with Related Parties Certain investment funds (collectively referred to as "BCC Funds") managed by Butler Capital Corporation ("BCC") own a majority of the outstanding common stock of the Company. The BCC Funds held the senior and subordinated notes extinguished in October 1994, and currently hold the outstanding 7% convertible notes (see Note 4). Interest paid on such notes in fiscal 1994, 1995 and 1996 was approximately $6,960,000, $883,000 and $1,425,000, respectively. A company affiliated with the BCC Funds was paid a management and consulting fee of approximately $238,000 in fiscal 1994. The Company purchases inventory from two suppliers who are controlled by the BCC Funds. Purchases from these suppliers aggregated approximately $3,882,000, $6,254,000 and $6,228,000 for fiscal years 1994, 1995 and 1996, respectively. F-11 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. Line of Credit On January 28, 1994, the Company entered into a line of credit agreement with a commercial bank through February 1, 1998. At November 2, 1996, borrowings of $3,669,000 and letters of credit totaling approximately $1,515,000 were outstanding against the line of credit. Available borrowings under the line of credit are $25,000,000 each year from November 1 through May 31 and $12,000,000 from June 1 through October 31. Interest on the outstanding borrowing varies, but is primarily payable monthly at an annual rate equal to the bank's prime rate. The interest rate on October 29, 1994, October 28, 1995 and November 2, 1996 was 8.25%, 8.75%, and 8.25%, respectively. In addition, the Company is required to pay commitment fees ranging from 0.375% down to 0.125% on the total credit line, less outstanding borrowing. During the period from April 15 through December 31 in each year, the Company must have borrowing less than $5,000,000 outstanding under this line of credit for a consecutive period of 45 days. The line of credit contains, among other provisions, requirements that the Company maintain a minimum current ratio, leverage ratio and fixed charge coverage ratio. At November 2, 1996, substantially all retained earnings were restricted. 4. Long-Term Debt Long-term debt consisted of the following: October 29, October 28, November 2, 1994 1995 1996 --------------- --------------- -------------- 7% convertible notes $ 16,000,000 $ 16,000,000 $ 16,000,000 Other 388,989 17,044 -- ------------- ------------- ------------- 16,388,989 16,017,044 16,000,000 Less current portion 371,944 17,044 -- ------------- ------------- ------------- $ 16,017,045 $ 16,000,000 $ 16,000,000 5 0 0 ============= ============= ============= Interest on the convertible notes is payable quarterly at 7.0% per annum and the entire principal amount is due October 31, 2002. The note may be prepaid after October 14, 1999, at a premium of 2.0%, which declines by 1.0% annually on each October 14 thereafter. The holders of the convertible notes have the right, at any time prior to the close of business on October 31, 2002, to convert the principal amounts into shares of common stock at a conversion price of $19.375 per share. The conversion price of the convertible notes is subject to adjustment in certain events, including a common stock split, the issuance of securities convertible or exchangeable into common stock at less than the then fair market value of the common stock and certain mergers, consolidations or sales of stock. The convertible notes are subordinated to the principal amounts outstanding pursuant to the line of credit (see Note 3). As of November 2, 1996, there are no maturities of long-term debt during the next five fiscal years. F-12 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. Lease Obligations The Company has entered into certain long-term lease agreements for the use of warehouses, certain retail store facilities and computer equipment. These leases have been accounted for as purchases of property rights and designated as capitalized leases. Amortization expense relating to such property rights recorded under capitalized leases was $213,000, $130,000 and $125,000 for fiscal 1994, 1995 and 1996, respectively. The net book value of property rights recorded under capital leases was $829,000, $699,000 and $926,000 at October 29, 1994, October 28, 1995 and November 2, 1996, respectively. As of November 2, 1996, the debt associated with the capitalized property rights is represented by the present value of the minimum lease payments as follows: Fiscal year ended in: 1997 $ 347,108 1998 324,648 1999 292,968 2000 292,968 2001 292,968 After 2001 735,000 ------------ Total minimum lease payments 2,285,660 Less amount representing interest 774,663 ------------ Present value of minimum lease payments 1,510,997 Less current installments 170,072 ------------ $ 1,340,925 ============ The Company also has entered into certain noncancelable operating leases for the use of real estate, automobiles and trucks, and office equipment. Aggregate rental expense for operating leases for fiscal 1994, 1995 and 1996 was approximately $6,724,000, $7,833,000 and $9,294,000, respectively. The following is a summary of minimum rental commitments as of November 2, 1996, for operating leases:
Automobile Office Fiscal Year-End Real Estate and Trucks Equipment Total - ------------------------- ------------- --------------- -------------- ----------- 1997 $ 9,479,335 $ 12,293 $ 52,328 $ 9,543,956 1998 8,320,110 8,195 52,328 8,380,633 1999 6,822,291 -- 46,280 6,868,571 2000 5,288,555 -- 16,544 5,305,099 2001 2,927,707 -- 1,972 2,929,679 After 2001 6,315,729 -- -- 6,315,729 ------------- --------- ---------- ------------- $ 39,153,727 $ 20,488 $ 169,452 $ 39,343,667 ============= ========= ========== =============
F-13 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Capital Stock and Stock Options Capital Stock During October 1994, the Company completed an initial public offering for the sale of 3,565,000 shares of its common stock. The net proceeds from the offering were used to prepay both principal and prepayment premium on the outstanding Senior Notes and a portion of the outstanding Subordinated Notes. Prepayment premiums on the early extinguishment of these notes resulted in an extraordinary loss of $3,110,000, net of income tax benefit. The remaining Subordinated Notes in the amount of $16,000,000 were exchanged for notes which are convertible into the Company's common stock. At October 29, 1994, $6,703,000 of the net proceeds representing the Underwriter's exercise of their over-allotment option was receivable. This amount was received on November 2, 1994. The Board of Directors is authorized to issue up to an aggregate of 5,000,000 shares of preferred stock, $0.01 par value per share, in one or more series, each series to have voting preferences or other rights as determined by the Board of Directors. Under the Company's stockholders' agreement, common stock acquired by a management stockholder is subject to certain restrictions on the sale or transfer of such shares. Stock Options The Company has stock option arrangements with various officers, directors and other members of management which it accounts for under the provisions of APB Opinion No. 25 and related interpretations. The option prices approximated fair market value at the date of grant. The options generally vest over periods of three to seven years and must be exercised no later than ten years from the date of grant. With respect to options for 150,200 shares, their vesting period may be accelerated based upon the attainment of specified Company operating goals. Shares of common stock issuable upon exercise of stock options are subject to restrictions on transfer. A summary of common stock option activity through November 2, 1996 is as follows:
Fiscal Year -------------------------------------------- 1994 1995 1996 --------- --------- -------- Outstanding at beginning of year 468,923 637,774 623,960 Options granted 323,464 66,800 81,900 Options exercised -- -- (12,406) Options canceled (154,613) (80,614) (30,771) -------- -------- -------- Outstanding at end of year 637,774 623,960 662,683 ======== ======== ======== Range of option prices per share: Outstanding $3.08-$15.50 $ 3.08-$15.50 $ 3.08-$15.50 Granted during year $3.41-$15.50 $11.50-$15.50 $11.38-$14.50
F-14 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Capital Stock and Stock Options (continued) At November 2, 1996, options for 295,973 shares were exercisable. The remaining options become exercisable in fiscal years as follows: 1997 - 90,802 shares; 1998 - 30,916 shares; 1999 - 25,409 shares; 2000 - 14,000 shares; 2001 - 156,583 shares; 2002 - 49,000 shares. As of November 2, 1996, the Company has reserved 914,025 shares of common stock for issuance under stock option arrangements described above. In addition, the Company has reserved 230,523 shares of common stock for issuance under the stock warrant. Compensation expense charged to operating income relating to stock option grants amounts to $111,000 for fiscal 1994, $1,000 for fiscal 1995 and $0 for fiscal 1996. 7. Income Taxes Deferred income taxes reflect the net tax effect of temporary differences between the amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
Fiscal Year Ended -------------------------------------------------- October 29, October 28, November 2, 1994 1995 1996 ----------------- --------------- --------------- Deferred tax liabilities: Differences in depreciation on property, improvements and equipment $ 1,789,000 $ 1,890,000 $ 1,766,000 LIFO and uniform capitalization differences on inventories 787,000 1,391,000 1,160,000 Prepaid advertising 211,000 174,000 244,000 Deferred leasing costs 185,000 82,000 -- Store pre-opening costs 208,000 172,000 449,000 Other 10,000 10,000 9,000 ----------- ------------ ----------- Total deferred tax liabilities 3,190,000 3,719,000 3,628,000 ----------- ------------ -----------
F-15 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. Income Taxes (continued)
Fiscal Year Ended ------------------------------------------------------- October 29, October 28, November 2, 1994 1995 1996 --------------- --------------- --------------- Deferred tax assets: Loss on sale of discontinued operations: Ordinary loss $ -- $ 665,000 $ -- Capital loss carryforward -- 755,000 755,000 Allowance for doubtful accounts 101,000 45,000 20,000 Compensation and employee benefit accruals 174,000 148,000 58,000 Operating leases 330,000 261,000 273,000 Accrued profit sharing contributions 323,000 321,000 356,000 Stock warrant 279,000 266,000 266,000 Accrued store closing costs 168,000 86,000 32,000 Capitalized property rights and lease obligations treated as operating leases for income tax purposes 126,000 97,000 234,000 Other 291,000 250,000 211,000 ------------ ------------ ------------ 1,792,000 2,894,000 2,205,000 Less valuation allowance for capital loss carryforward -- (755,000) (755,000) ------------ ------------ ------------ Total deferred tax assets 1,792,000 2,139,000 1,450,000 ------------ ------------ ------------ Net deferred tax liabilities $ 1,398,000 $ 1,580,000 $ 2,178,000 ============ ============ ============ The capital loss carryforward relating to the sale of Herschel will expire in the year 2001. Components of income tax expense (benefit) are as follows: Fiscal Year Ended -------------------------------------------------------- October 29, October 28, November 2, 1994 1995 1996 ---------------- --------------- --------------- Continuing operations: Current: Federal $ 3,121,000 $ 3,768,000 $ 3,951,000 State 709,000 1,152,000 1,199,000 ------------ ----------- ----------- 3,830,000 4,920,000 5,150,000 Deferred 367,000 800,000 1,100,000 ------------ ----------- ----------- 4,197,000 5,720,000 6,250,000 Discontinued operations: Current (302,000) 427,000 367,000 Deferred (38,000) (618,000) (367,000) ------------ ----------- ----------- (340,000) (191,000) -- ------------ ----------- ----------- Extraordinary loss - currently deductible (2,073,000) -- -- ------------ ----------- ----------- Total $ 1,784,000 $ 5,529,000 $ 6,250,000 ============ =========== ===========
F-16 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. Income Taxes (continued) Total reported income tax expense differs from the tax that would have resulted by applying the statutory expected federal income tax rate to income before taxes. The reasons for these differences are as follows:
Fiscal Year Ended ------------------------------------------------- October 29, October 28, November 2, 1994 1995 1996 --------------- ------------- -------------- Income tax at federal statutory rate $ 1,057,000 $ 3,764,000 $ 5,098,000 Increases in taxes resulting from: State income taxes, net of federal income tax effect 403,000 897,000 833,000 Goodwill amortization 215,000 215,000 178,000 Capital loss carryforward -- 755,000 -- Other, net 109,000 102,000 141,000 Reduction of prior year overaccruals -- (204,000) -- ------------ ------------ ------------ $ 1,784,000 $ 5,529,000 $ 6,250,000 ============ ============ ============
8. Employment Commitments The Company has employment agreements with three officers of the Company which provide for annual salaries amounting to approximately $775,000. Upon termination of employment for death, disability or without cause, compensation may be continued for a period not to exceed two years. 9. Profit Sharing Plan The Company has a profit sharing plan covering all employees who meet certain eligibility requirements. The plan provides for discretionary employer contributions and allows voluntary participant contributions. Company contributions are determined by its Board of Directors. The Company incurred expense in connection with the profit sharing plan of $770,000, $804,000 and $881,000 for fiscal 1994, 1995 and 1996, respectively. F-17 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. Discontinued Operations During fiscal 1996, the Company completed the sale of its wholly owned subsidiary, Herschel Corporation ("Herschel"), a manufacturer and wholesale distributor of equipment parts for use in the farming industry. Herschel has been reported as a discontinued segment of the business; accordingly, its net assets and operating results have been segregated in the consolidated financial statements. The net assets of Herschel Corporation have been classified as current at October 28, 1995 as the carrying amount approximates the selling price, plus advances to be repaid, less expenses of sale, and were realized upon closing in December 1995. Summarized financial information of the Company's income (loss) from discontinued operations follow: Fiscal Year Ended ------------------------------- October 29, October 28, 1994 1995 ------------- ------------- Net sales $ 23,312,046 $ 22,969,504 Income (loss) before income taxes (1,085,217) 1,286,242 Income taxes (credit) (340,000) 474,127 Income (loss) from discontinued operations (745,217) 812,115 11. Acquisition On May 31, 1996, the Company acquired 31 retail stores and related net operating assets from Big Bear Farm Stores, Inc. ("Big Bear"), an agricultural specialty retailer, for approximately $5,650,000. The transaction was accounted for as a purchase. The purchase price was allocated based on fair value as follows: Inventories $ 8,780,000 Accounts receivable and other assets 206,000 Leaseholds and equipment 517,000 Deferred income taxes 135,000 Goodwill 2,666,000 Accounts payable and accrued expenses (6,654,000) ------------ $ 5,650,000 ============ The results of operations of Big Bear from the date of purchase to the end of fiscal year 1996 are included in the accompanying consolidated statement of income. F-18 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. Acquisition (continued) Pro forma amounts, based on the assumption that the purchase occurred at the beginning of fiscal 1995, are as follows (in thousands, except per share data): Fiscal Year Ended -------------------------------------------- October 28, November 2, 1995 1996 -------------------- -------------------- Net sales $275,685 $307,847 Net income 6,018 9,104 Net income per share .55 .83 12. Quarterly Results of Operations (Unaudited) The following is a tabulation of the unaudited quarterly results of operations for the years ended October 28, 1995 and November 2, 1996 (in thousands, except per share data):
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ------------- ------------ ---------- Fiscal year ended October 28, 1995: Net sales $61,836 $59,347 $74,362 $56,158 Gross profit 17,362 18,214 22,557 16,230 Income from continuing operations 1,473 2,121 4,249 342 Income (loss) from discontinued operations (1) 467 187 (3,296) Net income (loss) 1,472 2,588 4,436 (2,954) Per share: Income from continuing operations 0.13 0.19 0.39 0.03 Income (loss) from discontinued -- 0.04 0.02 (0.30) operations Net income (loss) 0.13 0.23 0.40 (0.27) Fiscal year ended November 2, 1996: Net sales 69,967 62,989 86,169 73,895 Gross profit 18,862 19,245 25,417 22,268 Net income 1,280 1,684 3,937 1,843 Net income per share 0.12 0.15 0.36 0.17
The sum of quarterly per share amounts do not necessarily equal the annual amount reported, as per share amounts are computed separately for each quarter and the full year based on respective weighted average of common and common equivalent shares outstanding. F-19 CENTRAL TRACTOR FARM & COUNTRY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 13. Subsequent Event On November 27, 1996, the Board of Directors of the Company approved, and the Company entered into, a merger agreement (the "Merger Agreement") with J.W. Childs Equity Partners, L.P. and two of its affiliates (collectively, "Childs") that provides for the acquisition of the Company by Childs in a two-stage transaction. The Merger Agreement provides that following the acquisition by Childs of all of the Company shares held by affiliates of Butler Capital Corporation (collectively, "BCC"), an affiliate of Childs will merge with and into the Company, and Childs will acquire the remaining shares of the Company held by public stockholders for $14.25 per share in cash. The consummation of the merger is subject to the satisfaction of certain conditions including, among other things, (i) the acquisition by Childs of all of the Company's shares held by affiliates of BCC and (ii) the availability of sufficient funds to consummate the merger pursuant to commitments obtained by Childs from its prospective lenders. Pursuant to an agreement executed contemporaneously with the Merger Agreement between Childs and affiliates of BCC which own 64.5% of the Company's outstanding common stock, BCC's affiliates have sold 1,048,214 shares of the Company's common stock (representing 9.9% of the outstanding shares) to Childs for a cash consideration of $14.00 per share, and have agreed to sell their remaining shares to Childs for $14.00 per share in cash. The agreement also provides that such BCC affiliates will agree, immediately following the conclusion of the stock sale, to the prepayment by the Company (without payment of any prepayment premium) of all the Company's 7% convertible notes with a face amount of $16,000,000. In connection with the second purchase, certain members of management agreed to sell 146,299 shares to Childs for a cash consideration of $14.00 per share. While the Merger Agreement is subject to stockholder approval, it is expected that Childs will own a sufficient number of shares of Company common stock to adopt and approve the merger. F-20 CENTRAL TRACTOR FARM & COUNTRY, INC. Valuation and Qualifying Accounts Schedule II Allowance for Trade Receivables ---------------- Balance at October 30, 1993 $(157,000) Charged to expense (18,000) Write-off of uncollectible accounts 7,000 ------------ Balance at October 29, 1994 (168,000) Credited to expense 30,500 Write-off of uncollectible accounts 65,500 ------------ Balance at October 28, 1995 (72,000) Credited to expense 20,500 Write-off of uncollectible accounts 1,500 ------------ Balance at November 2, 1996 $ (50,000) ============= F-21 SIGNATURE 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. CENTRAL TRACTOR FARM & COUNTRY, INC. DATED: January 31, 1997 By: /s/ James T. McKitrick James T. McKitrick, President and Chief 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. DATED: January 31, 1997 /s/ James T. McKitrick President and Chief Executive Officer, Director James T. McKitrick Principal Executive Officer) /s/ Dean Longnecker Executive Vice President of Finance, Director Dean Longnecker (Principal Financial and Accounting Officer) /s/ Francis J. Palamara Director Francis J. Palamara /s/ Daryl Lansdale Director Daryl Lansdale /s/ Glenn Kraiss Director Glenn Kraiss EX-10.22 2 EXECUTION COPY $38,000,000 CREDIT AGREEMENT Dated as of December 23, 1996 Among CENTRAL TRACTOR FARM & COUNTRY, INC., as Borrower, CT HOLDING, INC., as Holding, JWC ACQUISITION I, INC., as the Purchaser, and THE INITIAL LENDERS, INITIAL ISSUING BANK AND SWING LINE BANK NAMED HEREIN as Initial Lenders, Initial Issuing Bank and Swing Line Bank and FLEET NATIONAL BANK as Administrative Agent and NATIONSBANK, N.A. as Co-Agent T A B L E O F C O N T E N T S Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.01. Certain Defined Terms................................................ 2 1.02. Computation of Time Periods.......................................... 27 1.03. Accounting Terms..................................................... 28 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT 2.01. The Advances......................................................... 28 2.02. Making the Advances.................................................. 30 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit............................................................. 32 2.04. Repayment of Advances................................................ 34 2.05. Termination or Reduction of the Commitments.......................... 36 2.06. Prepayments.......................................................... 36 2.07. Interest............................................................. 38 2.08. Fees................................................................. 39 2.09. Conversion of Advances............................................... 40 2.10. Increased Costs, Etc................................................. 41 2.11. Payments and Computations............................................ 43 2.12. Taxes................................................................ 44 2.13. Sharing of Payments, Etc............................................. 47 2.14. Use of Proceeds...................................................... 47 2.15. Defaulting Lenders................................................... 48 2.16. Removal of Lender.................................................... 50 ARTICLE III CONDITIONS OF LENDING 3.01. Conditions Precedent to Initial Extension of Credit.................. 51 3.02. Conditions Precedent to the First Extension of Credit on or After the Date of the Consummation of the Merger......................... 56 3.03. Conditions Precedent to Each Borrowing and Issuance.................. 59 ii 3.04. Determinations Under Sections 3.01 and 3.02.......................... 60 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties....................................... 60 ARTICLE V COVENANTS OF THE BORROWER 5.01. Affirmative Covenants................................................ 68 5.02. Negative Covenants................................................... 74 5.03. Reporting Requirements............................................... 80 5.04. Financial Covenants.................................................. 85 ARTICLE VI EVENTS OF DEFAULT 6.01. Events of Default.................................................... 86 6.02. Actions in Respect of the Letters of Credit upon Default............. 90 ARTICLE VII THE ADMINISTRATIVE AGENT 7.01. Authorization and Action............................................. 90 7.02. Administrative Agent's Reliance, Etc................................. 91 7.03. Fleet and Affiliates................................................. 91 7.04. Lender Party Credit Decision......................................... 92 7.05. Indemnification...................................................... 92 7.06. Successor Administrative Agents...................................... 94 ARTICLE VIII MISCELLANEOUS 8.01. Amendments, Etc...................................................... 95 8.02. Notices, Etc......................................................... 96 8.03. No Waiver; Remedies.................................................. 96 iii 8.04. Costs and Expenses................................................... 96 8.05. Right of Set-off..................................................... 98 8.06. Binding Effect....................................................... 99 8.07. Assignments and Participations....................................... 99 8.08. Execution in Counterparts............................................102 8.09. No Liability of the Issuing Bank.....................................102 8.10. Confidentiality......................................................102 8.11. Jurisdiction, Etc....................................................103 8.12. Governing Law........................................................103 8.13. Waiver of Jury Trial.................................................103 ARTICLE IX GUARANTY 9.01. Guaranty.............................................................104 9.02. Guaranty Absolute....................................................104 9.03. Waivers and Acknowledgments..........................................105 9.04. Subrogation..........................................................106 9.05. Continuing Guarantee; Assignments....................................107 iv SCHEDULES Schedule I - Commitments and Applicable Lending Offices Schedule II - Disclosed Litigation Schedule III - Subsidiaries Schedule IV - Authorizations, Etc. Schedule V - Plans Schedule VI - Existing Debt Schedule VII - Owned Real Property Schedule VIII - Leased Real Property Schedule IX - Material Contracts Schedule X - Investments Schedule XI - Intellectual Property Schedule XII - Mortgaged Property Schedule XIII - Liens Schedule XIV - Surviving Debt Schedule XV - Environmental Disclosure EXHIBITS Exhibit A-1 - Form of Term Note Exhibit A-2 - Form of Revolving Credit Note Exhibit B - Form of Notice of Borrowing Exhibit C - Form of Assignment and Acceptance v Exhibit D - Form of Security Agreement Exhibit E - Form of Opinion of Holdings' and the Purchaser's Counsel Exhibit F - Form of Opinion of Borrower's Counsel Exhibit G - Form of Solvency Certificate Exhibit H - Form of Borrowing Base Certificate Exhibit I - Form of Management Agreement CREDIT AGREEMENT CREDIT AGREEMENT dated as of December 23, 1996 among Central Tractor Farm & Country, Inc., a Delaware corporation (the "Borrower"), CT Holding Inc., a Delaware corporation ("Holding"), JWC Acquisition I, Inc., a Delaware corporation (the "Purchaser"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "Initial Lenders"), the Initial Issuing Bank (as hereinafter defined), the Swing Line Bank (as hereinafter defined), Fleet National Bank ("Fleet"), as administrative agent (together with any successor appointed pursuant to Article VII, the "Administrative Agent") for the Lender Parties (as hereinafter defined) and NationsBank, N.A. ("NationsBank) as co-agent (the "Co-Agent") for the Lender Parties. PRELIMINARY STATEMENTS: (1) J.W. Childs Equity Partners, L.P. ("J.W. Childs") organized a Subsidiary (as hereinafter defined), JWC Equity Funding, Inc., a Delaware corporation ("Funding"), which in turn organized a single-purpose subsidiary, Holding. Holding, in turn, organized the Purchaser as a single-purpose, wholly owned Subsidiary. (2) The Purchaser, pursuant to the Securities Purchase Agreement dated as of November 27, 1996 (as the same may be amended, modified or otherwise supplemented from time to time in accordance with the provisions of this Agreement, the "Purchase Agreement") with the "Securityholders" referred to therein, purchased (the "Initial Purchase") 1,048,214 shares of the Borrower's outstanding common stock, $0.01 par value (all of such common stock being referred to herein as the "Borrower Stock"), owned by Butler Capital Corporation and its Affiliates (as hereinafter defined) (collectively, "Butler") for $14 in cash per share. (3) The Purchaser, pursuant to the terms of the Purchase Agreement, intends to purchase (the "Additional Purchase"; together with the Initial Purchase, the "Stock Purchase") 5,783,515 shares of the Borrower Stock and a warrant (the "Borrower Warrant") representing 230,523 shares of Borrower Stock from Butler for $14 in cash per share. Subsequently, the Purchaser, pursuant to the terms of letter agreements with James McKitrick and Dean Longnecker, each dated November 27, 1996 (the "Letter Agreements"), intends to purchase (the "Subsequent Purchase"; together with the Initial Purchase and the Additional Purchase, the "Stock Purchase") 146,299 shares of Borrower Stock from certain members of senior management of the Borrower for $14 in cash per share. (4) As promptly as practicable after the closing of the Additional Purchase, the Purchaser will consummate a merger (the "Merger") with the Borrower in which the Borrower will be the surviving corporation. 2 (5) The Borrower has requested that, immediately upon the consummation of the Additional Purchase, the Lender Parties lend to the Borrower up to $38,000,000 to pay transaction fees and expenses, refinance certain Existing Debt (as hereinafter defined) of the Borrower and that, from time to time, the Lender Parties lend to the Borrower and issue Letters of Credit for the benefit of the Borrower to provide working capital for the Borrower and its Subsidiaries. The Lender Parties have indicated their willingness to agree to lend such amounts on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Additional Purchase" has the meaning specified in the Preliminary Statements. "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Fleet at its office at One Federal Street, Boston, Massachusetts 02211, ABA No. 011 000 138, Account No. 151035- 03-156, Attention: Terry DeMarco. "Advance" means a Term Advance, a Revolving Credit Advance, a Swing Line Advance or a Letter of Credit Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling," "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise. 3 "Applicable Lending Office" means, with respect to each Lender Party, such Lender Party's Domestic Lending Office in the case of a Prime Rate Advance and such Lender Party's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Applicable Margin" means (x) during the period from the date hereof through the first day of Fiscal Year 1998 1% per annum for Prime Rate Advances and 2-1/4% per annum for Eurodollar Rate Advances and (y) thereafter, a percentage per annum determined by reference to the Debt to EBITDA Ratio as set forth below:
Prime Rate Advances Eurodollar Rate Advances ------------------- ------------------------ Level I 0.25% 1.50% ------- less than 3.0: 1 Level II 0.50% 1.75% -------- 3.0: 1 or greater, but less than 3.5: 1 0.75% 2.00% Level III --------- 3.5: 1 or greater, but less than 4.0: 1 Level IV 1.00% 2.25% -------- 4.0: 1 or greater
The Applicable Margin for each Prime Rate Advance shall be determined by reference to the ratio in effect from time to time and the Applicable Margin for each Eurodollar Rate Advance shall be determined by reference to the ratio in effect on the first day of each Interest Period for such Advance; provided, however, that no change in the Applicable Margin shall be effective until three Business Days after the date on which the Administrative Agent receives financial statements pursuant to 4 Section 5.03(b), (c) or (d) and a certificate of the chief financial officer of the Borrower demonstrating such ratio. "Appropriate Lender" means, at any time, with respect to (a) any of the Term or Revolving Credit Facilities, a Lender that has a Commitment with respect to such Facility at such time, (b) the Letter of Credit Facility, (i) the Issuing Bank and (ii) if the other Revolving Credit Lenders have made Letter of Credit Advances pursuant to Section 2.03(c) that are outstanding at such time, each such other Revolving Credit Lender and (c) the Swing Line Facility, (i) the Swing Line Bank and (ii) if the other Revolving Credit Lenders have made Swing Line Advances pursuant to Section 2.02(b) that are outstanding at such time, each such other Revolving Credit Lender. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender Party and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 8.07 and in substantially the form of Exhibit C hereto. "Available Amount" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing). "Borrower" has the meaning specified in the recital of parties to this Agreement. "Borrower Stock" has the meaning specified in the Preliminary Statements. "Borrower Warrant" has the meaning specified in the Preliminary Statements. "Borrower's Account" means the account of the Borrower maintained by the Borrower with Fleet at its office at One Federal Street, Boston, Massachusetts 02110, ABA No. 011 000 138, Account No. 937 3835380, Attention: Terry DeMarco. "Borrowing" means a Term Borrowing, a Revolving Credit Borrowing or a Swing Line Borrowing. "Borrowing Base Deficiency" means, at any time, the failure of (a) the Loan Value of the Eligible Collateral at such time to equal or exceed (b) the sum of (i) the aggregate principal amount of the Revolving Credit Advances, the Letter of Credit Advances and the Swing Line Advances outstanding at such time plus (ii) the aggregate Available Amount under all Letters of Credit outstanding at such time. 5 "Borrowing Rate Certificate" means a certificate in substantially the form of Exhibit H hereto, duly certified by the chief financial officer of the Borrower. "Bridge Note Documents" means the agreements and instruments which govern the terms of the Bridge Notes, as the same may be amended, modified or otherwise supplemented from time to time in accordance with the provisions of this Agreement. "Bridge Notes" means the securities, if any, issued by the Borrower as contemplated by the terms of the Bridge Commitment Letter dated November 26, 1996 from NationsBridge L.L.C. to J.W. Childs and any other securities for which such securities are exchanged pursuant to such Bridge Commitment Letter. "Business Day" means a day of the year on which banks are not required or authorized by law to close in Boston, Massachusetts and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Butler" has the meaning specified in the Preliminary Statements. "Capital Expenditures" means, for any Person for any period, the sum of (a) all expenditures made, directly or indirectly, by such Person or any of its Subsidiaries during such period for equipment, fixed assets, real property or improvements, or for replacements or substitutions therefor or additions thereto, that have been or should be, in accordance with GAAP, reflected as additions to property, plant or equipment on a Consolidated balance sheet of such Person or have a useful life of more than one year plus (b) (without duplication) the aggregate principal amount of all Debt (including Obligations under Capitalized Leases) assumed or incurred in connection with any such expenditures. "Capitalized Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Cash Collateral Account" has the meaning specified in the Security Agreement. "Cash Equivalents" means any of the following, to the extent owned by the Borrower or any of its Subsidiaries free and clear of all Liens other than Liens created under the Collateral Documents and having a maturity of not greater than 360 days from the date of acquisition thereof: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government 6 of the United States, (b) insured certificates of deposit of or time deposits with any commercial bank that is a Lender Party or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c), is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion or (c) commercial paper in an aggregate amount of no more than $2.5 million per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's Ratings Group. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency. "Co-Agent" has the meaning specified in the recital of parties to this Agreement. "Collateral" means all "Collateral" referred to in the Collateral Documents and all other property that is or is intended to be subject to any Lien in favor of the Administrative Agent for the benefit of the Secured Parties. "Collateral Documents" means the Security Agreement, the Pledge Agreement and any other agreement that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Lender Parties. "Commitment" means a Term Commitment, a Revolving Credit Commitment or a Letter of Credit Commitment. "Confidential Information" means information that the Borrower furnishes to the Administrative Agent or any Lender Party that is proprietary in nature, including financial information, projections, business plans and other information in a writing marked, labeled or otherwise identified as confidential, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by the Administrative Agent or any Lender Party of its obligations hereunder or that is or becomes available to the Administrative Agent or such Lender Party from a source other than the Borrower. 7 "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Conversion", "Convert" and "Converted" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09 or 2.10. "Current Assets" of any Person means all assets of such Person that would, in accordance with GAAP, be classified as current assets of a company conducting a business the same as or similar to that of such Person, after deducting adequate reserves in each case in which a reserve is proper in accordance with GAAP. "Current Liabilities" of any Person means (a) all Debt of such Person that by its terms is payable on demand or matures within one year after the date of determination (excluding any Debt renewable or extendible, at the option of such Person, to a date more than one year from such date or arising under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date), (b) without duplication, all amounts of Funded Debt of such Person required to be paid or prepaid within one year after such date and (c) all other items (including taxes accrued as estimated) that in accordance with GAAP would be classified as current liabilities of such Person. "Debt" of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred purchase price of property or services (other than trade payables not overdue by more than 90 days incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under Capitalized Leases, (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any capital stock of or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such capital stock, valued, in the case of Redeemable Preferred Stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Obligations of such Person in respect of Hedge Agreements, (i) all Debt of others referred to in clauses (a) through (h) above or clause (j) below guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to 8 pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Debt or to assure the holder of such Debt against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (j) all Debt referred to in clauses (a) through (j) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Debt. "Debt to EBITDA Ratio" means, for any fiscal quarter of Holding, a ratio of Debt of Holding and its Subsidiaries (other than any Debt of Holding that bears interest on a payment-in-kind basis) as at the end of such fiscal quarter less the sum of cash and Cash Equivalents held by Holding and its Subsidiaries as at the end of such fiscal quarter, to Consolidated EBITDA for the most recently completed four fiscal quarters of Holding and its Subsidiaries. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender Party at any time, the portion of any Advance required to be made by such Lender Party to the Borrower pursuant to Section 2.01 or 2.02 at or prior to such time which has not been made by such Lender Party or by the Administrative Agent for the account of such Lender Party pursuant to Section 2.02(e) as of such time. In the event that a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.15(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any Lender Party at any time, any amount required to be paid by such Lender Party to the Administrative Agent or any other Lender Party hereunder or under any other Loan Document at or prior to such time which has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender Party to (a) the Swing Line Bank pursuant to Section 2.02(b) to purchase a portion of a Swing Line Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section 2.03(c) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of 9 any Advance made by the Administrative Agent for the account of such Lender Party, (d) any other Lender Party pursuant to Section 2.13 to purchase any participation in Advances owing to such other Lender Party and (e) the Administrative Agent or the Issuing Bank pursuant to Section 7.05 to reimburse the Administrative Agent or the Issuing Bank for such Lender Party's ratable share of any amount required to be paid by the Lender Parties to the Administrative Agent or the Issuing Bank as provided therein. In the event that a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.15(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be paid hereunder or under any other Loan Document on the same date as the Defaulted Amount so deemed paid in part. "Defaulting Lender" means, at any time, any Lender Party that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). "Disclosed Litigation" has the meaning specified in Section 3.01(j). "Domestic Lending Office" means, with respect to any Lender Party, the office of such Lender Party specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender Party, as the case may be, or such other office of such Lender Party as such Lender Party may from time to time specify to the Borrower and the Administrative Agent. "EBITDA" means, for any period, the sum, determined on a Consolidated basis, of (a) net income (or net loss), (b) interest expense, (c) income tax expense, (d) depreciation expense and (e) amortization expense, in each case of the Borrower and its Subsidiaries, determined in accordance with GAAP for such period. "Eligible Assignee" means (a) with respect to any Facility (other than the Letter of Credit Facility), (i) a Lender; (ii) an Affiliate of a Lender; (iii) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $500,000,000; (iv) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $500,000,000; (v) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or of the Cayman Islands, or a political subdivision of any such country, and having total assets in excess of $500,000,000, so long as such bank is acting through a branch or agency located in the United States; (vi) the central bank of any country that is a member of the OECD; (vii) a finance company, 10 insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $500,000,000; and (viii) any other Person approved by the Administrative Agent and the Borrower, such approval not to be unreasonably withheld or delayed, and (b) with respect to the Letter of Credit Facility, a Person that is an Eligible Assignee under subclause (iii) or (v) of clause (a) of this definition and is approved by the Administrative Agent and the Borrower, such approval not to be unreasonably withheld or delayed; provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Eligible Collateral" means, collectively, Eligible Inventory and Eligible Receivables. "Eligible Inventory" means all Inventory of the Borrower other than the following classes of Inventory: (a) Inventory consisting of "perishable agricultural commodities" within the meaning of the Perishable Agricultural Commodities Act of 1930, as amended, and the regulations thereunder, or on which a Lien has arisen or may arise in favor of agricultural producers under comparable state or local laws; (b) Inventory that is obsolete, unusable or otherwise unavailable for sale; (c) Inventory with respect to which the representations and warranties set forth in Section 8 of the Security Agreement applicable to Inventory are not true and correct; (d) Inventory consisting of promotional, marketing, packaging or shipping materials and supplies; (e) Inventory that fails to meet all standards imposed by any governmental agency, or department or division thereof, having regulatory authority over such Inventory or its use or sale; (f) Inventory that is subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party from whom the Borrower has received notice of a dispute in respect of any such agreement; 11 (g) Inventory located outside the United States; (h) Inventory that is not in the possession of or under the sole control of the Borrower; (i) Inventory consisting of work in progress; and (j) Inventory in respect of which the Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority lien or security interest in favor of the Lender Parties securing the Secured Obligations. "Eligible Receivables" means all Receivables of the Borrower other than the following classes of Receivables: (a) Receivables that do not arise out of sales of goods or rendering of services in the ordinary course of the Borrower's business; (b) Receivables on terms other than those normal or customary in the Borrower's business; (c) Receivables owing from any Person that is an Affiliate of the Borrower; (d) Receivables more than 90 days past original invoice date or more than 60 days past the date due; (e) Receivables owing from any Person that (i) has disputed liability for any Receivable owing from such Person or (ii) has otherwise asserted any claim, demand or liability, whether by action, suit, counterclaim or otherwise; (f) Receivables owing from any Person that shall take or be the subject of any action or proceeding of a type described in Section 6.01(f); (g) Receivables (i) owing from any Person that is also a supplier to or creditor of the Borrower or (ii) representing any manufacturer's or supplier's credits, discounts, incentive plans or similar arrangements entitling the Borrower to discounts on future purchase therefrom; (h) Receivables arising out of sales to account debtors outside the United States; 12 (i) Receivables arising out of sales on a bill-and-hold, guaranteed sale, sale-or-return, sale on approval or consignment basis or subject to any right of return, set-off or charge-back; (j) Receivables owing from an account debtor that is an agency, department or instrumentality of the United States or any State thereof; (k) Receivables the full and timely payment of which the Administrative Agent in its reasonable judgment believes to be doubtful; and (l) Receivables in respect of which the Security Agreement, after giving effect to the related filings of financing statements that have then been made, if any, does not or has ceased to create a valid and perfected first priority lien or security interest in favor of the Lender Parties securing the Secured Obligations. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance that has the force and effect of law relating to pollution or protection of the environment, public or employee health and safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity" has the meaning specified in Section 3.01(f). "Equity Investors" means J.W. Childs and its Affiliates and co-investors, Fleet Equity Partners and its Affiliates, certain members of management of the Borrower and certain members of the Board of Directors of Holding. 13 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC, or (ii) the requirements of subsection (1) of Section 4043(b) of ERISA (without regard to subsection (2) of such Section) are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any Loan Party or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender Party, the office of such Lender Party specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender Party (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender Party as such Lender Party may from time to time specify to the Borrower and the Administrative Agent. 14 "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum at which deposits in U.S. dollars are offered by the principal office of Fleet in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to Fleet's Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period (or, if Fleet shall not have such a Eurodollar Rate Advance, $1,000,000) and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excess Cash Flow" means, for any period, the amount by which (a) the sum of (i) Consolidated net income (or loss) of the Borrower and its Subsidiaries for such period the initial Borrowing plus (ii) the aggregate amount of all non-cash charges deducted in arriving at such Consolidated net income (or loss) plus (iii) if there was a net increase in Consolidated Current Liabilities of the Borrower and its Subsidiaries during such period, the amount of such net increase plus (iv) if there was a net decrease in Consolidated Current Assets (excluding cash and Cash Equivalents) of the Borrower and its Subsidiaries during such period, the amount of such net decrease less (v) the aggregate amount of all non-cash credits included in arriving at such Consolidated net income (or loss) less (vi) if there was a net decrease in Consolidated Current Liabilities of the Borrower and its Subsidiaries during such period, the amount of such net decrease less (vii) if there was a net increase in Consolidated Current Assets (excluding cash and Cash Equivalents) of the Borrower and its Subsidiaries during such period, the amount of such net increase less (viii) the aggregate amount of cash paid by the Borrower and its Subsidiaries in respect of Capital Expenditures during such period less (ix) without duplication, the aggregate 15 amount of all cash payments made by the Borrower and its Subsidiaries in respect of the permanent reduction of Debt (of the type referred to in clauses (a), (c), (d), (e) and (f) of the definition thereof) during such period exceeds (b) $2,000,000. "Existing Debt" means Debt of the Borrower and its Subsidiaries outstanding immediately before the date hereof. "Extension of Credit" means a Borrowing or an issuance of a Letter of Credit hereunder. "Extraordinary Receipt" means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including, without limitation, tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof) and indemnity payments in respect of loss or damage to equipment, fixed assets or real property; provided, however, that an Extraordinary Receipt shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments in respect of loss or damage to equipment, fixed assets or real property are applied (or in respect of which expenditures were previously incurred) to replace or repair the equipment, fixed assets or real property in respect of which such proceeds were received in accordance with the terms of the Loan Documents, so long as such application is made within 12 months after the occurrence of such damage or loss. "Facility" means the Term Facility, the Revolving Credit Facility, the Swing Line Facility or the Letter of Credit Facility. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financing Documents" means the Stock Purchase Facility Documents, the Bridge Note Documents and the Permanent Debt Documents. 16 "Fiscal Year" means a fiscal year of the Borrower and its Consolidated Subsidiaries ending in October or November of any calendar year. "Funded Debt" of any Person means Debt in respect of the Advances, in the case of the Borrower, and all other Debt of such Person that by its terms matures more than one year after the date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, excluding, however, all amounts of Funded Debt of such Person required to be paid or prepaid within one year after the date of determination. "GAAP" has the meaning specified in Section 1.03. "Guaranty" has the meaning specified in Section 9.01. "Hazardous Materials" means (a) petroleum or petroleum products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated or classified as hazardous or toxic, regulated under, any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements. "Holding" has the meaning specified in the recital of parties hereto. "Indemnified Party" has the meaning specified in Section 8.04(b). "Initial Extension of Credit" means the earlier to occur of the initial Borrowing and the initial issuance of a Letter of Credit hereunder. "Initial Issuing Bank" means Fleet. "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Initial Purchase" has the meaning specified in the Preliminary Statements. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. 17 "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Prime Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, as the Borrower may, upon notice received by the Administrative Agent not later than 11:00 A.M. (Boston, Massachusetts) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance under a Facility that ends after any principal repayment installment date for such Facility unless, after giving effect to such selection, the aggregate principal amount of Prime Rate Advances and of Eurodollar Rate Advances having Interest Periods that end on or prior to such principal repayment installment date for such Facility shall be at least equal to the aggregate principal amount of Advances under such Facility due and payable on or prior to such date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. 18 "Inventory" means all Inventory referred to in Section 1(b) of the Security Agreement. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any capital stock or other ownership or profit interest, warrants, rights, options, obligations or other securities of such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (i) or (j) of the definition of "Debt" in respect of such Person. "Issuing Bank" means the Initial Issuing Bank and each Eligible Assignee to which the Letter of Credit Commitment hereunder has been assigned pursuant to Section 8.07. "J.W. Childs" has the meaning specified in the Preliminary Statements. "L/C Cash Collateral Account" has the meaning specified in the Security Agreement. "L/C Related Documents" has the meaning specified in Section 2.04(e)(ii). "Lender Party" means any Lender, the Issuing Bank or the Swing Line Bank. "Lenders" means the Initial Lenders and each Person that shall become a Lender hereunder pursuant to Section 8.07. "Letter Agreements" has the meaning specified in the Preliminary Statements. "Letter of Credit" has the meaning specified in Section 2.01(e). "Letter of Credit Advance" means an advance made by the Issuing Bank or any Revolving Credit Lender pursuant to Section 2.03(c). "Letter of Credit Agreement" has the meaning specified in Section 2.03(a). "Letter of Credit Commitment" means, with respect to the Issuing Bank at any time, the amount set forth opposite the Issuing Bank's name on Schedule I hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank has entered into one or more Assignments and Acceptances, set forth for the Issuing Bank in the Register maintained by the Administrative Agent pursuant to Section 8.07(d) as the 19 Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Letter of Credit Facility" means, at any time, an amount equal to the amount of the Issuing Bank's Letter of Credit Commitment at such time, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (a) for purposes of this Agreement and the Notes and any amendment or modification hereof or thereof and for all other purposes other than for purposes of the Collateral Documents, (i) this Agreement, (ii) the Notes, (iii) the Collateral Documents, (iv) each Letter of Credit Agreement and (v) any guaranty entered into by any Subsidiary of the Borrower pursuant to the provisions of Section 5.02(e) or (f) and (b) for purposes of the Collateral Documents, (i) this Agreement, (ii) the Notes, (iii) the Collateral Documents, (iv) each Letter of Credit Agreement and (v) any guaranty entered into by any Subsidiary of the Borrower pursuant to the provisions of Section 5.02(e) or (f), in each case as amended or otherwise modified from time to time. "Loan Parties" means the Borrower, Holding, the Purchaser and each Subsidiary of the Borrower. "Loan Value" means, with respect to (i) any Eligible Inventory, 50% of the value of such Eligible Inventory and (ii) any Eligible Receivable, 80% of the unpaid face Amount of such Eligible Receivable. "Management Agreement" means the management agreement to be entered into by the Borrower and J.W. Childs in substantially the form of Exhibit I hereto. "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party and its Subsidiaries, taken as a whole, (b) the rights and remedies of 20 the Administrative Agent or any Lender Party under any Loan Document or Related Document or (c) the ability of any Loan Party to perform its Obligations under any Loan Document or Related Document to which it is or is to be a party. "Material Contract" means, with respect to any Person, each contract to which such Person is a party involving aggregate consideration payable to or by such Person of $2,000,000 or more in any year or otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person. "Merger" has the meaning specified in the Preliminary Statements. "Merger Agreement" means the Agreement and Plan of Merger dated as of November 27, 1996 among J.W. Childs, Holding, the Purchaser and the Borrower and the other related documents, agreements, and instruments, in each case as the same may be amended, modified or otherwise supplemented from time to time in accordance with the provisions of this Agreement. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and at least one Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NationsBank" has the meaning specified in the recital of the parties to this Agreement. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset or the sale or issuance of any Debt or capital stock or other ownership or profit interest, any securities convertible into or exchangeable for capital stock or other ownership or profit interest or any warrants, rights, options or other securities to acquire capital stock or other ownership or profit interest by any Person, or any Extraordinary Receipt received by or paid to or for the account of any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom 21 only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party, (b) any Debt permitted by Section 5.02(b)(iv)(B) or (C) and secured by assets being sold in such transaction that is required to be paid from such proceeds, and (c) income taxes that, as estimated by the Borrower in good faith, will be required to be paid by the Borrower and its Subsidiaries in cash as a result of, and within 15 months after, such sale or disposition, in each case specified in clauses (a), (b) and (c) to the extent, but only to the extent, that the amounts so deducted are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that Net Cash Proceeds from the sale, lease, transfer or other disposition of any asset shall not include any amount of cash proceeds received in connection with such transaction to the extent such cash proceeds are applied to replace the asset in respect of which such cash proceeds were received, so long as such application is made within 12 months after the occurrence of such sale, lease, transfer or other disposition. "Nonratable Assignment" means an assignment by a Lender Party pursuant to Section 8.07(a) of a portion of its rights and obligations under this Agreement, other than an assignment of a uniform, and not a varying, percentage of all of the rights and obligations of such Lender Party under and in respect of all of the Facilities (other than the Letter of Credit Facility and the Swing Line Facility). "Note" means a Term Note or a Revolving Credit Note. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Issuance" has the meaning specified in Section 2.03(a). "Notice of Renewal" has the meaning specified in Section 2.01(d). "Notice of Swing Line Borrowing" has the meaning specified in Section 2.02(b). "Notice of Termination" has the meaning specified in Section 2.01(d). "NPL" means the National Priorities List under CERCLA. "Obligation" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to 22 payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(f). Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Loan Party under any Loan Document and (b) the obligation of any Loan Party to reimburse any amount in respect of any of the foregoing that any Lender Party, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "OECD" means the Organization for Economic Cooperation and Development. "Open Year" has the meaning specified in Section 4.01(bb). "Other Taxes" has the meaning specified in Section 2.12(b). "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Permanent Debt" means the senior unsecured notes or the senior subordinated notes issued in an aggregate principal amount not to exceed $115,000,000 by the Borrower as contemplated by the Engagement Letter dated November 26, 1996 from NationsBanc Capital Markets, Inc. to J.W. Childs. "Permanent Debt Documents" means the agreements and instruments which govern the terms of the Permanent Debt, as the same may be amended, modified or otherwise supplemented from time to time in accordance with the provisions of this Agreement. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business, in each case (i) in existence less than 90 days from the date of creation thereof or (ii) being contested in good faith by the Borrower or any Subsidiary in appropriate proceedings (so long as the Borrower or such Subsidiary shall, in accordance with GAAP, have set aside on its books adequate reserves with respect thereto); (c) deposits or pledges made in the ordinary course of business (i) in connection with, or to secure payment of, workers' compensation, unemployment insurance, old age pensions or other social security, (ii) 23 in connection with casualty insurance maintained in accordance with the provisions of any Loan Document, (iii) to secure the performance of bids, tenders or leases, (iv) to secure statutory obligations or surety or appeal bonds or (v) to secure indemnity, performance or other similar bonds in the ordinary course of business; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pledge Agreement" has the meaning specified in Section 5.01(q). "Preferred Stock" means, with respect to any corporation, capital stock issued by such corporation that is entitled to a preference or priority over any other capital stock issued by such corporation upon any distribution of such corporation's assets, whether by dividend or upon liquidation. "Prime Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Fleet in Boston, Massachusetts from time to time, as Fleet's prime rate; and (b) 1/2 of one percent per annum above the Federal Funds Rate. "Prime Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i). "Pro Rata Share" of any amount means, with respect to any Revolving Credit Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender's Revolving Credit Commitment at such time and the denominator of which is the Revolving Credit Facility at such time. "Purchase Agreement" has the meaning specified in the recital of parties hereto. "Purchaser" has the meaning specified in the Preliminary Statements. 24 "Receivables" means all Receivables referred to in Section 1(c) of the Security Agreement. "Redeemable" means, with respect to any capital stock or other ownership or profit interest, Debt or other right or Obligation, any such right or Obligation that (a) the issuer has undertaken to redeem on or prior to the Termination Date at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder; provided, however, that the term "Redeemable" shall not include any such right or Obligation that is redeemable solely by being exchanged for common stock of the issuer. "Register" has the meaning specified in Section 8.07(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Related Documents" means the Purchase Agreement, the Merger Agreement, the Stockholders Agreement, the Management Agreement, the Letter Agreements, the Stock Purchase Facilities Documents, the Bridge Note Documents and the Permanent Debt Documents. "Required Lenders" means at any time Lenders owed or holding at least a majority in interest of the sum of (a) the aggregate principal amount of the Advances outstanding at such time, (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, (c) the aggregate unused Commitments under the Term Facility at such time and (d) the aggregate Unused Revolving Credit Commitments at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (B) such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit issued by such Lender and outstanding at such time, (C) the unused Term Commitments of such Lender at such time and (D) the Unused Revolving Credit Commitment of such Lender at such time. For purposes of this definition, the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing Bank and the Available Amount of each Letter of Credit shall be considered to be owed to the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Commitments. "Responsible Officer" means any executive officer of any Loan Party or any of its Subsidiaries. 25 "Revolving Credit Advance" has the meaning specified in Section 2.01(b). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by the Revolving Credit Lenders. "Revolving Credit Commitment" means, with respect to any Revolving Credit Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Revolving Credit Commitment" or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(d) as such Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Revolving Credit Facility" means, at any time, the aggregate amount of the Revolving Credit Lenders' Revolving Credit Commitments at such time. "Revolving Credit Lender" means any Lender that has a Revolving Credit Commitment. "Revolving Credit Note" means a promissory note of the Borrower payable to the order of any Revolving Credit Lender, in substantially the form of Exhibit A-2 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Revolving Credit Advances made by such Lender. "Secured Obligations" has the meaning specified in the Security Agreement. "Secured Parties" means the Administrative Agent and the Lender Parties. "Security Agreement" has the meaning specified in Section 3.01(o)(viii). "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and no Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" and "Solvency" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on 26 its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit" means any Letter of Credit issued under the Letter of Credit Facility, other than a Trade Letter of Credit. "Stock Purchase" has the meaning specified in the Preliminary Statements. "Stock Purchase Facilities" means the "Loans" referred to in the Stock Purchase Facility Documents. "Stock Purchase Facility Documents" means the Credit Agreement dated as of December 23, 1996 among the Purchaser, the lenders party thereto and NationsBank, as administrative agent and the "Loan Papers" referred to therein, in each case as such agreements may be amended, modified or otherwise supplemented in accordance with the provisions of this Agreement. "Stockholders Agreement" means the Stockholders Agreement dated as of December 23, 1996 among Holding, the Persons listed as the "JWC Holders" on the signature pages thereof and the Persons listed as the "Other Holders" on the signature pages thereof, as the same may be amended, modified or otherwise supplemented from time to time in accordance with the provisions of this Agreement. "Subsequent Purchase" has the meaning specified in the Preliminary Statements. "Subordinated Debt" means any Debt of the Borrower that is subordinated to the Obligations of the Borrower under the Loan Documents on, and that otherwise contains, terms and conditions reasonably satisfactory to the Required Lenders. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital 27 or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Surviving Debt" has the meaning set forth in Section 3.01(h). "Swing Line Advance" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(c) or (b) any Revolving Credit Lender pursuant to Section 2.02(b). "Swing Line Bank" means Fleet. "Swing Line Borrowing" means a borrowing consisting of a Swing Line Advance made by the Swing Line Bank. "Swing Line Facility" has the meaning specified in Section 2.01(c). "Tax Certificate" has the meaning specified in Section 5.03(o). "Taxes" has the meaning specified in Section 2.12(a). "Term Advance" has the meaning specified in Section 2.01(b). "Term Borrowing" means a borrowing consisting of simultaneous Term Advances of the same Type made by the Term Lenders. "Term Commitment" means, with respect to any Term Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Term Commitment" or, if such Lender has entered into one or more Assignments and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(d) as such Lender's "Term Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Term Facility" means, at any time, the aggregate amount of the Term Lenders' Term Commitments at such time. "Term Lender" means any Lender that has a Term Commitment. "Term Note" means a promissory note of the Borrower payable to the order of any Term Lender, in substantially the form of Exhibit A-1 hereto, evidencing the 28 indebtedness of the Borrower to such Lender resulting from the Term Advance made by such Lender. "Termination Date" means the earlier of December 31, 2001 and the date of termination in whole of the Term Commitments, the Letter of Credit Commitments and the Revolving Credit Commitments pursuant to Section 2.05 or 6.01. "Trade Letter of Credit" means any Letter of Credit that is issued under the Letter of Credit Facility for the benefit of a supplier of Inventory to the Borrower or any of its Subsidiaries to effect payment for such Inventory. "Transaction" means the Stock Purchase and the Merger. "Type" refers to the distinction between Advances bearing interest at the Prime Rate and Advances bearing interest at the Eurodollar Rate. "Unused Revolving Credit Commitment" means, with respect to any Revolving Credit Lender at any time, (a) such Lender's Revolving Credit Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances made by such Lender (in its capacity as a Lender) and outstanding at such time, plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit outstanding at such time, (B) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.03(c) and outstanding at such time and (C) the aggregate principal amount of all Swing Line Advances made by the Swing Line Bank pursuant to Section 2.01(c) and outstanding at such time. "Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. 29 SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(f) ("GAAP"). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Advances. (a) The Term Advances. Each Term Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Term Advance") to the Borrower on any Business Day during the period from the date hereof until January 31, 1997 in an amount not to exceed such Lender's Term Commitment at such time. The Term Borrowing shall consist of Term Advances made simultaneously by the Term Lenders ratably according to their Term Commitments. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. (b) The Revolving Credit Advances. Each Revolving Credit Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a "Revolving Credit Advance") to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an amount for each such Advance not to exceed such Lender's Unused Revolving Credit Commitment at such time. Each Revolving Credit Borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple of $250,000 in excess thereof (other than a Borrowing the proceeds of which shall be used solely to repay or prepay in full outstanding Swing Line Advances or outstanding Letter of Credit Advances) and shall consist of Revolving Credit Advances made simultaneously by the Revolving Credit Lenders ratably according to their Revolving Credit Commitments. Within the limits of each Revolving Credit Lender's Unused Revolving Credit Commitment in effect from time to time, the Borrower may borrow under this Section 2.01(b), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(b). (c) The Swing Line Advances. The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall make, on the terms and conditions hereinafter set forth, Swing Line Advances to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date (i) in an aggregate amount 30 not to exceed at any time outstanding $5,000,000 (the "Swing Line Facility") and (ii) in an amount for each such Swing Line Borrowing not to exceed the aggregate of the Unused Revolving Credit Commitments of the Revolving Credit Lenders at such time. No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other Swing Line Advance. Each Swing Line Borrowing shall be in an amount of $250,000 or an integral multiple of $100,000 in excess thereof and shall be made as a Prime Rate Advance. Within the limits of the Swing Line Facility and within the limits referred to in clause (ii) above, the Borrower may borrow under this Section 2.01(c), repay pursuant to Section 2.04(d) or prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(c). (d) Letters of Credit. The Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (the "Letters of Credit") for the account of the Borrower from time to time on any Business Day during the period from the date hereof until 45 days before the Termination Date (i) in an aggregate Available Amount for all Letters of Credit not to exceed at any time the Issuing Bank's Letter of Credit Commitment at such time and (ii) in an Available Amount for each such Letter of Credit not to exceed the Unused Revolving Credit Commitments of the Revolving Credit Lenders at such time. No Letter of Credit shall have an expiration date (including all rights of the Borrower or the beneficiary to require renewal) later than the earlier of 45 days before the Termination Date and (A) in the case of a Standby Letter of Credit one year after the date of issuance thereof, but may by its terms be renewable annually upon notice (a "Notice of Renewal") given to the Issuing Bank and the Administrative Agent on or prior to any date for notice of renewal set forth in such Letter of Credit but in any event at least three Business Days prior to the date of the proposed renewal of such Standby Letter of Credit and upon fulfillment of the applicable conditions set forth in Article III unless the Issuing Bank has notified the Borrower (with a copy to the Administrative Agent) on or prior to the date for notice of termination set forth in such Letter of Credit but in any event at least 30 Business Days prior to the date of automatic renewal of its election not to renew such Standby Letter of Credit (a "Notice of Termination") and (B) in the case of a Trade Letter of Credit, 45 days after the date of issuance thereof; provided that the terms of each Standby Letter of Credit that is automatically renewable annually shall (x) require the Issuing Bank to give the beneficiary named in such Standby Letter of Credit notice of any Notice of Termination, (y) permit such beneficiary, upon receipt of such notice, to draw under such Standby Letter of Credit prior to the date such Standby Letter of Credit otherwise would have been automatically renewed and (z) not permit the expiration date (after giving effect to any renewal) of such Standby Letter of Credit in any event to be extended to a date later than 45 days before the Termination Date. If either a Notice of Renewal is not given by the Borrower or a Notice of Termination is given by the Issuing Bank pursuant to the immediately preceding sentence, such Standby Letter of Credit shall expire on the date on which it otherwise would have been automatically renewed; provided, however, that even in the absence of receipt of a Notice of Renewal the Issuing Bank may in its discretion, unless 31 instructed to the contrary by the Administrative Agent or the Borrower, deem that a Notice of Renewal had been timely delivered and in such case, a Notice of Renewal shall be deemed to have been so delivered for all purposes under this Agreement. Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, the Borrower may request the issuance of Letters of Credit under this Section 2.01(d), repay any Letter of Credit Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request the issuance of additional Letters of Credit under this Section 2.01(d). SECTION 2.02. Making the Advances. (a) Except as otherwise provided in Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not later than 12:00 Noon (Boston, Massachusetts time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or the first Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Prime Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Appropriate Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing or telecopier, in substantially the form of Exhibit B hereto, specifying therein the requested (i) date of such Borrowing, (ii) Facility under which such Borrowing is to be made, (iii) Type of Advances comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Appropriate Lender shall, before 11:00 A.M. (Boston, Massachusetts time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing in accordance with the respective Commitments under the applicable Facility of such Lender and the other Appropriate Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account. (b) Each Swing Line Borrowing shall be made on notice, given not later than 12:00 Noon (Boston, Massachusetts time) on the date of the proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent. Each such notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier, specifying therein the requested (i) date of such Borrowing, (ii) amount of such Borrowing and (iii) maturity of such Borrowing (which maturity shall be no later than the seventh day after the requested date of such Borrowing). The Swing Line Bank will make the amount of the requested Swing Line Advance available to the Administrative Agent at the Administrative Agent's Account, in same day funds. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account. Upon written demand by the Swing Line Bank, with a copy of such demand to the Administrative Agent, each 32 other Revolving Credit Lender shall purchase from the Swing Line Bank, and the Swing Line Bank shall sell and assign to each such other Revolving Credit Lender, such other Lender's Pro Rata Share of such outstanding Swing Line Advance as of the date of such demand, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Swing Line Bank, by deposit to the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Swing Line Advance to be purchased by such Lender. The Borrower hereby agrees to each such sale and assignment. Each Revolving Credit Lender agrees to purchase its Pro Rata Share of an outstanding Swing Line Advance on (i) the Business Day on which demand therefor is made by the Swing Line Bank, provided that notice of such demand is given not later than 11:00 A.M. (Boston, Massachusetts time) on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Swing Line Bank to any other Revolving Credit Lender of a portion of a Swing Line Advance, the Swing Line Bank represents and warrants to such other Lender that the Swing Line Bank is the legal and beneficial owner of such interest being assigned by it, but makes no other representation or warranty and assumes no responsibility with respect to such Swing Line Advance, the Loan Documents or any Loan Party. If and to the extent that any Revolving Credit Lender shall not have so made the amount of such Swing Line Advance available to the Administrative Agent, such Revolving Credit Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Swing Line Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such amount for the account of the Swing Line Bank on any Business Day, such amount so paid in respect of principal shall constitute a Swing Line Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Swing Line Advance made by the Swing Line Bank shall be reduced by such amount on such Business Day. (c) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $1,000,000 or if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or Section 2.10 and (ii) the Advance may not be outstanding as part of more than 7 separate Borrowings. (d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, if the Borrower fails to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III and the Advance to be made by such Lender as part of such Borrowing, as a result of such failure, is not made on such date, 33 the Borrower will pay to the Administrative Agent for each Appropriate Lender an amount equal to the present value (calculated in accordance with this Section 2.02(d)) of interest for the Interest Period specified in such Notice of Borrowing on the amount of such Advance, at a rate per annum equal to the excess of (a) the Eurodollar Rate that would have been in effect for such Interest Period over (b) the Eurodollar Rate applicable on the date of determination to a deemed Interest Period ending on the last day of such Interest Period. The present value of such additional interest shall be calculated by discounting the amount of such interest for each day in the Interest Period specified in such Notice of Borrowing from such day to the date of such repayment or termination at an interest rate per annum equal to the interest rate determined pursuant to the preceding sentence, and by adding all such amounts for all such days during such period. The determination by the Administrative Agent of such amount of interest shall, in the absence of manifest error, be conclusive. (e) Unless the Administrative Agent shall have received notice from an Appropriate Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) or (b) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay or pay to the Administrative Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at such time under Section 2.07 to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Advance as part of such Borrowing for all purposes. (f) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be issued upon notice, given not later than 12:00 Noon (Boston, Massachusetts time) on the third Business Day prior to the date of the proposed issuance of such Letter of Credit, by the Borrower to the Issuing Bank, which shall give to the Administrative Agent and each Revolving Credit 34 Lender prompt notice thereof by telecopier. Each such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed immediately in writing or telecopier, specifying therein the requested (A) date of such issuance (which shall be a Business Day), (B) Available Amount of such Letter of Credit, (C) expiration date of such Letter of Credit, (D) name and address of the beneficiary of such Letter of Credit and (E) form of such Letter of Credit, and shall be accompanied by such application and agreement for letter of credit as the Issuing Bank may specify to the Borrower for use in connection with such requested Letter of Credit (a "Letter of Credit Agreement"). If (x) the requested form of such Letter of Credit is acceptable to the Issuing Bank in its sole discretion and (y) it has not received notice of objection to such issuance from Lenders holding at least a majority of the Revolving Credit Commitments, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the Borrower at its office referred to in Section 8.02 or as otherwise agreed with the Borrower in connection with such issuance. In the event and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern. (b) Letter of Credit Reports. The Issuing Bank shall furnish (A) to the Administrative Agent on the first Business Day of each week a written report summarizing issuance and expiration dates of Letters of Credit issued during the previous week and drawings during such week under all Letters of Credit, (B) to each Revolving Credit Lender on the first Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued during the preceding month and drawings during such month under all Letters of Credit and (C) to the Administrative Agent and each Revolving Credit Lender on the first Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit. (c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by the Issuing Bank of a Letter of Credit Advance, which shall be a Prime Rate Advance, in the amount of such draft. Upon written demand by the Issuing Bank, with a copy of such demand to the Administrative Agent, each Revolving Credit Lender shall purchase from the Issuing Bank, and the Issuing Bank shall sell and assign to each such Revolving Credit Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the date of such purchase, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Issuing Bank, by deposit to the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Letter of Credit Advance to be purchased by such Lender. Promptly after receipt thereof, the Administrative Agent shall transfer such funds to the Issuing Bank. The Borrower hereby agrees to each such sale and assignment. Each Revolving Credit Lender agrees to purchase its Pro Rata Share of an outstanding Letter 35 of Credit Advance on (i) the Business Day on which demand therefor is made by the Issuing Bank, provided notice of such demand is given not later than 11:00 A.M. ([Boston, Massachusetts] time) on such Business Day or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Issuing Bank to any other Revolving Credit Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents and warrants to such other Lender that the Issuing Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any liens, but makes no other representation or warranty and assumes no responsibility with respect to such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to the extent that any Revolving Credit Lender shall not have so made the amount of such Letter of Credit Advance available to the Administrative Agent, such Revolving Credit Lender agrees to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Issuing Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for its account or the account of the Issuing Bank, as applicable. If such Lender shall pay to the Administrative Agent such amount for the account of the Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Letter of Credit Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Letter of Credit Advance made by the Issuing Bank shall be reduced by such amount on such Business Day. (d) Failure to Make Letter of Credit Advances. The failure of any Lender to make the Letter of Credit Advance to be made by it on the date specified in Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Letter of Credit Advance on such date, but no Lender shall be responsible for the failure of any other Lender to make the Letter of Credit Advance to be made by such other Lender on such date. SECTION 2.04. Repayment of Advances. (a) Term Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Term Lenders the aggregate outstanding principal amount of the Term Advances on the following dates in the amounts indicated (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.06): Date Amount June 30, 1997 $800,000 October 31, 1997 800,000 June 30, 1998 800,000 December 31, 1998 800,000 June 30, 1999 800,000 December 31, 1999 800,000 June 30, 2000 800,000 36 December 31, 2000 800,000 June 30, 2001 800,000 December 31, 2001 800,000 provided, however, that the final principal installment shall be repaid on the Termination Date and in any event shall be in an amount equal to the aggregate principal amount of the Term Advances outstanding on such date. (b) Revolving Credit Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Revolving Credit Lenders on the Termination Date the aggregate outstanding principal amount of the Revolving Credit Advances then outstanding. (c) Swing Line Advances. The Borrower shall repay to the Administrative Agent for the account of the Swing Line Bank and each other Revolving Credit Lender that has made a Swing Line Advance the outstanding principal amount of each Swing Line Advance made by each of them on the earlier of the maturity date specified in the applicable Notice of Swing Line Borrowing (which maturity shall be no later than the seventh day after the requested date of such Borrowing) and the Termination Date. (d) Letter of Credit Advances. (i) The Borrower shall repay to the Administrative Agent for the account of the Issuing Bank and each other Revolving Credit Lender that has made a Letter of Credit Advance on the earlier of demand and the Termination Date. (ii) The Obligations of the Borrower under this Agreement, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C Related Documents"); (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; 37 (C) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (E) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; (F) any exchange, release or non-perfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for all or any of the Obligations of the Borrower in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor (other than the gross negligence or willful misconduct of the Issuing Bank). SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Borrower may, upon at least five Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the unused portions of the Term Commitments and the Letter of Credit Facility and the Unused Revolving Credit Commitments; provided, however, that each partial reduction of a Facility (i) shall be in an aggregate amount of $1,000,000 or an integral multiple of $250,000 in excess thereof and (ii) shall be made ratably among the Appropriate Lenders in accordance with their Commitments with respect to such Facility. (b) Mandatory. (i) On the date of the Term Borrowing, after giving effect to such Term Borrowing, and from time to time thereafter upon each repayment or prepayment of the Term Advances, the aggregate Term Commitments of the Term Lenders shall be automatically and permanently reduced, on a pro rata basis, by an amount equal to the amount by which the aggregate Term Commitments immediately prior to such reduction exceed the aggregate unpaid principal amount of the Term Advances then outstanding. 38 (ii) The Letter of Credit Facility shall be permanently reduced from time to time on the date of each reduction in the Revolving Credit Facility by the amount, if any, by which the amount of the Letter of Credit Facility exceeds the Revolving Credit Facility after giving effect to such reduction of the Revolving Credit Facility. SECTION 2.06. Prepayments. (a) Optional. The Borrower may, upon at least one Business Day's notice in the case of Prime Rate Advances and three Business Days' notice in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding aggregate principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment (other than in respect of a prepayment of the Swing Line Advances) shall be in an aggregate principal amount of $250,000 or an integral multiple of $250,000 in excess thereof, (y) each partial prepayment of Swing Line Advances shall be in an aggregate principal amount of $250,000 or an integral multiple of $100,000 in excess thereof and (z) if any prepayment of a Eurodollar Rate Advance is made on a date other than the last day of an Interest Period for such Advance the Borrower shall also pay any amounts owing pursuant to Section 8.04(c). In respect of each such optional prepayment of the Term Facility, 50% of such prepayment shall be applied to the installments of the Term Facility in direct order of maturity and the remaining 50% shall be applied to the installments of the Term Facility in inverse order of maturity. (b) Mandatory. (i) The Borrower shall, on the 15th day following each date on which the Borrower delivers the annual financial statements pursuant to Section 5.03(d) (commencing with Fiscal Year 1997), prepay an aggregate principal amount of the Advances comprising part of the same Borrowings in an amount equal to 75% of Excess Cash Flow for such Fiscal Year. Each such prepayment shall be applied to the Term Facility; provided, however, that 50% of such amount shall be applied to the installments of the Term Facility in direct order of maturity and the remaining 50% shall be applied to the installments of the Term Facility in inverse order of maturity. Upon the payment in full of the Term Advances, there shall be no further mandatory prepayments pursuant to this Section 2.05(b)(i). (ii) The Borrower shall, on the third Business Day following the date of receipt of the Net Cash Proceeds by any Loan Party or any of its Subsidiaries from (A) the sale, lease, transfer or other disposition of any assets of any Loan Party or any of its Subsidiaries (other than any sale, lease, transfer or other disposition of assets pursuant to clause (i) of Section 5.02(e)), (B) the incurrence or issuance by any Loan Party or any of its Subsidiaries of any Debt (other than Debt incurred or issued pursuant to Section 5.02(b)), (C) the sale or issuance by any Loan Party or any of its Subsidiaries of any capital stock or other ownership or profit interest, any securities convertible into or exchangeable for capital 39 stock or other ownership or profit interest or any warrants, rights or options to acquire capital stock or other ownership or profit interest and (D) any Extraordinary Receipt received by or paid to or for the account of any Loan Party or any of its Subsidiaries and not otherwise included in clause (A), (B) or (C) above, prepay an aggregate principal amount of the Advances comprising part of the same Borrowings equal to the amount of such Net Cash Proceeds; provided, however, that if, on such date of receipt, any Debt is outstanding under either the Stock Purchase Facilities Documents or the Bridge Note Documents, the Net Cash Proceeds from the incurrence or issuance by any Loan Party or any of its Subsidiaries of senior unsecured Debt or Subordinated Debt may be applied to repay, prepay or redeem the Debt outstanding under the Stock Purchase Facilities Documents or the Bridge Note Documents, as the case may be. Each such prepayment shall be applied ratably to the Term Facility; provided, however, that 50% of such amount shall be applied to the installments of the Term Facility in direct order of maturity and the remaining 50% shall be applied to the installments of the Term Facility in inverse order of maturity. Upon the payment in full of the Term Advances, there shall be no further mandatory prepayments pursuant to this Section 2.05(b)(ii). (iii) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Revolving Credit Advances comprising part of the same Borrowings, the Letter of Credit Advances and the Swing Line Advances equal to the amount by which (A) the sum of the aggregate principal amount of (x) the Revolving Credit Advances, (y) the Letter of Credit Advances and (z) the Swing Line Advances then outstanding plus the aggregate Available Amount of all Letters of Credit then outstanding exceeds (B) the lesser of the Revolving Credit Facility and the Loan Value of Eligible Collateral on such Business Day. (iv) The Borrower shall, on each Business Day, pay to the Administrative Agent for deposit in the L/C Cash Collateral Account an amount sufficient to cause the aggregate amount on deposit in the L/C Cash Collateral Account to equal the amount by which the aggregate Available Amount of all Letters of Credit then outstanding exceeds the Letter of Credit Facility on such Business Day. (v) Prepayments of the Revolving Credit Facility made pursuant to clause (iii) above shall be first applied to prepay Letter of Credit Advances then outstanding until such Advances are paid in full, second applied to prepay Swing Line Advances then outstanding until such Advances are paid in full, third applied to prepay Revolving Credit Advances then outstanding comprising part of the same Borrowings until such Advances are paid in full and fourth deposited in the L/C Cash Collateral Account to cash collateralize 100% of the Available Amount of the Letters of Credit then outstanding. Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Bank or the Revolving Credit Lenders, as applicable. 40 (vi) All prepayments under this subsection (b) shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Prime Rate Advances. During such periods as such Advance is a Prime Rate Advance, a rate per annum equal at all times to the sum of (A) the Prime Rate in effect from time to time plus (B) the Applicable Margin in effect from time to time, payable in arrears last day of each March, June, September and December during such periods and on the date such Prime Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance plus (B) the Applicable Margin in effect on the first day of such Interest Period, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f), the Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above, and, in all other cases, on Prime Rate Advances pursuant to clause (a)(i) above. (c) Notice of Interest Rate. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a), the Administrative Agent shall give notice to the 41 Borrower and each Appropriate Lender of the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (ii). SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of the Lenders a commitment fee, from the date hereof in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable in arrears on the date of the initial Borrowing hereunder, thereafter quarterly on the last Business Day of each March, June, September and December, commencing March 31, 1997, and on the Termination Date, at the rate of 1/2 of 1% per annum on the average daily unused portion of each Appropriate Lender's Term Commitment and on the sum of the average daily Unused Revolving Credit Commitment of such Lender plus its Pro Rata Share of the average daily outstanding Swing Line Advances during such quarter; provided, however, that no commitment fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender a commission, payable in arrears quarterly on the last Business Day of each March, June, September and December, commencing March 31, 1997, and on the earliest to occur of the full drawing expiration, termination or cancellation of any such Letter of Credit and on the Termination Date, on such Lender's Pro Rata Share of the average daily aggregate Available Amount during such quarter of all Letters of Credit outstanding from time to time at a rate per annum equal to the Applicable Margin in effect from time to time for Eurodollar Advances comprising a Revolving Credit Borrowing. (ii) The Borrower shall pay to the Issuing Bank, for its own account, such commissions, issuance fees, fronting fees, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as the Borrower and the Issuing Bank shall agree. (c) Administrative Agent's Fees. The Borrower shall pay to the Administrative Agent for its own account such fees as may from time to time be agreed between the Borrower and the Administrative Agent. SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower may on any Business Day (without the payment of any fee or premium), upon notice given to the Administrative Agent not later than 11:00 A.M. (Boston, Massachusetts time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.07 and 2.10, Convert all or any portion of the Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Prime Rate Advances shall be made only on 42 the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Prime Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(c), no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(c) and each Conversion of Advances comprising part of the same Borrowing under any Facility shall be made ratably among the Appropriate Lenders in accordance with their Commitments under such Facility. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Advances. Each notice of Conversion shall be irrevocable and binding on the Borrower. (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $1,000,000, such Advances shall automatically Convert into Prime Rate Advances. (ii) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Prime Rate Advance. (iii) Upon the occurrence and during the continuance of any Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Prime Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation after the date hereof or (ii) the compliance with any guideline or request issued or promulgated after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender Party of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue or of issuing or maintaining Letters of Credit or of agreeing to make or of making or maintaining Letter of Credit Advances (excluding for purposes of this Section 2.10 any such increased costs resulting from (i) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (ii) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender Party is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrower shall from time to time, on or prior to the third 43 Business Day following receipt by the Borrower of the certificate referred to below from such Lender Party (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender Party additional amounts sufficient to compensate such Lender Party for such increased cost; provided, however, that the Borrower shall not be responsible for costs under this Section 2.10(a) arising more than 90 days prior to receipt by the Borrower of the certificate from the affected Lender pursuant to this Section 2.10(a) with respect to such costs; provided further that a Lender Party claiming additional amounts under this Section 2.10(a) agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party. A certificate as to the amount of such increased cost (together with a schedule setting forth in reasonable detail the calculation thereof), submitted to the Borrower by such Lender Party, shall be conclusive and binding for all purposes, absent manifest error. (b) If any Lender Party determines that compliance with any law or regulation or any guideline or request issued or promulgated after the date hereof from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender Party or any corporation controlling such Lender Party and that the amount of such capital is increased by or based upon the existence of such Lender Party's commitment to lend or to issue Letters of Credit hereunder and other commitments of such type or the issuance or maintenance of the Letters of Credit (or similar contingent obligations), then, on or prior to the third Business Day following receipt by the Borrower of the certificate referred to below from such Lender Party (with a copy of such demand to the Administrative Agent), the Borrower shall pay to the Administrative Agent for the account of such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party in the light of such circumstances, to the extent that such Lender Party reasonably determines such increase in capital to be allocable to the existence of such Lender Party's commitment to lend or to issue Letters of Credit hereunder or to the issuance or maintenance of any Letters of Credit; provided, however, that, the Borrower shall not be responsible for costs under this Section 2.10(b) arising more than 90 days prior to receipt by the Borrower of the certificate from the affected Lender pursuant to this Section 2.10(b) with respect to such costs. A certificate as to such amounts (together with a schedule setting forth in reasonable detail the calculation thereof) submitted to the Borrower by such Lender Party shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Advances under any Facility, Lenders owed at least a majority of the then aggregate unpaid principal amount thereof Required Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Lenders of making, 44 funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance under any Facility will automatically, on the last day of the then existing Interest Period therefor, Convert into a Prime Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) each Eurodollar Rate Advance under each Facility under which such Lender has a Commitment will automatically, upon such demand, Convert into a Prime Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist; provided, however, that, before making any such demand, such Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. SECTION 2.11. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.15), not later than 12:00 Noon (Boston, Massachusetts time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by the Borrower is in respect of principal, interest, commitment fees or any other Obligation then payable hereunder and under the Notes to more than one Lender Party, to such Lender Parties for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective Obligations then payable to such Lender Parties and (ii) if such payment by the Borrower is in respect of any Obligation then payable hereunder to one Lender Party, to such Lender Party for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to 45 Section 8.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender Party assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) If the Administrative Agent receives funds for application to the Obligations under the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each Lender Party ratably in accordance with such Lender Party's proportionate share of the principal amount of all outstanding Advances and the Available Amount of all Letters of Credit then outstanding, in repayment or prepayment of such of the outstanding Advances or other Obligations owed to such Lender Party, and for application to such principal installments, as the Administrative Agent shall direct. (c) The Borrower hereby authorizes each Lender Party, if and to the extent payment owed to such Lender Party is not made when due hereunder or, in the case of a Lender, under the Note held by such Lender, to charge from time to time against any or all of the Borrower's accounts with such Lender Party any amount so due. (d) All computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error. (e) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (f) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to any Lender Party hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender Party on such due date an amount equal to the amount then due such 46 Lender Party. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender Party shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender Party together with interest thereon, for each day from the date such amount is distributed to such Lender Party until the date such Lender Party repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.12. Taxes. (a) Any and all payments by the Borrower hereunder or under the Notes shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender Party and the Administrative Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender Party or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender Party, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Lender Party's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender Party or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.12) such Lender Party or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrower shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Notes (hereinafter referred to as "Other Taxes"). (c) The Borrower shall indemnify each Lender Party and the Administrative Agent for and hold it harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by such Lender Party or the Administrative Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification 47 shall be made within 30 days from the date such Lender Party or the Administrative Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of the Borrower through an account or branch outside the United States or by or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e), the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender Party organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender or Initial Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender Party in the case of each other Lender Party, and from time to time thereafter as requested in writing by the Borrower (but only so long thereafter as such Lender Party remains lawfully able to do so), provide each of the Administrative Agent and the Borrower with two original Internal Revenue Service forms 1001 or 4224, as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes. If the forms provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such form; provided, however, that, if at the date of the Assignment and Acceptance pursuant to which a Lender Party becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender Party assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form 1001 or 4224, that the Lender Party reasonably considers to be confidential, the Lender Party shall give notice thereof to 48 the Borrower and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender Party has failed to provide the Borrower with the appropriate form described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e) above), such Lender Party shall not be entitled to indemnification under subsection (a) or (c) with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender Party become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender Party shall reasonably request to assist such Lender Party to recover such Taxes. (g) Any Lender Party claiming any additional amounts payable pursuant to this Section 2.12 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party. (h) The Borrower shall not have an indemnification obligation under subsection (a) or (c) with respect to Taxes imposed by the United States as a result of a change in law occurring after the date hereof arising more than 90 days prior to receipt by the Borrower of notice from the affected Lender Party with respect to such change in law. SECTION 2.13. Sharing of Payments, Etc. If any Lender Party shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) (a) on account of Obligations due and payable to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender Party at such time to (ii) the aggregate amount of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time obtained by all the Lender Parties at such time or (b) on account of Obligations owing (but not due and payable) to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing to such Lender Party at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time obtained by all of the Lender Parties at such time, such Lender Party shall forthwith purchase from the other Lender Parties such participations in the Obligations due and payable or owing to them, as the case 49 may be, as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each other Lender Party shall be rescinded and such other Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such Lender Party's ratable share (according to the proportion of (i) the purchase price paid to such Lender Party to (ii) the aggregate purchase price paid to all Lender Parties) of such recovery together with an amount equal to such Lender Party's ratable share (according to the proportion of (i) the amount of such other Lender Party's required repayment to (ii) the total amount so recovered from the purchasing Lender Party) of any interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered. The Borrower agrees that any Lender Party so purchasing a participation from another Lender Party pursuant to this Section 2.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender Party were the direct creditor of the Borrower in the amount of such participation. SECTION 2.14. Use of Proceeds. The proceeds of the Advances and issuances of Letters of Credit shall be available (and the Borrower agrees that it shall use such proceeds and Letters of Credit) solely to pay transaction fees and expenses, refinance the Existing Debt and provide working capital for the Borrower and its Subsidiaries. SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower may, so long as no Default (other than a Default which occurs directly as a result of a Lender being a Defaulting Lender) shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of the Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date under the Facility pursuant to which such Defaulted Advance was originally required to have been made pursuant to Section 2.01. Such Advance shall be a Prime Rate Advance and shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). The Borrower shall notify the Administrative Agent at any time the 50 Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Lender which is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.15. (b) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to the Administrative Agent or any of the other Lender Parties and (iii) the Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Lender Parties and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Lender Parties, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Lender Parties and, if the amount of such payment made by the Borrower shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent and the other Lender Parties, in the following order of priority: (i) first, to the Administrative Agent for any Defaulted Amount then owing to the Administrative Agent; and (ii) second, to any other Lender Parties for any Defaulted Amounts then owing to such other Lender Parties, ratably in accordance with such respective Defaulted Amounts then owing to such other Lender Parties. Any portion of such amount paid by the Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.15. 51 (c) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any other Lender Party shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower or such other Lender Party shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with Fleet, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Fleet's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender Party, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (i) first, to the Administrative Agent for any amount then due and payable by such Defaulting Lender to the Administrative Agent hereunder; (ii) second, to any other Lender Parties for any amount then due and payable by such Defaulting Lender to such other Lender Parties hereunder, ratably in accordance with such respective amounts then due and payable to such other Lender Parties; and (iii) third, to the Borrower for any Advance then required to be made by such Defaulting Lender pursuant to a Commitment of such Defaulting Lender. In the event that any Lender Party that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender Party shall be distributed by the Administrative Agent to such Lender Party and applied by such Lender Party to the Obligations owing to such Lender Party at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time. 52 (d) The rights and remedies against a Defaulting Lender under this Section 2.15 are in addition to other rights and remedies that the Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that the Administrative Agent or any Lender Party may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.16. Removal of Lender. In the event that any Lender Party demands payment of costs or additional amounts pursuant to Section 2.10 or Section 2.12 or asserts, pursuant to Section 2.10(d) that it is unlawful for such Lender Party to make Eurodollar Rate Advances, then (subject to such Lender Party's right to rescind such demand or assertion within 10 days after the notice from the Borrower referred to below) the Borrower may, upon 20 days' prior written notice to such Lender Party and the Administrative Agent, elect to cause such Lender Party to assign its Advances and Commitments in full to an assignee institution selected by the Borrower that meets the criteria of an Eligible Assignee and is reasonably satisfactory to the Administrative Agent, so long as such Lender Party receives payment in full in cash of the outstanding principal amount of all Advances made by it and all accrued and unpaid interest thereon and all other amounts due and payable to such Lender Party as of the date of such assignment (including without limitation amounts owing pursuant to Section 2.10 or 2.3), and in such case such Lender Party agrees to make such assignment, and such assignee shall agree to accept such assignment and assume all obligations of such Lender Party hereunder, in accordance with Section 8.07. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Initial Extension of Credit. The obligation of each Lender to make an Advance or of the Issuing Bank to issue a Letter of Credit on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (a) The final terms and conditions of the Merger, including, without limitation, all legal and tax aspects thereof, shall be (i) as described in the Commitment Letter dated November 26, 1996 from Fleet to J.W. Childs and otherwise consistent in all material respects with the description thereof received in writing as part of the Pre-Commitment Information and (ii) otherwise reasonably satisfactory to the Lenders. (b) The Merger Agreement shall be in full force and effect. 53 (c) The Additional Purchase shall have been consummated in all material respects in accordance with the Merger Agreement, without any waiver or amendment not consented to by the Lender Parties of any material term, provision or condition set forth therein, and in compliance with all applicable laws. (d) The Lender Parties shall be satisfied in their reasonable discretion that the restrictions in Section 2.03 of the Delaware General Corporation Law are not applicable to the Merger or that any conditions to avoiding the restrictions contained therein have been satisfied. (e) The Lender Parties shall be satisfied with the corporate and legal structure and capitalization of each Loan Party and each of its Subsidiaries, including the terms and conditions of the charter, bylaws and each class of capital stock of each Loan Party and each such Subsidiary and of each agreement or instrument relating to such structure or capitalization. (f) The Lender Parties shall be satisfied with the terms and conditions of the equity (the "Equity") provided on or prior to the consummation of the Additional Purchase by the Equity Investors, consisting of not less than $65,000,000 of common and preferred equity (not less than $55,000,000 of which shall be common equity); and Holding shall have received at least $65,000,000 in gross cash proceeds from the Equity. (g) The terms of the Stock Purchase Facilities shall be consistent with the terms of the Acquisition Financing Commitment Letter dated November 26, 1996 among NationsBank, NationsBanc Capital Markets, Inc. and J.W. Childs and shall otherwise be reasonably satisfactory to the Lender Parties; and the Purchaser shall have received sufficient gross cash proceeds from borrowings under the Stock Purchase Facilities to consummate the Additional Purchase. (h) The Lender Parties shall be satisfied that all Existing Debt, other than the Debt of the Borrower set forth on Schedule XIV (the "Surviving Debt"), has been prepaid, redeemed or defeased in full or otherwise satisfied and extinguished. (i) Before giving effect to the Additional Purchase and the other transactions contemplated by this Agreement, there shall have occurred no Material Adverse Change since October 28, 1995. (j) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could reasonably be expected to have a Material Adverse Effect other than the matters described on Schedule II (the 54 "Disclosed Litigation") or (ii) purports to affect the legality, validity or enforceability of the Additional Purchase, the Merger, this Agreement, any Note, any other Loan Document, any Related Document or the consummation of the transactions contemplated hereby, and there shall have been no material adverse change in the status, or financial effect on the Borrower or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule II. (k) The Lender Parties shall have been given such access to the management, records, books of account, contracts and properties of the Borrower and its Subsidiaries as they shall have requested and shall have received such financial business and other information regarding each of the foregoing Persons as they shall have reasonably requested. (l) All governmental and third party consents and approvals necessary in connection with the Transaction and the Facilities shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender Parties) and shall remain in effect; all applicable waiting periods shall have expired without any adverse action being taken by any competent authority; and no law or regulation shall be applicable in the reasonable judgment of the Lender Parties that restrains, prevents or imposes materially adverse conditions upon the Transaction or the Facilities. (m) All of the information provided by or on behalf of J.W. Childs or by or on behalf of the Borrower to the Administrative Agent and the Lender Parties prior to their commitment in respect of the Facilities (the "Pre-Commitment Information") shall be true and correct in all material respects; and no additional information shall have come to the attention of the Administrative Agent or the Lender Parties that is inconsistent in any material respect with the Pre-Commitment Information or that could reasonably be expected to have a Material Adverse Effect. (n) The Borrower shall have paid all accrued fees of the Administrative Agent and the Lender Parties. (o) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Lender Parties (unless otherwise specified) and (except for the Notes) in sufficient copies for each Lender Party: (i) The Notes payable to the order of the Lenders. (ii) Certified copies of the resolutions of the Board of Directors of the Borrower and each other Loan Party approving the Stock Purchase, Merger, this Agreement, the Notes, each other Loan Document and each 55 Related Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to the Stock Purchase, the Merger, this Agreement, the Notes, each other Loan Document and each Related Document. (iii) A copy of the charter of the Borrower and each other Loan Party and each amendment thereto, certified (as of a date reasonably near the date of the Initial Extension of Credit) by the Secretary of State of the jurisdiction of its incorporation as being a true and correct copy thereof. (iv) A copy of a certificate of the Secretary of State of the jurisdiction of its incorporation, dated reasonably near the date of the Initial Extension of Credit, listing the charter of the Borrower and each other Loan Party and each amendment thereto on file in his office and certifying that (A) such amendments are the only amendments to the Borrower's or such other Loan Party's charter on file in his office, (B) the Borrower and each other Loan Party have paid all franchise taxes to the date of such certificate and (C) the Borrower and each other Loan Party are duly incorporated and in good standing under the laws of the State of the jurisdiction of its incorporation. (v) A copy of a certificate of the Secretary of State of each of the State of Ohio and the State of Iowa, dated reasonably near the date of the Initial Extension of Credit, stating that the Borrower is duly qualified and in good standing as a foreign corporation in such State and has filed all annual reports required to be filed to the date of such certificate. (vi) A certificate of the Borrower and each other Loan Party, signed on behalf of the Borrower and such other Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (A) the absence of any amendments to the charter of the Borrower or such other Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(m)(iii), (B) a true and correct copy of the bylaws of the Borrower and such other Loan Party as in effect on the date of the Initial Extension of Credit, (C) the due incorporation and good standing of the Borrower and such other Loan Party as a corporation organized under the laws of the State of Delaware, and the absence of any proceeding for the dissolution or liquidation of the Borrower, the Company or such other Loan Party, (D) the truth of the representations and warranties contained in the Loan 56 Documents as though made on and as of the date of the Initial Extension of Credit and (E) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (vii) A certificate of the Secretary or an Assistant Secretary of the Borrower and each other Loan Party certifying the names and true signatures of the officers of the Borrower and such other Loan Party authorized to sign this Agreement, the Notes, each other Loan Document and each Related Document to which they are or are to be parties and the other documents to be delivered hereunder and thereunder. (viii) A security agreement in substantially the form of Exhibit D (together with each other security agreement delivered pursuant to Section 5.01(p), in each case as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Security Agreement"), duly executed by the Borrower, together with: (A) certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt referred to therein indorsed in blank, (B) acknowledgment copies or stamped receipt copies of proper financing statements, duly filed on or before the day of the Initial Extension of Credit under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement, covering the Collateral described in the Security Agreement, (C) completed requests for information, dated on or before the date of the Initial Extension of Credit, listing the financing statements referred to in clause (B) above and all other effective financing statements filed in the jurisdictions referred to in clause (B) above that name the Borrower as debtor, together with copies of such other financing statements, (D) evidence of the completion of all other recordings and filings of or with respect to the Security Agreement that the Administrative Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby, 57 (E) evidence of the insurance required by the terms of the Security Agreement, (F) copies of the Assigned Agreements referred to in the Security Agreement, together with a consent to such assignment, in substantially the form of Exhibit B to the Security Agreement, duly executed by each party to such Assigned Agreements other than the Borrower, and (G) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken. (ix) Certified copies of each of the Related Documents in existence on such date, duly executed by the parties thereto and in form and substance satisfactory to the Lender Parties, together with all agreements, instruments and other documents delivered in connection therewith, in each case certified by a Responsible Officer. (x) Certificates, in substantially the form of Exhibit G, attesting to the Solvency of each Loan Party after giving effect to the Additional Purchase and the other transactions contemplated hereby, from its chief financial officer. (xi) Evidence of insurance naming the Administrative Agent as insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to the Lender Parties, including, without limitation, business interruption insurance. (xii) Certified copies of each employment agreement and other compensation arrangement with each executive officer of any Loan Party or any of its Subsidiaries. (xiii) Certified copies of all Material Contracts of each Loan Party and its Subsidiaries, in each case certified by a Responsible Officer. (xiv) A Borrowing Base Certificate. (xv) A favorable opinion of Sullivan & Worcester, counsel for the Purchaser and Holding, in substantially the form of Exhibit E hereto and as to 58 such other matter as any Lender Party through the Administrative Agent may reasonably request. (xvi) A favorable opinion of Dickinson, Mackaman, Tyler & Hagen, P.C., local counsel to the Loan Parties in the State of Iowa, in substantially the form of Exhibit F hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. (xvii) A favorable opinion of Shearman & Sterling, counsel for the Administrative Agent, in form and substance satisfactory to the Administrative Agent. SECTION 3.02. Conditions Precedent to the First Extension of Credit on or After the Date of the Consummation of the Merger. The obligation of each Lender to make an Advance or of the Issuing Bank to issue a Letter of Credit on the occasion of the first Extension of Credit hereunder on or after the date of the consummation of the Merger is subject to the following conditions precedent before or concurrently with such Extension of Credit: (a) The proxy statement mailed to the Borrower's shareholders in connection with the Merger (the "Proxy Statement") shall be in form and substance reasonably satisfactory to the Lenders. (b) The Merger shall have been consummated in all material respects in accordance with the Merger Agreement and the Proxy Statement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein, and in compliance with all applicable laws. (c) Holding shall own all of the outstanding capital stock of the Borrower, free and clear of all Liens, except those created under the Collateral Documents and those created under the Bridge Note Documents. (d) The Borrower shall have received at least $100,000,000 in gross cash proceeds from the issuance of the Permanent Debt or, in lieu thereof, the Bridge Notes, and Holding shall have received at least $4,000,000 of equity (which shall be in the form of rolled-over stock and options) from certain members of management. The terms of the Permanent Notes shall be consistent with the terms of the Engagement Letter dated November 26, 1996 from NationsBanc Capital Markets, Inc. to J.W. Childs and shall otherwise be reasonably satisfactory to the Lender Parties; and, if the Bridge Notes are issued in lieu of the Permanent Debt, the terms of the Bridge Notes shall be consistent with the terms of the Bridge Commitment Letter 59 dated November 26, 1996 from NationsBridge L.L.C. to J.W. Childs and shall otherwise be reasonably satisfactory to the Lender Parties. (e) After giving effect to the Merger and the other transactions contemplated by this Agreement, there shall have occurred no Material Adverse Change since October 28, 1995. (f) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could reasonably be expected to have a Material Adverse Effect other than the Disclosed Litigation or (ii) purports to affect the legality, validity or enforceability of the Transaction, this Agreement, any Note, any other Loan Document, any Related Document or the consummation of the transactions contemplated hereby, and there shall have been no material adverse change in the status, or financial effect on the Borrower or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule II. (g) All governmental and third party consents and approvals necessary in connection with the Transaction and the Facilities shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender Parties) and shall remain in effect; all applicable waiting periods shall have expired without any adverse action being taken by any competent authority; and no law or regulation shall be applicable in the reasonable judgment of the Lender Parties that restrains, prevents or imposes materially adverse conditions upon the Transaction or the Facilities. (h) The Borrower shall have paid all accrued fees and expenses of the Administrative Agent and the Lender Parties (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel to the Lender Parties). (i) The Administrative Agent shall have received on or before the day of such Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Lender Parties (unless otherwise specified) and in sufficient copies for each Lender Party: (i) A copy of the charter of the Borrower and each other Lender Party and each amendment thereto, certified (as of a date reasonably near the date of such Extension of Credit) by the Secretary of State of the jurisdiction of its incorporation as being a true and correct copy thereof; (ii) A copy of a certificate of the Secretary of State of the jurisdiction of its incorporation, dated reasonably near the date of such Extension of Credit, listing the charter of the Borrower and each other Lender 60 Party and each amendment thereto on file in his office and certifying that (A) such amendments are the only amendments to the Borrower's or such other Lender Party's charter on file in his office, (B) the Borrower and each other Lender Party have paid all franchise taxes to the date of such certificate and (C) the Borrower and each other Lender Party are duly incorporated and in good standing under the laws of the State of the jurisdiction of its incorporation; (iii) Certified copies of a certificate of merger or other confirmation from the Secretary of State of the State of Delaware satisfactory to the Lender Parties of the consummation of the Merger. (iv) Certified copies of each of the Related Documents in existence on such date (and not previously delivered to the Lender Parties pursuant to the provisions of Section 3.01), duly executed by the parties thereto and in form and substance satisfactory to the Lender Parties, together with all agreements, instruments and other documents delivered in connection therewith, in each case certified by a Responsible Officer. (v) Certificates, in substantially the form of Exhibit G, attesting to the Solvency of each Lender Party after giving effect to the Merger and the other transactions contemplated hereby, from its chief financial officer. (vi) A favorable opinion of Sullivan & Worcester, counsel for the Purchaser and Holding, in substantially the form of Exhibit G hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. SECTION 3.03. Conditions Precedent to Each Borrowing and Issuance. The obligation of each Appropriate Lender to make an Advance (other than a Letter of Credit Advance made by the Issuing Bank or a Revolving Credit Lender pursuant to Section 2.03(c) and a Swing Line Advance made by a Revolving Credit Lender pursuant to Section 2.02(b)) on the occasion of each Borrowing (including the Initial Extension of Credit), and the obligation of the Issuing Bank to issue a Letter of Credit (including the initial issuance) or renew a Letter of Credit and the right of the Borrower to request a Swing Line Borrowing, shall be subject to the further conditions precedent that on the date of such Borrowing or issuance or renewal (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Swing Line Borrowing, Notice of Issuance or Notice of Renewal and the acceptance by the Borrower of the proceeds of such Borrowing or of such Letter of Credit or the renewal of such Letter of Credit shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Borrowing or issuance or renewal such statements are true): 61 (i) the representations and warranties contained in each Loan Document are correct on and as of such date, before and after giving effect to such Borrowing or issuance or renewal and to the application of the proceeds therefrom, as though made on and as of such date other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Borrowing or issuance or renewal, in which case as of such specific date; (ii) no event has occurred and is continuing, or would result from such Borrowing or issuance or renewal or from the application of the proceeds therefrom, that constitutes a Default; and (iii) for each Revolving Credit Advance or Swing Line Advance made by the Swing Line Bank or issuance or renewal of any Letter of Credit, the sum of the Loan Values of the Eligible Collateral exceeds the aggregate principal amount of the Revolving Credit Advances plus Swing Line Advances plus Letter of Credit Advances to be outstanding plus the aggregate Available Amount of all Letters of Credit then outstanding after giving effect to such Advance or issuance or renewal, respectively; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Appropriate Lender through the Administrative Agent may reasonably request. SECTION 3.04. Determinations Under Sections 3.01 and 3.02. For purposes of determining compliance with the conditions specified in Section 3.01 or 3.02, each Lender Party shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender Parties unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender Party prior to the Initial Extension of Credit or the extension of Credit specified in Section 3.02, as the case may be, specifying its objection thereto and if the Initial Extension of Credit or such Extension of Credit consists of a Borrowing, such Lender Party shall not have made available to the Administrative Agent such Lender Party's ratable portion of such Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties. Each of Holding, the Purchaser and the Borrower represents and warrants as follows: 62 (a) Each Loan Party (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed is not reasonably likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. All of the outstanding capital stock of the Purchaser has been validly issued, is fully paid and non-assessable and is owned by Holding free and clear of all Liens; and all of the outstanding capital stock of the Borrower has been validly issued, is fully paid and non-assessable and, on and after the date of the consummation of the Merger, is owned by Holding, free and clear of all Liens, except those created under the Collateral Documents and those created under the Bridge Note Documents. (b) Set forth on Schedule III hereto is a complete and accurate list of all Subsidiaries of each Loan Party, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of capital stock authorized, and the number outstanding, on the date hereof and the percentage of the outstanding shares of each such class owned (directly or indirectly) by such Loan Party and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the date hereof. All of the outstanding capital stock of all of such Subsidiaries has been validly issued, is fully paid and non-assessable and is owned by such Loan Party or one or more of its Subsidiaries free and clear of all Liens, except those created under the Collateral Documents. Each such Subsidiary (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed is not reasonably likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. (c) The execution, delivery and performance by each Loan Party of this Agreement, the Notes, each other Loan Document and each Related Document to which it is or is to be a party, and the consummation of the Stock Purchase, the Merger and the other transactions contemplated hereby, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's charter or bylaws, (ii) violate any law 63 (including, without limitation, the Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970), rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which is reasonably likely to have a Material Adverse Effect. (d) (i) As of the date hereof and hereafter, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of this Agreement, the Notes, any other Loan Document or any Related Document to which it is or is to be a party, or for the consummation of the Stock Purchase or the other transactions contemplated hereby (other than the Merger), (ii) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created by the Collateral Documents (including the priority nature thereof required by the Collateral Documents) or (iv) the exercise by the Administrative Agent or any Lender Party of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the authorizations, approvals, actions, notices and filings listed on Schedule IV, all of which have been duly obtained, taken, given or made and are in full force and effect. All applicable waiting periods in connection with the Stock Purchase and the other transactions contemplated hereby (other than the Merger) have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Stock Purchase or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (ii) As of the date of the consummation of the Merger and thereafter, no authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of this Agreement, the Notes, any other Loan 64 Document or any Related Document to which it is or is to be a party, or for the consummation of the Stock Purchase, the Merger or the other transactions contemplated hereby, (ii) the grant by any Loan Party of the Liens granted by its pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created by the Collateral Documents (including the priority nature thereof required by the Collateral Documents) or (iv) the exercise by the Administrative Agent or any Lender Party of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the authorizations, approvals, actions, notice and filings listed on Schedule IV, all of which have been duly obtained, taken, given or made and are in full force and effect. All applicable waiting periods in connection with the Stock Purchase or the Merger and the other transactions contemplated hereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Stock Purchase or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (e) This Agreement has been, and each of the Notes, each other Loan Document and each Related Document when delivered hereunder will have been, duly executed and delivered by each Loan Party thereto. This Agreement is, and each of the Notes, each other Loan Document and each Related Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. (f) The Consolidated balance sheet of the Borrower and its Subsidiaries as at October 28, 1995, and the related Consolidated statement of income and Consolidated statement of cash flows of the Borrower and its Subsidiaries for the fiscal year then ended, accompanied by an opinion of Ernst & Young, LLP, independent public accountants, and the Consolidated balance sheet of the Borrower and its Subsidiaries as at July 27, 1996, and the related Consolidated statement of income and Consolidated statement of cash flows of the Borrower and its Subsidiaries for the nine months then ended, duly certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender Party, fairly present, subject, in the case of said balance sheet as at July 27, 1996, and said statement of income and cash flows for the nine months then ended, to year-end audit adjustments, the Consolidated financial condition of the Borrower and its Subsidiaries as at such date and the Consolidated results of the operations of the Borrower and its Subsidiaries for the period ended on such date, all in accordance with generally accepted accounting principles applied on a consistent basis, and since October 28, 1995, there has been no Material Adverse Change. 65 (g) The Consolidated forecasted balance sheets, income statements and cash flows statements of the Borrower and its Subsidiaries delivered, or to be delivered, to the Lender Parties pursuant to Section 3.01(m) or 5.03 were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in the light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. (h) None of the information, exhibits or reports furnished by any Loan Party to the Administrative Agent or any Lender Party in connection with the negotiation of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (i) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) would be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of the Additional Purchase, the Merger, this Agreement, any Note, any other Loan Document or any Related Document or the consummation of the transactions contemplated hereby, and there has been no adverse change in the status, or financial effect on any Loan Party or any of its Subsidiaries, of the Disclosed Litigation from that described on Schedule II. (j) No proceeds of any Advance or drawings under any Letter of Credit will be used to acquire any equity security of a class that is registered pursuant to Section 12 of the Securities Exchange Act of 1934. (k) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (l) Following application of the proceeds of each Advance or drawing under each Letter of Credit, not more than 25 percent of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a Consolidated basis) subject to the provisions of Section 5.02(a) or 5.02(e) or subject to any restriction contained in any agreement or instrument between the Borrower and any Lender Party or any Affiliate of any Lender Party relating to Debt and within the scope of Section 6.01(e) will be Margin Stock. 66 (m) All Plans of the Borrower and its ERISA Affiliates are listed on Schedule V. No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan listed on Schedule V that has resulted in or is reasonably expected to result in a material liability of any Loan Party or any ERISA Affiliate. (n) As of the last annual actuarial valuation date, the funded current liability percentage, as defined in Section 302(d)(8) of ERISA, of each Plan exceeds 90% and there has been no material adverse change in the funding status of any such Plan since such date. (o) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Plan listed on Schedule V, copies of which have been filed with the Internal Revenue Service and furnished to the Lender Parties, is complete and accurate and fairly presents the funding status of such Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (p) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan listed on Schedule V. (q) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan listed on Schedule V that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (r) Except as set forth in the financial statements referred to in this Section 4.01 and in Section 5.03, the Loan Parties and their respective Subsidiaries have no material liability with respect to "expected post retirement benefit obligations" within the meaning of Statement of Financial Accounting Standards No. 106. (s) Neither the business nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that would be reasonably likely to have a Material Adverse Effect. (t) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, all past non-compliance with such Environmental Laws and Environmental Permits has been resolved without ongoing obligations or costs, 67 and no circumstances exist that would be reasonably likely to (i) form the basis of an Environmental Action against any Loan Party or any of its Subsidiaries or any of their properties that could reasonably be expected to have a Material Adverse Effect or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law that could reasonably be expected to have a Material Adverse Effect. (u) Except as disclosed in the Phase I Environmental Site Assessment Reports prepared by Dames & Moore for the properties at 3915 Delaware Avenue, Des Moines, Iowa and 650 Meridian Road, Youngstown, Ohio, dated November 15, 1996 or as otherwise disclosed on Schedule XV, none of the properties currently or, to the best knowledge of the Loan Parties and their Subsidiaries, formerly owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; to the best knowledge of the Loan Parties and their Subsidiaries, there are no and never have been any underground or aboveground storage tanks on any property currently owned or operated by any Loan Party or any of its Subsidiaries; there are no and never have been any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently or, to the best knowledge of the Loan Parties and their Subsidiaries, formerly owned or operated by any Loan Party or any of its Subsidiaries in an manner that would be reasonably likely to have a Material Adverse Effect; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries in a manner that would be reasonably likely to have a Material Adverse Effect; and Hazardous Materials have not been released, discharged or disposed of on any property currently or, to the best knowledge of the Loan Parties and their Subsidiaries, formerly owned or operated by any Loan Party or any of its Subsidiaries in a manner, quantity or concentration that would be reasonably likely to have a Material Adverse Effect. (v) Neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any governmental or regulatory authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any of its Subsidiaries. 68 (w) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that would be reasonably likely to have a Material Adverse Effect. (x) The Collateral Documents create a valid and perfected security interest in the Collateral having the priority set forth in such Collateral Documents, securing the payment of the Secured Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. The Loan Parties are the legal and beneficial owners of the Collateral free and clear of any Lien, except for the liens and security interests created or permitted under the Loan Documents. (y) The Borrower has filed, has caused to be filed or has been included in all Federal tax returns and all material other tax returns (state, local and foreign) required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties. (z) The aggregate unpaid amount, as of the date hereof, of adjustments to the Federal income tax liability of the Borrower proposed by the Internal Revenue Service with respect to Open Years does not exceed $250,000. No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, would be reasonably likely to have a Material Adverse Effect. (aa) The aggregate unpaid amount, as of the date hereof, of adjustments to the state, local and foreign tax liability of the Borrower proposed by all state, local and foreign taxing authorities (other than amounts arising from adjustments to Federal income tax returns) does not exceed $250,000. No issues have been raised by such taxing authorities that, in the aggregate, would be reasonably likely to have a Material Adverse Effect. (bb) The Merger will not be taxable to the Borrower or any of its Subsidiaries or Affiliates. (cc) Neither any Loan Party nor any of its Subsidiaries is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated hereby, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. 69 (dd) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (ee) Set forth on Schedule VI hereto is a complete and accurate list of all Existing Debt, showing as of the date hereof the principal amount outstanding thereunder. (ff) Set forth on Schedule VII hereto is a complete and accurate list of all real property owned by any Loan Party or any of its Subsidiaries as of the date hereof, showing as of the date hereof the street address, county or other relevant jurisdiction, state, record owner and book and estimated fair value thereof. Each Loan Party or such Subsidiary has good, marketable and insurable fee simple title to such real property, free and clear of all Liens, other than Liens created or permitted by the Loan Documents. (gg) Set forth on Schedule VIII hereto is a complete and accurate list of all leases of real property under which any Loan Party or any of its Subsidiaries is the lessee as of the date hereof, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof. To the best of the Borrower's knowledge, each such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms. (hh) Set forth on Schedule IX hereto is a complete and accurate list of all Material Contracts of each Loan Party and its Subsidiaries as of the date hereof, showing as of the date hereof the parties, subject matter and term thereof. To the best of the Borrower's knowledge (with respect to parties other than the Loan Parties and their Subsidiaries), each such Material Contract has been duly authorized, executed and delivered by all parties thereto, has not been amended or otherwise modified, is in full force and effect and is binding upon and enforceable against all parties thereto in accordance with its terms, and there exists no default under any Material Contract by any party thereto. (ii) Set forth on Schedule X hereto is a complete and accurate list of all Investments held by any Loan Party or any of its Subsidiaries as of the date hereof, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof. (jj) Set forth on Schedule XI hereto is a complete and accurate list of all patents, trademarks, trade names, service marks and copyrights, and all applications therefor and licenses thereof, of each Loan Party or any of its Subsidiaries as of the 70 date hereof, showing as of the date hereof the jurisdiction in which registered, the registration number, the date of registration and the expiration date. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, each of Holding, the Purchaser and the Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Compliance with Environmental Laws. Comply, and cause each of its Subsidiaries and use all reasonable efforts to cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew and cause each of its Subsidiaries to obtain and renew all material Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, to the extent required by, and in accordance with, the requirements of applicable Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. 71 (d) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates. (e) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries (other than Central Tractor Distributing Co.) to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Borrower and the Purchaser may consummate the Merger; and provided further that neither the Borrower nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Borrower or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the Lender Parties. (f) Visitation Rights. At any reasonable time and from time to time, permit the Administrative Agent or any of the Lender Parties or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants, provided that the Borrower shall have received prior notice of any such discussion with such independent certified public accountants and shall have the opportunity, at its option, to participate in such discussion. (g) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. (h) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (i) Performance of Related Documents. Perform and observe all of the terms and provisions of each Related Document (other than the Financing Documents) 72 to be performed or observed by it, maintain each such Related Document in full force and effect, enforce such Related Document in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Related Document such demands and requests for information and reports or for action as the Borrower is entitled to make under such Related Document. (j) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to the Borrower or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate, other than the performance of its obligations under the Management Agreement. (k) Cash Concentration Accounts. Maintain main cash concentration accounts with Fleet or one or more banks acceptable to the Administrative Agent that have accepted the assignment of such accounts to the Administrative Agent pursuant to the Security Agreement and Lockbox Accounts into which all proceeds of Collateral are paid with Fleet or one or more banks acceptable to the Administrative Agent that have accepted the assignment of such accounts to the Administrative Agent pursuant to the Security Agreement. (l) Stock of the Borrower. In the case of Holding (i) on the date on which the Merger is consummated deliver to the Administrative Agent a pledge agreement in form and substance satisfactory to the Required Lenders (together with each other pledge agreement delivered pursuant to Section 5.01(p), in each case as amended, supplemented or otherwise modified from time to time in accordance with its terms, the "Pledge Agreement"), duly executed by Holding, together with (x) acknowledgment copies or stamped receipt copies of proper financing statements, duly filed under the Uniform Commercial Code in all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect and protect the liens and security interests created under the Pledge Agreement, covering the Collateral described in the Pledge Agreement and (y) completed requests for information listing the financing statements referred to in clause (x) and all other effective financing statements filed in the jurisdictions referred to in clause (x) that name Holding as debtor, together with copies of such other financing statements and (ii) on the date on which the Merger is consummated or, if the Bridge Notes are issued on the date on which the Merger is consummated, the date on which the Bridge Notes are paid in full, deliver to the Administrative Agent pursuant to the terms of the Security Agreement certificates representing all of the outstanding capital stock of the Borrower accompanied by undated stock powers executed in blank. 73 (m) Termination of Financing Statements. Upon the request of the Administrative Agent, and at the expense of the Borrower, within 10 days after such request, furnish to the Administrative Agent proper termination statements on Form UCC-3 covering such financing statements as the Administrative Agent may reasonably request that were listed in the completed requests for information referred to in Section 3.01(o)(viii)(C). (n) Merger. In the case of Holding and the Purchaser, cause the Merger to occur as promptly as practicable. (o) Lockbox Accounts. On or prior to April 30, 1996, and at the expense of the Borrower, deliver to the Administrative Agent the Lockbox Letters referred to in the Security Agreement, duly executed by each Lockbox Bank referred to in the Security Agreement. (p) Expenses. On the earlier of the date of consummation of the Merger and the termination of the Merger Agreement, pay all accrued expenses of the Administrative Agent (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel to the Administrative Agent). SECTION 5.02. Negative Covenants. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, each of Holding, the Purchaser and the Borrower will not, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or sign or file or suffer to exist, or permit any of its Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial Code of any jurisdiction, a financing statement that names Holding, the Purchasers, the Borrower or any of its Subsidiaries as debtor, or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, excluding, however, from the operation of the foregoing restrictions the following: (i) Liens created under the Loan Documents; 74 (ii) in the case of the Purchaser, Liens on the assets of the Purchaser pursuant to the Stock Purchase Facilities Documents; (iii) in the case of Holding, Liens on the capital stock of the Borrower pursuant to the Bridge Note Documents; (iv) in the case of the Borrower and its Subsidiaries, Permitted Liens; (v) Liens existing on the date hereof and described on Schedule XIII hereto; (vi) in the case of the Borrower and its Subsidiaries, purchase money Liens upon or in real property or equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property or equipment other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property or equipment not theretofore subject to the Lien being extended, renewed or replaced; and provided further that the aggregate principal amount of the Debt secured by Liens permitted by this clause (vi) at the time of acquisition, construction or improvement of the property subject thereto shall not exceed 80% of the cost of such property, construction or improvement or of the then fair value thereof, whichever shall be less and that any such Debt shall not otherwise be prohibited by the terms of the Loan Documents; and (vii) in the case of the Borrower and its Subsidiaries, Liens arising in connection with Capitalized Leases permitted under Section 5.02(b)(iv)(C), provided that no such Lien shall extend to or cover any Collateral or assets other than the assets subject to such Capitalized Leases. (b) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt other than: 75 (i) in the case of Holding, (A) Debt under the Loan Documents, the Stock Purchase Facilities Documents and the Bridge Note Documents, (B) Debt in an aggregate principal amount not to exceed $5,000,000 at any time outstanding to certain members of management of the Borrower in exchange for their equity ownership interests in Holding, provided that (w) such Debt is subordinated in right of payment to the Obligations of Holding under the Loan Documents on terms and conditions reasonably satisfactory to the Lender Parties, (x) such Debt shall not bear interest on a cash basis prior to the Termination Date, (y) the final maturity of such Debt is after the Termination Date and (z) there is no amortization of such Debt on or prior to the Termination Date, and (C) Debt in connection with the conversion of Preferred Stock of Holding with a liquidation value on the date of issue not in excess of $10,000,000, provided that (x) such Debt shall not bear interest on a cash basis prior to the Termination Date, (y) the final maturity of such Debt is after the Termination Date and (z) there is no amortization of such Debt on or prior to the Termination Date, (ii) in the case of the Borrower, (A) on and after the consummation of the Merger and so long as no Permanent Debt is outstanding, the Bridge Notes in an aggregate principal amount not to exceed $100,000,000, and (B) on and after the consummation of the Merger and so long as no Bridge Notes are outstanding, the Permanent Debt in an aggregate principal amount not to exceed $115,000,000; (iii) in the case of any of the Subsidiaries of the Borrower, Debt owed to the Borrower or to a wholly-owned Subsidiary of the Borrower, provided that any such Debt shall be (A) evidenced by a promissory note and (B) pledged in favor of the Lender Parties pursuant to the terms of the Security Agreement; and (iv) in the case of the Borrower and any of its Subsidiaries, (A) Debt under the Loan Documents, (B) Debt secured by Liens permitted by Section 5.02(a)(vi) not to exceed in the aggregate $5,000,000 at any time outstanding, (C) Capitalized Leases not to exceed in the aggregate $10,000,000 at any time outstanding, 76 (D) unsecured Debt incurred in the ordinary course of business for the deferred purchase price of property or services, maturing within one year from the date created, and aggregating, on a Consolidated basis, not more than $5,000,000 at any one time outstanding, (E) indorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, and (F) Debt (whether or not of the types described above in clauses (A) through (D)) in an aggregate principal amount not to exceed $2,500,000 at any time outstanding. (c) Lease Obligations. Create, incur, assume, extend, renew, modify or amend , or permit any of its Subsidiaries to create, incur, assume, extend, renew, modify or amend, any obligations as lessee (i) for the rental or hire of real or personal property in connection with any sale and leaseback transaction, or (ii) for the rental or hire of other real or personal property of any kind under leases or agreements to lease (including Capitalized Leases) having an original term of one year or more that would cause the direct and contingent liabilities of the Borrower and its Subsidiaries, on a Consolidated basis, in respect of all such obligations to exceed, in the 12 month period following incurrence, asumption, extension, renewal, modification or amendment, 5.0% of Consolidated sales of the Borrower and its Subsidiaries for the 12 month period immediately prior thereto. (d) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that (i) the Borrower and the Purchaser may consummate the Merger and (ii) any Subsidiary of the Borrower may merge into or consolidate with any other Subsidiary of the Borrower, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly-owned Subsidiary of the Borrower; provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default and, in the case of any such merger to which the Borrower is a party, the Borrower is the surviving corporation. (e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except: 77 (i) sales of Inventory by the Borrower and its Subsidiaries in the ordinary course of its business, (ii) sales or other disposals of obsolete or worn-out equipment or other assets in the ordinary course of business, (iii) in a transaction authorized by subsection (d) of this Section, (iv) sales of assets by the Borrower or any Subsidiary of the Borrower for cash and for fair value in an aggregate amount not to exceed $2,000,000 in any Fiscal Year, provided that the Borrower shall, on the third Business Date following the date of receipt by the Borrower or any of its Subsidiaries of the Net Cash Proceeds from such sale prepay the Advances pursuant to, and in the amount and order of priority set forth in, Section 2.06(b)(ii), and (v) sales or other transfers of assets from any of the Borrower's Subsidiaries to a wholly-owned domestic Subsidiary of the Borrower (other than Central Tractor Distributing Co.), provided that such wholly-owned domestic Subsidiary shall become an additional grantor pursuant to the terms of the Security Agreement and shall execute a guaranty in form and substance reasonably satisfactory to the Required Lenders. (f) Investments in Other Persons. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person other than: (i) Investments by the Borrower and its Subsidiaries in their Subsidiaries (other than Central Tractor Distributing Co.) outstanding on the date hereof and additional investments in wholly-owned Subsidiaries in an aggregate amount invested from the date hereof not to exceed $5,000,000; provided that, with respect to Investments in any newly acquired or created wholly-owned Subsidiary, such Subsidiary shall become an additional grantor pursuant to the terms of the Security Agreement and shall execute a guaranty in form and substance reasonably satisfactory to the Required Lenders; (ii) loans and advances to employees of the Borrower and its Subsidiaries in an aggregate principal amount not to exceed $750,000 at any time outstanding; (iii) Investments by the Borrower and its Subsidiaries in Cash Equivalents; 78 (iv) Investments consisting of intercompany Debt permitted under Section 5.02(b)(iii); (v) Investments existing on the date hereof and described on Schedule X hereto; (vi) in the case of the Borrower and its Subsidiaries, other Investments in an aggregate amount invested not to exceed $2,500,000 (other than any Investment in Central Tractor Distributing Co.); provided that with respect to Investments made under this clause (vi): (1) any newly acquired or created Subsidiary of the Borrower or any of its Subsidiaries shall be a wholly-owned Subsidiary thereof, shall become an additional grantor pursuant to the terms of the Security Agreement and shall execute a guaranty in form and substance reasonably satisfactory to the Required Lenders; (2) immediately before and after giving effect thereto, no Default shall have occurred and be continuing or would result therefrom; and (3) any business acquired or invested in pursuant to this clause (vi) shall be in the same line of business as the business of the Borrower or any of its Subsidiaries; and (vii) in the case of Holding, Investments by Holding in its capital stock as a result of the transactions described in Section 5.02(b)(i)(B). (g) Dividends, Etc. In the case of the Borrower, declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its capital stock or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding, return any capital to its stockholders as such, make any distribution of assets, capital stock, warrants, rights, options, obligations or securities to its stockholders as such or issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, or permit any of its Subsidiaries to do any of the foregoing or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of the Borrower or any warrants, rights or options to acquire such capital stock or to issue or sell any capital stock or any warrants, rights or options to acquire such capital stock, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clauses (A) through (C) below or would result therefrom, (i) the Borrower may (A) declare and pay dividends and distributions payable only in common stock of the Borrower, (B) except to the extent the Net Cash Proceeds thereof are required to be applied to the prepayment of the Bridge Notes or to the prepayment of the Advances pursuant to Section 2.06(b), purchase, redeem, retire, defease or otherwise acquire shares of its capital stock with the proceeds received from the issue of new shares of its capital stock with equal or inferior voting powers, designations, preferences and rights, and (C) declare and pay cash dividends to Holding solely to make payments 79 required to be made by Holding under the Stockholders Agreement and to permit Holding to pay its current obligations up to $100,000 in any Fiscal Year in the ordinary course of business and (ii) any Subsidiary of the Borrower may (A) declare and pay cash dividends to the Borrower and (B) declare and pay cash dividends to any other wholly-owned Subsidiary of the Borrower of which it is a Subsidiary. (h) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as carried on at the date hereof. (i) Charter Amendments. Amend, or permit any of its Subsidiaries to amend, its certificate of incorporation or bylaws. (j) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in (i) accounting policies or reporting practices, except as required by generally accepted accounting principles or (ii) Fiscal Year. (k) Prepayments, Etc. of Debt. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, other than (i) the prepayment of the Advances in accordance with the terms of this Agreement, (ii) regularly scheduled or required repayments, prepayments or redemptions of the Stock Purchase Facilities and the Bridge Notes and (iii) optional prepayments or redemptions of the Bridge Notes, or amend, modify or change in any manner any term or condition of the Stock Purchase Facilities Documents, the Bridge Note Documents or the Permanent Debt Documents that would impair the value of the interest or rights of the Loan Parties thereunder or that would impair the rights or interests of the Administrative Agent or any Lender Party, or permit any of its Subsidiaries to do any of the foregoing other than to prepay any Debt payable to the Borrower. (l) Amendment, Etc. of Related Documents. Cancel or terminate any Related Document (other than the Financing Documents) or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any such Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any such Related Document, agree in any manner to any other amendment, modification or change of any term or condition of any such Related Document or take any other action in connection with any such Related Document that would impair the value of the interest or rights of the Loan Parties thereunder or that would impair the rights or interests of the Administrative Agent or any Lender Party, or permit any of its Subsidiaries to do any of the foregoing. 80 (m) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than (i) in favor of the Secured Parties or (ii) any prohibition or condition contained in the Stock Purchase Facilities Documents, the Bridge Note Documents and the Permanent Debt Documents. (n) Partnerships, Etc. Become a general partner in any general or limited partnership or joint venture, or permit any of its Subsidiaries to do so, other than any Subsidiary the sole assets of which consist of its interest in such partnership or joint venture. (o) Speculative Transactions. Engage, or permit any of its Subsidiaries to engage, in any transaction involving commodity options or futures contracts or any similar speculative transactions (including, without limitation, take-or-pay contracts), except for Hedge Agreements permitted under Section 5.02(b). (p) Capital Expenditures. In the case of the Borrower, make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Borrower and its Subsidiaries in any period set forth below to exceed the amount set forth below for such period. Fiscal Year Ending In Amount --------------------- ------ 1997 9,000,000 1998 12,000,000 1999 12,000,000 2000 12,500,000 2001 12,500,000 ; provided, however, that if, in any Fiscal Year specified above, the amount of Capital Expenditures set forth above for such period exceeds the amount of Capital Expenditures actually made by the Borrower and its Subsidiaries in such Fiscal Year, the Borrower and its Subsidiaries shall be entitled to make additional Capital Expenditures in the next Fiscal Year up to the amount of such excess. 81 SECTION 5.03. Reporting Requirements. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Borrower will furnish to the Lender Parties: (a) Default Notice. As soon as possible and in any event within two Business Days after a Responsible Officer of a Loan Party knows, or has reason to know, of the occurrence of a Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto. (b) Monthly Financials. As soon as available and in any event within 30 days after the end of each month (other than any month which is the last month of a fiscal quarter), a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such month and a Consolidated statement of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous month and ending with the end of such month and a Consolidated statements of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding month of the preceding Fiscal Year, all in reasonable detail and duly certified by the chief financial officer of the Borrower. (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated statement of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and a Consolidated statement of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the chief financial officer of the Borrower as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto and (ii) a schedule in 82 form satisfactory to the Administrative Agent of the computations used by the Borrower in determining compliance with the covenants contained in Sections 5.04(a) through (d), provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP. (d) Annual Financials. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Borrower and its Subsidiaries, including therein a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of the Borrower and its Subsidiaries for such Fiscal Year, in each case accompanied by an unqualified opinion of Ernst & Young, LLP or other independent public accountants of recognized standing acceptable to the Required Lenders, together with (i) a certificate of such accounting firm to the Lender Parties stating that in the course of the regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge that a Default has occurred and is continuing under Section 5.02(p) or Section 5.04, or if, in the opinion of such accounting firm, such a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Sections 5.04(a) through (d), provided that in the event of any change in GAAP used in the preparation of such financial statements, the Borrower shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP and (iii) a certificate of the chief financial officer of the Borrower stating that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower has taken and proposes to take with respect thereto. (e) Annual Forecasts. As soon as available and in any event no later than 30 days after the end of each Fiscal Year, forecasts prepared by management of the Borrower, in form reasonably satisfactory to the Administrative Agent, of balance sheets, income statements and cash flow statements on a monthly basis for the Fiscal Year following such Fiscal Year then ended and on an annual basis for each Fiscal Year thereafter until the Termination Date. (f) ERISA Events and ERISA Reports. Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate knows or has reason to know 83 that any ERISA Event has occurred, a statement of the chief financial officer of the Borrower describing such ERISA Event and the action, if any, that such Loan Party or such ERISA Affiliate has taken and proposes to take with respect thereto and (ii) on the date any records, documents or other information must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and information. (g) Plan Terminations. Promptly and in any event within two Business Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan. (h) Actuarial Reports. Promptly upon receipt thereof by any Loan Party or any ERISA Affiliate, a copy of the annual actuarial valuation report for each Plan the funded current liability percentage (as defined in Section 302(d)(8) of ERISA) of which is less than 90% or the unfunded current liability of which exceeds $100,000. (i) Multiemployer Plan Notices. Promptly and in any event within five Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (i) the imposition of Withdrawal Liability by any such Multiemployer Plan, (ii) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (i) or (ii). (j) Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(i), and promptly after the occurrence thereof, notice of any adverse change in the status or the financial effect on any Loan Party or any of its Subsidiaries of the Disclosed Litigation from that described on Schedule II. (k) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Borrower (or, after the Merger, Holding) sends to its stockholders generally, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. 84 (l) Creditor Reports. Promptly after the furnishing thereof, copies of any statement or report furnished to any other holder of the securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lender Parties pursuant to any other clause of this Section 5.03. (m) Agreement Notices. Promptly upon receipt thereof, copies of all notices, requests and other documents received by any Loan Party or any of its Subsidiaries under or pursuant to any Related Document or indenture, loan or credit or similar agreement relating to Debt in an aggregate principal amount in excess of $2,500,000 regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and copies of any amendment, modification or waiver of any provision of any Related Agreement or Material Contract or indenture, loan or credit or similar agreement and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents and the Material Contracts as the Administrative Agent may reasonably request. (n) Revenue Agent Reports. Within 10 days after receipt, copies of all Revenue Agent Reports (Internal Revenue Service Form 886), or other written proposals of the Internal Revenue Service, that propose, determine or otherwise set forth positive adjustments to the Federal income tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which the Borrower is a member aggregating $1,000,000 or more. (o) Tax Certificates. Promptly, and in any event within five Business Days after the due date (with extensions) for filing the final Federal income tax return in respect of each taxable year, a certificate (a "Tax Certificate"), signed by the President or the chief financial officer of the Borrower, stating that the common parent of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which the Borrower is a member has paid to the Internal Revenue Service or other taxing authority the full amount that such affiliated group is required to pay in respect of Federal income tax for such year. (p) Environmental Conditions. Promptly after the assertion or occurrence thereof, notice of any Environmental Action against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that (i) could reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law that could reasonably be expected to have a Material Adverse Effect. 85 (q) Real Property. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report supplementing Schedules 4.01(hh) and 4.01(ii) hereto, including an identification of all real and leased property disposed of by the Borrower or any of its Subsidiaries during such Fiscal Year, a list and description (including the street address, county or other relevant jurisdiction, state, record owner, book value thereof, and in the case of leases of property, lessor, lessee, expiration date and annual rental cost thereof) of all real property acquired or leased during such Fiscal Year and a description of such other changes in the information included in such Schedules as may be necessary for such Schedules to be accurate and complete. (r) Insurance. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for the Borrower and its Subsidiaries and containing such additional information as any Lender Party (through the Administrative Agent) may reasonably specify. (s) Borrowing Base Certificate. As soon as available and in any event within 15 days after the end of each month, a Borrowing Base Certificate, as at the end of the previous month, certified by the chief financial officer of the Borrower. (t) Plan Schedule. As soon as practicable and in any event within 10 days after the Borrower or one of its ERISA Affiliates becomes a party to a Plan, an updated Schedule V listing all Plans of the Borrower and its ERISA Affiliates. (u) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Lender Party (through the Administrative Agent) may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, Holding will: (a) Minimum Net Worth. Maintain at all times an excess of Consolidated total assets over Consolidated total liabilities, in each case, of the Borrower and its Subsidiaries of not less than $58,000,000 plus 75% of Consolidated net income of the Borrower and its Subsidiaries for the period after November 2, 1996 to and including each date of determination computed on a cumulative basis for said entire period. 86 (b) Minimum EBITDA. Maintain at the end of each fiscal quarter of Holding Consolidated EBITDA for the most recently completed four fiscal quarters of Holding and its Subsidiaries of not less than the amount set forth below for such period: Four Fiscal Quarters Ending Closest To Amount January 31, 1997 $20,900,000 April 30, 1997 $20,900,000 July 31, 1997 $21,700,000 October 31, 1997 $21,700,000 January 31, 1998 $21,700,000 April 30, 1998 $23,400,000 July 31, 1998 $24,100,000 October 31, 1998 $24,800,000 January 31, 1999 $26,200,000 April 30, 1999 $26,900,000 July 31, 1999 $28,300,000 October 31, 1999 $29,000,000 January 31, 2000 $29,800,000 April 30, 2000 $30,800,000 July 31, 2000 $32,200,000 October 31, 2000 $33,000,000 January 31, 2001 $33,700,000 April 30, 2001 $34,700,000 July 31, 2001 $36,600,000 October 31, 2001 $37,500,000 (c) Interest Coverage Ratio. Maintain at the end of each fiscal quarter of Holding a ratio of Consolidated EBITDA for the most recently completed four fiscal quarters of Holding and its Subsidiaries to cash interest payable on all Debt payable by the Borrower and its Subsidiaries during such four fiscal quarter period of not less than the ratio set forth below for such period: 87 Four Fiscal Quarters Amount Ending Closest To ------ -------------------- January 31, 1997 1.55 April 30, 1997 1.60 July 31, 1997 1.60 October 31, 1997 1.60 January 31, 1998 1.70 April 30, 1998 1.75 July 31, 1998 1.80 October 31, 1998 1.85 January 31, 1999 1.95 April 30, 1999 2.00 July 31, 1999 2.10 October 31, 1999 2.15 January 31, 2000 2.20 April 30, 2000 2.25 July 31, 2000 2.35 October 31, 2000 2.40 January 31, 2001 2.45 April 30, 2001 2.50 July 31, 2001 2.60 October 31, 2001 2.70 (d) Debt to EBITDA Ratio. Maintain at the end of each fiscal quarter of Holding a Debt to EBITDA Ratio of Holding and its Subsidiaries of not more than the ratio set forth below for each period set forth below: 88 Four Fiscal Quarters Amount Ending Closest To ------ -------------------- January 31, 1997 5.60 April 30, 1997 5.55 July 31, 1997 5.25 October 31, 1997 5.25 January 31, 1998 5.25 April 30, 1998 5.25 July 31, 1998 4.60 October 31, 1998 4.60 January 31, 1999 4.60 April 30, 1999 4.60 July 31, 1999 4.15 October 31, 1999 4.15 January 31, 2000 4.15 April 30, 2000 4.15 July 31, 2000 3.75 October 31, 2000 3.75 January 31, 2001 3.75 April 30, 2001 3.75 July 31, 2001 2.80 October 31, 2001 2.80 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) the Borrower shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) the Borrower shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within three Business Days after the same becomes due and payable; or 89 (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) (i) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 2.14, 5.01(f), (j), (l), or (o), 5.02 or 5.04 or (ii) any Loan Party shall fail to maintain its corporate existence or to perform or observe any term, covenant or agreement contained in Section 5.03 if such failure shall remain unremedied for 10 days; or (d) any Loan Party shall fail to perform any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (A) a Responsible Officer of the Borrower becomes aware of such failure or (B) written notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender Party; or (e) any Loan Party or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt that is outstanding in a principal or notional amount of at least $5,000,000 either individually or in the aggregate (but excluding Debt outstanding hereunder) of such Loan Party or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of 90 debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 45 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgment or order for the payment of money in excess of $5,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that is reasonably likely to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 or 5.01(l) shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it, or any such Loan Party shall so state in writing; or (j) any Collateral Document after delivery thereof pursuant to Section 3.01 or 5.01(p) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected lien on and security interest in the Collateral purported to be covered thereby with the priority required thereunder; or (k) J.W. Childs and its Affiliates and co-investors shall cease to have beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of Holding representing 51% or more of the combined voting power of all Voting Stock of Holding; (l) any ERISA Event shall have occurred with respect to a Plan and the sum (determined as of the date of occurrence of such ERISA Event) of the 91 Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Loan Parties and the ERISA Affiliates related to such ERISA Event) exceeds $5,000,000; or (m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Loan Parties and the ERISA Affiliates as Withdrawal Liability (determined as of the date of such notification), exceeds $5,000,000 or requires payments exceeding $1,000,000 per annum; or (n) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs by an amount exceeding $5,000,000; or (o) any Borrowing Base Deficiency shall occur and be continuing; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Appropriate Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances by a Revolving Credit Lender pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Loan Party under the Federal Bankruptcy Code, (x) the obligation of each Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Revolving Credit Lender pursuant to Section 2.03(c) and Swing Line Advances by a Revolving Credit Lender pursuant to Section 2.02(b)) and of the Issuing Bank to issue Letters of Credits shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due 92 and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent on behalf of the Lender Parties in same day funds at the Administrative Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding. If at any time the Administrative Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Administrative Agent and the Lender Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent determines to be free and clear of any such right and claim. ARTICLE VII THE ADMINISTRATIVE AGENT SECTION 7.01. Authorization and Action. Each Lender Party (in its capacities as a Lender, the Swing Line Bank (if applicable) and the Issuing Bank (if applicable) hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lender Parties and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender Party prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. 93 SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (b) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender Party and shall not be responsible to any Lender Party for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (e) shall not be responsible to any Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram or telecopy) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 7.03. Fleet and Affiliates. With respect to its Commitments, the Advances made by it and the Notes issued to it, Fleet shall have the same rights and powers under the Loan Documents as any other Lender Party and may exercise the same as though it were not the Administrative Agent; and the term "Lender Party" or "Lenders Parties" shall, unless otherwise expressly indicated, include Fleet in its individual capacity. Fleet and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person who may do business with or own securities of any Loan Party or any such Subsidiary, all as if Fleet were not the Administrative Agent and without any duty to account therefor to the Lender Parties. SECTION 7.04. Lender Party Credit Decision. Each Lender Party acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender Party and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender Party also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other 94 Lender Party 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. SECTION 7.05. Indemnification. (a) Each Lender Party severally agrees to indemnify the Administrative Agent (to the extent not promptly reimbursed by the Borrower) from and against such Lender Party's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Administrative Agent under the Loan Documents; provided, however, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender Party agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrower under Section 8.04, to the extent that the Administrative Agent is not promptly reimbursed for such costs and expenses by the Borrower. For purposes of this Section 7.05(a), the Lender Parties' respective ratable shares of any amount shall be determined, at any time, according to the sum of (a) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lender Parties, (b) their respective Pro Rata Shares of the aggregate Available Amount of all Letters of Credit outstanding at such time, (c) the aggregate unused portion of their respective Term Commitments at such time and (d) their respective Unused Revolving Credit Commitments at such time; provided, that the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing Bank shall be considered to be owed to the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Commitments. In the event that any Defaulted Advance shall be owing by any Defaulting Lender at any time, such Lender Party's Commitment with respect to the Facility under which such Defaulted Advance was required to have been made shall be considered to be unused for purposes of this Section 7.05(a) to the extent of the amount of such Defaulted Advance. The failure of any Lender Party to reimburse the Administrative Agent promptly upon demand for its ratable share of any amount required to be paid by the Lender Party to the Administrative Agent as provided herein shall not relieve any other Lender Party of its obligation hereunder to reimburse the Administrative Agent for its ratable share of such amount, but no Lender Party shall be responsible for the failure of any other Lender Party to reimburse the Administrative Agent for such other Lender Party's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender Party hereunder, the agreement and obligations of each Lender Party contained in this Section 7.05(a) shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. 95 (b) Each Lender Party severally agrees to indemnify the Issuing Bank (to the extent not promptly reimbursed by the Borrower) from and against such Lender Party's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Issuing Bank in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Issuing Bank under the Loan Documents; provided, however, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Issuing Bank's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender Party agrees to reimburse the Issuing Bank promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrower under Section 8.04, to the extent that the Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrower. For purposes of this Section 7.05(b), the Lender Parties' respective ratable shares of any amount shall be determined, at any time, according to the sum of (a) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lender Parties, (b) their respective Pro Rata Shares of the aggregate Available Amount of all Letters of Credit outstanding at such time, (c) the aggregate unused portion of their respective Term Commitments at such time plus (d) their respective Unused Working Revolving Credit Commitments at such time; provided, that the aggregate principal amount of Swing Line Advances owing to the Swing Line Bank and of Letter of Credit Advances owing to the Issuing Bank shall be considered to be owed to the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Commitments. In the event that any Defaulted Advance shall be owing by any Defaulting Lender at any time, such Lender Party's Commitment with respect to the Facility under which such Defaulted Advance was required to have been made shall be considered to be unused for purposes of this Section 7.05(b) to the extent of the amount of such Defaulted Advance. The failure of any Lender Party to reimburse the Issuing Bank promptly upon demand for its ratable share of any amount required to be paid by the Lender Parties to the Issuing Bank as provided herein shall not relieve any other Lender Party of its obligation hereunder to reimburse the Issuing Bank for its ratable share of such amount, but no Lender Party shall be responsible for the failure of any other Lender Party to reimburse the Issuing Bank for such other Lender Party's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender Party hereunder, the agreement and obligations of each Lender Party contained in this Section 7.05(b) shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 7.06. Successor Administrative Agents. The Administrative Agent may resign as to any or all of the Facilities at any time by giving written notice thereof to the Lender Parties and the Borrower and may be removed as to all of the Facilities at any time with or without cause by the Required Lenders. Upon any such resignation or removal, 96 the Required Lenders shall have the right to appoint a successor Administrative Agent as to such of the Facilities as to which the Administrative Agent has resigned or been removed. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lender Parties, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent as to all of the Facilities and upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to the Mortgages, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent as to less than all of the Facilities and upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to the Mortgages, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent as to such Facilities, other than with respect to funds transfers and other similar aspects of the administration of Borrowings under such Facilities, issuances of Letters of Credit (notwithstanding any resignation as Administrative Agent with respect to the Letter of Credit Facility) and payments by the Borrower in respect of such Facilities, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement as to such Facilities, other than as aforesaid. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent as to all of the Facilities, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent as to any Facilities under this Agreement. 97 ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed (or, in the case of the Collateral Documents, consented to) by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (a) no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any Lender Party that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change the number of Lenders or the percentage of (x) the Commitments, (y) the aggregate unpaid principal amount of the Advances or (z) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Lenders or any of them to take any action hereunder, (iii) reduce or limit the obligations of either Holding or the Purchaser under Section 9.01 or otherwise limit Holding' or the Purchaser's liability with respect to the Obligations owing to the Administrative Agent and the Lender Parties, (iv) release any material portion of the Collateral in any transaction or series of related transactions or permit the creation, incurrence, assumption or existence of any Lien on any material portion of the Collateral in any transaction or series of related transactions to secure any Obligations other than Obligations owing to the Secured Parties under the Loan Documents and other than Debt owing to any other Person, provided that, in the case of any Lien on any material portion of the Collateral to secure Debt owing to any other Person, (A) the Borrower shall, on the date such Debt shall be incurred or issued, prepay the Advances pursuant to, and in the order of priority set forth in, Section 2.06(b)(ii) in an aggregate principal amount equal to the amount of such Net Cash Proceeds to the extent required to do so under Section 2.06(b)(ii) and (B) the Required Lenders shall otherwise permit the creation, incurrence, assumption or existence of such Lien and, to the extent not otherwise permitted under Section 5.02(b), of such Debt, (v) amend this Section 8.01 and (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each Lender that has a Commitment under the Term Facility or Revolving Credit Facility if affected by such amendment, waiver or consent, (i) increase the Commitments of such Lender or subject such Lender to any additional obligations, (ii) reduce the principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender, (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender or (iv) change the order of application of any prepayment set forth in Section 2.06 in any manner that materially affects such Lender; provided further that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Bank or the Issuing Bank, as 98 the case may be, in addition to the Lenders required above to take such action, affect the rights or obligations of the Swing Line Bank or of the Issuing Bank, as the case may be, under this Agreement; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement. SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and mailed, telecopied or delivered, if to the Borrower, at its address at 3915 Delaware Avenue, Des Moines, Iowa 50313, Attention: Dean Longnecker; if to any Initial Lender or the Initial Issuing Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender Party, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender Party; and if to the Administrative Agent, at its address at One Federal Street, Boston, MA 02110, Attention: Jed Duncan; or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed or telecopied, be effective when deposited in the mails or transmitted by telecopier, respectively, except that notices and communications to the Administrative Agent pursuant to Article II, III or VII shall not be effective until received by the Administrative Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender Party or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Administrative Agent with respect thereto, with respect to advising the Administrative Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and 99 with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of the Administrative Agent and the Lender Parties in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent and each Lender Party with respect thereto). (b) The Borrower agrees to indemnify and hold harmless the Administrative Agent, the Co-Agent, each Lender Party and each of their Affiliates and their officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents or any of the transactions contemplated thereby, including, without limitation, any acquisition or proposed acquisition (including, without limitation, the Stock Purchase, the Merger and any of the other transactions contemplated hereby) by Holding, the Equity Investors or any of their Subsidiaries or Affiliates of all or any portion of the stock or substantially all the assets of the Company or any of its Subsidiaries or (ii) the actual or alleged presence of Hazardous Materials on any property +of any Loan Party or any of its Subsidiaries or any Environmental Action relating in any way to any Loan Party or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense results from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any claim against the Administrative Agent, the Co-Agent, any Lender Party or any of their Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents or any of the transactions contemplated thereby. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender Party other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion 100 pursuant to Section 2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, the Borrower shall pay to the Administrative Agent for each Appropriate Lender an amount equal to the present value (calculated in accordance with this Section 8.04(c)) of interest for the remaining portion of the relevant Interest Period on the amount of such Advance, at a rate per annum equal to the excess of (a) the existing Eurodollar Rate applicable to such Advance over (b) the Eurodollar Rate then applicable to a deemed Interest Period ending on the last day of such Interest Period. The present value of such additional interest shall be calculated by discounting the amount of such interest for each day in the remaining portion of such Interest Period from such date of payment or Conversion at a rate per annum equal to the interest rate determined pursuant to the preceding sentence, and by adding all such amounts for all such days during such period. The determination by the Administrative Agent of such amount of interest shall, in the absence of manifest error, be conclusive. (d) If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Administrative Agent or any Lender Party, in its sole discretion. (e) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 8.05. Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Lender Party and each of its respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender Party or such Affiliate to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under this Agreement and the Note or Notes (if any) held by such Lender Party, irrespective of whether such Lender Party shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each Lender Party agrees promptly to notify the Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender Party and its respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender Party and its respective Affiliates may have. 101 SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Initial Lender and the Initial Issuing Bank that such Initial Lender and the Initial Issuing Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender Party and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lender Parties. SECTION 8.07. Assignments and Participations. (a) Each Lender may and, if demanded by the Borrower (following a demand to such Lender pursuant to Section 2.16), will, assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of one or more Facilities, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 8.07(a) unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) no such assignments shall be permitted without the consent of the Administrative Agent until the Administrative Agent shall have notified the Lender Parties that syndication of the Commitments hereunder has been completed, and (vii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3000.00. 102 (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender or Issuing Bank, as the case may be, hereunder and (y) the Lender or Issuing Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's or Issuing Bank's rights and obligations under this Agreement, such Lender or Issuing Bank shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, the Lender Party assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any other Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender Party or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender or Issuing Bank, as the case may be. 103 (d) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lender Parties and the Commitment under each Facility of, and principal amount of the Advances owing under each Facility to, each Lender Party from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lender Parties may treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender Party at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender Party and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it under a Facility pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment hereunder under such Facility, a new Note to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 or A-2 hereto, as the case may be. (f) The Issuing Bank may assign to an Eligible Assignee all of its rights and obligations under the undrawn portion of its Letter of Credit Commitment at any time; provided, however, that (i) each such assignment shall be to an Eligible Assignee and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3000.00. (g) Each Lender Party may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it and the Note or Notes (if any) held by it); provided, however, that (i) such Lender Party's obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations, 104 (iii) such Lender Party shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent and the other Lender Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (h) Any Lender Party may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender Party by or on behalf of the Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender Party. (i) Notwithstanding any other provision set forth in this Agreement, any Lender Party may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 8.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.09. No Liability of the Issuing Bank. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to 105 bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) the Issuing Bank's willful misconduct or gross negligence in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 8.10. Confidentiality. Neither the Administrative Agent nor any Lender Party shall disclose any Confidential Information to any Person without the consent of the Borrower, other than (a) to the Administrative Agent's or such Lender Party's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process and (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking. SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or federal court. Each of the parties hereto hereby irrevocably waives, to 106 the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.12. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 8.13. Waiver of Jury Trial. Each of the Borrower, the Administrative Agent and the Lender Parties irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of the Administrative Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. ARTICLE IX GUARANTY SECTION 9.01. Guaranty. Each of Holding and the Purchaser unconditionally and irrevocably guarantees (the undertakings by Holding and the Purchaser under this Article IX being the "Guaranty") the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all Obligations of each other Loan Party now or hereafter existing under the Loan Documents, whether for principal, interest, fees, commissions, expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or any other Lender Party in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, each of Holding' and the Purchaser's liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by any other Loan Party to the Administrative Agent or any other Lender Party under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such other Loan Party. SECTION 9.02. Guaranty Absolute. Each of Holding and the Purchaser guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any other Secured Party with respect thereto. The Obligations of each of Holding and the Purchaser under this Guaranty are independent of the Guaranteed Obligations or any other Obligations of any Loan Party under the Loan Documents, and a separate action or actions may be brought and prosecuted against Holding or the Purchaser to enforce this Guaranty, irrespective of whether any action is brought against any other Loan Party or whether any 107 other Loan Party is joined in any such action or actions. The liability of each of Holding and the Purchaser under this Guaranty shall be absolute, unconditional and irrevocable irrespective of, and each of Holding and the Purchaser hereby irrevocably waives any defenses it may now or hereafter have in any way relating to, any and all of the following: (a) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other Obligations of any Loan Party under the Loan Documents, or any other amendment or waiver of or any consent to departure from any Loan Document (including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to any Loan Party or any of its Subsidiaries or otherwise); (c) any taking, exchange, release or nonperfection of any Collateral, or any taking, release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the Guaranteed Obligations; (d) any manner of application of Collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any Collateral for all or any of the Guaranteed Obligations or any other Obligations of any Loan Party under the Loan Documents, or any other property and assets of any other Loan Party or any of its Subsidiaries; (e) any change, restructuring or termination of the corporate structure or existence of any other Loan Party or any of its Subsidiaries; (f) any failure of the Administrative Agent or any Lender Party to disclose to any Loan Party any information relating to the financial condition, operations, properties or prospects of any other Loan Party now or hereafter known to the Administrative Agent or such Lender Party, as the case may be; or (g) any other circumstance (including, without limitation, any statute of limitations or any existence of or reliance on any representation by the Administrative Agent or any Lender Party) that might otherwise constitute a defense available to, or a discharge of, Holding, the Purchaser, any other Loan Party or any other guarantor or surety. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender Party or by any other Person upon the 108 insolvency, bankruptcy or reorganization of any other Loan Party or otherwise, all as though such payment had not been made. SECTION 9.03. Waivers and Acknowledgments. (a) Each of Holding and the Purchaser hereby unconditionally and irrevocably waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty, and any requirement that the Administrative Agent or any Lender Party protect, secure, perfect or insure any Lien or any property or assets subject thereto or exhaust any right or take any action against any other Loan Party or any other Person or any Collateral. (b) Each of Holding and the Purchaser hereby unconditionally and irrevocably waives any duty on the part of the Administrative Agent or any other Lender Party to disclose to Holding or the Purchaser, as the case may be, any matter, fact or thing relating to the business, operation or condition of any other Loan Party or any of its Subsidiaries or its property and assets now or hereafter known by the Administrative Agent or such Lender Party. (c) Each of Holding and the Purchaser hereby unconditionally waives any right to revoke this Guaranty, and acknowledges that this Guaranty is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. (d) Each of Holding and the Purchaser acknowledges that it will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waivers set forth in this Section 9.03 are knowingly made in contemplation of such benefits. SECTION 9.04. Subrogation. Each of Holding and the Purchaser hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or may hereafter acquire against any other Loan Party or any other insider guarantor that arise from the existence, payment, performance or enforcement of its Obligations under this Guaranty or under any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any Lender against such other Loan Party or any other insider guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from such other Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim, remedy or right, until such time as all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash, all of the Letters of Credit shall have expired, terminated or been cancelled and the Commitments shall have expired or terminated. If any amount shall be paid to Holding or the Purchaser in violation of the immediately preceding sentence at any 109 time prior to the latest of (a) the payment in full in cash of all of the Guaranteed Obligations and all other amounts payable under this Guaranty, (b) the full drawing, termination, expiration or cancellation of all Letters of Credit and, (c) the Termination Date, such amount shall be held in trust for the benefit of the Administrative Agent and the other Lender Parties and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as Collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (i) either Holding or the Purchaser shall pay to the Administrative Agent all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash, (iii) all of the Letters of Credit shall have expired, terminated or been cancelled, and (iv) the Termination Date shall have occurred, the Administrative Agent and the Lender Parties will, at Holding' or the Purchaser's request and expense, execute and deliver to Holding or the Purchaser, as the case may be appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer of subrogation to Holding or the Purchaser, as the case may be, of an interest in the Guaranteed Obligations resulting from the payment made by Holding or the Purchaser, as the case may be. SECTION 9.05. Continuing Guarantee; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all of the Guaranteed Obligations and all other amounts payable under this Guaranty, (ii) the full drawing, termination, expiration or cancellation of all Letters of Credit, and (iii) the Termination Date, (b) be binding upon each of Holding and the Purchaser and their respective successors and assigns and (c) inure to the benefit of, and be enforceable by, the Administrative Agent and the Lender Parties and their respective successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any Lender Party may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including, without limitation, all or any portion of its Commitment or Commitments, the Advances owing to it and the Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender Party under this Article IX or otherwise, in each case as provided in Section 8.07. 110 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. CENTRAL TRACTOR FARM & COUNTRY, INC. By /s/ James T. McKitrick Title: President and C.E.O. CT HOLDING INC. By /s/ Adam L. Suttin Title: Vice President JWC ACQUISITION I, INC. By /s/ Adam L. Suttin Title: Vice President FLEET NATIONAL BANK, as Administrative Agent By /s/ John E. Duncan Title: Managing Director NATIONSBANK, N.A., as Co- Agent By /s/ J. Lynn Callicott Title: Vice President 111 Initial Issuing Bank FLEET NATIONAL BANK By /s/ John E. Duncan Title: Managing Director Initial Lenders FLEET NATIONAL BANK By /s/ John E. Duncan Title: Managing Director 112 SCHEDULE I COMMITMENTS AND APPLICABLE LENDING OFFICES
Revolving Letter of Domestic Eurodollar Term Credit Credit Lending Lending Name of Initial Lender Commitment Commitment Commitment Office Office ---------------------- ---------- ---------- ---------- -------- ---------- Fleet National Bank $8,000,000 $30,000,000 $10,000,000
[Exhibits Omitted] EX-11 3 EXHIBIT 11 CENTRAL TRACTOR FARM & COUNTRY, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (In thousands, except per share data) Fiscal Year ----------------------------------------- 1994 1995 1996 --------- -------- -------- Primary: Weighted average shares outstanding 7,276 10,576 10,586 Net effect of dilutive stock options and stock warrant - based on treasury stock method 515 443 400 --------- -------- -------- Total 7,791 11,019 10,986 ========= ======== ======== Income from continuing operations $ 5,181 $ 8,185 $ 8,744 Per share amount 0.66 0.74 0.80 Net Income 1,326 5,542 8,744 Per share amount 0.17 0.50 0.80 Fully diluted: Weighted average shares outstanding 7,276 10,576 10,586 Net effect of dilutive stock options and stock warrant - based on treasury stock method 515 443 400 Assumed conversion of 7% convertible notes 34 826 826 --------- -------- -------- Total 7,825 11,845 11,812 ========= ======== ======== Income from continuing operations $ 5,181 $ 8,185 $ 8,744 Add 7% convertible note interest, net of income tax effect 28 672 672 --------- -------- -------- $ 5,209 $ 8,857 $ 9,416 ========= ======== ======== Per share amount $ 0.66(A) $ 0.75(A) $ 0.80(A) (A) Fully diluted earnings per share are not presented as the affect of the assumed conversion of the 7% convertible note is antidilutive or less than 3% dilutive. EX-21 4 Exhibit 21
CENTRAL TRACTOR FARM & COUNTRY, INC. SUBSIDIARIES Name Jurisdiction of Incorporation Doing Business As Central Tractor Distributing Co. Delaware Same (f/k/a Herschel Corporation) [in process of being dissolved]
EX-23.1 5 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-90958) pertaining to the 1994 Stock Incentive Plan and 1994 Director's Stock Option Plan of Central Tractor Farm & Country, Inc. of our report dated December 6, 1996, with respect to the consolidated financial statements and schedules of Central Tractor Farm & Country, Inc. included in the Annual Report (Form 10-K) for the year ended November 2, 1996. /s/ ERNST & YOUNG LLP Des Moines, Iowa January 28, 1997 -----END PRIVACY-ENHANCED MESSAGE-----