================================================================================
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
VALUE CITY DEPARTMENT STORES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
VALUE CITY DEPARTMENT STORES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
SEPTEMBER 26, 2002
AND
PROXY STATEMENT
--------------------------------------------------------------------------------
IMPORTANT
Please complete, sign and date your proxy and promptly return it in the
enclosed envelope. No postage is necessary if mailed in the United States.
--------------------------------------------------------------------------------
VALUE CITY DEPARTMENT STORES, INC.
3241 Westerville Road
Columbus, Ohio 43224
614-471-4722
August 26, 2002
Dear Shareholder:
You are cordially invited to attend the Value City Department Stores,
Inc. 2002 Annual Meeting of Shareholders, which will be held at the Radison
Airport Hotel, 1375 Cassady Avenue, Columbus, Ohio, on Thursday, September 26,
2002, at 9:30 a.m., local time.
The following pages contain the formal Notice of the Annual Meeting and
the Proxy Statement. You will want to review this material for information
concerning the business to be conducted at the Annual Meeting.
Your vote is important. Whether you plan to attend the Annual Meeting
or not, you are urged to complete, date and sign the enclosed form of proxy and
return it in the enclosed envelope. If you attend the Annual Meeting, you may
revoke your proxy and vote in person if you wish, even if you have previously
returned your proxy.
On behalf of the Board of Directors, we would like to express our
appreciation for your continued interest in the affairs of the Company.
Jay L. Schottenstein John C. Rossler
Chairman President and Chief Executive Officer
VALUE CITY DEPARTMENT STORES, INC.
3241 Westerville Road
Columbus, Ohio 43224
614-471-4722
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 26, 2002
August 26, 2002
To the Shareholders of
Value City Department Stores, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Annual Meeting") of Value City Department Stores, Inc., an Ohio corporation
(the "Company"), will be held at the Radison Airport Hotel, 1375 Cassady Avenue,
Columbus, Ohio, on Thursday, the 26th day of September, 2002, at 9:30 a.m.,
local time, for the following purposes:
1. To elect eleven directors, each for a term of one year and until
their successors are duly elected and qualified;
2. To approve the issuance of warrants to purchase shares of the
Company's common stock, initially exercisable for up to 2,954,793
shares of common stock and the issuance of shares of common stock
issuable pursuant to the anti-dilution and other provisions of
the warrants;
3. To approve the issuance of shares of the Company's common stock
as interest on and upon conversion of amounts outstanding under
the Amended and Restated Senior Convertible Loan Agreement, as
well as any additional shares of common stock issuable pursuant
to the terms of the Amended and Restated Senior Convertible Loan
Agreement;
4. To amend the Company's 2000 Stock Incentive Plan to increase the
number of shares that may be issued thereunder from 3,000,000 to
13,000,000 and to increase the number of shares that may be
awarded to an individual in any performance period from 2,500,000
to 3,000,000;
5. To approve the merger of a subsidiary of the Company with and
into the Company in order to create a holding company structure
(the "Merger");
6. To approve the Company's 2003 Incentive Compensation Plan; and
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on August 9, 2002, are
entitled to notice of and to vote at the Annual Meeting and any postponements or
adjournments thereof.
By Order of the Board of Directors,
James A. McGrady
Executive Vice President, Chief
Financial Officer, Treasurer
and Secretary
SHAREHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED
IN THE UNITED STATES. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR
PROXY AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR
PROXY.
VALUE CITY DEPARTMENT STORES, INC.
3241 Westerville Road
Columbus, Ohio 43224
614-471-4722
------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 26, 2002
------------------
INTRODUCTION
This proxy statement is furnished to the shareholders of Value City
Department Stores, Inc., an Ohio corporation (the "Company"), in connection with
the solicitation of proxies by the Board of Directors of the Company (the
"Board"), for the use at the Annual Meeting of Shareholders (the "Annual
Meeting") to be held on September 26, 2002, at 9:30 a.m., local time, at the
Radison Airport Hotel, 1375 Cassady Avenue, Columbus, Ohio. The Notice of the
Annual Meeting, this proxy statement and the accompanying proxy are being mailed
to shareholders on or about August 26, 2002. The Company's Annual Report on Form
10-K/A for the fiscal year ended February 2, 2002 was previously mailed to
shareholders.
Shareholders of record at the close of business on August 9, 2002 are
entitled to notice of and to vote at the Annual Meeting and any postponements or
adjournments thereof. At August 9, 2002, the Company had 33,980,723 outstanding
shares common stock, net of treasury shares, without par value (the "Common
Stock"). Each outstanding share of Common Stock entitles the holder thereof to
one vote upon each matter to be voted upon by shareholders at the Annual
Meeting.
All shares represented by properly executed proxies received by the
Company prior to the meeting will be voted in accordance with the shareholder's
directions. In the absence of instructions to the contrary, proxies will be
voted FOR each of the proposals herein. A proxy may be revoked, without
affecting any vote previously taken, by:
- a written notice mailed to the Company (attention James A.
McGrady, Secretary);
- by filing a duly executed later dated proxy; or
- delivery in person at the meeting and voting in person.
The presence, in person or by proxy, of a majority of the outstanding
Common Stock is necessary to constitute a quorum for the transaction of business
at the Annual Meeting. Abstentions and broker non-votes are counted for purposes
of determining the presence or absence of a quorum. Broker non-votes occur when
brokers, who hold their customers' shares in street name, sign and submit
proxies for such shares and vote such shares on some matters, but not others.
This would occur when brokers have not received any instructions from their
customers, in which case the brokers, as the holders of record, are permitted to
vote on "routine" matters, which include the election of directors, but not on
non-routine matters such as approval of the warrants and the Common Stock
issuable upon exercise thereof, approval of the issuance of Common Stock under
the Amended and Restated Senior Convertible Loan Agreement, approval of the
amendment to the Company's 2000 Stock Incentive Plan, or approval of the Merger.
The election of each director nominee requires the favorable vote of a
plurality of all votes cast by the holders of Common Stock at a meeting at which
a quorum is present. Proxies that are marked "Withhold Authority" and broker
non-votes will not be counted toward such nominee's achievement of a plurality
and thus will have no effect.
1
The affirmative vote of the holders of a majority of the shares of
outstanding Common Stock is required to approve the Merger. For purposes of
determining the number of shares of Common Stock voting on the matter,
abstentions will be counted and will have the effect of a negative vote; broker
non-votes will be counted and thus will have the effect of a negative vote.
Each other matter to be submitted to the shareholders for approval or
ratification at the Annual Meeting requires the affirmative vote of the holders
of a majority of the Common Stock voting on the matter. For purposes of
determining the number of shares of Common Stock voting on a matter, abstentions
will be counted and will have the effect of a negative vote; broker non-votes
will not be counted and thus will have no effect.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF COMMON STOCK
The following table sets forth, as of July 31, 2002, certain
information with regard to the beneficial ownership of the Common Stock by each
holder of 5% of such shares, each director and director nominee individually,
each executive officer named in the Summary Compensation Table, and all
executive officers and directors as a group.
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Outstanding Shares (2)
---------------- ------------------------ ----------------------
Henry L. Aaron (1) 6,000 *
Roger D. Blackwell 10,000 *
Raymond L. Blanton (1)(3) 26,961 *
Ari Deshe (1)(4)(5)(7) 24,972 *
Jon P. Diamond (1)(4)(5) 21,700 *
Elizabeth M. Eveillard -- --
William Fields -- --
Marvin Goldstein -- --
Richard Gurian (1)(12) 32,300 *
George Kolber (10)
Edwin J. Kozlowski 80,000 *
Dr. Norman Lamm (1)(12) 33,400 *
Roger S. Markfield -- --
James A. McGrady (1)(3) 23,000 *
John C. Rossler (1)(3) 126,000 *
Alan Schlesinger (1)(3) 223,334 *
Geraldine Schottenstein (1)(4)(5)(6)(12) 62,000 *
Jay L. Schottenstein (1)(4)(5)(6) 230,000 *
Robert L. Shook (1)(7)(12) 44,500 *
Harvey L. Sonnenberg (7) 20,000 *
James L. Weisman (7) 1,300 *
All directors and executive officers as a group 738,133 1.6%
(17 persons) (1)(3)(4)(5)(6)(7)(12)
Tweedy, Browne Company LLC (8) 3,338,736 8.9%
Dimensional Fund Advisors Inc. (9) 2,115,500 5.9%
Schottenstein Stores Corporation (5) 22,784,184 58.7%
Cerberus Partners, L.P. (11) 3,360,021 9.0%
--------------
*Represents less than 1% of outstanding Common Stock, net of treasury shares.
2
(1) Except as otherwise noted, the persons named in this table have sole power
to vote and dispose of the shares listed and includes the following number
of shares of Common Stock as to which the named person has the right to
acquire beneficial ownership upon the exercise of stock options within 60
days of July 31, 2002: Mr. Aaron, 6,000; Mr. Blanton, 6,400; Mr. Deshe,
10,000; Mr. Diamond, 20,000; Mr. Gurian, 32,000; Dr. Lamm, 31,000; Mr.
McGrady, 17,000; Mr. Rossler, 11,000; Mr. Schlesinger, 106,667; Mrs.
Schottenstein, 31,000; Mr. Schottenstein, 56,000; Mr. Shook, 31,000; and
all directors and executive officers as a group, 257,400.
(2) The percent is based upon the 33,980,723 shares of Common Stock
outstanding, net of treasury shares, at July 31, 2002.
(3) Includes 20,000 shares for Mr. Blanton, 80,000 shares for Mr. Kozlowski,
5,000 shares for Mr. McGrady, 115,000 shares for Mr. Rossler, 116,667
shares for Mr. Schlesinger and 220,000 shares for all directors and
executive officers as a group, which are owned subject to a risk of
forfeiture on termination of employment with vesting over a period of years
pursuant to the terms of Restricted Stock Agreements with the Company.
(4) Does not include the 22,784,184 shares of Common Stock beneficially owned
by Schottenstein Stores Corporation ("SSC") of 1800 Moler Road, Columbus,
Ohio 43207. Jay L. Schottenstein is the Chairman and Chief Executive
Officer of SSC. Jay L. Schottenstein, Geraldine Schottenstein, Ari Deshe
and Jon P. Diamond are members of the Board of Directors of SSC. See
"Ownership of SSC" below.
(5) Includes 3,360,021 shares of Common Stock issuable upon conversion of
amounts under Senior Subordinated Convertible Loans (the "Senior Loans") in
the principal amount of $37,500,000 within 60 days of July 31, 2002 and
1,477,397 shares of Common Stock issuable upon the exercise of warrants
exercisable within 60 days of July 31, 2002. Does not include 123,372
shares owned by the Jay and Jean Schottenstein Foundation, 62,300 shares
held by the Ann and Ari Deshe Foundation, 67,944 shares held by the Jon and
Susan Diamond Family Foundation and 40,740 shares held by the Lori
Schottenstein Foundation, all being private charitable foundations, and
1,312,500 shares of Common Stock owned by GB Stores, a Pennsylvania limited
partnership. Combined, the shares owned by the foundations and GB Stores
represent 5.0% of the outstanding Common Stock. SSC owns a 96% limited
partnership interest in GB Stores and its corporate general partner is an
affiliate of SSC. The sole trustees and officers of the Jay and Jean
Schottenstein Foundation are Saul, Geraldine and Jay Schottenstein. The
remaining foundations' trustees and officers consist of at least one of the
following persons: Geraldine Schottenstein, Jay Schottenstein, Jon Diamond
and/or Ari Deshe, in conjunction with other Schottenstein family members.
(6) Includes 30,000 shares as to which Geraldine Schottenstein and Jay L.
Schottenstein share voting and investment power as trustees of a trust
which owns the shares. Geraldine Schottenstein is also a beneficiary of the
trust.
(7) Includes 10,000 shares held by Mr. Deshe's minor children; 3,000 shares
held by Mr. Shook's spouse and 1,500 shares held by Shook Associates, Inc.
of which Mr. Shook is a 50% shareholder; 15,000 shares held by Mr.
Sonnenberg's spouse and 500 shares held by Mr. Weisman's spouse.
(8) By reason of their positions as such, the members of Tweedy, Browne Company
LLC ("TBC") may be deemed to control TBC and the managing member of TPK
Partners, LLC ("TBK") and Vanderbilt Partners, LLC ("Vanderbilt") may be
deemed to control TBK and Vanderbilt, respectively. TPC is the managing
member of both TPK and Vanderbilt. The address for TBC is 350 Park Avenue,
New York, NY 10022. Based on information contained in a Schedule 13G/A
filed by TBC on January 28, 2002.
(9) Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "funds." In its role as
investment adviser or manager, Dimensional possesses voting and/or
investment power over the securities of the Company that are owned by the
funds. Dimensional disclaims beneficial ownership of such securities. The
address for Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA
90401. Based on information contained in a Schedule 13G/A filed by
Dimensional on February 12, 2002.
(10) Mr. Kolber is no longer with the Company. As a consequence, the Company is
unable to determine his beneficial ownership of Common Stock or the
percentage of outstanding Common Stock held.
(11) Cerberus Partners, L.P., a Delaware limited partnership ("Cerberus"), is
the holder of Senior Loans in the principal amount of $37,500,000. The
Senior Loans are convertible at any time to the extent any portion of the
loan remains outstanding at the option of the holder thereof into shares of
the Common Stock. The conversion price of the Senior Loans is $4.50 per
share, subject to certain conversion price adjustments. The issuance of
more than 6,720,042 Shares (half of which may be acquired by Cerberus) upon
the conversion of the Senior Loans is subject to approval of the Company's
shareholders at the Annual Meeting. Further, upon shareholder approval at
the Annual Meeting, Cerberus will also be issued a warrant to purchase
1,477,396 Shares (subject to certain conversion price adjustments) in
connection with an additional loan to the Company. Stephen Feinberg
possesses sole power to vote and direct the disposition of all Common Stock
held by Cerberus. Thus, as of June 11, 2002, Stephen Feinberg is deemed to
beneficially own 3,360,021 Shares, or 9.0% of the Common Stock as of that
date. Upon approval of the Company's shareholders at the Annual Meeting of
(i) the issuance of additional Shares issuable upon conversion of the
Senior Loans, and (ii) the issuance of additional Shares issuable in
connection with the additional financing, Cerberus and Mr. Feinberg would
be deemed to beneficially own 9,810,729 Shares, or 22.5% of the Common
Stock as of that date. The address for Cerberus and Mr. Feinberg is 450
Park Avenue, 28th Floor, New York, New York 10022. Based on information
contained in a Schedule 13D filed by Mr. Feinberg on July 2, 2002.
(12) Mr. Gurian, Dr. Lamm, Mr. Shook and Ms. Schottenstein are not standing for
re-election to the Board.
3
OWNERSHIP OF SSC
The following table indicates the shares of SSC common stock
beneficially owned by each nominee for election to the Board of the Company and
by all directors and officers of the Company as a group, as of July 31, 2002:
SHARES OF SSC PERCENT
COMMON STOCK OF CLASS
------------ --------
Jay L. Schottenstein (1) 299.38139 78.4%
Geraldine Schottenstein (2) 27.41707 7.2%
Jon P. Diamond (3) 27.41707 7.2%
Ari Deshe (4) 27.41707 7.2%
Directors and officers as a group (1) (2) (3) (4) 381.6326 100.0%
--------------------
(1) Represents sole voting and investment power over 299.38139 shares held in
irrevocable trusts for Schottenstein, Diamond and Deshe family members as
to which Jay L. Schottenstein is trustee. Under the rules and regulations
of the SEC, Mr. Schottenstein may be deemed to be the beneficial owner of
these shares.
(2) Represents sole voting and investment power over 27.41707 shares held by
Geraldine Schottenstein as trustee of an irrevocable trust for family
members as to which shares Geraldine Schottenstein may be deemed to be the
beneficial owner.
(3) Represents sole voting and investment power over 27.41707 shares held by
Susan Schottenstein Diamond, the wife of Jon Diamond, as trustee of an
irrevocable trust for family members, as to which shares Mr. Diamond may be
deemed to be the beneficial owner.
(4) Represents sole voting and investment power over 27.41707 shares held by
Ann Schottenstein Deshe, the wife of Ari Deshe, as trustee of an
irrevocable trust for family members, as to which shares Mr. Deshe may be
deemed to be the beneficial owner.
4
PROPOSAL ONE: ELECTION OF DIRECTORS
The members of the Board of the Company are elected at the Annual
Meeting. The number of members of the Board has been fixed at fourteen by action
of the Board pursuant to the Code of Regulations (By-laws) of the Company. The
Nominating Committee of the Board has nominated eleven persons to serve as
directors. If each of the nominees is elected, three vacancies will exist on the
Board. Board members serve until the annual meeting following their election or
until their successors are duly elected and qualified.
Set forth below is certain information relating to the nominees for
election as directors.
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Jay L. Schottenstein 48 Director of the Company since June 1991.
Chairman of the Company, American Eagle
Outfitters, Inc. and SSC since March 1992
and Chief Executive Officer of the Company
from April 1991 to July 1997 and from July
1999 to December 2000. Mr. Schottenstein
served as Vice Chairman of SSC from 1986
until March 1992 and a director of SSC since
1982. He served SSC as President of the
Furniture Division from 1985 through June
1993 and in various other executive
capacities since 1976. (1) (2)
Henry L. Aaron 67 Director of the Company since January 2000.
Mr. Aaron presently serves as Senior Vice
President of the Atlanta National League
Baseball Club, Inc. and as Vice President of
Business Development for the CNN Airport
Network, along with a number of other
private business interests.
Roger D. Blackwell 62 Director nominee. Dr. Blackwell has been
associated with The Ohio State University
since 1965 and is currently a Professor of
Marketing in the Fisher College of Business.
Dr. Blackwell also has been President and
Chief Executive Officer of Roger Blackwell
Associates, Inc., a consulting firm in
Columbus, Ohio, since 1980. Dr. Blackwell is
a board member of Anthony & Sylvan Pools,
Inc., a pool builder and designer; The
Flex-Funds, a manager and marketer of mutual
funds and investment vehicles; AirNet
Systems, Inc., a provider of specialty air
courier services; Frontstep, Inc., a
provider of integrated software solutions;
Max & Erma's Restaurants, Inc., a chain of
restaurants; Applied Industrial
Technologies, an electronic commerce and
distribution company; and Diamond Hill
Capital Management, Inc., an investment
management company.
Ari Deshe 52 Director of the Company since October 1997.
Chairman and Chief Executive Officer since
1996 and President and Chief Executive
Officer from 1993 to 1996 of Safe Auto
Insurance Company, a property and casualty
insurance company. Prior to that, Mr. Deshe
served as President of Safe Auto Insurance
Agency from 1992 to 1993 and President of
Employee Benefit Systems, Inc. from 1982 to
1992. (1)
Jon P. Diamond 45 Director of the Company since June 1991.
President and Chief Operating Officer since
1996 and Executive Vice President and Chief
Operating Officer from 1993 to 1996 of Safe
Auto Insurance Company. Mr. Diamond served
as Vice President of SSC from March 1987 to
March 1993 and served SSC in various
management positions since 1983.(1)
Elizabeth M. Eveillard 55 Director of the Company since August 2001.
Mrs. Eveillard is an independent financial
consultant. Mrs. Eveillard served as Senior
Managing Director, Retailing and Apparel
Group, Bear, Stearns & Co., Inc. from 2000
until her retirement in April 2002. Prior to
that time, Mrs. Eveillard served as the
Managing Director, Head of Retailing
Industry Group, Paine Webber
5
Corporation from 1988 to 2000. From 1972 to
1988, Mrs. Eveillard held various executive
positions including Managing Director in the
Merchandising Group with Lehman Brothers.
William R. Fields 52 Director nominee. Mr. Fields is Chairman and
Chief Executive Officer of APEC (China)
Asset Management Ltd. Previously, Mr. Fields
served as President and Chief Executive
Officer of Hudson's Bay Company from 1997 to
1999 and as Chairman and Chief Executive
Officer of Blockbuster Entertainment Group,
a division of Viacom, Inc. from 1996 to
1997. Mr. Fields has also held numerous
positions with Wal-Mart Stores, Inc., which
he joined in 1971. He left Wal-Mart in March
1996 as President and Chief Executive
Officer of Wal-Mart Stores Division, and
Executive Vice President of Wal-Mart Stores,
Inc. Mr. Fields is also a director of
Lexmark International, Inc., The ADX
CompanyCreditMinders.com, Supply Science
Inc., Aegis Capital Advisors, LLC and Bonus
Stores Inc.
Marvin W. Goldstein 58 Director of the Company since August 2001.
Private investor from 1997 to present. Prior
to that time, Mr. Goldstein was the
Chairman, CEO and President of Pet Food
Warehouse from 1995 to 1997. From 1988
through 1994, Mr. Goldstein served as
Executive Vice President and General
Merchandise Manager, Chairman and CEO, and
President and COO of the Department Store
Division of Dayton Hudson. Prior to that
time, Mr. Goldstein held various senior
merchandise positions with R. N. Macy,
Carter Hawley Hale and Dayton's. Mr.
Goldstein presently serves on the Boards of
Directors of Appliance Recycling of America,
Cone Mills Corporation, Greenspring Company,
Paper Warehouse Inc., and Wilsons the
Leather Experts.
Roger S. Markfield 60 Director Nominee. Mr. Markfield has served
as President and Chief Merchandising Officer
of American Eagle Outfitters since February
1995 and prior thereto as Executive Vice
President of Merchandising for American
Eagle Outfitters, Inc. and its predecessors
since May 1993. Mr. Markfield is also a
member of the Board of Directors of American
Eagle Outfitters, Inc. Prior to joining
American Eagle Outfitters, Inc., he served
as Executive Vice President-General
Merchandising Manager for the Limited
Division of The Limited, Incorporated, a
large national specialty retailer from May
1992 to April 1993. From 1969 to 1976 and
from 1979 to 1992, he was employed by R.H.
Macy & Co., a national retailer operating
department and specialty stores, as a Buyer
in Boys' Wear rising to the office of
President of Corporate Buying-Mens. From
1976 to 1979, Mr. Markfield served as Senior
Vice President of Merchandising and
Marketing for the Gap Stores, Inc.
Harvey L. Sonnenberg 60 Director of the Company since August 2001.
Partner in the CPA and consulting firm, M.R.
Weiser & Co., LLP, since November 1994. Mr.
Sonnenberg is active in a number of
professional organizations including the
American Institute of CPA's and the New York
State Society of CPA's and has long been
involved in rendering professional services
to the retail and apparel industry.
James L. Weisman 63 Director of the Company since August 2001.
President and a member of the Weisman
Goldman Bowen & Gross, LLP, a Pittsburgh,
Pennsylvania law firm. He has been
practicing law for 37 years and has
extensive experience in working with retail
clients. His primary areas of practice have
been in banking transactions and overseeing
and directing litigation.
--------------
6
(1) SSC is a controlling shareholder of the Company. For information with
respect to the beneficial ownership of the voting stock of SSC by nominees
for election to the Board of the Company and beneficial ownership of the
Company's Common Stock by such persons and officers of the Company, see
"Security Ownership of Certain Beneficial Owners and Management." Geraldine
Schottenstein is the mother of Jay L. Schottenstein, and the mother-in-law
of Ari Deshe and Jon P. Diamond.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF THE SLATE OF DIRECTORS LISTED ABOVE.
INFORMATION CONCERNING BOARD OF DIRECTORS
The Board and five committees of the Board govern the Company. During
fiscal 2001, the Board met eight times. Directors discharge their
responsibilities throughout the year at Board and committee meetings and also
through considerable telephone contact and other communications with the
Chairman and other key executives, as well as with external advisors such as
legal counsel, outside auditors and investment bankers.
No director, except for Geraldine Schottenstein, Elizabeth Eveillard
and Henry Aaron, attended fewer than 75% of the meetings of the Board and of the
committees of which the director was a member in 2001.
The following table identifies the current membership of Board
committees and states the number of committee meetings held during 2001. A
summary of each committee's functions follows the table:
-----------------------------------------------------------------------------------------------------------------------------
DIRECTOR AUDIT STOCK OPTION NOMINATING (1)(2) OVERSIGHT (1) COMPENSATION
-----------------------------------------------------------------------------------------------------------------------------
Jay L. Schottenstein X X*
Henry L. Aaron X
Ari Deshe
Jon P. Diamond X
Elizabeth M. Eveillard X X
Marvin W. Goldstein X X X* X
Richard Gurian X X X X
Dr. Norman Lamm X X
Geraldine Schottenstein
Robert L. Shook X X* X
Harvey L. Sonnenberg X* X X X
James L. Weisman X X X X
Number of Meetings in fiscal 6 4 0 (3) 0 (3) 0 (3)
2001
* Committee Chair
-----------------------------------------------------------------------------------------------------------------------------
(1) Until his resignation, George Kolber served on the Nominating Committee. He
also served on the Oversight Committee, for which he was the Committee
Chair.
7
(2) Since the inception of the Nominating Committee, a Chairman has never been
appointed.
(3) The Nominating Committee was established in June 2001; the Oversight
Committee and the Compensation Committee were established in January 2002.
Directors who are not employees are paid $2,000 for each Board and
committee meeting attended, with a minimum annual compensation of $8,000, and
are automatically granted options each quarter to purchase 1,000 shares of
Common Stock pursuant to the 2000 Stock Incentive Plan. Directors who are also
employees of the Company do not receive additional compensation for serving as
directors.
AUDIT COMMITTEE
The Audit Committee assists the Board in monitoring:
- the integrity of the financial statements of the Company;
- the Company's system of internal control;
- the independence and performance of the Company's independent
public accountants; and
- the compliance by the Company with legal and regulatory
requirements.
All members of the Audit Committee are independent as defined in the
applicable New York Stock Exchange ("NYSE") listing standards. The members of
the Audit Committee have been reviewed by the Board and determined to be
independent as defined in Sections 303.01(B)(2)(a) and (3) of the NYSE's listing
standards. See "Report of the Audit Committee."
STOCK OPTION COMMITTEE
The Stock Option Committee:
- makes recommendations to the Board regarding the number and terms
of any stock options to be granted under the Company's stock
option plans; and
- administers the Company's Incentive Compensation Plan, 1991 Stock
Option Plan, and 2000 Stock Incentive Plan.
NOMINATING COMMITTEE
The Nominating Committee:
- evaluates the performance of the Board;
- reviews the management organization of the Company and succession
plans for the Chairman and Chief Executive Officer;
- makes recommendations to the Board concerning the composition of
the Board, the compensation of directors, the election of
executive officers, the appointment of the Chairman for each
committee of the Board and the procedures for shareholder voting;
and
- reviews the Company's corporate governance guidelines.
(Established in June 2001 and did not meet in 2001.)
OVERSIGHT COMMITTEE
The Oversight Committee:
- oversees, monitors, and evaluates the performance of the Chief
Executive Officer and other executive officers of the Company.
(Established in January 2002.)
8
COMPENSATION COMMITTEE
The Compensation Committee:
- establishes, reviews, and recommends an executive compensation
package for the Chief Executive Officer and other executive
officers of the Company. (Established in January 2002.)
REPORT OF THE AUDIT COMMITTEE
As described above, one of the Audit Committee's functions is to assist
the Board in monitoring the quality and integrity of the Company's accounting,
auditing and reporting practices. In fulfilling its responsibilities, the Audit
Committee has:
- Reviewed and discussed the Company's audited financial statements
with management and Deloitte & Touche LLP, the Company's
independent auditors. Management has the primary responsibility
for the financial statements and the reporting process;
- Reviewed and discussed, with management and Deloitte & Touche
LLP, the selection, application and disclosure of the critical
accounting polices;
- Discussed with Deloitte & Touche LLP the matters required to be
discussed by Statements on Auditing Standard No. 61 (SAS 61)
(Codification of Statements of Auditing Standards, AU Section
380);
- Received the written disclosures and the letter from Deloitte &
Touche LLP required by Independence Standards Board Standard No.
1 and discussed with the independent auditors their independence;
and
- Considered whether the independent auditors' provision of
services beyond the review of the Company's quarterly financial
statements and year-end audit of the Company's annual financial
statements (financial information systems design and
implementation services, if any, and other non-audit services to
the Company) is compatible with maintaining such auditors'
independence.
The fees paid by the Company to Deloitte & Touche LLP during fiscal
2001 were as follows:
Financial Information Systems Design
Audit Fees and Implementation Fees All Other Fees
---------- ------------------------------------- --------------
$448,800 0 $150,400
Based on its reviews and discussions, and subject to the limitations on
the Audit Committee's role and responsibilities as described in its charter, the
Audit Committee has recommended to the Board that the audited financial
statements be included in the Company's Annual Report on Form 10-K/A for the
fiscal year ended February 2, 2002, for filing with the Securities and Exchange
Commission ("SEC").
The Audit Committee
of the Board of Directors:
Harvey L. Sonnenberg (Chairman)
Marvin Goldstein
Richard Gurian
Robert L. Shook
James L. Weisman
9
EXECUTIVE OFFICERS
The following persons are executive officers of the Company. For
information regarding executive officers that are also directors, see "Election
of Directors." The executive officers of the Company are elected annually by the
Board and serve at the pleasure of the Board.
John C. Rossler, age 54, effective February 2002, was elected President
of the Company. In March 2002, he became President and Chief Executive Officer
of the Company. Mr. Rossler has been President of Shonac Corporation and DSW
Shoe Warehouse since December 2000. Mr. Rossler has held various positions with
DSW and Shonac since 1982, including Chief Operating Officer, Executive Vice
President and Chief Financial Officer. Prior to Shonac Corporation and DSW Shoe
Warehouse, he was the managing partner of the Columbus office of Alexander
Grant/Grant Thornton International where he was employed for 16 years.
Raymond L. Blanton, age 52, effective February 2002, was elected Senior
Vice President and General Merchandise Manager of the Company. Effective May 28,
2002, he was elected Executive Vice President and General Merchandise Manager of
the Company. Mr. Blanton was Senior Vice President - Chief Merchandising Officer
of Shonac Corporation since 1993. Prior to joining Shonac, he was with Bee Gee
Shoe Corporation for 20 years holding several positions including President and
Chief Executive Officer.
Edwin J. Kozlowski, age 53, effective February 2002, was elected
Executive Vice President and Chief Operating Officer of the Company. Mr.
Kozlowski joined the Company in May 2001 as Chief Financial Officer of Shonac
Corporation and DSW Shoe Warehouse. Prior to that time, he served in various
positions with General Nutrition Companies, Inc. since 1978, including Chief
Operating Officer of the retail division of General Nutrition Centers, Executive
Vice President and Chief Financial Officer, Treasurer and Controller of GNCI and
GNI.
James A. McGrady, age 51, joined the Company in July 2000 as Chief
Financial Officer, Treasurer and Secretary. Effective May 28, 2002, he was
elected Executive Vice President, Chief Financial Officer, Treasurer and
Secretary of the Company. Prior to that time, he served as Vice President and
Treasurer of Consolidated Stores Corporation beginning in 1986. From 1979
through 1986, Mr. McGrady was in the practice of public accounting with KPMG
Main Hurdman.
Steven E. Miller, age 43, joined the Company in September 2000 as Vice
President and Controller. From 1998 to 2000, he served as Chief Financial
Officer of Spitzer Management, Inc. From 1993 to 1998, Mr. Miller held various
positions with Consolidated Stores Corporation including Director, Assistant
Treasurer and Assistant Controller.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who are beneficial owners of
more than ten percent of the Company's Common Stock ("reporting persons") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Reporting persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms filed by them. Based
on its review of the copies of Section 16(a) forms received by it, the Company
believes that, during fiscal year 2001, all filing requirements applicable to
reporting persons were complied with.
10
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain information regarding
compensation paid during each of the Company's last three full fiscal years to
the Company's Chief Executive Officer and to each of the Company's four most
highly compensated executive officers serving at the end of fiscal 2001.
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION RESTRICTED
------------------- STOCK ALL OTHER
NAME AND FISCAL SALARY(1) BONUS AWARD(2) OPTIONS/ COMPENSATION(3)
PRINCIPAL POSITION YEAR ($) ($) ($) SARS(#) ($)
------------------ ------ --------- ----- ---------- -------- ---------------
Jay L. Schottenstein 2001 $250,000 None None None None
Chairman 2000 $250,000 None None None None
1999 $250,000 None None None None
John C. Rossler 2001 $404,181 $497,058 $21,650 5,000 $31,927
President and 2000 $395,995 $621,323 None None $25,068
Chief Executive Officer 1999 $393,766 $501,272 None None $18,486
Alan R. Schlesinger 2001 $816,346 $500,000 $216,500 None $226,840
President and Chief 2000 $753,216 $228,846 $345,000 250,000 $285,689
Executive Officer of 1999 None None None None None
Filene's Basement
James A. McGrady 2001 $325,000 $140,000 $21,650 5,000 $31,014
Executive Vice President, 2000 $155,769 None None 30,000 $13,497
Chief Financial Officer, 1999 None None None None None
Treasurer and Secretary
Edwin J. Kozlowski 2001 $223,846 $225,000 None None $105,048
Executive Vice President 2000 None None None None None
and Chief Operating 1999 None None None None None
Officer
Raymond L. Blanton 2001 $294,895 $525,426 None None $120,963
Executive Vice President 2000 $288,922 $525,426 None 2,000 $93,864
and General Merchandise 1999 $287,296 $525,426 None None $92,958
Manager
George Kolber (4) 2001 $900,000 None None None $207,548
Former Vice Chairman and 2000 $112,500 None $3,450,000 500,000 $9,676
Chief Executive Officer 1999 None None None None None
--------------------
(1) Includes amounts deferred by the executive officer pursuant to the Deferred
Compensation Plan established in 1998, SSC's Associate Profit Sharing and
401(k) Plan (the "401(k) Plan"), which was adopted effective as of August
1, 1989, and in which associates of the Company are eligible to
participate. The 401(k) Plan is a prototype defined contribution plan that
qualifies for favorable tax treatment under Sections 401(a) and 401(k) of
the Internal Revenue Code of 1986, as amended. The 401(k) Plan permits
eligible associates of the Company to contribute a percentage of their
pre-tax wages to the plan and the Company will match the contributions up
to a maximum of 3% of covered wages. Effective January 1, 2001, the Company
matches up to 4.5% of participants' eligible contributions. The Company
also may contribute up to an additional 1.5% of covered wages as a profit
sharing contribution. In addition, Mr. Blanton is also a participant in the
"Nonqualified Deferred Compensation Plan Agreement." See "Agreements with
Key Executives" in this proxy statement for details.
(2) The value of the restricted stock is determined by multiplying the total
shares held by each named executive by the closing price on the NYSE on
February 1, 2002.
(3) See Table below for All Other Compensation.
(4) Mr. Kolber resigned from the Company effective April 6, 2002.
11
ALL OTHER COMPENSATION DETAIL:
Jay L. John C. Alan R. James A. Edwin J. Raymond L. George
Schottenstein Rossler Schlesinger McGrady Kozlowski Blanton Kolber
------------- -------- ------------ --------- --------- ---------- -------
401(k) Plan & Associate ---- $8,760 $18,350 $1,801 ---- $8,722 $7,650
Stock Purchase Plan Company
Contributions:
Company Paid Relocation
Expenses: ---- ---- $1,672 ---- $98,147 ---- $18,223
Tax Reimbursement: ---- ---- $54,138 ---- ---- ---- $71,949
Auto Reimbursement: ---- $11,399 $43,208 $25,189 $2,182 $9,208 $25,420
Company paid Life, Medical &
indemnity Insurances: ---- $3,926 $5,059 $3,966 ---- $5,381 $4,178
Cost of Living Adjustments: ---- ---- $43,733 ---- ---- ---- ----
Sec 79 Cafeteria Health Care
Plan: ---- $4,270 ---- $58 ---- $218 ----
Personal Living Expenses: ---- ---- $60,680 ---- ---- ---- $80,128
Gift Certificates: ---- $120 ---- ---- $25 $65 ----
Country Club Dues &
Membership: ---- $3,452 ---- ---- $4,694 $22,369 ----
Non-Qualified Deferred
Compensation: ---- ---- ---- ---- ---- 75,000 ----
-------- --------- ---------- --------- ---------- --------- ---------
Total Other Compensation ---- $31,927 $226,840 $31,014 $105,048 $120,963 $207,548
========= ========= ========== ========= ========== ======== =========
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR TABLE
The following table provides certain information on option grants
during fiscal 2001 by the Company to the Chief Executive Officer and each of the
Company's other executive officers named in the Summary Compensation Table.
Potential Realized Value
at Assumed Annual
% of Total Rates of Stock Price
Options/SARs Exercise Appreciation
Options/ Granted to or Base for Option Term (3)
SARs Employees in Price Expiration -------------------
NAme Granted (#) Fiscal Year (1) ($/Sh) Date (2) 5% 10%
---------------------- ----------- --------------- -------- ----------- -------- ----------
Jay L. Schottenstein None N/A N/A N/A N/A N/A
John C. Rossler 5,000 0.39% $4.48 8/29/11 $14,087 $35,700
Alan R. Schlesinger None N/A N/A N/A N/A N/A
James A. McGrady 5,000 0.39% $4.48 8/29/11 $14,087 $35,700
Edwin J. Kozlowski None N/A N/A N/A N/A N/A
Raymond L. Blanton None N/A N/A N/A N/A N/A
George Kolber None N/A N/A N/A N/A N/A
--------------------
(1) Percentage is based upon 1,284,650 options granted in fiscal 2001.
12
(2) All options are exercisable 20% per year, beginning on the first
anniversary of the original grant date, on a cumulative basis and expire
ten years from the original grant date.
(3) Represents the potential realizable value of each grant of options assuming
that the market price of the Common Stock appreciates in value from the
date of grant to the end of the option term at either a 5% or 10%
annualized rate, based on the difference between the assumed per share
value and the per share option exercise price, multiplied by the total
number of option shares.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table provides certain information on the number and
value of stock options held by the executive officers named in the Summary
Compensation Table at February 2, 2002.
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES VALUE AT FISCAL YEAR END (#) FISCAL YEAR END ($)(1)
ACQUIRED ON REALIZED -------------------------- -------------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ----------- -------- ----------- ------------- ----------- -------------
Jay L. Schottenstein --- --- 56,000 --- --- ---
John C. Rossler --- --- 6,000 9,000 --- ---
Alan R. Schlesinger --- --- 20,000 30,000 --- ---
James A. McGrady --- --- 6,000 29,000 --- ---
Edwin J. Kozlowski --- --- --- --- --- ---
Raymond L. Blanton --- --- 6,400 5,600 --- ---
George Kolber (2) --- --- 300,000 --- --- ---
---------------
(1) Represents the total gain which would be realized if all in-the-money
options held at year end were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the per share fair market value at year end
of $4.33. An option is in-the-money if the fair market value of the
underlying shares exceeds the exercise price of the option.
(2) Pursuant to an Addendum to his Employment Agreement, Mr. Kolber forfeited
rights to 200,000 options which were not vested on April 6, 2002.
EQUITY COMPENSATION PLAN TABLE
The following table sets forth additional information as of July 31,
2002, about shares of Common Stock that may be issued upon the exercise of
options and other rights under the Company's existing equity compensation plans
and arrangements, divided between plans approved by the Company's shareholders
and plans or arrangements not submitted to the shareholders for approval. The
information includes the number of shares covered by, and the weighted average
exercise price of, outstanding options and other rights and the number of shares
remaining available for future grants excluding the shares to be issued upon
exercise of outstanding options, warrants, and other rights. The table does not
reflect the additional shares covered by an amendment to the 2000 Stock
Incentive Plan being submitted for shareholder approval which is discussed in
Proposal Four of this proxy statement.
13
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES FOR ISSUANCE UNDER
TO BE ISSUED FROM WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF EXERCISE PRICE OF PLANS (EXCLUDING
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED
WARRANTS AND RIGHTS WARRANTS AND RIGHTS IN COLUMN (A)
-------------------- -------------------- --------------------
Equity compensation plans approved
by security holders (1) 4,230,130 $6.31 0
Equity compensation plans not
approved by security holders N/A N/A N/A
Total
(1) Equity compensation plans approved by shareholders include the 1991 Stock
Option Plan, as amended, and the 2000 Stock Incentive Plan.
TEN-YEAR OPTION / SAR REPRICING TABLE
The following table provides repricing information on the number and
value of stock options held by the executive officers named in the Summary
Compensation Table at February 2, 2002.
Length of
Number of Original
Securities Market Price Option Term
Underlying Of Stock Exercise Price Remaining at
Options / SARs At Time of At Time of New Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) (1) Amendment ($)(2) Amendment ($) Price ($) Amendment
---- ---- --------------- ---------------- ------------- --------- ---------
Alan R. Schlesinger 2/02/02 66,667 $4.28 $7.13 $4.28 9 yrs
(1) Effective December 4, 2000, Mr. Schlesinger was elected President and Chief
Merchandising Officer of the Company and was granted options to purchase
200,000 shares of Common Stock. Effective February 3, 2002, Mr. Schlesinger
was elected President and Chief Executive Officer of Filene's Basement Inc.
On February 2, 2002, the 200,000 options were cancelled. A new grant of
66,667 options was made to Mr. Schlesinger on February 3, 2002.
(2) Represents the average high and low price per share of the Common Stock on
February 1, 2002.
The Stock Option Committee approved the stock option repricing, in
light of Mr. Schlesinger's new position with the Company.
Stock Option Committee
Of the Board of Directors
Robert L. Shook (Chairman) Richard Gurian
Henry L. Aaron Dr. Norman Lamm
Elizabeth M. Eveillard Harvey L. Sonnenberg
Marvin Goldstein James L. Weisman
14
AGREEMENTS WITH KEY EXECUTIVES
Mr. Rossler entered into an employment agreement with the Company
effective May 1, 1998, with a term originally ending April 30, 2001. Effective
May 1, 2002, the agreement was renewed. The agreement provided for an annual
salary of $376,911 with annual increases of 2.5%. On July 24, 2002, Mr. Rossler
entered into a new employment agreement with the Company with an effective date
of February 3, 2002. The new employment agreement provides for an annual salary
of $700,000 with annual increases of 2.5%. In connection with the execution of
the new employment agreement, Mr. Rossler received a signing bonus of $250,000.
Beginning for the fiscal year ending February 1, 2003, and in accordance with
the Company's Incentive Compensation Plan, Mr. Rossler will receive an annual
cash incentive bonus based upon a predetermined formula of the Company's
earnings before interest and taxes. Mr. Rossler was granted 110,000 shares of
restricted stock which vest on February 4, 2006, subject to the terms
established by the Board. Mr. Rossler was also granted options to purchase up to
840,000 shares of Common Stock at an exercise price of $4.50. These options vest
ratably over five years. Subject to the terms of the Company's Stock Incentive
Plan and any applicable performance stock option agreement, the Company granted
to Mr. Rossler performance options to purchase 1,590,000 shares of Common Stock
that will vest on (1) January 30, 2010 or, if earlier, (2) the later of (A)
January 31, 2004 if, (i) for each day of any 60-consecutive trading day period
that ends on or before January 31, 2004, the closing price of the Common Stock
is at least $12.00 per share or (ii) the Company has achieved at least 95
percent of the EBIT goal the Board set for the Company for each fiscal year
ending after the effective date of Mr. Rossler's employment agreement and on and
before January 31, 2004 or (B) the last day of (i) any 60-consecutive trading
day period that ends after January 31, 2004 and before January 30, 2010 and on
each day of which the closing price of the Common Stock is at least $12.00 per
share or (ii) the Company has achieved at least 95 percent of the EBIT goal the
Board set for the Company for each of any three fiscal years ending after the
effective date of Mr. Rossler's employment agreement and on and before January
30, 2010.
Mr. Kozlowski entered into an employment agreement with the Company,
effective May 1, 2001, for a term ending April 30, 2004. The agreement provides
for an annual salary of $300,000 with minimum annual increases of 2.5%. The
contract also provides for guaranteed bonuses and incentive compensation.
Guaranteed bonuses are $225,000 for fiscal year 2001-2002; $187,500 for fiscal
year 2002-2003; $37,500 for fiscal year 2003-2004. Incentive compensation is
intended to provide for an annual maximum 200% of base salary (reduced by any
amount payable under the guaranteed bonus) based upon Board approved,
predetermined, performance measures. After fiscal year 2003-2004, the Incentive
compensation will solely determine the bonus amount. The Company loaned Mr.
Kozlowski funds to close on his Columbus housing. The loan bears interest at the
prime rate of National City Bank, Columbus. The Company also loaned Mr.
Kozlowski the initiation fee for a country club membership. This loan is being
forgiven at a rate of 10 percent for each 12-consequetive month period Mr.
Kozlowski remains employed after the date the loan was made, and will be fully
forgiven if Mr. Kozlowski dies or becomes disabled before the end of the
ten-year period. If Mr. Kozlowski leaves employment with the Company for any
reason other than death or disability before the ten-year period has elapsed, he
is responsible for the balance of the payment.
On July 24, 2002, Mr. Kozlowski was granted 80,000 shares of restricted
stock which vest on February 4, 2006, subject to the terms established by the
Board. Additionally, on July 24, 2002, Mr. Kozlowski was granted options to
purchase up to 590,000 shares of Common Stock at an exercise price of $4.50.
These options vest ratably over five years. Subject to the terms of the
Company's Stock Incentive Plan and any applicable performance stock option
agreement, the Company granted to Mr. Kozlowski performance options to purchase
1,130,000 shares of Common Stock that will vest on (1) January 30, 2010 or, if
earlier, (2) the later of (A) January 31, 2004 if, (i) for each day of any
60-consecutive trading day period that ends on or before January 31, 2004, the
closing price of the Common Stock is at least $12.00 per share or (ii) the
Company has achieved at least 95 percent of the EBIT goal the Board set for the
Company for each fiscal year ending after February 2, 2002 and on and before
January 31, 2004 or (B) the last day of (i) any 60-consecutive trading day
period that ends after January 31, 2004 and before January 30, 2010 and on each
day of which the closing price of the Common Stock is at least $12.00 per share
or (ii) the Company has achieved at least 95 percent of the EBIT goal the Board
set for the Company for each of any three fiscal years ending after February 2,
2002 and on and before January 30, 2010.
Mr. Blanton entered into an employment agreement with the Company,
effective May 1, 1998, with a term originally ending April 30, 2001. The
agreement has been renewed on an annual basis. Effective May 1, 2002, the
agreement has been renewed. The agreement provides for an annual salary of
$275,000 with annual increases of 2.5%. In addition, Mr. Blanton is also a
participant in the "Nonqualified Deferred Compensation Plan Agreement." Under
this
15
agreement, an annual lump sum of $75,000 is deposited each February. After
continuous employment with the Company, Mr. Blanton may elect to retire on or
after the first calendar month coinciding with or immediately following his 60th
birthday. Mr. Blanton will be considered vested if (i) he furnishes to the
Company's President with a one year's prior written notice of resignation after
attaining age 60 and (ii) he enters into a confidentially and noncompetition/no
solicitation agreement until he reaches the age of 65. If Mr. Blanton retires on
or after his 65th birthday, he shall be fully vested on the date of retirement.
On July 24, 2002, Mr. Blanton was granted 20,000 shares of restricted
stock which vest on February 4, 2006, subject to the terms established by the
Board. Additionally, on July 24, 2002, Mr. Blanton was granted options to
purchase up to 140,000 shares of Common Stock at an exercise price of $4.50.
These options vest ratably over five years. Subject to the terms of the
Company's Stock Incentive Plan and any applicable performance stock option
agreement, the Company granted to Mr. Blanton performance options to purchase
430,000 shares of Common Stock that will vest on (1) January 30, 2010 or, if
earlier, (2) the later of (A) January 31, 2004 if, (i) for each day of any
60-consecutive trading day period that ends on or before January 31, 2004, the
closing price of the Common Stock is at least $12.00 per share or (ii) the
Company has achieved at least 95 percent of the EBIT goal the Board set for the
Company for each fiscal year ending after February 2, 2002 and on and before
January 31, 2004 or (B) the last day of (i) any 60-consecutive trading day
period that ends after January 31, 2004 and before January 30, 2010 and on each
day of which the closing price of the Common Stock is at least $12.00 per share
or (ii) the Company has achieved at least 95 percent of the EBIT goal the Board
set for the Company for each of any three fiscal years ending after February 2,
2002 and on and before January 30, 2010.
Mr. McGrady entered into an employment agreement with the Company
effective June 21, 2000, for a term ending June 21, 2003. The agreement provides
for an annual salary of $300,000 and a bonus of at least 40% of his base salary
based upon Board approved, predetermined, performance measures set annually. On
July 24, 2002, Mr. McGrady was granted options to purchase up to 540,000 shares
of Common Stock at an exercise price of $4.50. These options vest ratably over
five years.
Mr. Kolber entered into an employment agreement with the Company,
effective December 4, 2000, for a term ending January 2004. The agreement
provided for an annual salary of $900,000 with $100,000 increases each year. The
contract also provided for the grant of 500,000 shares of restricted stock,
which vest equally on the last of each fiscal year ending 2002, 2003 and 2004
provided that the Company has positive income before income taxes. In addition,
Mr. Kolber was granted 200,000 options to purchase shares which vested on
December 4, 2000, and was also granted an additional 300,000 options to purchase
shares of the Company's Common Stock which vest equally on the first, second and
third anniversaries of his employment agreement. Effective April 6, 2002, this
agreement was terminated. The Company paid a separation payment of $2,450,000
and will pay COBRA premiums through September 30, 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2002, the Board established a Compensation Committee comprised of
Jay L. Schottenstein, Elizabeth Eveillard, Richard Gurian, Dr. Norman Lamm,
Richard L. Shook, Harvey L. Sonnenberg and James L. Weisman. The Compensation
Committee establishes, reviews, and recommends an executive compensation package
for the Chief Executive Officer and other executive officers of the Company. Jay
L. Schottenstein is also Chairman and Chief Executive Officer of SSC. For
information regarding the relationships between the Company and SSC, see
"Relationship with SSC and Its Affiliates" below.
The Stock Option Committee administers and grants options under the
Company's 1991 Stock Option Plan and the Company's 2000 Stock Incentive Plan and
administers the Company's Incentive Compensation Plan. The members are Henry L.
Aaron, Elizabeth L. Eveillard, Marvin W. Goldstein, Richard Gurian, Dr. Norman
Lamm, Robert L. Shook, Harvey L. Sonnenberg and James L. Weisman (non-voting
member). None of the members of the Stock Option Committee are present or former
officers of the Company or are themselves or any of their affiliates, if any,
parties to agreements with the Company.
16
The following Compensation Report and Performance Graph and the Audit
Committee Report previously provided shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any of the Company's filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
General. The Board has delegated to the Compensation Committee the
authority to establish the annual compensation of the executive officers of the
Company, other than the Chairman's compensation. The key components of the
Company's executive officer compensation include both short-term compensation
consisting of an annual base salary and annual bonuses under the Company's
Incentive Compensation Plan and long-term equity based compensation consisting
of grants of restricted stock and stock option awards. The entire Board has made
the only grants of restricted stock by the Company. The Stock Option Committee
of the Board grants options under the Company's 2000 Stock Incentive Plan.
In fiscal 2002, the Company engaged Hewitt Associates to perform an
analysis and make a recommendation to the Board regarding the appropriate
compensation to be paid to the Company's key executives. Hewitt reviewed the
Company's compensation goals and the compensation packages awarded to executives
of other comparable companies. The analysis covered both short-term and
long-term incentives and attempted to tie compensation to Company performance.
Hewitt Associates made a presentation to the Company's Compensation
Committee and Stock Option Committee in July 2002. Based upon the analysis, the
Company entered into a new employment agreement with Mr. Rossler, effective
February 3, 2002. For a description of this new employment agreement, see
"Agreements with Key Executives" in this proxy statement.
Chairman's Compensation. The Chairman's annual base salary was fixed by
action of the Board at the time he was appointed Chairman during fiscal 1992.
The Chairman does not receive an annual bonus. The Board did not consider or
take any action to change the Chairman's annual base salary during fiscal 2001.
Chief Executive Officer. The compensation of the Chief Executive
Officer, Mr. Rossler, is fixed pursuant to the terms of his employment
agreement, which was negotiated by the Chairman, with input from a number of the
Directors.
Executive Officers' Compensation. The remaining executive officers'
base salaries were based on negotiated employment agreements. No bonuses for
fiscal 2001 were paid pursuant to the Company's Incentive Compensation Plan,
which combines individual and company-wide objectives and performance goals to
provide a clear vehicle linking the interests of the executive officers with the
financial performance of the Company. A bonus was paid to Mr. Rossler, Mr.
Blanton and Mr. Kozlowski pursuant to employment contracts with Shonac
Corporation and to Mr. Schlesinger pursuant to an employment contract with
Filene's Basement.
Stock Awards. The Company's 1991 Stock Option Plan was adopted at the
time the Company went public in 1991 and the Board adopted the Company's 2000
Stock Incentive Plan on December 4, 2000. Both plans were adopted for the
purpose of providing long-term incentives to key employees and motivating key
employees to improve performance of the Company's stock. Stock options granted
under the Company's 1991 Stock Option Plan and the Company's 2000 Stock
Incentive Plan are determined and administered by the Stock Option Committee,
none of the members of which are officers or employees of the Company. In
determining the size of a stock option award, the Stock Option Committee
considers the total number of shares subject to previously granted stock options
held by the individual and, based principally on the recommendation of senior
executive officers, the anticipated value of an individual's contribution to the
Company's future performance. The options granted during fiscal year 2001 were
granted to employees as a long-term incentive designed to encourage them to
remain with the Company.
The Budget Reconciliation Act of 1993 amended the Internal Revenue Code
of 1986, as amended (the "Code") to add Section 162(m) which bars a deduction to
any publicly held corporation for compensation paid to a "covered employee" in
excess of $1,000,000 per year. Generally, the Board intends that compensation
paid to covered employees shall be deductible to the fullest extent permitted by
law. The Company's 1991 Stock Option Plan, the 2000 Stock Incentive Plan and
Incentive Compensation Plan are intended to qualify under Section 162(m).
17
The following members of the Board respectively submit this report:
Jay L. Schottenstein (Chairman)# Elizabeth M. Eveillard*# Geraldine Schottenstein
Henry L. Aaron* Marvin Goldstein*# Robert L. Shook*#
Ari Deshe Richard Gurian*# Harvey L Sonnenberg*#
Jon P. Diamond Dr. Norman Lamm*# James L. Weisman*#
*Members of the Stock Option Committee.
#Members of the Compensation Committee.
18
PERFORMANCE GRAPH
The following graph compares the performance of the Company with that
of the Standard & Poor's General Merchandise Chains Index and the Russell 2000
Index, both of which are published indexes. This comparison includes the period
beginning August 2, 1997 through February 2, 2002.
The Standard & Poor's General Merchandise Chains Index is published
weekly in the Standard & Poor's Statistical Service and the index value
preceding each fiscal year end has been selected for purposes of this
comparison. The Russell 2000 Index is a capitalization-weighted index of
domestic equity securities traded on the New York and American Stock Exchanges
and the Nasdaq that measures the performance of the 2,000 smallest companies in
the Russell 3000 Index. The Common Stock is traded on the NYSE.
The comparison of the cumulative total returns for each investment
assumes that $100 was invested on August 2, 1997 and that all dividends were
reinvested.
COMPARISON OF 54 MONTH CUMULATIVE TOTAL RETURN*
AMONG VALUE CITY DEPARTMENT STORES, INC., THE RUSSELL 2000 INDEX
AND THE S & P GENERAL MERCHANDISE STORES INDEX
[GRAPH]
$100 invested on 8/2/97 in stock or on 7/31/97 in index-including reinvestment
of dividends.
Copyright (C) 2002, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved. www.researchdatagroup.com/S&P.htm
19
RELATIONSHIP WITH SSC AND ITS AFFILIATES
Prior to the completion of its initial public offering on June 18,
1991, the Company was operated as the Department Store Division of SSC. On that
date, SSC transferred substantially all of the net assets of the Division to the
Company in exchange for 22,500,000 shares of Common Stock. At July 31, 2002, SSC
beneficially owned 58.7% of the Company's outstanding Common Stock. So long as
SSC owns more than 50% of the Company's voting shares, it will continue to have
the power acting alone to approve any action requiring a vote of the majority of
the voting shares of the Company and to elect all of the Company's directors.
For information with respect to the beneficial ownership of the voting stock of
SSC by nominees for election to the Board of the Company and beneficial
ownership of Common Stock by such persons and officers of the Company, see
"Security Ownership of Certain Beneficial Owners and Management."
REAL ESTATE LEASES AND SUBLEASES
The Company leases or subleases from SSC or affiliates of SSC
twenty-eight store locations, seven warehouses and a parcel of land. Generally,
the agreements require the Company to pay for insurance, taxes, common area
maintenance and other costs associated with the properties on a "triple net"
basis for freestanding locations, and on a pro rata share basis for locations
that are part of a larger parcel.
SSC leases to the Company five store locations under the terms of a
Master Store Lease Agreement. The Master Store Lease, as amended, provides for
certain base rentals, including a guaranteed amount, which approximate to $3.46
per square foot. The Master Store Lease also provides for the payment of
percentage rent equal to 2% of gross total sales in excess of the base rent. For
fiscal 2001, the Company recorded rent expense to SSC, including contingent
rent, of $1,684,560 pursuant to the Master Store Lease.
SSC subleases to the Company two store locations that are owned by
affiliates of SSC under a Master Sublease. The Master Sublease provides for an
annual base rent of the greater of 2% of gross sales or minimum rent of $2.39
and $2.29 per square foot. For fiscal 2001, the Company recorded rent expense to
SSC, including contingent rent, of $688,794 pursuant to the Master Sublease.
Both the Master Lease and the Master Sublease have a term of five years
that began in June 2001, and are renewable thereafter, by individual location,
at the option of the Company, for four additional renewal terms of five years
each. Each renewal term in the aforementioned leases and subleases will be on
the same terms as the initial term, except for rent. The Master Store Lease and
Master Sublease provide for an increase in minimum percentage rent of $0.50 per
square foot in each succeeding five-year renewal term. In no event, commencing
fiscal 1997, shall total rent be less than 2% of total sales.
The Company also leases or subleases seven warehouse facilities and a
trailer yard from SSC or affiliates of SSC. The warehouse facilities consist of
approximately 1,998,000 square feet for base rentals of $1.75 to $3.11 per
square foot with lease terms ranging from 2004 through 2037. Generally, the
lease renewal terms are at the same terms and conditions as the original term
except rent, which increases by $0.25 to $0.50 per square foot for each renewal
term. The Company also leases, from an affiliate of SSC, a trailer yard of
approximately 19 acres with lease control through April 2009 having rents that
range from $25,000 to $30,000 per year during the period of lease control.
During fiscal 2001, the Company recorded net rent expenses to SSC and affiliates
of SSC of $4,077,850 pursuant to these leases and assignments.
Additionally, the Company leases nineteen store locations from SSC or
affiliates of SSC. Generally, the leases provide for percentage rent equal to 2%
of total sales in excess of a specified sales level or base rent with base rents
ranging from $2.36 to $20.00 per square foot for the initial term and provide
lease terms ranging from 2007 through 2040. Generally, the renewal terms are at
the same terms and conditions as the original term except rent, which may
increase for the renewal terms. During fiscal 2001, the Company recorded rent
expenses in the aggregate to SSC and affiliates of SSC of $10,346,478 pursuant
to these leases.
In addition to the foregoing, SSC subleases one store location to the
Company under an agreement that provides for the payment of additional rent to
SSC in order for SSC to recover the costs of the initial acquisition of the
leasehold interest. The sublease has a term expiring in fiscal 2004 and provides
for rent in the amount of 2% of total sales, with a minimum rent equal to $2.00
per square foot and provides four additional five-year renewal terms. During
fiscal 2001, the Company recorded rent expenses in the aggregate to SSC of
$196,560 pursuant to this sublease.
20
The Company also subleases from SSC a store location. The sublease
expires December 31, 2007 and provides for percentage rent equal to 2% of total
sales in excess of a minimum base rent of $4.69 per square foot with three
additional renewal terms of five years each. During fiscal 2001, the Company
recorded rent expenses to SSC of $496,966 for this sublease.
SSC operates a chain of furniture stores, five of which operate in
separate space subleased from the Company at five of its store locations. Three
of these furniture store subleases (the "Furniture Subleases") are for a term
concurrent with the respective lease between the Company and a third party
landlord. These Furniture Subleases provide for the payment by SSC of base rent
and other charges in amounts at least equal to its pro rata share based on
square footage and its pro rata share of any percentage rent based on its gross
sales. Two additional furniture store subleases are for periods shorter than the
Company's lease. For fiscal 2001, SSC paid to the Company an aggregate of
$1,308,671 pursuant to these subleases.
LICENSE AGREEMENTS WITH AFFILIATES
In July 1997, the Company entered into agreements to form a 50/50 joint
venture with Mazel Stores, Inc. to create VCM, Ltd. ("VCM") to operate the
Company's health and beauty care and toys and sporting goods departments as
licensed departments. Beginning in fiscal 2000, VCM also operated the food
department. Pursuant to operating agreements between VCM and the Company, VCM
paid annual license fees to the Company based on 5% and 11% of net sales and
reimbursed the Company 2% and 4% of its sales for advertising and 2.9% and 1% of
its sales for administrative expenses for the health and beauty care and the
toys and sporting goods departments, respectively. The Company also provided
certain personnel, administrative and service functions for which it received a
monthly fee from VCM to cover the related costs. The aggregate license fees paid
by VCM to the Company for fiscal 2001 were $9,698,000. Effective with the close
of business on February 2, 2002, by acquisition of Mazel Stores, Inc.'s interest
in VCM for $8,375,000, the Company now owns 100% of VCM and operates the health
and beauty care, toy, sporting goods and food departments in the Value City
stores.
MERCHANDISE TRANSACTIONS WITH AFFILIATES
The Company from time to time purchases merchandise from affiliates of
SSC. Some of such affiliates manufacture, import and wholesale apparel as their
principal business. The members of the Company's merchandising staff use these
sources and make their purchasing decisions in the same manner as with
unaffiliated sources. Any merchandise purchased from such sources is on terms at
least as favorable to the Company as could be obtained in an arm's-length
transaction with an unaffiliated third party, and in certain instances, the
Company is given terms preferential to those available to unaffiliated
customers. Total purchases by the Company from SSC and affiliates for fiscal
2001 were $16,396,000, representing 1.3% of the Company's total purchases during
the fiscal year.
VCM and certain affiliates of SSC from time to time purchase
merchandise from the Company, in some instances, on a regular basis. Such
purchases are generally made from merchandise in the Company's warehouse
inventory at prices equal to the Company's cost plus a handling fee of up to
15.0%.
The Company will from time to time purchase merchandise on behalf of
and ship it directly to affiliates, at cost plus delivery charges. Most
transactions of this nature are done with VCM. No such purchases were made
during fiscal 2001.
In May 2001, SSC and the Company entered into a deferred purchase
arrangement for the sale of Bugle Boy products that SSC purchased for
approximately $11.9 million. As part of the agreement, the Company agreed to
purchase at SSC's cost plus a handling fee any unsold Bugle Boy merchandise
owned by SSC on February 2, 2002. On February 6, 2002, the final payment was
made to SSC.
In October 2001, SSC and Filene's Basement, Inc. entered into a
deferred purchase arrangement for the sale of products that SSC purchased for
approximately $2.9 million. As part of the agreement, Filene's agreed to
purchase the products at SSC's cost plus a handling fee. On May 13, 2002, the
final payment was made to SSC.
21
CORPORATE SERVICES AGREEMENT
The Company shares with SSC and its affiliates certain incidental
support personnel and services for the purpose of achieving economies of scale
and cost savings. These shared services include certain architectural, legal,
advertising and administrative services. The Company and SSC have entered into a
Corporate Services Agreement, which was amended and restated in June 2002, that
sets forth the terms for payment of the costs of these shared services. The
Company believes that it is able to obtain such services at a cost, which is
equal to or below the cost of providing such services by itself or obtaining
such services from unaffiliated third parties. For fiscal 2001, the Company paid
SSC or its affiliates $1,444,392 for such services.
The Corporate Services Agreement also provides for participation by the
Company in the self-insurance program maintained by SSC. Under that program, the
Company is self-insured for purposes of personal injury and property damage,
motor vehicle and Ohio workers' compensation claims up to various specified
amounts, and for casualty losses up to $100,000. Claims and losses in excess of
the specified amounts are covered by stop-loss or excess liability policies
maintained by SSC, which include the Company as a named insured. SSC maintains
reserves and pays claims for self-insured amounts under the program and will
continue to do so with respect to the Company's participation in the program.
SSC charges its affiliates, divisions and the Company premiums based, among
other factors, on loss experience and its actual payroll and related costs for
administering the program. For fiscal 2001, the Company paid SSC $12,326,000 for
participation in the program.
The Company also provided certain administrative and service functions
for VCM. These functions included accounting, MIS and merchandise delivery. For
fiscal 2001, the Company charged VCM $2,148,341 for these services.
DEBT AGREEMENTS
To supplement operating cash requirements, the Company entered into a
$100.0 million subordinated secured credit facility with SSC (the "Old Term
Loan"). Outstanding advances under the Old Term Loan were subordinated to the
Company's then existing bank credit agreement and were subject to a junior lien
on assets securing the Company's then existing bank credit agreement. The
interest rate and terms of the Old Term Loan were generally the same as the
Company's then existing bank credit agreement. The Old Term Loan was paid off as
part of the $525.0 million refinancing completed June 12, 2002.
DESCRIPTION OF FEES PAID TO LENDERS UNDER NEW TERM LOANS AND CONVERTIBLE
FACILITY
On June 11, 2002, the Company and its principal subsidiaries entered
into a new three-year $100.0 million term loan facility of which $50.0 million
is designated Term Loan B and $50.0 million is designated Term C (the "Term
Loans") each of which were provided equally by Cerberus and SSC (the "Lenders").
All obligations under the Term Loans are senior debt, ranking pari passu with
the Company's $350.0 million revolving credit facility agented by National City
Commercial Finance, Inc., Fleet Retail Finance Inc., Wells Fargo Retail Finance,
LLC, The CIT Group/Business Credit, Inc., and General Electric Capital
Corporation (the "Revolving Credit Agreement"). The Term Loans stated rate of
interest per annum during the initial two years of the agreement is 14% if paid
in cash, and 15% if the paid in kind ("PIK") option is elected by the Company.
During the first two years of the Term Loans, the Company may pay all of the
interest by PIK. During the final year of the Term Loans, the stated rate of
interest is 15% if paid in cash or 15.5% by PIK, and the PIK option is limited
to 50% of the interest due. The Company has agreed to issue to the Term Loan C
lenders warrants ("Warrants") to purchase shares of common stock initially
exercisable for 2,957,793 of the shares of Common Stock, at an initial exercise
price of $4.50 per share. One half of the Warrants will be issued to SSC. The
number of shares issuable upon the exercise of the Warrants and the per share
exercise price are subject to adjustment upon the occurrence of specified
events. The Warrants are exercisable at any time prior to the tenth anniversary
of the date of issuance at the then Warrant exercise price. The Company has
granted the Term Loan C lenders registration rights with respect to the shares
issuable upon the exercise of the Warrants. The issuance of the Warrants and
Common Stock issuable upon exercise of the Warrants is subject to shareholder
approval. SSC has agreed to vote its shares of Company common stock in favor of
the approval of the issuance of the Warrants and the Common Stock issuable upon
exercise of the Warrants.
22
DISCLOSURE OF THE TERM OF THE CONVERTIBLE FACILITY
The Company previously entered into a $75.0 million Senior Subordinated
Convertible Loan Agreement ("Senior Facility"), dated as of March 15, 2000. The
Senior Facility bore interest at various rates. The interest rate increased an
additional 50 basis points every 90 days following the first anniversary date.
The Senior Facility was due in September 2003. In December 2000, pursuant to the
terms of the Senior Facility, SSC purchased the outstanding balance under the
same continuing terms. On June 11, 2002, the Company entered into an Amended and
Restated Senior Convertible Loan Agreement, which was further amended by
Amendment No. 1 to the Amended and Restated Senior Convertible Loan Agreement
("Amended Senior Facility") pursuant to which Cerberus, purchased half of SSC's
interest in the Amended Senior Facility and became successor agent for itself
and SSC (the "Lenders") under the Amended Senior Facility. The aggregate
principal amount advanced under the Amended Senior Facility, all of which is
outstanding, is $75.0 million. Borrowings under the Amended Senior Facility will
bear interest at 10% per annum. At the Company's option, interest may be PIK
from the closing date to the second anniversary thereof, and thereafter, at the
option of the Company, up to 50% of the interest due may be PIK until maturity.
The Amended Senior Facility is guaranteed by all of the Company's principal
subsidiaries and is secured by a lien on assets junior to liens granted in favor
of Revolving Credit Agreement and the Term Loans. The Amended Senior Facility is
not prepayable for five years from the closing date. The agent has the right to
designate two observers to the Board for so long as the agent is the beneficial
owner of at least 50% of the advances initially made by it and has the right to
designate two individuals to the board of directors for so long as the agent is
the beneficial owner of at least 50% of the conversion shares issued upon
conversion of advances initially made by it. Subject to shareholder approval,
amounts outstanding under the Amended Senior Facility are convertible at the
option of the Lenders into shares of Common Stock at a initial conversion price
of $4.50. The conversion price is subject to adjustment upon the occurrence of
specified events. The Company has granted the Lenders registration rights with
respect to the shares issuable as interest on and upon conversion of amounts
outstanding under the Amended Senior Facility. SSC, as Lender of one-half of the
amounts under the Amended Senior Facility, is entitled to one-half of such
Common Stock and has registration rights with respect thereto. The conversion of
amounts outstanding under the Amended Senior Facility into shares representing
in excess of 19.9% of the shares of the Common Stock currently outstanding on
June 11, 2002, is subject to shareholder approval. SSC has agreed to vote its
Common Stock in favor of approval of such conversion rights.
The Company recorded $7,109,480 in interest expense for the Old Term
Loan and the Senior Facility, of which $4,736,720 was paid during fiscal 2001.
23
PROPOSAL TWO: APPROVAL OF THE ISSUANCE OF WARRANTS TO PURCHASE SHARES OF
COMMON STOCK INITIALLY EXERCISABLE FOR UP TO 2,954,793 SHARES OF COMMON STOCK
AND THE ISSUANCE OF SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF, AS
WELL AS ANY ADDITIONAL SHARES OF COMMON STOCK ISSUABLE PURSUANT TO THE
ANTI-DILUTION AND OTHER PROVISIONS OF THE WARRANTS
On June 11, 2002, the Company entered into a new three-year $100.0
million term loan facility (the "Term Loans") provided equally by the Lenders.
Pursuant to the Term Loans the Company agreed, subject to shareholder approval,
to issue warrants (the "Warrants") initially exercisable for up to 2,954,793
shares of Common Stock. The Common Stock is listed on the NYSE, and, therefore,
shareholder approval is required for the issuance of the Warrants and the shares
issuable upon exercise of the Warrants because SSC is an affiliate of the
Company and will receive one half of the Warrants.
The following is a summary of the material terms of the form of
Warrant, a copy of which is attached as Appendix A. We urge you to read the form
of Warrant carefully.
PRINCIPAL TERMS OF THE WARRANTS
UNDERLYING SECURITIES
As of July 31, 2002, there were 2,954,793 shares of common stock,
without par value per share, underlying the Warrants.
EXERCISE PERIOD AND PRICE
The Warrants may be exercised by the holders thereof, in whole or in
part, at any time prior to the expiration date. The Warrants expire ten years
from the date of issuance. The exercise price shall initially be $4.50 per
share, subject to adjustment and readjustment from time to time.
ADJUSTMENT TO EXERCISE PRICE
The exercise price may be adjusted under the following circumstances:
- if the Company issues or sells additional shares of Common Stock
without consideration, or for a consideration per share less than
the exercise price in effect immediately prior to such issuance
or sale (additional shares of Common Stock shall be deemed issued
if the Company issues, sells, grants, assumes, or fixes the
record for the determination of holders of, any class of
securities of the Company entitled to receive options or
convertible securities), then the exercise price shall be
decreased to the consideration per share for which such
additional shares of Common Stock are issued or sold;
- if the Company declares or pays any dividend on the Common Stock
payable in common stock, effects a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common
Stock, or effects any combination or consolidation of the
outstanding shares of Common Stock into a lesser number of shares
of Common Stock, then adequate provision must be made so that the
holder shall receive upon exercise of the Warrant a pro rata
share of such dividend or other distribution;
- if the Company sells additional shares of Common Stock for a
consideration per share less than the current market price, but
greater than the exercise price in effect immediately prior to
such issue or sale, then the exercise price shall be decreased
based on a weighted average anti-dilution formula; or
- if the consolidated EBITDA of the Company and its subsidiaries
for the fiscal year ending February 1, 2003, is less than
$90,000,000 or the combined, unconsolidated EBITDA of each of the
Company (excluding subsidiaries), Value City Limited Partnership,
Value City of Michigan, Inc., GB Retailers, Inc., Gramex Retail
Stores, Inc., VCM, Ltd., and any person acquired after the date
of the Warrants that operates Value City department stores is
less than $35,000,000 in the aggregate, then the exercise price
shall be decreased to $4.00 per share.
24
For purposes of adjusting the exercise price due to the issuance of
additional shares of common stock, "additional shares of common stock" shall
mean all shares of common stock issued or sold by the Company other than the
following:
- shares issued upon the exercise of the Warrants;
- additional shares that become issuable upon the exercise of the
Warrants by reason of adjustments required pursuant to the
anti-dilution provisions applicable to the Warrants;
- up to 7,153,000 shares of common stock (and, following June 11,
2007, up to an additional 5,000,000 shares of common stock) that
are issued to persons other than affiliates of the Company; and
- shares of common stock issued upon conversion of the Amended
Senior Facility and such additional number of shares as may
become issuable upon the exercise of any such securities by
reason of adjustments required pursuant to anti-dilution
provisions.
ADJUSTMENT OF NUMBER OF SHARES
Upon the adjustment of the exercise price as described above, except to
the extent that the exercise price is adjusted based on EBITDA, a Warrant shall
thereafter evidence the right to receive that number of shares of common stock
obtained by dividing (i) the product of the aggregate number of shares covered
by the warrant immediately prior to such adjustment and the exercise price in
effect immediately prior to such adjustment of the exercise price by (ii) the
exercise price in effect immediately after such adjustment of the exercise
price.
In the event that the Company issues any share of common stock upon the
conversion of convertible securities outstanding on the effective date of the
Warrants, the number of shares of Common Stock issuable upon the exercise of a
Warrant shall automatically be increased by an amount equal to 8.75% of the
shares of Common Stock issued upon such conversion, and the exercise price shall
not be adjusted in connection with such increase.
FAILURE TO APPROVE ISSUANCE OF THE WARRANTS
If shareholder approval of the issuance of the Warrants is not obtained
on or prior to October 31, 2002 (or December 31, 2002 in the event that the
meeting of shareholders is delayed as a result of a unilateral action taken by
SSC or a shareholder of SSC), the Term Loans shall bear interest on the
principal amount thereof, until the date such requisite approval is obtained, at
an interest rate per annum equal to the interest rate otherwise in effect
pursuant to the terms of the Term Loans plus five percent (5%).
SSC, who beneficially owns more than 50% of the Company's outstanding
shares of Common Stock, has provided an irrevocable proxy to vote in favor of
this proposal. Thus, the passage of the proposal is assured.
IMPACT ON CAPITALIZATION
As a result of the issuance of Common Stock upon conversion of the
Warrants, the holders of Common Stock will experience dilution. As of the date
of this proxy statement, the exercise all of the Warrants would result in the
issuance of an aggregate of approximately 2,954,793 shares of Common Stock,
equal to approximately 8.7% of the Company's outstanding equity. The number of
shares of Common Stock issuable to the Lenders is subject to adjustment and
readjustment from time to time as described above.
REGISTRATION RIGHTS
Each holder of the Warrants shall have the right to request in writing
that the Company register all or part of such holder's registrable securities by
filing with the SEC a demand registration statement up to three times. The
registration statement shall include (i) the registrable securities intended to
be disposed of and (ii) the registrable securities intended to be disposed of by
any other holder thereof which shall have made a written request for inclusion
in such registration within 30 days after the receipt of written notice.
Following a request, the Company shall use its reasonable best efforts to cause
to be filed with the SEC a registration statement providing for the registration
under the Securities Act of the registrable securities which the Company has
been so requested to register by all such holders. The
25
Company shall use its reasonable best efforts to have such registration
statement declared effective by the SEC as soon as practicable thereafter and to
keep such registration statement continuously effective until such time as all
of such registrable securities have been disposed of in accordance with the
intended methods of disposition by the seller(s) thereof set forth in such
registration statement. Additionally, the holders of the Warrants have the right
to register shares held by them in connection with other registrations made by
the Company, subject to specific limitations.
EFFECT OF THE MERGER
If the Merger proposed in proposal five of this proxy statement is
consummated, pursuant to the terms of the Warrants, each Warrant will be
exchanged for a warrant to purchase an equal number of shares of common stock of
the new holding company on the same terms and conditions set forth in the form
of Warrant.
REQUIRED VOTE
The affirmative vote of the holders of a majority of shares of Common
Stock present and entitled to vote at the shareholder meeting is required to
approve this proposal.
SSC, who beneficially owns more than 50% of the Company's outstanding
shares of Common Stock, has provided an irrevocable proxy to vote in favor of
this proposal. Thus, the passage of the proposal is assured.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ISSUANCE OF
WARRANTS TO PURCHASE SHARES OF COMMON STOCK INITIALLY EXERCISABLE FOR UP TO
2,954,793 SHARES OF COMMON STOCK AND THE ISSUANCE OF SHARES OF COMMON STOCK UPON
EXERCISE THEREOF, AS WELL AS ANY ADDITIONAL SHARES OF COMMON STOCK ISSUABLE
PURSUANT TO THE ANTI-DILUTION AND OTHER PROVISIONS OF THE WARRANTS.
26
PROPOSAL THREE: APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK AS INTEREST
ON AND UPON CONVERSION OF AMOUNTS OUTSTANDING UNDER THE AMENDED AND RESTATED
SENIOR CONVERTIBLE LOAN AGREEMENT, AS WELL AS ANY ADDITIONAL SHARES OF COMMON
STOCK ISSUABLE PURSUANT TO THE TERMS OF THE AMENDED AND RESTATED
SENIOR CONVERTIBLE LOAN
The Company is asking you to approve the issuance of shares of Common
Stock as interest and upon the conversion of amounts outstanding under the
Amended and Restated Senior Convertible Loan Agreement dated June 11, 2002, as
amended.
On June 11, 2002, the Company entered into the Amended and Restated
Senior Convertible Loan Agreement with SSC which amended and restated and the
original Senior Convertible Loan Agreement, as amended, entered into with
Prudential Securities Credit Corp., LLC, on March 15, 2000, and subsequently
purchased by SSC (the "Senior Facility"). The Amended and Restated Senior
Convertible Loan Agreement was further amended by Amendment No. 1 to the Amended
and Restated Senior Convertible Loan Agreement (the "Amended Senior Facility")
pursuant to which Cerberus purchased one half of SSC's interest in the Amended
Senior Facility and became successor agent for itself and SSC (the "Lenders")
under the Amended Senior Facility. The aggregate principal amount advanced under
the Amended Senior Facility, all of which is outstanding, is $75 million.
The Amended Senior Facility permits the Lenders to convert principal
and interest advanced to the Company under the Amended Senior Facility into
shares of Common Stock. As of July 31, 2002, the conversion price was $4.50 per
share, subject to adjustment as described below. If the Company issues shares of
Common Stock upon conversion of amounts due under the Amended Senior Facility,
the amount due under the Amended Senior Facility will be reduced by an amount
equal to the aggregate conversion price.
Because the Common Stock is listed on the NYSE, shareholder approval
must be obtained prior to issuing Common Stock or securities that are
convertible into, or exercisable for, Common Stock in one transaction or a
series of related transactions if:
- the Common Stock has, or will have upon issuance, voting power
equal to or in excess of 20% of the voting power outstanding
before the issuance of such stock or securities convertible into
or exercisable for Common Stock; or
- the number of shares of Common Stock to be issued, is or will be
upon issuance, equal to or in excess of 20% of the number of
shares of Common Stock outstanding before the issuance of the
Common Stock or of securities convertible into or exercisable for
Common Stock.
Due to the limited time available to consummate the Amended Senior
Facility described above, the Company did not have sufficient time to hold a
special meeting of shareholders to obtain prior approval of the terms and
issuance of Common Stock upon the conversion of amounts outstanding under the
Amended Senior Facility. As a result, the Company entered into the Amended
Senior Facility and limited its conversion to an aggregate of 19.9% of the
Common Stock outstanding prior to such issuance, until shareholder approval is
obtained for the issuance of more than 19.9% of the Common Stock outstanding
prior to such issuance. Therefore, the Company may only issue up to 6,720,042
shares of Common Stock pursuant to the terms of the Amended Senior Facility at
this time.
The Company agreed with the agent for the Lenders under the Amended
Senior Facility to seek shareholder approval of the issuance of Common Stock
upon the conversion of amounts outstanding under the Amended Senior Facility.
Accordingly, this matter is being submitted for approval at the upcoming Annual
Meeting. Under the terms of the Amended Senior Facility, the Company cannot
issue shares of Common Stock upon conversion of amounts outstanding under the
Amended Senior Facility in excess of the 19.9% threshold until the shareholder
approval contemplated by this proposal is received.
The following is a summary of the material terms of the Amended Senior
Facility, a copy of which is attached as Appendix B. We urge you to read the
Amended Senior Facility closely.
27
PRINCIPAL TERMS OF THE AMENDED SENIOR FACILITY
CONVERSION
To the extent any portion of the Amended Senior Facility remains
outstanding, any Lender may, at its option, convert all or any portion of its
pro rata share of the loan into fully paid and nonassessable shares of Common
Stock at the conversion price in effect at such time. The number of shares of
Common Stock into which Lenders may convert amounts outstanding under the
Amended Senior Facility is calculated by dividing the principal amount of the
portion of the Lenders pro rata share of the loan to be converted plus all
accrued and unpaid interest thereon by the conversion price. The conversion
price is initially equal to $4.50 per share, subject to certain adjustments
described below.
ADJUSTMENTS TO THE CONVERSION PRICE AND NUMBER OF SHARES
The conversion price may be adjusted under the following circumstances:
- if the consolidated EBITDA of the Company and its subsidiaries
for the fiscal year ending February 1, 2003, is less than
$90,000,000 or the combined, unconsolidated EBITDA of each of the
Company (excluding subsidiaries), Value City Limited Partnership,
Value City of Michigan, Inc., GB Retailers, Inc., Gramex Retail
Stores, Inc., VCM, Ltd., and any person acquired after the date
of the Amended Senior Facility that operates Value City
department stores is less than $35,000,000 in the aggregate, then
effective as of the close of business on February 1, 2003, the
conversion price shall be reduced to $4.00 per share;
- in the event the outstanding shares of common stock are combined
or consolidated into a lesser number of shares of common stock;
or
- in the event that the Company issues additional shares of common
stock without consideration or for a consideration per share less
than the conversion price in effect on the date of and
immediately prior to such issuance.
For purposes of adjustments to the conversion price the following
events shall be deemed the issuance of additional shares of Common Stock:
- the issuance of any options or convertible securities, or the
fixing of a record date for the determination of holders of any
class of securities entitled to receive any such options or
convertible securities; and
- the payment of any dividend or any other distribution on the
common stock payable in common stock, or the subdivision of the
outstanding shares of Common Stock.
For purposes of adjusting the conversion price due to the issuance of
additional shares of common stock, "additional shares of common stock" shall
mean any or all shares of common stock issued by the Company after the effective
date of the Amended Senior Facility, other than the following:
- shares issued upon the conversion of the amounts outstanding
under the Amended Senior Facility;
- additional shares that become issuable upon the conversion of
amounts outstanding under the Amended Senior Facility by reason
of adjustments required pursuant to the anti-dilution provisions
then in effect;
- up to 7,153,000 shares of common stock (and following the fifth
anniversary of the effective date of the Amended Senior Facility,
up to an additional 5,000,000 shares of common stock) that are
issued to persons other than affiliates of the Company; and
- shares of common stock issued upon the exercise of the Warrants.
No adjustment in the number of shares of common stock into which
amounts outstanding under the Amended Senior Facility are convertible shall be
made unless the consideration per share for an additional share of Common Stock
issued is less than the greater of the current market price and the fair market
value on the date of issue of such additional share of Common Stock.
28
INTEREST
Borrowings under the Amended Senior Facility will bear interest at 10%
per annum. At the Company's option, interest may be PIK from the closing date to
the second anniversary thereof, and thereafter, at the option of the Company, up
to 50% of the interest due may be PIK until maturity.
IMPACT ON CAPITALIZATION
In considering the dilutive effect of the issuance of Common Stock as
interest on and upon the conversion of amounts outstanding under the Amended
Senior Facility and otherwise pursuant to the terms of the Amended Senior
Facility, you should keep in mind that the actual number of shares of common
stock that the Lenders under the Amended Senior Facility are entitled to receive
is currently limited by the listing requirements of the NYSE to 6,720,042, or
19.9% of the number of shares of Common Stock outstanding on June 11, 2002 (the
effective date of the Amended Senior Facility).
As a result of the issuance of Common Stock upon conversion of amounts
outstanding under the Amended Senior Facility, the holders of Common Stock will
experience dilution. As of the date of this proxy statement, the conversion at
$4.00 per share of the entire amount due under the Amended Senior Facility would
result in the issuance of an aggregate of approximately 18,750,000 shares of
Common Stock, equal to approximately 35.7% of the Company's outstanding equity.
The conversion at $4.50 per share of the entire amount due under the Amended
Senior Facility would result in the issuance of approximately 16,666,666.7
shares of Common Stock, equal to approximately 33% of the Company's outstanding
equity. The number of shares of Common Stock into which Lenders may convert
amounts outstanding under the Amended Senior Facility is calculated by dividing
the principal amount of the portion of the Lenders' pro rata share of the loan
to be converted plus all accrued and unpaid interest thereon by the conversion
price. The conversion price is initially equal to $4.50 per share, subject to
adjustment and readjustment from time to time as provided in Section 13 of the
Amended Senior Facility as described above.
FAILURE TO OBTAIN SHAREHOLDER APPROVAL
If shareholder approval for the issuance of shares of Common Stock is
not obtained and all of the conversion shares are not approved for listing on
the NYSE on or prior to October 31, 2002 (or December 31, 2002 in the event that
the meeting of shareholders is delayed as a result of a unilateral action taken
by SSC or a shareholder of SSC), the Amended Senior Facility shall bear interest
on the principal amount thereof, from June 11, 2002 until the date such
requisite approval is obtained, at an interest rate per annum equal to the
interest rate otherwise in effect pursuant to the terms of the Amended Senior
Facility plus five percent (5%).
In the event that shareholder approval of the issuance of the Common
Stock is not approved, the Company may still issue up to 6,720,042 shares of
Common Stock, representing 19.9% of the Company's outstanding Common Stock on
the effective date of the Amended Senior Facility, to the Lenders.
SSC, who beneficially owns more than 50% of the Company's outstanding
shares of Common Stock, has provided an irrevocable proxy to vote in favor of
this proposal. Thus, the passage of the proposal is assured.
REGISTRATION RIGHTS
Each of the Lenders has the right to request in writing that the
Company register all or part of its registrable securities by filing with the
SEC a demand registration statement up to three times. The Company shall include
in the registration statement: (i) the registrable securities intended to be
disposed of and (ii) the registrable securities intended to be disposed of by
any other holder thereof which shall have made a written request for inclusion
thereof in such registration within 30 days after the receipt of written notice.
Following a request, the Company shall use its reasonable best efforts to cause
to be filed with the SEC a registration statement providing for the registration
under the Securities Act of the registrable securities which the Company has
been so requested to register by all such holders. The Company shall use its
reasonable best efforts to have such registration statement declared effective
by the SEC as soon as practicable thereafter and to keep such registration
statement continuously effective until such time as all of such registrable
securities have been disposed of in accordance with the intended methods of
disposition by the seller(s)
29
thereof set forth in such registration statement. Additionally, the Lenders have
the right to register shares held by them in connection with other registrations
made by the Company, subject to specified limitations.
LIMITATIONS ON THE RIGHTS OF THE LENDERS TO CONVERT
Until shareholder approval of this proposal is obtained and so long as
the Common Stock is listed on the NYSE, the Lenders under the Amended Senior
Facility may not convert amounts outstanding under the Amended Senior Facility
into more than an aggregate of 19.9% of the Common Stock outstanding as of June
11, 2002 (the effective date of the Amended Senior Facility), or 6,720,042
shares of Common Stock (adjusted for stock splits and similar transactions).
EFFECT OF THE MERGER
If the Merger proposed in proposal five of this proxy statement is
consummated, pursuant to the terms of the Amended Senior Facility, the Lenders
will have the right to receive shares of common stock of the new holding company
upon conversion of amounts due under the Amended Senior Facility on the same
terms and conditions set forth in the Amended Senior Facility.
REQUIRED VOTE
The affirmative vote of the holders of a majority of shares of the
Common Stock present and entitled to vote at the shareholder meeting is required
to approve this proposal.
SSC, who beneficially owns more than 50% of the Company's outstanding
shares of Common Stock, has provided an irrevocable proxy to vote in favor of
this proposal. Thus, the passage of the proposal is assured.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK AS INTEREST ON AND UPON
CONVERSION OF AMOUNTS OUTSTANDING THEREUNDER, AS WELL AS PURSUANT TO THE TERMS
OF THE AMENDED SENIOR FACILITY.
30
PROPOSAL FOUR: APPROVAL OF AMENDMENT TO THE 2000 STOCK INCENTIVE PLAN
The Board of has unanimously approved an amendment to the Value City
Department Stores, Inc. 2000 Stock Incentive Plan (the "2000 Plan"), subject to
approval of the amendment by the shareholders, to increase the number of shares
that may be issued under the 2000 Plan from 3,000,000 to 13,000,000 and to
increase the number of shares that may be awarded to an individual in any
performance period from 2,500,000 to 3,000,000. At the Annual Meeting, there
will be submitted to shareholders a proposal to approve the amendment to the
2000 Plan.
The following summary of the principal features of the 2000 Plan is
qualified in its entirety by the full text of the 2000 Plan, as amended, which
is attached hereto as Appendix C and incorporated herein by reference. A vote in
favor of approving the amendment to the 2000 Plan will constitute approval of
all terms of the 2000 Plan, including those applicable to covered officers
designated from time to time by the Stock Option Committee.
PURPOSE
The 2000 Plan is intended to further the growth and profitability of
the Company by providing increased incentives to, and encourage share ownership
on the part of:
- certain employees of the Company and its affiliates
("Employees");
- consultants who provide significant services to the Company and
its affiliates ("Consultants"); and
- directors of the Company who are employees of neither the Company
nor any affiliate ("Non-employee Directors").
GENERAL
The 2000 Plan permits the granting of stock options, stock appreciation
rights, restricted stock awards, performance units and performance shares
(collectively, "Awards") to eligible participants. The total number of shares of
the Company's common stock available for Awards to be granted under the 2000
Plan prior to the amendment was 3,000,000 shares, and is 13,000,000 shares as
amended. If an Award expires or is canceled without having been fully exercised
or vested, the unvested or cancelled shares will be available again for grants
of Awards.
ADMINISTRATION OF THE 2000 PLAN
The 2000 Plan is administered by the Stock Option Committee appointed
by the Company's Board. The members of the Stock Option Committee must qualify
as "non-employee directors" under Rule 16b-3 under the Securities Exchange Act
of 1934 ("Rule 16b-3"), and as "outside directors" under section 162(m) of the
Code. Subject to the terms of the 2000 Plan, the Stock Option Committee has the
sole discretion to determine the Employees and Consultants who shall be granted
Awards, the terms and conditions of such Awards, and to construe and interpret
the 2000 Plan. The Stock Option Committee also is responsible for making
adjustments in outstanding Awards, the shares available for Awards, and the
numerical limitations for Awards to reflect any transactions such as stock
splits or stock dividends. The Stock Option Committee may delegate its authority
to one or more directors or officers; provided, however, that the Stock Option
Committee may not delegate its authority and powers (a) with respect to Section
16 persons, or (b) in any way which would jeopardize the 2000 Plan's
qualification under Section 162(m) of the Code or Rule 16b-3. The Board may
amend or terminate the 2000 Plan at any time and for any reason, but to the
extent required under Rule 16b-3, material amendments to the 2000 Plan must be
approved by shareholders.
ELIGIBILITY TO RECEIVE AWARDS
Management, Employees and Consultants of the Company and its affiliates
(i.e., any corporation or other entity controlling, controlled by, or under
common control with the Company) are eligible to be selected to receive one or
more Awards. The actual number of Employees and Consultants who will receive
Awards under the 2000 Plan cannot be determined because eligibility for
participation in the 2000 Plan is at the discretion of the Stock Option
Committee. No participant may receive Awards covering more than 2,500,000 shares
during any performance period under the 2000 Plan. If the amendment is approved
by the shareholders, no participant will be able to receive Awards covering more
than 3,000,000 shares during any performance period. The 2000 Plan also permits
Non-employee Directors to elect to receive all or part of their annual retainer
in shares of Common Stock, and provides for the automatic grant of options to
31
purchase 1,000 shares each fiscal quarter to Non-employee Directors.
Non-employee Directors are not eligible for any of the other Awards available
under the 2000 Plan.
AWARDS TO COVERED OFFICERS
For each performance period, the Stock Option Committee will designate,
prior to the completion of 25% of the period (or such earlier or later date as
is permitted or required by Section 162(m) of the Code), which executive
officers are deemed to be "Covered Officers," the deductibility of whose
compensation may be limited by Section 162(m) of the Code. All Awards to Covered
Officers must be made in a manner that allows for the full deductibility of the
Award by the Company. In general, options granted at fair market value will
qualify. All other Awards must be contingent on the achievement of one or more
"performance goals," based on the business criteria of the type defined in the
2000 Plan, in amounts determined by the Stock Option Committee prior to the
completion of 25% of the performance period (or such earlier or later date as is
permitted or required by Section 162(m) of the Code). Extraordinary events, as
defined in the 2000 Plan will either be excluded or included in determining
whether performance goals are achieved, whichever will produce the higher Award.
The Stock Option Committee does, however, have the discretion to reduce or
eliminate the amount of any Award, taking into consideration extraordinary
events or other factors. In no event can an Award under the 2000 Plan to a
Covered Officer be increased. Awards may be paid to Covered Officers only after
the Stock Option Committee has certified in writing that the performance goals
have been achieved.
OPTIONS
The Stock Option Committee may grant incentive stock options, which
entitle the holder to favorable tax treatment, and/or nonqualified stock
options. The number of shares covered by each option is determined by the Stock
Option Committee. The price of the shares of Common Stock subject to each option
is set by the Stock Option Committee but cannot be less than 25% of the fair
market value of the shares on the date of grant. In addition, the exercise price
of an incentive stock option must be at least 100% of fair market value on the
grant date or 110% of fair market value if the participant owns stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Company.
The exercise price of each option must be paid in full at the time of
exercise. The Stock Option Committee also may permit payment through the tender
of shares of Common Stock already owned by the participant, or by any other
means which the Stock Option Committee determines to be consistent with the
Plan's purpose. Any taxes required to be withheld must be paid by the
participant at the time of exercise. If the exercise price of an option is paid
in shares, the Stock Option Committee may provide that the participant will
receive a new option covering a number of shares equal to the number of shares
tendered to exercise the previously granted option, including shares used for
tax withholding. The terms and conditions of the new option generally will be
similar to the terms and conditions applicable to the exercised option, except
that the new option will have an exercise price determined on the date of its
grant.
Options become exercisable and terminate at the times and on the terms
established by the Stock Option Committee, but options generally may not expire
later than 10 years after the date of grant.
STOCK APPRECIATION RIGHTS
Stock appreciation rights ("SARs") may be granted as a separate Award
or together with an option. Upon exercise of an SAR, the participant will
receive a payment from the Company equal to: (1) the excess of the fair market
value of a share on the date of exercise over the exercise price, times (2) the
number of shares with respect to which the SAR is exercised. SARs may be paid in
cash or shares of Common Stock, as determined by the Stock Option Committee. The
number of shares covered by each SAR is determined by the Stock Option
Committee. The Stock Option Committee also determines the other terms and
conditions of each SAR. SARs expire at the times established by the Stock Option
Committee, but subject to the same maximum time limits as are applicable to
employee options granted under the 2000 Plan.
RESTRICTED STOCK AWARDS
Restricted stock awards are shares of the Common Stock which vest in
accordance with terms established by the Stock Option Committee in its
discretion. For example, the Stock Option Committee may provide that restricted
stock will vest only if one or more performance goals are satisfied and/or only
if the participant remains employed with
32
the Company for a specified period of time. Any performance measures may be
applied on a Company-wide or an individual business unit basis, as deemed
appropriate in light of the participant's specific responsibilities.
PERFORMANCE UNITS AND PERFORMANCE SHARES
Performance units and performance shares are amounts credited to a
bookkeeping account established for the participant. A performance unit has an
initial value that is established by the Stock Option Committee at the time of
its grant. A performance share has an initial value equal to the fair market
value of a share of Common Stock on the date of grant. Whether a performance
unit or share actually will result in a payment to a participant will depend
upon the extent to which performance goals established by the Stock Option
Committee are satisfied. The applicable performance goals and all other terms
and conditions of the Award are determined by the Stock Option Committee. After
a performance unit or share has vested, that is, after the applicable
performance goal or goals have been achieved, the participant will be entitled
to a payment of cash and/or common stock, as determined by the Stock Option
Committee. The Stock Option Committee also may waive the achievement of any
performance goals for any performance units or shares, but not for executive
officers.
NON-EMPLOYEE DIRECTOR OPTIONS AND STOCK
The 2000 Plan also provides for the automatic grant of stock options to
Non-employee Directors. Each Non-employee Director automatically will receive,
as of the first trading day in each fiscal quarter, an option to purchase 1,000
shares. The exercise price of each Non-employee Director option is 100% of the
fair market value of the shares on the date of grant. Each such option becomes
exercisable one year after the date of grant, assuming continuous service as a
Non-employee Director.
All options granted to Non-employee Directors will expire ten years
after the date of grant. If a director terminates service on the Board prior to
an option's normal expiration date, the option will terminate three months after
termination of service for any reason other than death, disability or
retirement, but not later than the original maximum term of the option. Options
will expire one year after termination on account of retirement, disability or
death. The Non-employee Director provisions of the 2000 Plan are administered by
the Board rather than the Stock Option Committee.
The 2000 Plan also permits each Non-employee Director to elect to
forego receipt of all or a portion of the director's meeting fees in exchange
for shares of Common Stock having a fair market value equal to the amount of
foregone compensation. The number of shares received is determined by dividing
the amount of foregone compensation by the fair market value of a share on the
date that the compensation otherwise would have been paid.
FORFEITURE
If a participant or former participant engages in a breach of conduct,
including conduct prejudicial to or in conflict with the Company or an affiliate
or competes with the Company, all outstanding and unexercised Awards may be
cancelled and terminated. In addition, participants may have to reimburse the
Company for any gain realized or payment received upon the exercise or payment
of an Award within one year of the harmful behavior.
AWARDS TO BE GRANTED TO CERTAIN INDIVIDUALS AND GROUPS
As described above, the Stock Option Committee has discretion to
determine the number and type of Awards to be granted to any employee or
consultant. Accordingly, the actual number and type of Awards to be granted in
the future is not determinable, other than the automatic grant of options to
Non-employee Directors. The following table sets forth the aggregate number of
stock options and shares of restricted stock granted under the 2000 Plan as of
July 31, 2002, subject to approval of the amendment to the 2000 Plan by
shareholders.
33
NAME OF INDIVIDUAL OR GROUP OPTION SHARES RESTRICTED SHARES
--------------------------- ------------- -----------------
John C. Rossler, President and 2,435,000 110,000
Chief Executive Officer
Alan R. Schlesinger 116,667 116,667
President and Chief
Executive Officer of
Filene's Basement, Inc.
James A. McGrady 575,000 5,000
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
Edwin J. Kozlowski 1,720,000 80,000
Executive Vice President
and Chief Operating
Officer
Raymond L. Blanton 572,000 20,000
Executive Vice President
and General Merchandise
Manager
George Kolber -- --
All executive officers, as a group 4,774,000 222,000
All directors who are not executive 54,000 --
Officers, as a group
All employees who are not executive 2,731,317 116,667
Officers, as a group
NONTRANSFERABILITY OF OPTIONS
Except for nonqualified stock options, Awards granted under the 2000
Plan may not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the applicable laws of descent and
distribution. Nonqualified stock options may be transferred for no consideration
to family members or to trusts or other entities for their benefit, or to other
persons, if approved by the Stock Option Committee.
TAX ASPECTS
Based on management's understanding of current federal income tax laws,
the tax consequences of the grant of Awards under the 2000 Plan are, generally,
as follows:
A recipient of an option or SAR granted under the 2000 Plan will not
have regular taxable income at the time of grant.
Upon exercise of a nonqualified stock option or SAR, the optionee
generally must recognize taxable income in an amount equal to the fair market
value on the date of exercise of the shares received, minus the exercise price.
If an SAR is paid in cash, the recipient must recognize taxable income in an
amount equal to the cash payment. Any gain or loss recognized upon any later
sale or other disposition of the acquired shares generally will be capital gain
or loss.
34
Upon exercise of an incentive stock option, the optionee generally will
not be required to recognize any regular taxable income on account of such
exercise, provided the optionee does not dispose of the shares that he or she
acquires within two years after the date the incentive stock option was granted,
nor within one year after the exercise date. The optionee will have alternative
minimum taxable income. Upon a later sale or other disposition of the shares,
the optionee must recognize long-term capital gain and/or ordinary taxable
income, depending upon whether the optionee holds the shares for the specified
holding periods.
A participant who receives restricted stock or performance units or
shares will not recognize taxable income upon receipt, but instead will
recognize ordinary income when the shares or units vest. Alternatively, with
respect to restricted stock, a participant may elect under section 83(b) of the
Code to be taxed at the time of receipt. In all cases, the amount of ordinary
income recognized by the participant will be equal to the fair market value of
the shares at the time income is recognized, less the amount of any price paid
for the shares. In general, any gain recognized thereafter will be capital gain.
At the discretion of the Stock Option Committee, a participant may
satisfy tax withholding requirements under federal and state tax laws in
connection with the exercise or receipt of an Award by electing to have shares
withheld, or by delivering to the Company already-owned shares, having a value
equal to the amount required to be withheld.
The Company generally will be entitled to a tax deduction in connection
with an Award made under the 2000 Plan only to the extent that the participant
recognizes ordinary income from the Award. Section 162(m) of the Code contains
special rules regarding the federal income tax deductibility of compensation
paid to the Company's Chief Executive Officer and to each of the other four most
highly compensated executive officers. The general rule is that annual
compensation paid to any of these specified executives will be deductible only
to the extent that it does not exceed $1,000,000 or qualifies as
"performance-based" compensation under section 162(m) of the Code. The 2000 Plan
has been designed so that Awards to Covered Officers should qualify as
performance-based compensation under section 162(m) of the Code.
REQUIRED VOTE
Approval of the amendment to the 2000 Plan requires the affirmative
vote of a majority of the shares represented and voting, in person or by proxy,
at the Annual Meeting. No Awards granted subject to such approval will be paid
pursuant to the 2000 Plan if shareholder approval is not obtained.
SSC, who beneficially owns more than 50% of the Company's outstanding
shares of Common Stock, has provided an irrevocable proxy to vote in favor of
this proposal. Thus, the passage of the proposal is assured.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
AMENDMENT TO THE 2000 STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES THAT
MAY BE ISSUED THEREUNDER FROM 3,000,000 TO 13,000,000 AND TO INCREASE THE NUMBER
OF SHARES THAT MAY BE AWARDED TO AN INDIVIDUAL IN ANY PERFORMANCE PERIOD FROM
2,500,000 TO 3,000,000.
35
PROPOSAL FIVE: APPROVAL OF THE MERGER
The Board has unanimously approved a proposal to reorganize the Company
whereby a subsidiary of the Company would merge with and into the Company
thereby creating a holding company (the "Merger"). For the reasons set forth
below, the Board unanimously recommends that you approve the Merger. The Company
will cause a new Ohio corporation ("Holdings") to be incorporated as a direct
wholly-owned subsidiary of the Company and Value City Merger Sub ("Merger Sub")
to be incorporated as an Ohio corporation and as a wholly-owned subsidiary of
Holdings. Merger Sub will then be merged with and into the Company.
SUMMARY OF THE EFFECTS OF THE MERGER
The following is a summary of the Merger and the merger agreement. A
copy of the merger agreement is attached to this proxy statement as Appendix D
(the "Merger Agreement"). This summary is qualified in its entirely by reference
to the Merger Agreement. We urge you to read the agreement closely.
Upon approval by the Company's shareholders, the Merger will not change
the law applicable to our corporate affairs and will not result in differences
in your rights. Because the Merger involves a merger into the Company and a
simultaneous share exchange, shareholders who do not vote in favor of the
reorganization are entitled to appraisal rights.
MANNER OF EFFECTING THE MERGER
The Merger will be effected by merging Merger Sub with and into the
Company in accordance with the terms of the Merger Agreement. At the effective
time of the Merger, Holdings will receive newly-issued Common Stock of the
Company as the surviving corporation of the Merger in exchange for the common
stock of Merger Sub. Each share of Common Stock issued and outstanding
immediately prior to the Merger will be converted into and exchanged for a share
of common stock of Holdings (on a share-for-share basis) having the same
designations, rights, powers, preferences, qualifications, limitations and
restrictions, as the share of the Company being converted. As a result of the
Merger, Holdings will become the sole shareholder of the Company.
Former shareholders of the Company will be required to surrender their
certificates representing shares of Common Stock to the transfer agent and will
receive a certificate representing shares of Holdings common stock in the same
number as were represented by the Company certificate surrendered.
As a result of the Merger, Holdings will have substantially the same
articles of incorporation, code of regulations, executive officers and directors
that the Company had prior to the reorganization. The Merger will not result in
the recognition of income or gain for federal income tax purposes by the
shareholders of the Company. Holdings will also assume all of the Company's
obligations under the various employee benefit plans. Each outstanding option to
purchase Common Stock granted pursuant to the Company's stock option plans will
be converted into an option to purchase the same number of shares of common
stock of Holdings, with the same terms and conditions as the corresponding
Company option. Each outstanding share of the Company's restricted Common Stock
will be converted into restricted common stock of Holdings, with the same terms,
conditions and restrictions as the corresponding Company restricted stock.
APPRAISAL RIGHTS
The following is a summary of the appraisal rights afforded to Company
shareholders as a result of the Merger. A copy of the appraisal rights statute
is attached to this proxy statement as Appendix E. This summary is qualified in
its entirely by reference to the statute. We urge you to read the statute
closely.
The shareholder seeking to qualify as a dissenting shareholder must be
a record holder of the shares as of the date fixed for the determination of
shareholders entitled to receive notice of the meeting called for the purpose of
voting upon the proposal. Additionally, the shareholder must not vote in favor
of the proposal.
No later than ten (10) days after the date on which the vote on the
Merger is approved by the shareholders, the shareholder must deliver to the
Company a written demand for payment to the shareholder of the fair cash value
of the shares as to which the shareholder seeks relief. The demand must include
the shareholder's address, the number and
36
class of such shares held by the shareholder for which the shareholder is
seeking relief, and the amount claimed by the shareholder as the fair cash value
of the shares.
The Company, upon receipt of the demand notice, may then request the
share certificates, representing the shares for which the shareholder seeks
relief, be sent to the Company. The shareholder will have fifteen (15) days from
the date of such request by the Company to deliver the certificates to the
Company. Upon receipt of the certificates, the Company may attach a legend to
the certificates indicating that a demand for fair value has been made and then
promptly return such certificates to the shareholder. If the shareholder fails
to deliver the certificates, then the Company may, at its option, terminate such
shareholder's right to dissent by providing written notice to the shareholder of
such shareholder's failure to deliver the certificates within twenty (20) days
after the expiration of the fifteen (15) day period in which the shareholder had
to deliver the certificate. However, a court, for good cause shown, may direct
that such failure does not terminate the shareholder's right. In the event the
dissenting shareholder holds uncertificated shares, then the Company shall make
an appropriate notation of the demand for payment on its shareholder records.
Any subsequent issuance of a certificate or certificates derived from a
certificate or uncertificated shares for which a demand has been made for fair
cash value shall also bear the legend described above.
If no agreement can be reached by the Company and the dissenting
shareholder as to the fair cash value per share of the shares for which the
dissenting shareholder seeks relief, either the dissenting shareholder or the
Company may file, within three (3) months after the service of the demand by the
dissenting shareholder, a complaint in the court of common pleas of the county
where the principal offices of the Company is currently located or was located
at the time the proposal was adopted. Other dissenting shareholders may join as
plaintiffs or be joined as defendants in any such proceeding during this three
month period. Also, two or more such actions may be consolidated.
The complaint itself must contain a brief statement of facts, including
the vote taken and the results of that vote, and the facts entitling the
dissenting shareholder to the relief demanded. No answer to the complaint is
required. After the complaint is filed, regular court actions with respect to
the filing of a complaint and the provision of notice thereof would be followed.
At the hearing on the complaint, the court will determine based upon
the complaint and other evidence provided whether the dissenting shareholder is
entitled to be paid the fair cash value of any shares and, if so, the number and
class of such shares. The court may appoint one or more appraisers to determine
what the fair cash value is for those shares. The court would then make a
finding as to the fair cash value of a share and render judgement against the
Company to pay such amount within thirty (30) days of such decision or the
consummation of the corporate action involved, whichever occurs last, along with
such interest as the court deems equitable. The costs of the action shall also
be assessed and apportioned as the court deems equitable.
A determination of fair cash value shall be determined as of the day
prior to the day on which the vote by the shareholders was taken. The fair cash
value is defined as "the amount that a willing seller who is under no compulsion
to sell would be willing to accept and that a willing buyer who is under no
compulsion to purchase would be willing to pay, but in no event shall the amount
exceed the amount specified in the demand of the dissenting shareholder."
In the event that more than 10% of the Company's existing shareholders
exercise their appraisal rights, the Company will not consummate the Merger.
OUR REASONS FOR SEEKING THE PROPOSED MERGER
The major reasons we are seeking to create a holding company structure
is that it will give us more flexibility in future transactions with strategic
partners, investors and the like, to facilitate, as appropriate, limitation of
operational liabilities to individual operating units, and to simplify our
day-to-day business operations. By implementing the holding company structure,
only the assets of each operating company would be subject to the operating
liabilities of such operating company. The reorganization would provide the
greatest flexibility for structuring strategic relationships with third parties
that are most advantageous to our shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger will constitute a tax-free reorganization under Section 368
of the Code and the holders of Common Stock will not recognize any gain or loss
as a result of the Merger of Merger Sub and exchange of shares of Common
37
Stock for shares of common stock of Holdings. For federal income tax purposes,
each shareholder of the Company will retain the same tax basis in his or her
common shares of Holdings as they had in the corresponding Common Stock held by
the shareholder immediately prior to the effective time of the Merger, and the
holding period for the common shares of Holdings will include the period during
which the shareholder held the corresponding Common Stock.
Although the Company does not anticipate that state or local tax
consequence will vary from the federal income tax consequences described above,
shareholders should consult their own tax advisors as to the effect of the
Merger under state, local or foreign income tax laws.
The affirmative vote of a majority of shares outstanding and entitled
to vote is necessary to approve and adopt Proposal for the Merger. A vote FOR
the Merger will constitute approval of the Merger Agreement and the transactions
contemplated thereby and hereby.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE MERGER.
38
PROPOSAL SIX: APPROVAL OF THE VALUE CITY
2003 INCENTIVE COMPENSATION PLAN
The Value City 2003 Incentive Compensation Plan (the "Incentive Plan")
has been adopted by the Company, subject to shareholder approval. The Incentive
Plan is designed to (i) optimize the growth and profitability of the Company by
providing to certain key executive officers incentives that encourage,
recognize, and reward exceptional levels of corporate, business unit, or
individual performance, (ii) use award dollars as a clear communication vehicle
linking the interests of eligible key executive officers with the interests of
the Company by establishing a direct link between performance and incentive
payments, and (iii) qualify compensation paid to "Covered Officers" as defined
in the Incentive Plan as "other performance-based compensation" within the
meaning of section 162 (m) of the Internal Revenue Code of 1986 as amended (the
"Code"), or any similar successor provision. The Incentive Plan is in addition
to other incentive compensation plans that apply to associates of the Company
that are not Covered Officers. The following is a summary of the Incentive Plan,
which is qualified in its entirety by reference to the Incentive Plan, a copy of
which is attached as Appendix F to this Proxy Statement.
All Executive Officers are eligible to be chosen to participate in the
Incentive Plan. The Compensation Committee designates those executive officers
of the Company as Covered Officers whose compensation for the year is
anticipated to be affected by the Code Section 162 (m) limitation on the
deductibility of compensation. Each executive officer of the Company who is
approved for participation in the Incentive Plan by the Compensation Committee
shall be a Covered Officer as of the date designated. The Compensation Committee
may withdraw its approval for participation for a Covered Officer at any time.
In the event of such withdrawal, the covered officer concerned shall cease to be
an active Participant as of the date selected by the Compensation Committee.
Each Award to a Covered Officer must contain one or more performance
goals, the material terms of which must conform to one or any combination of the
goals enumerated in Section 5.1 of the Incentive Plan, attached hereto. For each
Covered Officer, the Compensation Committee must establish written performance
goals and potential Awards expressed as a percentage of base salary within than
90 days after the commencement of the fiscal year to which the goal relates.
Three Covered Officers participated in the Incentive Plan in Fiscal
2001. For Fiscal 2001 no bonuses were paid pursuant to the Company's Incentive
Compensation Plan.
After the end of each Performance Period or such earlier date if the
respective performance goals are achieved, the Compensation Committee shall
certify to that effect in writing, prior to the unconditional payment of any
Award. The Compensation Committee shall then determine the actual Award for each
Participant relative to the level of achievement of the respective performance
goals. The Compensation Committee, in its discretion, may cancel or decrease an
Award, but may not under any circumstances increase such Award with respect to
any "Covered Officer". Any other provision of the Incentive Plan
notwithstanding, the maximum aggregate Award a Participant may earn for a
particular Fiscal Year is $4,000,000.
The Board of Directors may modify, amend, or terminate in whole or in
part, any or all of the provisions of the Incentive Plan, except as to those
terms or provisions that are required by Section 162(m) of the Code to be
approved by the Company's shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE VALUE CITY 2003 INCENTIVE COMPENSATION PLAN.
39
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's Annual Report to Shareholders for the fiscal year ended
February 2, 2002, contained financial statements for such year and the signed
opinion of Deloitte & Touche LLP, independent public accountants, with respect
to such financial statements has been provided to the shareholders. It is
anticipated that representatives of Deloitte & Touche LLP, will be present at
the Annual Meeting to respond to appropriate questions and to make a statement
if such representatives so desire. The Annual Report is not to be regarded as
proxy soliciting material and management does not intend to ask, suggest or
solicit any action from the shareholders with respect to such report.
COST OF SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. Representatives of the
Company may solicit proxies by mail, telegram, telephone, or personal interview.
SHAREHOLDER PROPOSALS
Each year the Board submits its nominations for election of directors
at the Annual Meeting of Shareholders. Other proposals may be submitted by the
Board of Directors or the shareholders for inclusion in the proxy statement for
action at the Annual Meeting. Any proposal submitted by a shareholder for
inclusion in the proxy statement for the Annual Meeting of Shareholders to be
held in 2003 must be received by the Company (addressed to the attention of the
Secretary) on or before January 31, 2003. To be submitted at the meeting, any
such proposal must be a proper subject for shareholder action under the laws of
the State of Ohio, and must otherwise conform to applicable requirements of the
Proxy Rules of the SEC. Any shareholder proposal submitted outside the processes
of Rule 14a-8 under the Securities Exchange Act of 1934 for presentation at our
2003 annual meeting will be considered untimely for purposes of Rule 14a-4 and
14a-5, if notice thereof is received by the Company after April 15, 2003. To be
submitted at the meeting, any such proposal must be a proper subject for
shareholder action under the laws of the State of Ohio.
OTHER MATTERS
The only business which management intends to present at the meeting
consists of the matters set forth in this statement. Management knows of no
other matters to be brought before the meeting by any other person or group. If
any other matter should properly come before the meeting, the proxy enclosed
confers upon the persons designated herein authority to vote thereon in their
discretion.
THE COMPANY'S 2001 ANNUAL REPORT ON FORM 10-K/A, INCLUDING FINANCIAL
STATEMENTS, WAS FURNISHED TO SHAREHOLDERS PRIOR TO THE MAILING OF THIS PROXY
STATEMENT. EXTRA COPIES OF THE ANNUAL REPORT ON FORM 10-K/A FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, ARE AVAILABLE UPON REQUEST, DIRECTED TO
JAMES A. MCGRADY, EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, TREASURER
AND SECRETARY OF THE COMPANY, AT 3241 WESTERVILLE ROAD, COLUMBUS, OHIO 43224.
40
Appendix A
FORM OF WARRANT
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS SPECIFIED IN THIS WARRANT.
VALUE CITY DEPARTMENT STORES, INC.
COMMON STOCK PURCHASE WARRANT
No. [W-] ___________, 2002
Warrant to Purchase 1,477,396(1)
Shares of Common Stock
VALUE CITY DEPARTMENT STORES, INC., an Ohio corporation (the
"Company"), for value received, hereby certifies that Cerberus Partners, L.P., a
Delaware limited partnership, or its registered assigns (the "Holder"), is
entitled to purchase from the Company 1,477,396 shares of duly authorized,
validly issued, fully paid and nonassessable shares of Common Stock, no par
value per share, of the Company (the "Common Stock"), at a purchase price equal
to the Purchase Price (this "Warrant"), at any time or from time to time but
prior to 5:00 P.M., New York City time, on ________(2) (the "Expiration Date"),
all subject to the terms, conditions and adjustments set forth below in this
Warrant; PROVIDED, that the purchase price per share of Common Stock hereunder
shall not in any event be less than the par value of the Common Stock.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned such terms in the Financing Agreement.
1. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms shall have the meanings indicated:
---------------------------
(1) Each warrant is for one half of 2,954,793 shares.
(2) Expiration Date will be ten years from the date of issuance of the
warrant.
A-1
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to Section 3.2(b)
or 3.5(b), deemed to be issued) by the Company after the date hereof, whether or
not subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Financing Warrants,
(b) such number of additional shares as may become issuable upon the
exercise of the Financing Warrants by reason of adjustments required pursuant to
the anti-dilution provisions applicable to the Financing Warrants as in effect
on the date hereof,
(c) up to 5,000,000 shares of Common Stock (and following June 11,
2007, up to an additional 5,000,000 shares of Common Stock) that are issued to
Persons other than Affiliates of the Company, including (i) shares of Common
Stock or options exercisable therefor, issued or to be issued under the
Company's 2000 Stock Option Plan as in effect on the date hereof or under any
other employee stock option or purchase plan or plans, or pursuant to
compensatory or incentive agreements, for officers, employees or consultants of
the Company or any of its Subsidiaries, in each case adopted or assumed after
such date by the Company's Board of Directors; PROVIDED in each case that the
exercise or purchase price for any such share shall not be less than 95% of the
fair market value (determined in good faith by the Company's Board of Directors)
of the Common Stock on the date of the grant, and such additional number of
shares as may become issuable pursuant to the terms of any such plans by reason
of adjustments required pursuant to antidilution provisions applicable to such
securities in order to reflect any subdivision or combination of Common Stock,
by reclassification or otherwise, or any dividend on Common Stock payable in
Common Stock, (ii) shares of restricted stock issued by the Company to executive
officers of the Company, and (iii) shares of Common Stock issued by the Company
as charitable gifts; PROVIDED; HOWEVER, that all options exercisable for shares
of Common Stock granted to executive officers of the Company or its Subsidiaries
during the six months following the date hereof shall have an exercise price of
no less than $4.50 per share, and
(d) (i) shares of Common Stock issued upon conversion of the
Convertible Facility and (ii) such additional number of shares as may become
issuable upon the exercise of any such securities by reason of adjustments
required pursuant to anti-dilution provisions applicable to such securities as
in effect on the date hereof.
"AGGREGATE PURCHASE PRICE" shall have the meaning set forth in Section
2.1(a).
"BUSINESS DAY" shall mean any day other than a Saturday or a Sunday or
any day on which national banks are authorized or required by law to close. Any
reference to "days" (unless Business Days are specified) shall mean calendar
days.
"COMMISSION" shall mean the Securities and Exchange Commission or any
successor agency having jurisdiction to enforce the Securities Act.
"COMMON STOCK" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other
A-2
stock of any class or classes (however designated) of the Company the holders of
which have the right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference.
"COMPANY" shall have the meaning assigned to it in the introduction to
this Warrant, such term to include any corporation or other entity which shall
succeed to or assume the obligations of the Company hereunder in compliance with
Section 4.
"CONVERSION" shall have the meaning assigned to it in Section 3.1(b).
"CONVERTIBLE FACILITY" shall mean that certain Amended and Restated
Senior Subordinated Convertible Loan Agreement dated as of June 11, 2002, among
the Company, Cerberus Partners, L.P. and SSC.
"CONVERTIBLE SECURITIES" shall mean any evidences of indebtedness,
shares of stock (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
"CURRENT MARKET PRICE" shall mean, on any date specified herein, the
average of the daily Market Price during the 10 consecutive trading days before
such date, except that, if on any such date the shares of Common Stock are not
listed or admitted for trading on any national securities exchange or quoted in
the over-the-counter market, the Current Market Price shall be the Market Price
on such date.
"EBITDA" shall mean, with respect to any Person for any period, the
consolidated Net Income of such Person and its Subsidiaries for such period,
PLUS without duplication, the sum of the following amounts of such Person and
its Subsidiaries for such period to the extent deducted in determining
consolidated Net Income of such Person and its Subsidiaries for such period: (A)
Interest Expense, (B) federal, state, local and foreign income tax expense, (C)
depreciation expense, (D) amortization expense and (E) expenses incurred in
connection with the Financing Agreement, the Convertible Facility, the Revolving
Credit Facility, the refinancing of the Company's existing credit facilities and
subsequent refinancing of the Company.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"EXPIRATION DATE" shall have the meaning assigned to it in the
introduction to this Warrant.
"FAIR VALUE" shall mean, on any date specified herein (i) in the case
of cash, the dollar amount thereof, (ii) in the case of a security, the Current
Market Price, and (iii) in all other cases, the fair value thereof (as of a date
which is within 20 days of the date as of which the determination is to be made)
determined in good faith by a committee of the Company's Board of Directors
consisting of directors who are not Affiliates of the Company, SSC or Holder;
PROVIDED, however, that at the request of the Holder, the Fair Value shall be
determined in good
A-3
faith by an independent investment banking firm selected jointly by the Company
and the Holder or, if that selection cannot be made within 10 days, by an
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and PROVIDED, further, that the
Company shall pay all of the fees and expenses of any third parties incurred in
connection with determining the Fair Value.
"FINANCING AGREEMENT" shall mean that certain Financing Agreement,
dated as of June 11, 2002, among the Company, certain subsidiaries of the
Company, Cerberus Partners, L.P. and SSC.
"FINANCING WARRANTS" shall mean all warrants issued pursuant to the
Financing Agreement.
"HOLDER" shall have the meaning assigned to it in the introduction to
this Warrant.
"INITIAL HOLDERS" shall mean Cerberus Partners, L.P. and SSC.
"INTEREST EXPENSE" shall mean, with respect to any Person for any
period, gross interest expense of such Person and its Subsidiaries for such
period determined on a consolidated basis and in accordance with GAAP
(including, without limitation, interest expense paid to Affiliates of such
Person).
"MARKET PRICE" shall mean, on any date specified herein, the amount per
share of the Common Stock, equal to (i) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof regular way
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, (ii) if such Common Stock is not then listed or admitted for trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, (iii) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, (iv) if trading in such Common Stock is quoted in the over-the-counter
market, the average of the closing bid and asked prices of the Common Stock on
such date as shown on the OTC Bulletin Board, or (v) if such Common Stock is not
then listed or admitted for trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof (as of a date which is within 20
days of the date as of which the determination is to be made) determined in good
faith by a committee of the Company's Board of Directors consisting of directors
who are not Affiliates of the Company, SSC or Holder; PROVIDED, however, that at
the request of the Holder, the Market Price shall be determined in good faith by
an independent investment banking firm selected jointly by the Company and the
Holder or, if that selection cannot be made within 10 days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules, and PROVIDED, further, that the Company shall pay all
of the fees and expenses of any third parties incurred in connection with
determining the Market Price.
"NASD" shall mean the National Association of Securities Dealers, Inc.
A-4
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person and its Subsidiaries for such period, determined on
a consolidated basis and in accordance with GAAP, but excluding from the
determination of Net Income (without duplication) (a) any extraordinary or
non-recurring gains or losses or gains or losses from Dispositions, (b)
restructuring charges, (c) effects of discontinued operations and (d) interest
income.
"NEW ISSUANCE PRICE" shall have the meaning set forth in Section 3.2.
"OPTIONS" shall mean any rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"OTHER SECURITIES" shall mean any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Financing Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Financing Warrants, in
lieu of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 4 or otherwise.
"PERSON" shall mean any individual, firm, partnership, corporation,
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"PURCHASE PRICE" shall mean initially $4.50 per share, subject to
adjustment and readjustment from time to time as provided in Section 3, and, as
so adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration Rights
Agreement, dated as of the date hereof among the Company and the Initial
Holders.
"RESTRICTED SECURITIES" shall mean (i) any Financing Warrants bearing
the applicable legend set forth in Section 10.1, (ii) any shares of Common Stock
(or Other Securities) issued or issuable upon the exercise of Financing Warrants
which are (or, upon issuance, will be) evidenced by a certificate or
certificates bearing the applicable legend set forth in Section 10.1, and (iii)
any shares of Common Stock (or Other Securities) issued subsequent to the
exercise of any of the Financing Warrants as a dividend or other distribution
with respect to, or resulting from a subdivision of the outstanding shares of
Common Stock (or other Securities) into a greater number of shares by
reclassification, stock splits or otherwise, or in exchange for or in
replacement of the Common Stock (or Other Securities) issued upon such exercise,
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in Section10.1.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any successor
statute.
"SSC" shall mean Schottenstein Stores Corporation.
A-5
"WARRANT" shall have the meaning assigned to it in the introduction to
this Warrant.
"WARRANT SHARES" means (a) the shares of Common Stock issued or
issuable upon exercise of this Warrant in accordance with Section 2, (b) all
other securities or other property issued or issuable upon any such exercise or
exchange in accordance with this Warrant and (c) any securities of the Company
distributed with respect to the securities referred to in the preceding clauses
(a) and (b).
2. EXERCISE OF WARRANT.
2.1. MANNER OF EXERCISE; PAYMENT OF THE PURCHASE PRICE. (a) Except as
set forth in Section 2.1(c) below, this Warrant may be exercised by the Holder
hereof, in whole or in part, at any time or from time to time prior to the
Expiration Date, by surrendering to the Company at its principal office this
Warrant, with the form of Election to Purchase Shares attached hereto as Exhibit
A (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment of the Purchase Price for the number of shares of Common
Stock specified in such form (the "Aggregate Purchase Price"). Any partial
exercise of this Warrant shall be for a whole number of Warrant Shares only.
(b) Payment of the Aggregate Purchase Price may be made as follows (or
by any combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the Company, (ii) by cancellation of all or any part of
the unpaid principal amount of the then-outstanding Obligations (as defined in
the Financing Agreement) in an amount equal to the Aggregate Purchase Price,
(iii) by cancellation of such number of the shares of Common Stock otherwise
issuable to the Holder upon such exercise as shall be specified for cancellation
in such Election to Purchase Shares, such that the excess of the aggregate
Current Market Price of such specified number of shares on the date of exercise
over the portion of the Aggregate Purchase Price attributable to such shares
shall equal the Aggregate Purchase Price attributable to the shares of Common
Stock to be issued upon such exercise, in which case such excess amount shall be
deemed to have been paid to the Company and the number of shares issuable upon
such exercise shall be reduced by such number specified for cancellation, or
(iv) by surrender to the Company for cancellation certificates representing
shares of Common Stock of the Company owned by the Holder (properly endorsed for
transfer in blank) having a Current Market Price on the date of Warrant exercise
equal to the Aggregate Purchase Price.
(c) The portion of the Warrant that constitutes the Allocated Warrants
(as defined in the Convertible Facility) shall not be exercisable by the Holder
from the date on which the Holder receives the Buyout Exercise Notice (as
defined in the Convertible Facility) until the date which is 31 days after the
receipt by the Holder of the Buyout Exercise Notice, unless such Buyout Exercise
Notice involves a Referred SSC Transaction (as defined in the Convertible
Facility) in which case, this Section 2.1(c) shall not apply to such Buyout
Exercise Notice, and the Warrant shall continue to be exercisable in full.
2.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which
A-6
this Warrant shall have been surrendered to, and the Purchase Price shall have
been received by, the Company as provided in Section 2.1, and, to the extent
permitted by law, at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
2.3. DELIVERY OF STOCK CERTIFICATES, ETC.; CHARGES, TAXES AND EXPENSES.
(a) As soon as practicable after each exercise of this Warrant, in whole or in
part, and in any event within two Business Days thereafter, the Company shall
cause to be issued in the name of and delivered to the Holder hereof or, subject
to Section 10, as the Holder may direct,
(i) a certificate or certificates for the number of shares of Common
Stock (or Other Securities) to which the Holder shall be entitled upon
such exercise, and
(ii) in case such exercise is for less than all of the shares of
Common Stock purchasable under this Warrant, a new Warrant or Warrants of
like tenor, for the balance of the shares of Common Stock purchasable
hereunder.
(b) Issuance of certificates for shares of Common Stock upon the
exercise of this Warrant shall be made without charge to the Holder hereof for
any issue or transfer tax or other incidental expense, in respect of the
issuance of such certificates, all of which such taxes and expenses shall be
paid by the Company; PROVIDED, HOWEVER, that the Company shall not be required
to pay any tax that may be payable in respect of any issuance of any Warrant or
any certificate for, or any other evidence of ownership of, Warrant Shares in a
name other than that of the Holder of this Warrant being exercised or exchanged.
2.4. TAX BASIS. The Company and the Holder shall mutually agree as to
the tax basis of this Warrant for purposes of the Internal Revenue Code of 1986,
as amended, and the treatment of this Warrant under such Code by each of the
Company and the Holder shall be consistent with such agreement.
3. ADJUSTMENT OF PURCHASE PRICE AND COMMON STOCK ISSUABLE UPON
EXERCISE.
3.1. ADJUSTMENT OF NUMBER OF SHARES.
(a) Upon each adjustment of the Purchase Price as a result of the
calculations made in this Section 3, except to the extent the Purchase Price is
adjusted pursuant to Section 3.10 hereof, this Warrant shall thereafter evidence
the right to receive, at the adjusted Purchase Price, that number of shares of
Common Stock (calculated to the nearest one-hundredth) obtained by dividing (i)
the product of the aggregate number of shares covered by this Warrant
immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
(b) In the event that, prior to the exercise in full of this Warrant,
the Company issues any shares of Common Stock upon the conversion of Convertible
Securities outstanding
A-7
on the date hereof (including, without limitation, the Convertible Facility) (a
"Conversion"), the number of Warrant Shares issuable upon the exercise of this
Warrant (whether or not this Warrant has been partially exercised) shall be
automatically increased by the number of shares equal to 4.375% of the shares of
Common Stock issued upon such Conversion, and the Purchase Price shall not be
adjusted in connection with such increase. Any adjustments made to the Purchase
Price or the number of Warrant Shares issuable upon exercise of the Warrant
prior to such Conversion shall be made as if the Warrant were initially
exercisable for such increased number of shares. Upon each such Conversion, the
Company shall promptly deliver to the Holder the report required by Section 7
hereof.
3.2. ADJUSTMENT OF PURCHASE PRICE FOR NEW ISSUANCES.
(a) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the Company
at any time or from time to time after the date hereof shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.2(b) and excluding shares issued
pursuant to Section 3.3) without consideration or for a consideration per share
less than the Purchase Price in effect immediately prior to such issue or sale
(the "New Issuance Price"), then, and in each such case, subject to Section 3.8,
the Purchase Price shall be reduced concurrently with such issue or sale, to the
New Issuance Price.
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. Shares of
Additional Shares of Common Stock shall be deemed issued if the Company at any
time or from time to time after the date hereof shall issue, sell, grant or
assume, or shall fix a record date for the determination of holders of any class
of securities of the Company entitled to receive, any Options or Convertible
Securities (whether or not the rights thereunder are immediately exercisable)
for a consideration per share (determined pursuant to Section 3.6) that is less
than the Purchase Price in effect on the date of and immediately prior to such
issue, sale, grant or assumption or immediately prior to the close of business
on such record date (or, if the Common Stock trades on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading). Such issuance shall
be deemed to occur (i) as of the time of such issue, sale, grant or assumption
of the Convertible Securities or Options or (ii) in case such a record date
shall have been fixed, as of the close of business on such record date (or, if
the Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading). No further adjustment of the Purchase
Price shall be made upon the subsequent issuance of shares of Common Stock upon
the exercise of such Options or the conversion or exchange of such Convertible
Securities.
3.3. EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. If the Company at any
time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
payable in shares of Common Stock subject to Section 3.4, or (b) a regularly
scheduled cash dividend payable out of consolidated earnings or earned surplus,
determined in accordance with generally accepted accounting principles or (c) a
deemed issuance of Additional Shares of Common Stock pursuant to Section 3.2(b),
in each such case, subject to Section 3.8, adequate provision shall be made so
that the Holder shall receive, upon Warrant exercise, a pro rata share of such
dividend
A-8
or other distribution based upon the maximum number of shares of Common Stock at
the time issuable to the Holder (determined without regard to whether the
Warrant is exercisable at such time); PROVIDED, however, that if pursuant to
Section 2.1(c) the Allocated Warrants are assigned to SSC, then that portion of
the Holder's pro rata share of such dividend or other distribution attributable
to the Allocated Warrants shall be deemed assigned to SSC along with the
Allocated Warrants.
3.4. TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
increased and the Purchase Price shall be proportionately decreased. In case the
Company at any time or from time to time after the date hereof shall effect any
combination or consolidation of the outstanding shares of Common Stock into a
lesser number of shares of Common Stock, then, and in each such case, the number
of shares of Common Stock obtainable upon exercise of this Warrant shall be
proportionately decreased and the Purchase Price shall be proportionately
increased. Any adjustment made under this Section shall become effective (a) in
the case of any such dividend, immediately after the close of business on the
record date for the determination of holders of any class of securities entitled
to receive such dividend, or (b) in the case of any such subdivision, at the
close of business on the day immediately prior to the day upon which such
corporate action becomes effective.
3.5. ADJUSTMENT OF PURCHASE PRICE FOR OTHER ISSUANCES.
(a) ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case the Company
at any time or from time to time after the date hereof shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.5(b)) for a consideration per share
less than the Current Market Price but greater than the Purchase Price in effect
immediately prior to such issue or sale, then, and in each such case, subject to
Section 3.8, the Purchase Price shall be reduced concurrently with such issue or
sale, to a price (calculated to the nearest .01 of a cent) determined by
multiplying such Purchase Price by a fraction
(x) The numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issue or sale
and (ii) the number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at such Current Market Price, and
(y) The denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, PROVIDED that,
for the purposes of this Section 3.5, (x) immediately after any Additional
Shares of Common Stock are deemed to have been issued pursuant to Section
3.5(b), such Additional Shares shall be deemed to be outstanding, and (y)
treasury shares shall not be deemed to be outstanding.
A-9
(b) TREATMENT OF OPTIONS AND CONVERTIBLE SECURITIES. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable) and the consideration per share (determined pursuant to
Section 3.6) of the shares issuable upon the exercise of such Options or, in the
case of Convertible Securities and the Options therefor, the conversion or
exchange of such Convertible Securities would be less than the Current Market
Price but greater than Purchase Price in effect on the date of and immediately
prior to such issue, sale, grant or assumption or immediately prior to the close
of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), then, and in each such case, the maximum number of Additional Shares
of Common Stock (as set forth in the instrument relating thereto, without regard
to any provisions contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued for
the purposes of Section 3.5 as of the time of such issue, sale, grant or
assumption or, in case such a record date shall have been fixed, as of the close
of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend trading,
PROVIDED, that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(i) whether or not the Additional Shares of Common Stock underlying
such Options or Convertible Securities are deemed to be issued, no further
adjustment of the Purchase Price shall be made upon the subsequent issue
or sale of Convertible Securities or shares of Common Stock upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, except in the case of any such Options or Convertible
Securities which contain provisions requiring an adjustment, subsequent to
the date of the issue or sale thereof, of the number of Additional Shares
of Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities by reason of (x) a
change of control of the Company, (y) the acquisition by any Person or
group of Persons of any specified number or percentage of the voting
securities of the Company or (z) any similar event or occurrence, each
such case to be deemed hereunder to involve a separate issuance of
Additional Shares of Common Stock, Options or Convertible Securities, as
the case may be;
(ii) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof (by change of rate or otherwise), the Purchase Price
computed upon the original issue, sale, grant or assumption thereof (or
upon the occurrence of the record date, or date prior to the commencement
of ex-dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or
decrease insofar as it affects such Options, or the rights of conversion
or exchange under such Convertible Securities, which are outstanding at
such time;
A-10
(iii) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under
any such Convertible Securities which (or purchase by the Company and
cancellation or retirement of any such Convertible Securities the rights
of conversion or exchange under which) shall not have been exercised, the
Purchase Price computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration (or such cancellation or retirement, as the case may be), be
recomputed as if:
(x) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or
sold were the Additional Shares of Common Stock, if any, actually
issued or sold upon the exercise of such Options or the conversion
or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus the consideration actually
received by the Company upon such exercise, or for the issue or sale
of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(y) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue or
sale, grant or assumption of such Options, and the consideration
received by the Company for the Additional Shares of Common Stock
deemed to have then been issued was the consideration actually
received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Company (pursuant to Section
3.6) upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised; and
(iv) no readjustment pursuant to subdivision (ii) or (iii) above
shall have the effect of decreasing the Purchase Price by an amount in
excess of the amount of the adjustment thereof originally made in respect
of the issue, sale, grant or assumption of such Options or Convertible
Securities.
3.6. COMPUTATION OF CONSIDERATION. For the purposes of this Section 3,
(a) the consideration for the issue or sale of any Additional Shares
of Common Stock shall, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, be computed at the gross cash
proceeds to the Company, without deducting any expenses paid or incurred
by the Company or any
A-11
commissions or compensations paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services in connection
with such issue or sale,
(ii) insofar as it consists of property (including securities) other
than cash, be computed at the Fair Value thereof at the time of such issue
or sale, and
(iii) in case Additional Shares of Common Stock are issued or sold
together with other stock or securities or other assets of the Company for
a consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to
such Additional Shares of Common Stock, such allocation to be determined
in the same manner that the Fair Value of property not consisting of cash
or securities is to be determined as provided in the definition of 'Fair
Value' herein; and
(b) Additional Shares of Common Stock deemed to have been issued
pursuant to Sections 3.2(b) and 3.5(b), relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per share
determined by dividing
(i) the total amount, if any, received and receivable by the Company as
consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration to protect against dilution)
payable to the Company upon the exercise in full of such Options or the
conversion or exchange of such Convertible Securities or, in the case of
Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as provided in the
foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
3.7. DILUTION IN CASE OF OTHER SECURITIES. In case any Other Securities
shall be issued or sold or shall become subject to issue or sale upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
issuer of Other Securities or any other Person referred to in Section 4) or to
subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights, if any, with respect to
such Other Securities, granted by this Warrant, then, and in each such case, the
computations, adjustments and readjustments provided for in this Section 3 with
respect to the Purchase Price shall be made as nearly as possible in the manner
so provided and applied to determine the amount of Other Securities from time to
time
A-12
receivable upon the exercise of the Warrants, so as to protect the holders of
the Warrants against the effect of such dilution.
3.8. DE MINIMIS ADJUSTMENTS. If the amount of any adjustment of the
Purchase Price required pursuant to Section 3.5 would be less than one tenth
(1/10) of one percent (1%) of the Purchase Price in effect at the time such
adjustment is otherwise so required to be made, such amount shall be carried
forward and adjustment with respect thereto made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate a change in the Purchase
Price of at least one tenth (1/10) of one percent (1%) of such Purchase Price.
All calculations under this Warrant shall be made to the nearest one-hundredth
of a share.
3.9. ABANDONED DIVIDEND OR DISTRIBUTION. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed; PROVIDED, however, that no additional Purchase
Price or any other adjustment shall be required with regard to Warrant Shares
that have been issued upon exercise of the Warrant prior to such abandonment.
3.10. PURCHASE PRICE RESET. If the consolidated EBITDA of the Company
and its subsidiaries for the fiscal year ending February 1, 2003, is less than
$90,000,000 or the combined, unconsolidated EBITDA of each of the Company
(excluding Subsidiaries), Value City Limited Partnership, Value City of
Michigan, Inc. GB Retailers, Inc., Gramex Retail Stores, Inc., VCD, Ltd. and any
Person acquired after the date hereof that operates Value City department stores
is less than $35,000,000 in the aggregate, then effective as of the close of
business on February 1, 2003, the Purchase Price shall be reduced to $4.00 per
share and the number of shares issuable upon exercise of this Warrant shall be
increased to give effect to all adjustments as provided in this Section 3 which
were made prior to February 3, 2003, as if the Purchase Price on the date hereof
had been $4.00 per share.
4. CONSOLIDATION, MERGER, ETC.
4.1. ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification for which adjustment in
the Purchase Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant is provided in Section 3.4),
A-13
then, and in the case of each such transaction, proper provision shall be made
so that, upon the basis and the terms and in the manner provided in this
Warrant, the Holder of this Warrant, upon the exercise hereof at any time after
the consummation of such transaction, shall be entitled to receive (at the
aggregate Purchase Price in effect at the time of such consummation for all
Common Stock or Other Securities issuable upon such exercise immediately prior
to such consummation), in lieu of the Common Stock or Other Securities issuable
upon such exercise prior to such consummation, the highest amount of securities,
cash or other property to which such Holder would actually have been entitled as
a shareholder upon such consummation if such Holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 3 through 5, PROVIDED that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock, and if the Holder so designates in a notice
given to the Company on or before the date immediately preceding the date of the
consummation of such transaction, the Holder of this Warrant shall be entitled
to receive the highest amount of securities, cash or other property to which it
would actually have been entitled as a shareholder if the Holder of this Warrant
had exercised this Warrant, including the payment of the Purchase Price in
accordance with Section 2.1(b) hereof, prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in Section 3 through 5.
4.2. ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained in
this Warrant or in the Financing Agreement to the contrary, the Company shall
not effect any of the transactions described in clauses (a) through (d) of
Section 4.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
this Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant), (b) the obligations of the
Company under the Registration Rights Agreement and (c) the obligation to
deliver to the Holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this Section 4, the Holder may be
entitled to receive. Nothing in this Section 4 shall be deemed to authorize the
Company to enter into any transaction not otherwise permitted by the Financing
Agreement.
5. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the
provisions of Section 3 or Section 4 hereof are not strictly applicable or if
strictly applicable would not fairly protect the purchase rights of the Holder
in accordance with the essential intent and principles of such Sections, then in
each such case, the Board of Directors of the Company shall make an adjustment
in the application of such provisions, in accordance with such essential intent
and principles, so as to preserve, without dilution, the purchase rights
represented by this Warrant.
A-14
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of
its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) shall not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable therefor upon such exercise, (b) shall take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all liens,
security interests, encumbrances (in each of the foregoing cases, other than
those imposed by the Holder), taxes, preemptive rights and charges on the
exercise of the Warrants from time to time outstanding, and (c) shall not take
any action which results in any adjustment of the Purchase Price if the total
number of shares of Common Stock (or Other Securities) issuable after the action
upon the exercise of all of the Warrants would exceed the total number of shares
of Common Stock (or Other Securities) then authorized by the Company's articles
of organization and available for the purpose of issue upon such exercise.
7. ACCOUNTANTS' REPORT. In each case of any adjustment or readjustment
in the number of shares of Common Stock (or Other Securities) issuable upon the
exercise of this Warrant or in the Purchase Price, including, without
limitation, pursuant to Section 3.1, 3.2, 3.4, 3.5 or 3.10, the Company at its
sole expense shall promptly compute such adjustment or readjustment in
accordance with the terms of this Warrant and prepare a report setting forth
such adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or to be received
by the Company for any Additional Shares of Common Stock issued or sold or
deemed to have been issued under Section 3, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Purchase Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Section 3) on account thereof. The Company shall forthwith mail
a copy of each such report to each holder of a Warrant. In the event that a
holder of a Warrant disagrees with such report, the Company shall cause
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company) selected by the Company to review
and verify or revise such computation (other than any computation of the Fair
Value of property) and report. The Company shall also keep copies of all such
reports at its principal office and shall cause the same to be available for
inspection at such office during normal business hours by any holder of a
Warrant or any prospective purchaser of a Warrant designated by the holder
thereof.
8. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
A-15
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any consolidation or
merger involving the Company and any other Person, any transaction or series of
transactions in which more than 50% of the voting securities of the Company are
transferred to another Person, or any transfer, sale or other disposition of all
or substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified.
9. REGISTRATION OF COMMON STOCK. If any shares of Common Stock required
to be reserved for purposes of exercise of this Warrant require registration
with or approval of any governmental authority under any federal or state law
(other than the Securities Act) before such shares may be issued upon exercise,
the Company shall, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. At any such time as Common Stock is listed on any national securities
exchange, the Company shall, at its expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of issuance,
the shares of Common Stock issuable upon exercise of the then outstanding
Warrants and maintain the listing of such shares after their issuance; and the
Company shall also list on such national securities exchange, shall register
under the Exchange Act and shall maintain such listing of, any Other Securities
that at any time are issuable upon exercise of the Warrants, if and at the time
that any securities of the same class shall be listed on such national
securities exchange by the Company.
10. RESTRICTIONS ON TRANSFER.
10.1. RESTRICTIVE LEGENDS. Except as otherwise permitted by this
Section 10, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE
A-16
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS
WARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS AND CONDITIONS SPECIFIED
IN THIS WARRANT.
Except as otherwise permitted by this Section 10, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
10.2. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Restricted Securities
may not be sold, assigned, pledged, hypothecated, encumbered or in any manner
transferred or disposed of (a "Transfer"), in whole or in part, except in
compliance with the provisions of the Securities Act and state securities or
Blue Sky laws and the terms and conditions hereof.
10.3. NOTICE OF TRANSFER. Each Holder shall, prior to any Transfer of
any Warrants, give written notice to the Company of such Holder's intention to
Transfer.
10.4. TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Section 10 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the reasonable opinion of both counsel for the
Holder and counsel for the Company, such restrictions are no longer required or
necessary in order to protect the Company against a violation of the Securities
Act upon any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 10.1.
10.5. EXEMPT TRANSFERS. The restrictions on the transfer of this
Warrant or the Warrant Shares set forth in this Section 10 shall not apply to
any transfer to an affiliate of the Holder or to any transfer to any other
Person, PROVIDED that such transfer is made in compliance with the provisions of
the Securities Act and state securities laws.
A-17
11. RESERVATION OF STOCK, ETC. The Company shall at all times reserve
and keep available, solely for issuance and delivery upon exercise of this
Warrant, the number of shares of Common Stock (or Other Securities) from time to
time issuable upon exercise of this Warrant. All shares of Common Stock (or
Other Securities) issuable upon exercise of any Warrants shall be duly
authorized and, when issued upon such exercise, shall be validly issued and, in
the case of shares, fully paid and nonassessable, with no liability on the part
of the holders thereof, and, in the case of all securities, shall be free from
all liens, security interests, encumbrances (in each of the foregoing cases,
other than those imposed by the Holder), taxes, preemptive rights and charges.
The transfer agent for the Common Stock, and every subsequent transfer agent for
any shares of the Company's capital stock issuable upon the exercise of any of
the purchase rights represented by this Warrant, are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued shares as shall be requisite for such purpose.
The Company shall keep copies of this Warrant on file with the transfer agent
for the Common Stock and with every subsequent transfer agent for any shares of
the Company's capital stock issuable upon the exercise of the rights of purchase
represented by this Warrant. The Company shall supply such transfer agent with
duly executed stock certificates for such purpose. All Warrants surrendered upon
the exercise of the rights thereby evidenced shall be canceled, and such
canceled Warrants shall constitute sufficient evidence of the number of shares
of stock which have been issued upon the exercise of such Warrants. Subsequent
to the Expiration Date, no shares of stock need be reserved in respect of any
unexercised Warrant.
12. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
12.1. WARRANT REGISTER; OWNERSHIP OF WARRANTS. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant agent or the transfer agent. The Company
shall be entitled to treat the registered Holder of any Warrant on the Warrant
Register as the owner in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrant on the
part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 10, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
12.2. TRANSFER OF WARRANTS. Subject to compliance with Section 10, if
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
12.3. REPLACEMENT OF WARRANTS. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this
A-18
Warrant and, in the case of any such loss, theft or destruction of this Warrant,
on delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender of such
Warrant to the Company at its principal office and cancellation thereof, the
Company at its expense shall execute and deliver, in lieu thereof, a new Warrant
of like tenor.
12.4. ADJUSTMENTS TO PURCHASE PRICE AND NUMBER OF SHARES.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
12.5. FRACTIONAL SHARES. Notwithstanding any adjustment pursuant to
Section 3 in the number of shares of Common Stock covered by this Warrant or any
other provision of this Warrant, the Company shall not be required to issue
fractions of shares upon exercise of this Warrant or to distribute certificates
which evidence fractional shares. In lieu of fractional shares, the Company
shall make payment to the Holder, at the time of exercise of this Warrant as
herein provided, in an amount in cash equal to such fraction multiplied by the
Current Market Price of a share of Common Stock on the date of Warrant exercise.
13. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that there
would be no adequate remedy at law to any Holder in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Warrant and accordingly, the Company agrees that, in
addition to any other remedy to which the Holder may be entitled at law or in
equity, the Holder shall be entitled to seek to compel specific performance of
the obligations of the Company under this Warrant, without the posting of any
bond, in accordance with the terms and conditions of this Warrant in any court
of the United States or any State thereof having jurisdiction, and if any action
should be brought in equity to enforce any of the provisions of this Warrant,
the Company shall not raise the defense that there is an adequate remedy at law.
Except as otherwise provided by law, a delay or omission by the Holder hereto in
exercising any right or remedy accruing upon any such breach shall not impair
the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy shall be exclusive of any other remedy. All available remedies
shall be cumulative.
14. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. NOTICES. All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any nationally-recognized courier guaranteeing overnight delivery or
first class registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
A-19
If to the Company: Value City Department Stores, Inc.
3241 Westerville Road
Columbus, OH 43224
Attn: James A. McGrady
Fax No. (614) 478-2721
with copies to: Porter, Wright, Morris & Arthur LLP
41 S. High Street
Columbus, OH 43215
Attn: Robert J. Tannous
Fax No. (614) 227-2100
If to Holder: Cerberus Partners, L.P.
450 Park Avenue
New York, New York 10022
Attn: Lenard Tessler
Fax No. (212) 758-5305
with copies to: Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attn: Stuart D. Freedman, Esq.
Fax No. (212) 593-5955
All such notices and communications (and deliveries) shall be deemed to
have been duly given: at the time delivered by hand, if personally delivered;
when receipt is acknowledged, if telecopied; on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery; and five days after
being deposited in the mail, if sent first class or certified mail, return
receipt requested, postage prepaid; PROVIDED, that the exercise of any Warrant
shall be effective in the manner provided in Section 2.
16. AMENDMENTS. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the Company and the Holder.
17. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall
A-20
mean "including, without limitation," unless otherwise specified; (5) "or" is
not exclusive; and (6) provisions apply to successive events and transactions.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the State of New York.
19. REGISTRATION RIGHTS AGREEMENT. The shares of Common Stock (and
Other Securities) issuable upon exercise of this Warrant (or upon conversion of
any shares of Common Stock issued upon such exercise) shall constitute
Registrable Securities (as such term is defined in the Registration Rights
Agreement). Each Holder shall be entitled to all of the benefits afforded to a
holder of any such Registrable Securities under the Registration Rights
Agreement and such Holder, by its acceptance of this Warrant, agrees to be bound
by and to comply with the terms and conditions of the Registration Rights
Agreement applicable to such Holder as a holder of such Registrable Securities.
20. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
p.m., New York City time, on ________________.(3)
21. COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Warrant, the
Company agrees and the Holder, by taking and holding this Warrant agrees, that
the prevailing party shall recover from the non-prevailing party all of such
prevailing party's costs and reasonable attorneys' fees incurred in each and
every such action, suit or other proceeding, including any and all appeals or
petitions therefrom.
[Remainder of this page intentionally left blank]
--------------------------
(3) Expiration Date will be ten years from the date of issuance of the warrant.
A-21
IN WITNESS WHEREOF, the Company has executed and delivered this Warrant
as of the date first above written.
VALUE CITY DEPARTMENT STORES, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
A-22
EXHIBIT A to
COMMON STOCK PURCHASE WARRANT
FORM OF
ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase ____ shares of Common Stock, no par value per share ("Common Stock"),
of VALUE CITY DEPARTMENT STORES, INC. and hereby makes payment of $________
therefor [or] makes payment therefor by application pursuant to Section
2.1(b)(ii) of the Warrant of $_______ aggregate principal amount of the
then-outstanding Obligations (as defined in the Financing Agreement) [or] makes
payment by reduction pursuant to Section 2.1(b)(iii) of the Warrant of the
number of shares of Common Stock otherwise issuable to the Holder upon Warrant
exercise by ___ shares [or] makes payment therefor by delivery of the following
Common Stock Certificates of the Company (properly endorsed for transfer in
blank) for cancellation by the Company pursuant to Section 2.1(b)(iv) of the
Warrant, certificates of which are attached hereto for cancellation [list
certificates by number and amount]. The undersigned hereby requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:
----------------------------------------------------------------------
(NAME)
-------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
-------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
--------------------------------------------------------------------
(NAME)
-------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased (and/or reduced)
hereby is less than the number of shares of Common Stock covered by the Warrant,
the undersigned requests that a new Warrant representing the number of shares of
Common Stock not so purchased (or reduced) be issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME OF HOLDER
-------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:
--------------------------------------------------------------------
(NAME OF HOLDER)
-------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated: ____________, 20__ NAME OF HOLDER
By
------------------------------------
Name:
Title:
A-23
EXHIBIT B to
COMMON STOCK PURCHASE WARRANT
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, no par value per share ("Common Stock") of VALUE CITY
DEPARTMENT STORES, INC. represented by the Warrant, with respect to the number
of shares of Common Stock set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
and does hereby irrevocably constitute and appoint ________ Attorney to make
such transfer on the books of maintained for that purpose, with full power of
substitution in the premises.
Dated: _______________, 20__ NAME OF HOLDER
By
----------------------------
Name:
Title:
A-24
Appendix B
$75,000,000
SENIOR SUBORDINATED CONVERTIBLE LOAN AGREEMENT
DATED AS OF MARCH 15, 2000, AS AMENDED FROM TIME TO TIME,
AND AS AMENDED AND RESTATED BY THIS
AMENDED AND RESTATED SENIOR CONVERTIBLE LOAN AGREEMENT
DATED AS JUNE 11, 2002
BY AND AMONG
VALUE CITY DEPARTMENT STORES, INC.,
AS BORROWER,
SHONAC CORPORATION,
DSW SHOE WAREHOUSE, INC.,
GRAMEX RETAIL STORES, INC.,
VCM, LTD.,
FILENE'S BASEMENT, INC.,
GB RETAILERS, INC.,
J.S. OVERLAND DELIVERY, INC.
VALUE CITY DEPARTMENT STORES SERVICES, INC.
VALUE CITY LIMITED PARTNERSHIP,
VALUE CITY OF MICHIGAN, INC.,
WESTERVILLE ROAD GP, INC. AND
WESTERVILLE ROAD LP, INC.
AS GUARANTORS,
THE LENDERS FROM TIME TO TIME PARTY HERETO,
AS LENDERS,
AND
SCHOTTENSTEIN STORES CORPORATION,
AS AGENT
B-1
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS; CERTAIN TERMS............................................................................5
SECTION 1.01 Definitions......................................................................5
SECTION 1.02 Terms Generally.................................................................20
SECTION 1.03 Accounting and Other Terms......................................................20
SECTION 1.04 Time References.................................................................20
ARTICLE II THE LOAN 20
SECTION 2.01 The Loan........................................................................20
SECTION 2.02 Notes; Repayment of Loan........................................................20
SECTION 2.03 Interest........................................................................21
SECTION 2.04 Prepayment of Loan..............................................................21
SECTION 2.05 Taxes...........................................................................22
ARTICLE III FEES, PAYMENTS AND OTHER COMPENSATION..............................................................23
SECTION 3.01 [Intentionally Omitted.]........................................................23
SECTION 3.02 Payments; Computations and Statements...........................................23
SECTION 3.03 Sharing of Payments, Etc........................................................24
SECTION 3.04 Apportionment of Payments.......................................................24
SECTION 3.05 Increased Costs and Reduced Return..............................................25
ARTICLE IV CONDITIONS TO EFFECTIVENESS.........................................................................26
SECTION 4.01 Conditions Precedent to Effectiveness...........................................26
ARTICLE V REPRESENTATIONS AND WARRANTIES.......................................................................29
SECTION 5.01 Representations and Warranties..................................................29
ARTICLE VI COVENANTS OF THE LOAN PARTIES.......................................................................36
SECTION 6.01 Affirmative Covenants...........................................................36
SECTION 6.02 Negative Covenants..............................................................38
ARTICLE VII REPORTING REQUIREMENTS.............................................................................44
SECTION 7.01 Maintain Records................................................................44
SECTION 7.02 Access to Records...............................................................44
SECTION 7.03 Prompt Notice to Administrative Agent...........................................45
SECTION 7.04 [Intentionally Omitted].........................................................45
SECTION 7.05 [Intentionally Omitted].........................................................45
SECTION 7.06 Quarterly Reports...............................................................45
SECTION 7.07 Annual Reports..................................................................46
SECTION 7.08 Officer's Certificates..........................................................46
SECTION 7.09 [Intentionally Omitted].........................................................46
SECTION 7.10 Additional Financial Information................................................46
SECTION 7.11 Format of Information...........................................................47
B-2
ARTICLE VIII [INTENTIONALLY OMITTED.]..........................................................................47
ARTICLE IX EVENTS OF DEFAULT...................................................................................47
SECTION 9.01 Events of Default...............................................................47
ARTICLE X AGENT................................................................................................50
SECTION 10.01 Appointment.....................................................................50
SECTION 10.02 Nature of Duties................................................................50
SECTION 10.03 Rights; Exculpation, Etc........................................................50
SECTION 10.04 Reliance........................................................................51
SECTION 10.05 Indemnification.................................................................51
SECTION 10.06 Agent Individually..............................................................51
SECTION 10.07 Successor Agent.................................................................52
SECTION 10.08 [Intentionally Omitted].........................................................52
SECTION 10.09 [Intentionally Omitted].........................................................52
ARTICLE XI GUARANTY 52
SECTION 11.01 Guaranty........................................................................52
SECTION 11.02 Guaranty Absolute...............................................................52
SECTION 11.03 Waiver 53
SECTION 11.04 Continuing Guaranty; Assignments................................................53
SECTION 11.05 Subrogation.....................................................................53
ARTICLE XII MISCELLANEOUS......................................................................................54
SECTION 12.01 Notices, Etc....................................................................54
SECTION 12.02 Amendments, Etc.................................................................54
SECTION 12.03 No Waiver; Remedies, Etc........................................................55
SECTION 12.04 Expenses; Taxes; Attorneys' Fees................................................55
SECTION 12.05 Right of Set-off................................................................56
SECTION 12.06 Severability....................................................................56
SECTION 12.07 Assignments and Participations..................................................56
SECTION 12.08 Counterparts....................................................................58
SECTION 12.09 Governing Law...................................................................58
SECTION 12.10 Consent to Jurisdiction; Service of Process and Venue...........................58
SECTION 12.11 Waiver of Jury Trial, Etc.......................................................59
SECTION 12.12 Consent by the Agent and Lenders................................................59
SECTION 12.13 No Party Deemed Drafter.........................................................59
SECTION 12.14 Reinstatement; Certain Payments.................................................59
SECTION 12.15 Indemnification.................................................................59
SECTION 12.16 [Intentionally Omitted.]........................................................60
SECTION 12.17 Records.........................................................................60
SECTION 12.18 Binding Effect..................................................................60
SECTION 12.19 Maximum Interest................................................................60
SECTION 12.20 Confidentiality.................................................................61
SECTION 12.21 Integration.....................................................................62
ARTICLE XIII CONVERSION OF LOAN................................................................................62
SECTION 13.01 Conversion Privilege and Conversion Price.......................................62
SECTION 13.02 Exercise of Conversion Privilege................................................62
B-3
SECTION 13.03 Adjustments to Conversion Price for Diluting Issues.............................63
SECTION 13.04 No Impairment...................................................................67
SECTION 13.05 Accountants' Report.............................................................67
SECTION 13.06 Common Stock Reserved...........................................................67
SECTION 13.07 No Reissuance of Loan...........................................................67
SECTION 13.08 Issue Tax.......................................................................67
SECTION 13.09 Closing of Books................................................................67
SECTION 13.10 Definition of Common Stock......................................................67
SECTION 13.11 Fractions Of Shares Of Common Stock.............................................67
SECTION 13.12 Covenant As To Common Stock.....................................................68
B-4
AMENDED AND RESTATED SENIOR CONVERTIBLE LOAN AGREEMENT
Senior Subordinated Convertible Loan Agreement, dated as of March 15,
2000, and amended and restated by this Amended and Restated Senior Convertible
Loan Agreement, dated as of June 11, 2002 (the "AGREEMENT"), among Value City
Department Stores, Inc., an Ohio corporation (the "BORROWER"), Shonac
Corporation, an Ohio corporation ("SHONAC"), DSW Shoe Warehouse, Inc., a
Missouri corporation ("DSW"), Gramex Retail Stores, Inc., a Delaware corporation
("GRAMEX"), VCM, Ltd., an Ohio limited liability company ("VCM"), Filene's
Basement, Inc., a Delaware corporation ("FILENE'S"), GB Retailers, Inc., a
Delaware corporation ("GB"), J.S. Overland Delivery, Inc., a Delaware
corporation ("JS"), Value City Department Stores Services, Inc., a Delaware
corporation ("VC SERVICES"), Value City Limited Partnership, an Ohio limited
partnership ("VCLP"), Value City of Michigan, Inc., a Michigan corporation ("VC
MICHIGAN"), Westerville Road GP, Inc., a Delaware corporation ("WESTERVILLE
GP"), Westerville Road LP, Inc., a Delaware corporation ("WESTERVILLE LP", and
together with Shonac, DSW, Gramex, VCM, Filene's, GB, JS, VC Services, VCLP, VC
Michigan and Westerville GP, each a "GUARANTOR", and collectively, the
"GUARANTORS"), the lenders from time to time party hereto (each a "LENDER" and
collectively, the "LENDERS"), and Schottenstein Stores Corporation, a Delaware
corporation ("SSC"), as Agent for itself and the other Lenders (in such
capacity, together with its successors, if any, the "AGENT").
RECITALS
WHEREAS, the Borrower and Prudential Securities Credit Corp.,
LLC ("PSCC"), as initial lender and as administrative agent, entered into the
Senior Subordinated Convertible Loan Agreement, dated as of March 15, 2000 (the
"ORIGINAL LOAN AGREEMENT");
WHEREAS, as of December 11, 2000, PSCC assigned all of its
right, title and interest under the Original Loan Agreement to SSC;
WHEREAS, the Borrower and SSC entered into (a) the Waiver and
Amendment to the Senior Subordinated Convertible Loan Agreement, dated December
11, 2000, (b) the Second Amendment to the Senior Subordinated Convertible Loan
Agreement, dated January 1, 2001, and (c) the Third Amendment to the Senior
Subordinated Convertible Loan Agreement, dated March 14, 2001, (d) the Fourth
Amendment to the Senior Subordinated Convertible Loan Agreement dated September
10, 2001 (marked as the Third Amendment), (e) the Fifth Amendment to the Senior
Subordinated Convertible Loan Agreement, dated November 2, 2001, and (f) the
Sixth Amendment to the Senior Subordinated Convertible Loan Agreement, dated
February 1, 2002, each of which amended the Original Loan Agreement;
WHEREAS, the Borrower has requested and the Agent and the
Lenders have agreed to make certain revisions to the Original Loan Agreement;
WHEREAS, the parties hereto now desire to amend and restate
the Original Loan Agreement on the terms and subject to the conditions set forth
below:
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
Section 1.01 DEFINITIONS. As used in this Agreement, the following
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"ACTION" has the meaning specified therefor in Section 12.12.
B-5
"ACQUISITION" means the purchase or acquisition of all or
substantially all of the assets of any Person, the purchase of a controlling
equity interest in any Person, or the merger or consolidation of any Person with
any other Person, in any transaction or group of transactions which are part of
a common plan.
"AFFILIATE" means (i) with respect to any Person, any other
Person that directly or, alone or with a group of related Persons whose
interests taken as a whole, indirectly through one or more intermediaries,
Controls, is Controlled by, or is under common Control with, such Person; (ii)
any Person which is a parent, brother-sister or subsidiary of a Key Loan Party,
whose enterprise's tax returns or financial statements are consolidated with
those of a Key Loan Party, which is a member of the same controlled group of
corporations (within the meaning of Section 1563(a)(1), (2) and (3) of the
Internal Revenue Code or 1986, as amended from time to time) of which any Key
Loan Party is a member, or Controls or is Controlled by any Key Loan Party; and
(iii) with respect to the Loan Parties, without limiting the provisions of
clauses (i) and (ii) hereof, "Affiliate" includes SSC. Notwithstanding anything
to the contrary contained herein, in no event shall the Agent or any Lender be
considered an "Affiliate" of a Loan Party as a result of being party to this
Agreement or the transactions contemplated hereby
"AGENT" has the meaning specified therefor in the preamble
hereto.
"AGENT'S ACCOUNT" means an account at a bank designated by the
Agent from time to time as the account into which the Loan Parties shall make
certain payments to the Agent for the benefit of the Agent and the Lenders under
this Agreement and the other Loan Documents.
"AGREEMENT" means this Amended and Restated Senior Convertible
Loan Agreement, including all amendments, modifications and supplements and any
exhibits or schedules to any of the foregoing, and shall refer to the Agreement
as the same may be in effect at the time such reference becomes operative.
"APPLICABLE LAW" means, as to any Person, (i) all statutes,
rules, regulations, orders or other requirements having the force of law, and
(ii) all court orders and injunctions, arbitrator's decisions and/or similar
rulings, in each instance ((i) and (ii)) of or by any Federal, state, municipal
or other governmental authority, or court, tribunal, panel or other body which
has or claims jurisdiction over such Person, or any property of such Person, or
of any other Person for whose conduct such Person would be responsible.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by an assigning Lender and an assignee, and accepted by the Agent,
in accordance with Section 12.07 hereof and substantially in the form of Exhibit
I hereto or such other form acceptable to the Agent.
"AUTHORIZED OFFICER" means, with respect to any Person, the
chief executive officer, chief financial officer, president, executive vice
president, controller or treasurer of such Person.
"BANKRUPTCY CODE" means the United States Bankruptcy Code (11
U.S.C. Section 101, ET SEQ.), as amended from time to time, and any successor
statute.
"BOARD" means the Board of Governors of the Federal Reserve
System of the United States.
"BOARD OF DIRECTORS" means the board of directors of the
Borrower as of the Effective Date.
"BORROWER" has the meaning specified therefor in the preamble
hereto.
"BUSINESS DAY" means any day other than (i) a Saturday or
Sunday, (ii) any day on which banks in New York City generally are not open to
the general public for the purpose of conducting commercial banking business, or
(iii) a day on which the principal office of the Agent is not open to the
general public to conduct business.
"BUSINESS PLAN" means the business plan for the Loan Parties
for the fiscal years 2002 through and including 2004 dated March 19, 2002, as
set forth in that certain confidential side letter from the Borrower to the
Agent.
B-6
"CAPITAL EXPENDITURES" means, with respect to any Person for
any period, the sum of (i) the aggregate of all expenditures by such Person and
its Subsidiaries during such period that in accordance with GAAP are or should
be included in "property, plant and equipment" or in a similar fixed asset
account on its balance sheet, whether such expenditures are paid in cash or
financed and including all Capitalized Lease Obligations paid or payable during
such period; and (ii) to the extent not covered by clause (i) above, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period to acquire by purchase or otherwise the business or fixed assets of, or
the Capital Stock of, any other Person.
"CAPITAL GUIDELINE" means any law, rule, regulation, policy,
guideline or directive (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) of any central bank or
Governmental Authority (i) regarding capital adequacy, capital ratios, capital
requirements, the calculation of a bank's capital or similar matters, or (ii)
affecting the amount of capital required to be obtained or maintained by any
Lender, any Person controlling any Lender or the manner in which any Lender, any
Person controlling any Lender, allocates capital to any of its contingent
liabilities (including letters of credit), advances, acceptances, commitments,
assets or liabilities.
"CAPITAL STOCK" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock; and (ii) with
respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.
"CAPITALIZED LEASE" means, with respect to any Person, any
lease of real or personal property by such Person as lessee which is (i)
required under GAAP to be capitalized on the balance sheet of such Person; or
(ii) a transaction of a type commonly known as a "synthetic lease" (i.e. a lease
transaction that is treated as an operating lease for accounting purposes but
with respect to which payments of rent are intended to be treated as payments of
principal and interest on a loan for Federal income tax purposes).
"CAPITALIZED LEASE OBLIGATIONS" means, with respect to any
Person, obligations of such Person and its Subsidiaries under Capitalized
Leases, and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"CHANGE IN CONTROL" means the occurrence of any of the
following: (i) the acquisition, by any person or group (within the meaning of
Section 13(d)(3) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of 25% or more of the issued and
outstanding capital stock of the Borrower having the right, under ordinary
circumstances, to vote for the election of directors of the Borrower, excluding
from the foregoing any acquisition pursuant to the exercise of conversion rights
under this Agreement; (ii) more than half of the Persons who were directors of
the Borrower on the first day of any period consisting of twelve (12)
consecutive calendar months (the first of which twelve (12) month periods
commencing with the first day of the month during which this Agreement was
executed), cease, for any reason other than death, disability, or replacement by
other Persons nominated by a nominating committee controlled by SSC to be
directors of the Borrower; (iii) the failure of the Borrower to own, directly or
indirectly, 95% of the capital stock of each of the other Loan Parties; or (iv)
the failure of SSC to possess, directly or indirectly, the power to cause the
direction of the management and policies of the Key Loan Parties.
"COMMON STOCK" means the common stock, no par value per share,
of the Borrower.
"COMPETITIVE BUSINESS" means any business or enterprise
consisting of (i) operation of off-price discount department stores; (ii)
operation of retail furniture stores and related accessories; (iii) operation of
designer and name-brand shoe stores; (iv) operation of licensed shoe
departments; (v) furniture manufacturing; or (vi) bedding manufacturing.
"CONTINGENT OBLIGATION" means, with respect to any Person, any
obligation of such Person guaranteeing or intended to guarantee any Indebtedness
("PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any
manner, whether directly or indirectly, including, without limitation, (i) the
direct or indirect guaranty, endorsement (other than for collection or deposit
in the ordinary course of business), co-making, discounting with recourse or
sale with recourse by such Person of the obligation of a primary obligor; (ii)
the
B-7
obligation to make take-or-pay or similar payments, if required, regardless
of nonperformance by any other party or parties to an agreement (other than such
agreements to purchase goods in the ordinary course of business); (iii) any
obligation of such Person, whether or not contingent, (A) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (B) (other than such agreements to purchase goods in the ordinary
course of business) to advance or supply funds (1) for the purchase or payment
of any such primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (C) to purchase property, assets, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (D) otherwise to assure or hold harmless the holder of such
primary obligation against loss in respect thereof (other than such agreements
to purchase goods in the ordinary course of business); PROVIDED, HOWEVER, that
the term "Contingent Obligation" shall not include (1) any product warranties or
(2) obligations, warranties and indemnities not relating to Indebtedness which
have been made or undertaken, in each case, extended in the ordinary course of
business.
"CONTROL", "CONTROLS", "CONTROLLED BY", or "UNDER COMMON
CONTROL WITH" means the possession, direct or indirect of the power to cause the
direction of the management and policies of a Person whether through the
ownership of voting securities, by contract or otherwise. A Person shall be
deemed to have control of another Person if it is a "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13-d-5 under the Exchange Act) or a
member of a "group" that is the beneficial owner, directly or indirectly, of 20%
or more of the voting stock of or equity interest in such Person.
"CONVERSION DATE" has the meaning specified therefor in
Section 13.02(a).
"CONVERSION NOTICE" has the meaning specified therefor in
Section 13.02(a).
"CONVERSION PRICE" has the meaning specified therefor in
Section 13.01(b).
"CONVERSION SHARES" has the meaning specified therefor in
Section 13.01(a).
"CONVERTIBLE SECURITIES" means any evidences of indebtedness,
shares (other than Common Stock) of capital stock or other securities directly
or indirectly convertible into or exchangeable for Common Stock.
"CONVERTING LENDER" has the meaning specified therefor in
Section 13.01(b).
"CURRENT MARKET PRICE" means, on any date specified herein,
the average of the daily Market Price during the ten consecutive trading days
before such date, except that, if on any such date the shares of Common Stock
are not listed or admitted for trading on any national securities exchange or
quoted in the over-the-counter market, the Current Market Price shall be the
Market Price on such date.
"DEFAULT" means an event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"DISPOSITION" means any transaction, or series of related
transactions, pursuant to which any Person or any of its Subsidiaries sells,
assigns, transfers or otherwise disposes of any property or assets (whether now
owned or hereafter acquired) to any other Person, in each case, whether or not
the consideration therefor consists of cash, securities or other assets owned by
the acquiring Person, EXCLUDING any sales of Inventory in the ordinary course of
business on ordinary business terms.
"DIVISION(S)" means the various business segments of the Key
Loan Parties, being the DSW/Shonac Business, the Filene's Business and the Value
City Business.
"DOLLAR," "DOLLARS" and the symbol "$" each means lawful money
of the United States of America.
"DSW/SHONAC BUSINESS" means, collectively, the businesses
operated by DSW and Shonac.
B-8
"EBITDA" means, with respect to any Person for any period, the
consolidated Net Income of such Person and its Subsidiaries for such period,
PLUS without duplication, the sum of the following amounts of such Person and
its Subsidiaries for such period to the extent deducted in determining
consolidated Net Income of such Person and its Subsidiaries for such period: (A)
Interest Expense, (B) federal, state, local and foreign income tax expense, (C)
depreciation expense, (D) amortization expense and (E) expenses incurred in
connection with certain refinancings of Indebtedness by the Borrower.
"EFFECTIVE DATE" means the date, on or before June 11, 2002,
on which all of the conditions precedent set forth in Section 4.01 are satisfied
or waived.
"ELIGIBLE ASSIGNEE" means any Federal, state or foreign
banking institution, or any private entity or commercial institution primarily
engaged in the business of making commercial loans, and shall in no event
include a Person that is engaged in a Competitive Business with any Loan Party,
and as long as SSC remains in Control of the Key Loan Parties, an "Eligible
Assignee" shall in no event include a Person which is engaged in a Competitive
Business or a Related Business with SSC.
"EMPLOYEE BENEFIT PLAN" means an employee benefit pension
benefit plan that is covered by Title IV of ERISA or is subject to the minimum
funding standards under Section 412 of the Internal Revenue Code of 1986, as
amended from time to time, and as to which a Key Loan Party or any ERISA
Affiliate may have any liability.
"ENVIRONMENTAL ACTIONS" means any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter, or other communication from any
Person or Governmental Authority involving violations of Environmental Laws or
Releases of Hazardous Materials (i) from any assets, properties or businesses
owned or operated by any Loan Party or any of its Subsidiaries or any
predecessor in interest; or (ii) onto any facilities which received Hazardous
Materials generated by any Loan Party or any of its Subsidiaries or any
predecessor in interest.
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601, ET SEQ.), the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801, ET SEQ.), the
Resource Conservation and Recovery Act (42 U.S.C.Section 6901, ET SEQ.), the
Federal Clean Water Act (33 U.S.C.Section 1251 ET SEQ.), the Clean Air Act (42
U.S.C.Section 7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section
2601 ET seq.) and the Occupational Safety and Health Act (29 U.S.C. Section 651
ET SEQ.), as such laws may be amended or otherwise modified from time to time,
and any other present or future Federal, state, local or foreign statute,
ordinance, rule, regulation, order, judgment, decree, permit, license or other
binding determination of any Governmental Authority imposing liability or
establishing standards of conduct for protection of the environment or other
government restrictions relating to the protection of the environment or the
Release, deposit, or migration of any Hazardous Materials into the environment.
"ENVIRONMENTAL LIABILITIES AND COSTS" means all liabilities,
monetary obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, reasonable costs, and expenses (including
all reasonable fees, disbursements and expenses of counsel, experts, and
consultants and costs of investigations and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any Governmental Authority or any third party, and which relate to any
environmental condition or a Release of Hazardous Materials from or onto (i) any
property presently or formerly owned by any Loan Party or any of its
Subsidiaries; or (ii) any facility which received Hazardous Materials generated
by any Loan Party or any of its Subsidiaries.
"ENVIRONMENTAL LIEN" means any Lien in favor of any
Governmental Authority for Environmental Liabilities and Costs.
"EQUIPMENT" means, without limitation, "equipment" as defined
in the UCC, and also all furniture, store fixtures, motor vehicles, rolling
stock, machinery, office equipment, plant equipment, tools, dies, molds, and
other goods, property, and assets which are used and/or were purchased for use
in the operation or furtherance of a Loan Party's business, and any and all
accessions or additions thereto, and substitutions therefor.
B-9
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means any Person which is under common
control with a Key Loan Party within the meaning of Section 4001 of ERISA or is
part of a group which includes any Key Loan Party and which would be treated as
a single employer under Section 414 of the Internal Revenue Code of 1986, as
amended from time to time.
"EVENT OF DEFAULT" means any of the events set forth in
Section 9.01. An "Event of Default" shall be deemed to have occurred and to be
continuing unless and until that Event of Default has been duly waived by the
Agent or cured to the satisfaction of the Agent.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as amended,
modified, succeeded or replaced from time to time.
"FAIR MARKET VALUE" means, on any date specified herein (i) in
the case of cash, the dollar amount thereof, (ii) in the case of a security, the
Current Market Price, and (iii) in all other cases, the fair value thereof (as
of a date which is within 20 days of the date as of which the determination is
to be made) determined in good faith by a committee of Borrower's Board of
Directors consisting of directors who are not Affiliates of Borrower, SSC or any
other Lender; PROVIDED, HOWEVER, that at the request of a Lender, the Fair
Market Value shall be determined in good faith by an independent investment
banking firm selected jointly by Borrower and Lender or, if that selection
cannot be made within ten days, by an independent investment banking firm
selected by the American Arbitration Association in accordance with its rules,
and PROVIDED, FURTHER, that Borrower shall pay all of the reasonable fees and
expenses of any third parties incurred in connection with determining the Fair
Market Value.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal to, for each day during such period, 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 on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by it.
"FILENE'S BUSINESS" means the businesses operated by Filene's.
"FINAL MATURITY DATE" means June 10, 2009, or such earlier
date on which the Loan shall become due and payable in accordance with the terms
of this Agreement and the other Loan Documents.
"FINANCIAL STATEMENTS" means (i) the audited consolidated
balance sheet of the Borrower and its Subsidiaries for the Fiscal Year ended
February 2, 2002, and the related consolidated statement of operations,
shareholders' equity and cash flows for the Fiscal Year then ended; and (ii) the
unaudited consolidated balance sheet of the Borrower and its Subsidiaries for
the three months ended May 2, 2002, and the related consolidated statement of
operations, shareholder's equity and cash flows for the three months then ended.
"FISCAL YEAR" means the fiscal year of the Borrower and its
Subsidiaries ending on the Saturday nearest January 31st of each year.
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States, applied on a consistent basis;
PROVIDED, that for the purpose of Article VII hereof and the definitions used
therein, "GAAP" shall mean generally accepted accounting principles in effect on
the date hereof and consistent with those used in the preparation of the
Financial Statements; PROVIDED, FURTHER, that if there occurs after the date of
this Agreement any change in GAAP that affects in any respect the calculation of
any covenant contained in Article VII hereof, the Agent and the Borrower shall
negotiate in good faith amendments to the provisions of this Agreement that
relate to the calculation of such covenant with the intent of having the
respective positions of the
B-10
Lenders and the Borrower after such change in GAAP conform as nearly as possible
to their respective positions as of the date of this Agreement.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
Federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"GUARANTEED OBLIGATIONS" has the meaning specified therefor in
Section 11.01.
"GUARANTOR" means (i) certain Subsidiaries of the Borrower
that are signatories hereto, and (ii) each other Person which guarantees,
pursuant to Section 6.01(a) or otherwise, all or any part of the Obligations.
"GUARANTY" means (i) the Guaranty of each Guarantor party
hereto contained in Article XI hereof; and (ii) each Guaranty substantially in
the form of Exhibit D, made by any other Guarantor in favor of the Agent for the
benefit of the Lenders, pursuant to Section 6.01(a) or otherwise.
"HAZARDOUS MATERIAL" means (i) any element, compound or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws or that is reasonably likely to cause immediately, or at some
reasonably foreseeable future time, harm to or have an adverse effect on, the
environment or risk to human health or safety, including, without limitation,
any pollutant, contaminant, waste, hazardous waste, toxic substance or dangerous
good which is defined or identified in any Environmental Law and which is
present in the environment in such quantity or state that it contravenes any
Environmental Law; (ii) petroleum and its refined products; (iii)
polychlorinated biphenyls; (iv) any substance exhibiting a hazardous waste
characteristic, including, without limitation, corrosivity, ignitability,
toxicity or reactivity as well as any radioactive or explosive materials; and
(v) any raw materials, building components (including, without limitation,
asbestos-containing materials) and manufactured products containing hazardous
substances listed or classified as such under Environmental Laws.
"HEDGING AGREEMENT" means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or other
agreement or arrangement designed to protect against fluctuations in interest
rates or currency, commodity or equity values (including, without limitation,
any option with respect to any of the foregoing and any combination of the
foregoing agreements or arrangements), and any confirmation executed in
connection with any such agreement or arrangement, including, without
limitation, the NCB Hedging Agreement.
"HIGHEST LAWFUL RATE" means, with respect to the Agent or any
Lender, the maximum non-usurious interest rate, if any, that at any time or from
time to time may be contracted for, taken, reserved, charged or received on the
Obligations under laws applicable to the Agent or such Lender which are
currently in effect or, to the extent allowed by law, under such Applicable Laws
which may hereafter be in effect and which allow a higher maximum non-usurious
interest rate than Applicable Laws now allow.
"INDEBTEDNESS" means, without duplication, all obligations,
including Contingent Obligations, that in accordance with GAAP should be
classified upon the balance sheet of any Key Loan Party and/or the consolidated
balance sheet of the Key loan Parties as liabilities, other than trade payables,
deferred rent, or accrued expenses incurred in the ordinary course of business
or to which reference should be made by footnotes thereto, including, in any
event and whether or not so classified, (i) all obligations in respect of money
borrowed (including any indebtedness which is non-recourse to the credit of such
Person but which is secured by a Lien on any asset of such Person) whether or
not evidenced by a promissory note, bond, debenture or other written obligation
to pay money; (ii) all obligations evidenced by bonds, notes, debentures or
other similar instruments; (iii) all obligations in connection with Hedging
Agreements; (iv) all obligations in connection with any letter of credit or
acceptance transaction (including, without limitation, the face amount of all
letters of credit and acceptances issued for the account of such Person or
reimbursement on account of which such Person would be obligated); (v) all
obligations in connection with the sale or discount of accounts receivable or
chattel paper of such Person; (vi) all obligations on account of deposits or
advances other than deferred rent incurred in the ordinary course of business;
(vii) all
B-11
obligations as lessee under Capitalized Leases; and (viii) all obligations in
connection with any sale and leaseback transaction. "Indebtedness" also
includes: (x) Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person; (y) any
guaranty, endorsement, suretyship or other undertaking in respect of
Indebtedness pursuant to which that Person may be liable on account of any
obligation of any third party; and (z) the Indebtedness of a partnership or
joint venture for which such Person is liable as a general partner or joint
venturer.
"INDEMNIFIED MATTERS" has the meaning specified therefor in
Section 12.15.
"INDEMNITEES" has the meaning specified therefor in Section
12.15.
"INSOLVENCY PROCEEDING" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, or extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar relief.
"INTEREST EXPENSE" means, with respect to any Person for any
period, gross interest expense of such Person and its Subsidiaries for such
period determined on a consolidated basis and in accordance with GAAP
(including, without limitation, interest expense paid to Affiliates of such
Person).
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time, (or any successor statute thereto) and the
regulations thereunder.
"INVENTORY" means, with respect to any Person, all goods and
merchandise of such Person, including, without limitation, all raw materials,
work-in-process, packaging, supplies, materials and finished goods of every
nature used or usable in connection with the shipping, storing, advertising or
sale of such goods and merchandise, whether now owned or hereafter acquired, and
all such other property the sale or other disposition of which would give rise
to Accounts Receivable or cash.
"LEASE" means any lease of real property to which any Loan
Party or any of its Subsidiaries is a party as lessor or lessee.
"LENDERS" means the financial institutions listed on the
signature pages hereof, and each assignee that shall become a party hereto
pursuant to Section 12.07.
"LENDER'S ACCOUNT" means all an account at a bank designated
by each Lender from time to time into which the Loan Parties shall make certain
payments to such Lender under this Agreement.
"LIEN" means any mortgage, deed of trust, pledge, lien
(statutory or otherwise), security interest, charge or other encumbrance or
security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any Capitalized
Lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security.
"LISTING DEADLINE DATE" means October 31, 2002; PROVIDED,
HOWEVER, that in the event the Meeting is delayed as a result of a unilateral
action by SSC or a shareholder of SSC, the Listing Deadline Date shall be
December 31, 2002.
"LOAN" means the loan made by Lenders to the Borrower pursuant
to Article II hereof.
"LOAN DOCUMENT" means this Agreement, the Notes, the
Registration Rights Agreement and any other agreement, instrument, and other
document executed and delivered pursuant hereto or thereto or otherwise
evidencing the Loan or any other Obligation.
"LOAN PARTY" means the Borrower or any Guarantor.
B-12
"MARKET PRICE" means, on any date specified herein, the amount
per share of the Common Stock, equal to (i) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof regular way
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, (ii) if such Common Stock is not then listed or admitted for trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, (iii) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, (iv) if trading in such Common Stock is quoted in the over-the-counter
market, the average of the closing bid and asked prices of the Common Stock on
such date as shown on the OTC Bulletin Board, or (v) if such Common Stock is not
then listed or admitted for trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof (as of a date which is within 20
days of the date as of which the determination is to be made) determined in good
faith by a committee of Borrower's Board of Directors consisting of directors
who are not Affiliates of Borrower or SSC; PROVIDED, HOWEVER, that at the
request of a Lender, the Market Price shall be determined in good faith by an
independent investment banking firm selected jointly by Borrower and a Lender
or, if that selection cannot be made within 10 days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules, and PROVIDED, FURTHER, that Borrower shall pay all of
the fees and expenses of any third parties incurred in connection with
determining the Market Price.
"MATERIAL ACCOUNTING CHANGE" means any change in GAAP
applicable to accounting periods subsequent to the Key Loan Parties' fiscal year
most recently completed prior to the execution of this Agreement, which change
has a material effect on the Key Loan Parties' Consolidated financial condition
or operating results, as reflected on financial statements and reports prepared
by or for the Key Loan Party, when compared with such condition or results as if
such change had not taken place.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(i) the business, operations, property, assets or financial condition of (x) the
Loan Parties taken as a whole or (y) the Value City Business taken as a whole
(including those portions of Shonac that operate as part of the Value City
Business) or (ii) the validity or enforceability of this Agreement or any of the
other Loan Documents or any of the material rights or remedies of the Agent or
the Lenders hereunder or thereunder.
"MATERIAL CONTRACT" means, with respect to any Person, (i)
each contract or agreement (other than Leases, intercompany agreements benefit
and pension plans, stock option plans and labor and employment contracts) to
which such Person or any of its Subsidiaries is a party involving aggregate
consideration payable to or by such Person or such Subsidiary of $1,000,000 or
more annually (other than purchase orders in the ordinary course of the business
of such Person or such Subsidiary and other than contracts that by their terms
may be terminated by such Person or Subsidiary in the ordinary course of its
business upon less than 60 days' notice without penalty or premium) and (ii) all
other contracts or agreements material to the business, operations, condition
(financial or otherwise), performance, prospects or properties of such Person or
such Subsidiary.
"MOODY'S" means Moody's Investors Service, Inc. and any
successor thereto.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA to which any Loan Party or any of its ERISA
Affiliates has contributed to, or has been obligated to contribute, at any time
during the preceding six (6) years.
"NCB HEDGING AGREEMENT" means the Hedging Agreement between
the Borrower and National City Bank dated as of March 28, 2000.
"NET INCOME" means, with respect to any Person for any period,
the net income (loss) of such Person and its Subsidiaries for such period,
determined on a consolidated basis and in accordance with GAAP, but excluding
from the determination of Net Income (without duplication) (a) any extraordinary
or non recurring gains or losses or gains or losses from Dispositions, (b)
restructuring charges, (c) effects of discontinued operations and (d) interest
income.
B-13
"NOTE" means a promissory note of the Borrower, substantially
in the form of Exhibit A hereto, made payable to the order of a Lender and
evidencing the Indebtedness resulting from the making by such Lender of its Pro
Rata Share of the Loan.
"NOTICE OF ELECTION" has the meaning specified therefore in
Section 2.03(c).
"NYSE" means the New York Stock Exchange.
"OBLIGATIONS" means all present and future indebtedness,
obligations, and liabilities of each Loan Party to the Agent and the Lenders
under the Loan Documents, whether or not the right of payment in respect of such
claim is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured, unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any proceeding
referred to in Section 9.01. Without limiting the generality of the foregoing,
the Obligations of each Loan Party under the Loan Documents include (i) the
obligation to pay principal, interest, including any PIK Interest, charges,
expenses, fees, attorneys' fees and disbursements, indemnities and other amounts
payable by such Person under the Loan Documents; and (ii) the obligation of such
Person to reimburse any amount in respect of any of the foregoing that the Agent
may elect to pay or advance on behalf of such Person.
"OLD NOTE" has the meaning specified in Section 2.01.
"OPTION" means options, warrants or other rights to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
"ORIGINAL LOAN AGREEMENT" has the meaning specified therefore
in the preamble.
"OTHER TAXES" has the meaning specified therefore in Section
2.05.
"PARTICIPANT REGISTER" has the meaning specified therefor in
Section 12.07(b)(v).
"PAYMENT OFFICE" means the Agent's office located at
Schottenstein Stores Corporation, 1800 Moler Road, Columbus, Ohio, 43207, or at
such other office or offices of the Agent as may be designated in writing from
time to time by the Agent to the Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"PERMITTED ACQUISITION" means (i) any Acquisition the cash
consideration for which is less than $3,000,000 in the aggregate in any fiscal
year of the Key Loan Parties and which satisfies the conditions set forth in
clauses (f), (g), (h) and (i) below; and (ii) an Acquisition in which each of
the following conditions are satisfied: (a) no Default or Event of Default then
exists or would arise from the consummation of such Acquisition; (b) such
Acquisition shall have been approved by the Board of Directors of the Person (or
similar governing body if such Person is not a corporation) which is the subject
of such Acquisition and such Person shall not have announced that it will oppose
such Acquisition or shall not have commenced any action which alleges that such
Acquisition will violate Applicable Law; (c) the Borrower shall have furnished
the Agent with ten (10) days' prior notice of such intended Acquisition and
shall have furnished the Agent with a current draft of the Acquisition agreement
and other Acquisition documents, a summary of any due diligence undertaken by
the Key Loan Parties in connection with such Acquisition, appropriate financial
statements of the Person which is the subject of such Acquisition, pro forma
projected financial statements for the twelve (12) month period following such
Acquisition after giving effect to such Acquisition (including balance sheets,
cash flows and income statements by month for the acquired Person, individually,
and on a consolidated basis with all Loan Parties), and such other information
as the Agent may reasonably require, each of which shall be reasonably
satisfactory to the Agent; (d) the structure of the Acquisition shall be
acceptable to the Agent in its reasonable judgment; if an Acquisition of capital
stock or other equity interests, after consummation of such Acquisition, a Key
Loan Party shall own directly or indirectly a majority of the equity interests
in the Person being acquired and shall Control a majority of any voting
interests, and/or shall otherwise Control the governance of the Person being
acquired; (e) the Agent shall have received (i) the results of appraisals of the
assets (or the assets of the Person) to be acquired in such Acquisition and of a
commercial finance
B-14
examination of the Person that is (or whose assets are) being acquired, and (ii)
such other due diligence as the Agent may reasonably require, all of the results
of the foregoing to be reasonably satisfactory to the Agent; (f) any assets
acquired shall be utilized only in, and if the Acquisition involves a merger,
consolidation or stock acquisition, the Person which is the subject of such
Acquisition shall be engaged only in, a Permitted Business; (g) if the Person
which is the subject of such Acquisition will be maintained as a Subsidiary of a
Key Loan Party, such Subsidiary shall have executed such documents as may be
necessary to be joined as a "Guarantor" hereunder; and (h) the total
consideration paid for all Acquisitions (whether in cash, tangible property,
notes or other property (other than capital stock of the Borrower)) after the
Effective Date, shall not exceed in the aggregate the sum of $15,000,000.
"PERMITTED BUSINESS" means the business of owning and
operating a chain of retail department stores selling clothing apparel,
housewares, home furnishings, toys, sporting goods, jewelry, shoes, health and
beauty care items or any of the foregoing, and engaging in certain related
licensing and other retail and wholesale businesses reasonably related thereto,
including, but not limited to, any retail lease department operation.
"PERMITTED DISPOSITION" means any of the following: (i)
licenses of intellectual property or licensed departments of a Loan Party or any
of its Subsidiaries in the ordinary course of business; (ii) Leases or subleases
of Leases, to the extent at any point in time such Leases or subleases have, in
the aggregate, anticipated minimum fixed annual rental payments of not more than
$3,000,000; (iii) sales, assignments, transfers, conveyances or other
dispositions of any or all of the Property specified in Schedule 6.02(c) hereof;
PROVIDED that in connection with a sale or similar disposition of any such
Property, if a Loan Party receives a note or similar obligation as all or part
of the consideration therefor, such Loan Party shall secure such note or
obligation with a Mortgage or similar Lien on such Property and pledge such note
or other obligation to the Agent as security for the Obligations pursuant to the
terms of the Loan Documents; (iv) sales of Inventory and Equipment in connection
with store closures permitted in accordance with the provisions of Section
6.02(c)(vii) hereof, PROVIDED that all sales of Inventory in connection with
store closings (x) after the occurrence and during the continuance of an Event
of Default or (y) consisting of more than fifteen (15) retail stores at the same
time, shall be in accordance with liquidation agreements and with liquidators
reasonably acceptable to the Agent; and (v) (x) the sale of any property, land
or building (including any related receivables or other intangible assets) to
any Person which is not a Subsidiary of a Key Loan Party, or (y) the sale of the
entire capital stock (or other equity interests) and Indebtedness of any
Subsidiary owned by a Loan Party to any Person which is not a Subsidiary of a
Key Loan Party, or (z) the consummation of any other asset sale with a Person
who is not a Subsidiary of a Key Loan Party, PROVIDED that: (A) the
consideration for such transaction represents fair value, and at least 90% of
such consideration consists of cash, PROVIDED that in connection with a sale or
similar disposition of any such Property, if a Loan Party receives a note or
similar obligations as all or part of the consideration therefor, such Loan
Party shall secure such note or obligation with a Mortgage or similar Lien on
such property and pledge such note or other obligation to the Agent as security
for the Obligations pursuant to the terms of the Loan Documents; (B) the
aggregate consideration for all such transactions completed in any fiscal year
does not exceed $500,000; (C) the aggregate consideration for all such
transactions completed after the Effective Date does not exceed $1,500,000; and
(D) other than in connection with a transaction, the aggregate consideration for
which is equal to an amount less than $500,000, at least five (5) Business Days
prior to the date of completion of such transaction such Loan Party shall have
delivered to the Agent an officer's certificate executed on behalf of such Loan
Party by an Authorized Officer of such Loan Party, which certificate shall
contain a description of the proposed transaction, the date such transaction is
scheduled to be consummated, the estimated purchase price or other consideration
for such transaction, financial information pertaining to compliance with the
preceding clause (A), and which shall (if requested by the Agent) include a
certified copy of the draft or definitive documentation pertaining thereto.
"PERMITTED INDEBTEDNESS" means any of the following: (i)
Indebtedness incurred under this Agreement and the other Loan Documents; (ii)
[Intentionally Omitted]; (iii) Indebtedness on account of Equipment or
improvements to real property acquired in compliance with the requirements of
subparagraph (xiii) of the definition of Permitted Liens, the incurrence of
which would not otherwise be prohibited by this Agreement; PROVIDED, that such
Indebtedness shall not exceed $10,000,000 in the aggregate at any time
outstanding; (iv) (a) Indebtedness consisting of all obligations of a Loan Party
or any Subsidiary as lessee under Capitalized Leases, and (b) Indebtedness
consisting of all obligations of a Loan Party or any Subsidiary under any lease
(x) that is accounted for by the lessee as an operating lease and (y) under
which the lessee is intended to be the "owner" of the leased property for
Federal income tax purposes; PROVIDED, that (A) at the time of any incurrence
thereof after the date hereof, and after giving effect thereto, no Event of
Default shall have occurred and be continuing or would result
B-15
therefrom, and (B) the aggregate outstanding principal amount (using the
obligations in lieu of principal amount, in the case of any Capitalized Lease,
or present value, based on the implicit interest rate, in lieu of principal
amount, in the case of any lease described above in part (b)) of Indebtedness
permitted by this clause (iv) shall not exceed $10,000,000 aggregate principal
amount outstanding at any time; (v) Indebtedness of the Loan Parties and any
Subsidiary under the NCB Hedging Agreement, (vi) the Indebtedness listed on
Schedule 6.02(b), annexed hereto; (vii) Indebtedness to sellers in connection
with Permitted Acquisitions; (viii) intercompany indebtedness between and among
the Borrower and the other Loan Parties; (ix) Indebtedness to creditors of the
former Filene's incurred in connection with the acquisition of Filene's, such
Indebtedness not to exceed $6,000,000; (x) Indebtedness with respect to
indemnities, warranties, statutory obligations, and surety, appeal and
supersedeas bonds incurred in the ordinary course of business; (xi) Indebtedness
in respect of overdraft protections and otherwise in connection with deposit
accounts; and (xii) Indebtedness arising out of the refinancing, extension,
renewal or refunding of any Indebtedness permitted under this Agreement,
provided that the principal amount of such Indebtedness is not increased from
the amount outstanding at the time of such refinancing.
"PERMITTED INVESTMENTS" means each of the following: (i)
direct obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America (or by any agency
thereof to the extent such obligations are backed by the full faith and credit
of the United States of America), in each case maturing not more than one year
from the date of acquisition thereof; (ii) investments in commercial paper
maturing not more than one year from the date of acquisition thereof and having,
at such date of acquisition, the highest credit rating obtainable from Standard
& Poor's or from Moody's Investment Services, Inc.; (iii) investments in
certificates of deposit, banker's acceptances and time deposits maturing not
more than one year from the date of acquisition thereof issued or guaranteed by
or placed with, and money market deposit accounts issued or offered by, any
domestic office of any financial institution organized under the laws of the
United States of America or any State thereof that has a combined capital and
surplus and undivided profits of not less than $500,000,000; (iv) fully
collateralized repurchase agreements with a term of not more than 30 days for
securities described in clause (i) above (without regard to the limitation on
maturity contained in such clause) and entered into with a financial institution
satisfying the criteria described in clause (iii) above; (v) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's or from Moody's Investment Services, Inc.; (vi) investments in
money market funds, substantially all the assets of which are comprised of
securities of the types described in clauses (i) through (vi) above; (vii)
investments acquired by a Loan Party or any of its Subsidiaries (x) in exchange
for any other investment held by such Loan Party or any such Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other investment, or (y) as a result of a
foreclosure by such Loan Party or any of its Subsidiaries with respect to any
secured investment or other transfer of title with respect to any secured
investment in default; (viii) investments by a Loan Party in the capital of any
wholly-owned subsidiary of such Loan Party, including without limitation, any
Permitted Acquisitions, provided that the provisions of Section 6.01(a) hereof
have been complied with respect to such Subsidiary; (ix) to the extent not
permitted by the foregoing clauses, existing investments in any Subsidiaries
(and any increases thereof attributable to increases in retained earnings); (x)
to the extent not permitted by the foregoing clauses, the existing investments
described on Schedule 6.02(e) hereto; (xi) investments of a Loan Party and any
Subsidiary in Hedging Agreements permitted by clause (v) of the definition of
Permitted Indebtedness; (xii) investments of any Person which are outstanding at
the time such Person becomes a Subsidiary of a Loan Party as a result of
Permitted Acquisition, but not any increase in the amount thereof; and (xiii)
any other investments (whether in the form of cash or contribution of property,
and if in the form of a contribution of property, such property shall be valued
for purposes of this clause at the fair value thereof) in any corporation,
partnership, limited liability company, joint venture or other business entity,
which is not itself a Subsidiary of a Key Loan Party or owned or Controlled by
any director, officer or employee of a Key Loan Party or any of its
Subsidiaries, not otherwise permitted by the foregoing clauses, made after the
Effective Date, shall be permitted to be incurred if (a) no Event of Default
shall have occurred and be continuing, or would result therefrom, and (b) the
aggregate cumulative amount of such investments (together with any loans and
advances permitted under Sections 6.02(e)(vi)(D) and (E)) does not exceed
$6,000,000.
"PERMITTED LIENS" means any of the following: (i) Liens for
taxes not yet delinquent or which are being contested in good faith by
appropriate proceedings, PROVIDED that adequate reserves with respect thereto
are maintained on the books of a Key Loan Party in accordance with GAAP, and
PROVIDED further that, no notice of tax
B-16
lien has been filed with respect thereto; (ii) Liens in respect of property or
assets imposed by law in the ordinary course of business, such as carrier's,
warehousemen's, mechanics', materialmen's, repairmen's, landlord's or similar
Liens arising in the ordinary course of business which (x) are not overdue in
accordance with customary business practices and consistent with the applicable
Loan Party's prior practices, and do not in the aggregate materially detract
from the value of such property or assets or materially impair the use thereof
in the operation of the business of the Loan Parties, or (y) are being contested
in good faith by a Loan Party, by appropriate proceedings diligently instituted
and conducted and without danger of any material risk to the property or assets
of such Loan Party and adequate reserves or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor;
(iii) Liens, pledges or deposits in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) deposits to
secure the performance of tenders, bids, sales, trade and government contracts,
leases, statutory obligations, surety, appeal, and supersedeas bonds, warranty,
advance payment, customs, performance and return-of-money bonds and other
obligations of a like nature in the ordinary course of business (exclusive of
obligations in respect of the payment of borrowed money) whether pursuant to
statutory requirements, common law or consensual arrangements; (v) easements,
rights of way, leases, zoning or deed restrictions, licenses, covenants,
building restrictions, minor defects or irregularities in title and other
similar real estate encumbrances incurred in the ordinary course of business
that in the aggregate do not materially interfere with the conduct of the
business of the Loan Parties; defects and irregularities in titles, survey
exceptions, encumbrances, easements or reservations of others for rights-of-way,
roads, pipelines, railroad crossings, services, utilities or other similar
purposes; outstanding mineral rights or reservations (including rights with
respect to the removal of material resource) which do not materially diminish
the value of the surface estate, assuming usage of such surface estate similar
to that being carried on by any Loan Party as of the Effective Date; (vi) any
interest or title of a lessor under any lease entered into by any Loan Party in
the ordinary course of business not in violation of the Loan Documents; (vii)
any interest or title of any lessee under any leases or subleases of real
property of a Loan Party not in violation of the requirements of the Loan
Documents, provided that all such Liens do not in the aggregate materially
detract from the value of such Loan Party's property or materially impair the
use thereof in the operation of such Loan Party's business; (viii) Liens arising
from financing statements regarding property subject to Capitalized Leases not
in violation of the requirements of the Loan Documents, provided that such Liens
are only in respect of the property subject to, and secure only, the respective
lease; (ix) rights of consignors of goods to a Loan Party as consignee; (x)
Liens arising from judgments, decrees or attachments in existence less than 30
days after the entry thereof, with respect to which execution has been stayed
and with respect to which payment in full above any applicable deductible is
covered by insurance or a bond, or in circumstances not constituting an Event of
Default under Section 9.01(j)(i); (xi) Liens created by this Agreement or the
other Loan Documents; (xii) Liens (x) listed on Schedule 6.02(a), annexed
hereto, or (y) arising out of the refinancing, extension, renewal or refunding
of any Indebtedness secured by any such Lien, provided that the principal amount
of such Indebtedness is not increased and such Indebtedness is not secured by
any additional assets; and (xiii) Liens which are placed upon Equipment or
improvements to real property (including the associated real property) used in
the ordinary course of business of a Loan Party or any Subsidiary (x) at the
time of (or within 90 days after) the acquisition of such Equipment or the
completion of such improvements by such Loan Party or any such Subsidiary to
secure Indebtedness incurred to pay or finance all or a portion of the purchase
price or other cost thereof, provided that the Lien on the Equipment so acquired
or the real property so improved does not encumber any other asset of such Loan
Party or any such Subsidiary; or (y) are existing on Equipment or real property
at the time acquired by a Loan Party or any Subsidiary or on assets of a Person
at the time such Person first becomes a Subsidiary of the Borrower; PROVIDED,
that (A) any such Lien was not created at the time of or in contemplation of the
acquisition of such assets or Person by a Loan Party or any Subsidiaries, (B) in
the case of any such acquisition of a Person, any such Lien attaches only to the
Equipment or real estate, as applicable, of such Person, and (C) in the case of
any such acquisition of Equipment or real estate by a Loan Party or any
Subsidiary, any such Lien attaches only to the property and assets so acquired
and not to any other property or assets of such Loan Party or any such
Subsidiary; PROVIDED, that the Liens outstanding from time to time under this
clause (xiii) shall not secure any Indebtedness other than Permitted
Indebtedness described in clause (iii) of such definition.
"PERSON" shall have the meaning given to such term as defined
in Section 13(d)(3) of the Securities Exchange Act.
"PIK INTEREST" means, as at any date of determination, the
amount of all interest accrued with respect to the Loan that has been
paid-in-kind by being added to the outstanding principal balance thereof on a
monthly basis in accordance with Section 2.03.
B-17
"PIK OPTION CHANGE DATE" means the second anniversary of the
Effective Date.
"POST-DEFAULT RATE" means a rate of interest per annum equal
to the rate of interest otherwise in effect from time to time pursuant to the
terms of this Agreement plus 3%.
"PRO RATA SHARE" means the percentage obtained by dividing (i)
the aggregate unpaid principal amount of such Lender's portion of the Loan, by
(ii) the aggregate unpaid principal amount of the Loan.
"PROPERTY" means any right or interest in or to property of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"PROXY" has the meaning specified therefor in Section
5.01(nn).
"REFERENCE BANK" means JPMorgan Chase Bank, its successors or
any other commercial bank designated by the Agent to the Borrower from time to
time.
"REFERENCE RATE" means the rate of interest publicly announced
by the Reference Bank in New York, New York from time to time as its reference
rate, base rate or prime rate. The reference rate, base rate or prime rate is
determined from time to time by the Reference Bank as a means of pricing some
loans to its borrowers and neither is tied to any external rate of interest or
index nor necessarily reflects the lowest rate of interest actually charged by
the Reference Bank to any particular class or category of customers. Each change
in the Reference Rate shall be effective from and including the date such change
is publicly announced as being effective.
"REGISTER" has the meaning specified therefor in Section
12.07(b)(ii).
"REGISTERED LOAN" has the meaning specified therefor in
Section 12.07(b)(ii).
"REGISTERED NOTE" has the meaning specified therefor in
Section 2.02(c).
"REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement, dated as of March 15, 2000 by and between the Borrower and PSCC
(whose interest thereunder was subsequently assigned to SSC on December 11,
2000).
"REGULATION T", "REGULATION U" and "REGULATION X" mean,
respectively, Regulations T, U and X of the Board or any successor, as the same
may be amended or supplemented from time to time.
"RELATED BUSINESS" means any business or enterprise consisting
of asset maximization services or asset valuation services.
"RELEASE" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, seeping,
migrating, dumping or disposing of any Hazardous Material (including the
abandonment or discarding of barrels, containers and other closed receptacles
containing any Hazardous Material) into the indoor or outdoor environment,
including, without limitation, the movement of Hazardous Materials through or in
the ambient air, soil, surface or ground water, or property.
"REMEDIAL ACTION" means all actions taken to (i) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate or in any other way
address Hazardous Materials in the indoor or outdoor environment; (ii) prevent
or minimize a Release or threatened Release of Hazardous Materials so they do
not migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
perform any other actions authorized by 42 U.S.C. Section 9601.
"REPORTABLE EVENT" means an event described in Section 4043 of
ERISA (other than an event not subject to the provision for 30-day notice to the
PBGC under the regulations promulgated under such Section).
B-18
"REQUIRED LENDERS" means SSC and any of its affiliates to whom
it assigns all or any portion of its rights and obligations under this Agreement
or any of the Loan Documents.
"REQUISITE APPROVAL" means the affirmative vote of at least a
majority of the shares of Common Stock (voting as one class, with each share of
Common Stock having one vote) voting regarding the issuance of the Conversion
Shares in excess of 19.9% of the issued and outstanding Common Stock on the
Effective Date with greater than fifty percent (50%) of the issued and
outstanding shares of Common Stock voting.
"SEC" means the Securities and Exchange Commission or any
other similar or successor agency of the Federal government administering the
Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect from time to time.
"SOLVENT" means, with respect to any Person on a particular
date, that on such date (i) the fair value of the property of such Person is not
less than the total amount of the liabilities of such Person; (ii) the present
fair saleable 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 its
existing debts as they become absolute and matured; (iii) such Person is able to
realize upon its assets and pay its debts and other liabilities, Contingent
Obligations and other commitments as they mature in the normal course of
business; (iv) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature; and (v) 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 unreasonably small capital. The
determination of whether a Person is Solvent shall take into account all such
Person's properties and liabilities regardless of whether, or the amount at
which, any such property or liability is included on a balance sheet of such
Person prepared in accordance with GAAP, including properties such as contingent
contribution or subrogation rights, business prospects, distribution channels
and goodwill. The determination of the sum of a Person's properties at a fair
valuation or the present fair saleable value of a Person's properties shall be
made on a going concern basis unless, at the time of such determination, the
liquidation of the business in which such properties are used or useful is in
process or is demonstrably imminent. In computing the amount of contingent or
unrealized properties or contingent or unliquidated liabilities at any time,
such properties and liabilities will be computed at the amounts which, in light
of all the facts and circumstances existing at such time, represent the amount
that reasonably can be expected to become realized properties or matured
liabilities, as the case may be. In computing the amount that would be required
to pay a person's probable liability on its existing debts as they become
absolute and matured, reasonable valuation techniques, including a present value
analysis, shall be applied using such rates over such periods as are appropriate
under the circumstances, and it is understood that, in appropriate
circumstances, the present value of Contingent Liabilities may be zero.
"STANDARD & POOR'S" means Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc. and any successor thereto.
"SSC" has the meaning specified therefore in the preamble
hereto.
"SUBSIDIARY" means, with respect to any Person at any date,
any corporation, limited or general partnership, limited liability company,
trust, estate, association, joint venture or other business entity (i) the
accounts of which would be consolidated with those of such Person in such
Person's consolidated financial statements if such financial statements were
prepared in accordance with GAAP or (ii) of which more than 50% of (A) the
outstanding Capital Stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such Person, (B) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (C) in the case of a trust, estate, association, joint
venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such
Person.
"TAXES" has the meaning set forth in Section 2.05.
B-19
"UNRESTRICTED SUBSIDIARY" has the meaning specified therefor
in Section 5.01(kk).
"VALUE CITY BUSINESS" means the Key Loan Parties' business
other than the DSW/Shonac Business and the Filene's Business.
Section 1.02 TERMS GENERALLY. The definitions of terms herein shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". The word "will"
shall be construed to have the same meaning and effect as the word "shall".
Unless the context requires otherwise, (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar
import, shall be construed to refer to this Agreement in its entirety and not to
any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all tangible and intangible assets and properties,
including cash, securities, accounts and contract rights. References in this
Agreement to "determination" by the Agent include good faith estimates by the
Agent (in the case of quantitative determinations) and good faith beliefs by the
Agent (in the case of qualitative determinations).
Section 1.03 ACCOUNTING AND OTHER TERMS. Unless otherwise expressly
provided herein, each accounting term used herein shall have the meaning given
it under GAAP applied on a basis consistent with those used in preparing the
Financial Statements.
Section 1.04 TIME REFERENCES. Unless otherwise indicated herein, all
references to time of day refer to Eastern Standard Time or Eastern daylight
saving time, as in effect in New York City on such day. For purposes of the
computation of a period 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
means "to but excluding"; PROVIDED, HOWEVER, that with respect to a computation
of fees or interest payable to the Agent or any Lender, such period shall in any
event consist of at least one full day.
ARTICLE II
THE LOAN
Section 2.01 THE LOAN. (a) The Lenders have made Advances (as defined
in the Original Loan Agreement) to the Borrower under the Original Loan
Agreement, of which $75,000,000 of the Advances remain outstanding on the
Effective Date (immediately prior to the effectiveness of this Agreement). The
Borrower acknowledges and agrees that upon the effectiveness of this Agreement,
the aggregate principal amount of such Advances shall automatically and
immediately be deemed to constitute the "Loan" to the Borrower by the Lenders
under this Agreement. It is the intention of the parties hereto that this
Agreement and the consolidation and substitution of the Note for the existing
"Notes" referred to in the Original Loan Agreement (the "OLD NOTE") shall not in
any way constitute (i) a forgiveness of the indebtedness of the Borrower under
the Old Note, (ii) a release of the Borrower from such obligations, or (iii) a
novation of the Old Note.
(b) Any principal amount of the Loan which is prepaid or
repaid may not be reborrowed.
Section 2.02 NOTES; REPAYMENT OF LOAN.
(a) The obligations of the Borrower to repay the Loan and interest
thereon shall be evidenced by Notes, duly executed on behalf of the Borrower,
dated the Effective Date, and delivered to and made payable to the order of each
Lender in a principal amount equal to such Lender's Pro Rata Share of the Loan
as set
B-20
forth on Schedule 1.01A.
(b) The Borrower shall repay the principal amount of the Loan
(including all PIK Interest added thereto) on the Final Maturity Date together
with all such other amounts as may be necessary to pay in full, in cash, all
Obligations to the Lenders.
(c) The Loan may not be evidenced by promissory notes other than a
Note which is a Registered Note. Upon the registration of the Loan, any
promissory note (other than a Registered Note) evidencing the same shall be null
and void and shall be returned to the Borrower. The Borrower agrees, at the
request of the Agent, to execute and deliver to each Lender, a promissory note
in registered form (a "REGISTERED NOTE") to evidence such Registered Loan (i.e.,
containing the registered note language set forth in Exhibit K hereto) and
registered as provided in Section 12.07. Once recorded in the Register, the Loan
evidenced by such Note may not be removed from the Register so long as it
remains outstanding and a Registered Note may not be exchanged for a promissory
note that is not a Registered Note.
Section 2.03 INTEREST. (a) RATE. The Loan shall bear interest
on the principal amount thereof from time to time outstanding, from the
Effective Date until such principal amount becomes due, at an interest rate per
annum equal to 10%; PROVIDED, HOWEVER, that if the Requisite Approval is not
obtained and all of the Conversion Shares are not approved for listing on the
NYSE on or prior to the Listing Deadline Date, the Loan shall bear interest on
the principal amount thereof, from the Listing Deadline Date until the date such
Requisite Approval is obtained and such Conversion Shares are listed on the
NYSE, at an interest rate per annum equal to the interest rate otherwise in
effect pursuant to the terms of this Agreement plus five percent (5%).
(b) DEFAULT INTEREST. To the extent permitted by law, upon the
occurrence and during the continuance of an Event of Default, the principal of,
and all accrued and unpaid interest on, the Loan and all fees, indemnities or
any other Obligations of the Loan Parties under this Agreement and the other
Loan Documents, shall bear interest, from the date such Event of Default
occurred until the date such Event of Default is cured or waived in writing in
accordance herewith, at a rate per annum equal at all times to the Post-Default
Rate.
(c) INTEREST PAYMENT. Interest on the Loan shall be payable
quarterly in arrears, on the last day of January, April, July and October in
each year, commencing on July 31, 2002 and on the Final Maturity Date (whether
upon demand, by acceleration or otherwise), (i) prior to the PIK Option Change
Date, at the option of the Borrower, either (A) in cash, or (B) in PIK Interest,
the amount of which shall be accrued and added to the outstanding principal
amount of the Loan quarterly in arrears and shall be payable at Final Maturity,
and (ii) on and after the PIK Option Change Date, at the option of the Borrower,
either (A) entirely in cash, or (B) in a combination of cash and PIK Interest
(the amount of any such PIK Interest shall be accrued and added to the
outstanding principal amount of the Loan quarterly in arrears and shall be
payable at Final Maturity), PROVIDED, HOWEVER, that after the PIK Option Change
Date, at least 50% of the interest payable at any time shall be paid in cash.
The Borrower shall give the Agent and each of the Lenders prior telephonic
notice (immediately confirmed in writing in substantially the form of Exhibit C
hereto (a "NOTICE OF ELECTION")) not later than two (2) Business Days prior to
any date on which a payment of interest is required pursuant to this Section
2.03(c), specifying the amount of interest to be paid in cash and the amount to
be paid in PIK Interest. Such Notice of Election shall be irrevocable.
Notwithstanding anything to the contrary contained herein, interest at the
Post-Default Rate shall be payable in cash on demand.
(d) GENERAL. All interest shall be computed on the basis of a year
of 360 days for the actual number of days, including the first day but excluding
the last day, elapsed.
Section 2.04 PREPAYMENT OF LOAN.
(a) OPTIONAL PREPAYMENT. Prior to June 10, 2007, the Borrower shall
not have any right to prepay the Loan. After June 10, 2007, the Borrower may,
upon at least 30, but not more than 60 Business Days' written notice to the
Agent (such notice being irrevocable), stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given, the Borrower
shall, prepay the Loan, in whole or in part, together with accrued interest to
the date of such prepayment on the principal amount prepaid and any amounts
owing in connection therewith; PROVIDED, HOWEVER, that each partial prepayment
shall be in an aggregate principal amount not
B-21
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof.
Any portion of the Loan that is prepaid may not be reborrowed, in whole or in
part.
(b) INTEREST AND FEES. Any prepayment made pursuant to this Section
2.04 shall be accompanied by accrued interest on the principal amount being
prepaid to the date of prepayment, and if such prepayment would reduce the
amount of the outstanding Loan to zero, such prepayment shall be accompanied by
the payment of all fees accrued to such date pursuant to the terms of this
Agreement.
(c) CUMULATIVE PREPAYMENTS. Except as otherwise expressly provided
in this Section 2.04, payments with respect to any subsection of this Section
2.04 are in addition to payments made or required to be made under any other
provision of this Agreement.
Section 2.05 TAXES. (a) All payments made by any Loan Party hereunder
or under any other Loan Document shall be made without set-off, counterclaim,
deduction or other defense. All such payments shall be made free and clear of
and without deduction for any present or future income, franchise, sales, use,
excise, stamp or other taxes, levies, imposts, deductions, charges, fees,
withholdings, restrictions or conditions of any nature now or hereafter imposed,
levied, collected, withheld or assessed by any jurisdiction (whether pursuant to
Federal, state, local or foreign law) or by any political subdivision or taxing
authority thereof or therein, and all interest, penalties or additional amounts,
excluding taxes on the net income of any Lender or the Agent imposed by the
jurisdiction in which such Lender or such Agent is organized or any political
subdivision thereof or taxing authority thereof or any jurisdiction in which
such Person's principal office is located or any political subdivision thereof
or taxing authority thereof (such nonexcluded taxes, levies, imposts,
deductions, charges, fees, withholdings, restrictions, conditions, interest,
penalties and additional amounts being hereinafter collectively referred to as
"TAXES"). If any Loan Party shall be required to deduct or to withhold any Taxes
from or in respect of any amount payable hereunder or under any other Loan
Document:
(i) the amount so payable shall be increased so that after
making all required deductions and withholdings (including Taxes on amounts
payable pursuant to this sentence) the Lenders or the Agent, as the case may be,
receive an amount equal to the sum they would have received had no such
deduction or withholding been made;
(ii) such Loan Party shall make such deduction or withholding;
(iii) such Loan Party shall pay the full amount deducted or
withheld to the relevant taxation authority in accordance with Applicable Law;
and
(iv) whenever any Taxes are payable by any Loan Party, as
promptly as possible thereafter, such Loan Party shall send the Lenders and the
Agent an official receipt (or, if an official receipt is not available, such
other documentation as shall be satisfactory to the Lenders or the Agent, as the
case may be) evidencing payment of the amount or amounts so deducted or
withheld. In addition, each Loan Party agrees to pay any present or future
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery, performance, recordation or filing of, or
otherwise with respect to, this Agreement or any other Loan Document other than
the foregoing excluded taxes (hereinafter referred to as "OTHER TAXES").
(b) The Loan Parties hereby jointly and severally agree to
indemnify and hold the Lenders and the Agent harmless from and against Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.05) paid by any Lender
or the Agent and any liability (including penalties, interest and expenses for
nonpayment, late payment or otherwise) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Such indemnification shall be paid within 10 days from the date on
which any the Agent, on behalf of the Lenders, makes written demand therefor,
which demand shall identify in reasonable detail the nature and amount of such
Taxes or Other Taxes.
(c) Each Lender that is organized in a jurisdiction outside the
United States hereby agrees that it shall, no later than the Effective Date or,
in the case of a Lender which becomes a party hereto
B-22
pursuant to Section 12.07 hereof after the Effective Date, the date upon which
such Lender becomes a party hereto (and from time to time thereafter upon the
reasonable request of the Borrower or the Agent, but only if such Lender is
legally able to do so), deliver to the Borrower and the Agent either (i) two
accurate, complete and signed copies of either (x) U.S. Internal Revenue Service
Form W-8ECI or successor form, or (y) U.S. Internal Revenue Service Form W-8BEN
or successor form, in each case, indicating that such Lender is on the date of
delivery thereof entitled to receive payments of interest hereunder free from,
or subject to a reduced rate of, withholding of United States Federal income tax
or (ii) in the case of such a Lender that is entitled to claim exemption from
withholding of United States Federal income tax under Section 871(h) or Section
881(c) of the Internal Revenue Code, (x) a certificate to the effect that such
Lender is (A) not a "bank" within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, (B) not a "10 percent shareholder" of the Borrower within
the meaning of Section 881(c)(3)(B) of the Internal Revenue Code and (C) not a
controller foreign corporation receiving interest from a related person within
the meaning of Section 881(c)(3)(C) of the Internal Revenue Code and (y) two
accurate, complete and signed copies of U.S. Internal Revenue Service Form
W-8BEN or successor form.
(d) If any Loan Party fails to perform any of its obligations under
this Section 2.05, the Loan Parties shall indemnify the Lenders and the Agent
for any taxes, interest or penalties that may become payable as a result of any
such failure. The obligations of the Loan Parties under this Section 2.05 shall
survive the termination of this Agreement and the payment of the Loan and all
other amounts payable hereunder.
ARTICLE III
FEES, PAYMENTS AND OTHER COMPENSATION
Section 3.01 [Intentionally Omitted.]
Section 3.02 PAYMENTS; COMPUTATIONS AND STATEMENTS. (a) The Borrower
will make each payment under this Agreement not later than 12:00 noon (New York
City time) on the day when due, in lawful money of the United States of America
and in immediately available funds, in the manner set forth in clause (b) below.
All payments received after 12:00 noon (New York City time) on any Business Day
will be credited on the next succeeding Business Day. All payments shall be made
by the Borrower without set-off, counterclaim, deduction or other defense to the
Agent and the Lenders. Whenever any payment to be made under any such Loan
Document 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 interest or fees, as
the case may be. All computations of fees shall be made by the Agent on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such fees are
payable. Each determination by the Agent of an interest payment amount or fees
hereunder shall be rebuttably presumed to be accurate, in the absence of
manifest error.
(b) (i) Other than during the continuance of an Event of Default,
the Borrower shall make each payment relating to the payment of principal and
interest in respect of the Loan directly to the Lender's Account of each Lender
to whom payment is required to be made, in like funds and in accordance with
each Lender's Pro Rata Share of such payment. The Borrower shall make all other
payments under this Agreement to the Agent's Account for distribution to the
Lenders in accordance with clause (iii) below.
(ii) Upon the occurrence and during the continuance of an
Event of Default, the Borrower shall make all payments under this Agreement to
the Agent's Account for distribution to the Lenders in accordance with clause
(iii) below.
(iii) Upon the receipt of any payment under this Agreement,
the Agent will promptly (and in any case, not later than five (5) Business Days)
thereafter, cause to be distributed to the Lenders to whom payment is required
to be made, (A) in the case of payments relating to principal and interest, in
like funds in accordance with their Pro Rata Shares, and (B) in the case of the
payment of any other amount payable to any Lender, in like funds; PROVIDED,
HOWEVER, that this clause shall not apply to any payment made under this
Agreement that is solely for the account of the Agent.
B-23
(c) The Agent shall provide the Borrower, promptly after the end of
each calendar month, a summary statement (in the form from time to time used by
the Agent) of the amounts and dates of all payments on account of the Loan to
the Borrower during such month, the amount of interest accrued on the Loan to
the Borrower during such month, the amount of PIK Interest added to the
principal of the Loan during such month, and the amount and nature of any other
fees, commissions, expenses and other Obligations incurred during such month.
All entries on any such statement shall be presumed to be correct and, thirty
(30) days after the same is sent, shall be rebuttably presumed to be accurate,
absent manifest error. For purposes of such statement, the Agent shall have the
right to conclude, absent evidence to the contrary (i) that no payments have
been made by the Borrower and no requests for payments have been made to the
Borrower by any Lender other than in accordance with this Agreement, and (ii)
all payments of principal and interest required to be made directly to any
Lender's Account have been made pursuant to the terms of this Agreement.
Section 3.03 SHARING OF PAYMENTS, ETC. Except as provided in Sections
2.02 and 3.02(b) hereof, if any Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of any Obligation in excess of its ratable share of
payments on account of similar obligations obtained by all the Lenders, such
Lender shall forthwith purchase from the other Lenders such participations in
such similar obligations held by them as shall be necessary to cause such
purchasing Lender 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, such purchase from each Lender
shall be rescinded and such Lender shall repay to the purchasing Lender the
purchase price to the extent of such recovery together with an amount equal to
such Lender's ratable share (according to the proportion of (i) the amount of
such Lender's required repayment to (ii) the total amount so recovered from the
purchasing Lender of any interest or other amount paid by the purchasing Lender
in respect of the total amount so recovered). The Borrower agrees that any
Lender so purchasing a participation from another Lender pursuant to this
Section 3.03 may, to the fullest extent permitted by law, exercise all of its
rights (including the Lender's right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.
Section 3.04 APPORTIONMENT OF PAYMENTS. Subject to Section 2.02 hereof
and to any written agreement among the Agent and/or the Lenders:
(a) All payments of principal, interest and PIK Interest in respect
of the outstanding portion of the Loan, all payments of fees and all other
payments in respect of any other Obligations, shall be allocated by the Agent
among such of the Lenders as are entitled thereto, in proportion to their
respective Pro Rata Shares or otherwise as provided herein or, in respect of
payments not made on account of the Loan, as designated by the Person making
payment when the payment is made.
(b) After the occurrence and during the continuance of an Event of
Default, the Agent may apply all payments in respect of any Obligations, subject
to the provisions of this Agreement, (i) FIRST, ratably to pay the Obligations
in respect of any fees, expense reimbursements, indemnities and other amounts
then due to the Agent until paid in full; (ii) SECOND, ratably to pay the
Obligations in respect of any fees and indemnities then due to the Lenders until
paid in full; (iii) THIRD, ratably to pay interest due in respect of the Loan
until paid in full; (iv) FOURTH, ratably to pay PIK Interest due in respect of
the Loan until paid in full; (v) FIFTH, ratably to pay the principal of the Loan
until paid in full; and (viii) SIXTH, to the ratable payment of all other
Obligations then due and payable.
(c) In each instance, so long as no Event of Default has occurred
and is continuing, Section 3.04(b) shall not be deemed to apply to any payment
by the Borrower specified by the Borrower to the Agent to be for the prepayment
of all or part of the principal of the Loan in accordance with the terms and
conditions of Section 2.04.
(d) For purposes of Section 3.04(b), "paid in full" with respect to
interest shall include interest accrued after the commencement of any Insolvency
Proceeding irrespective of whether a claim for such interest is allowable in
such Insolvency Proceeding.
(e) In the event of a direct conflict between the priority
provisions of this Section 3.04 and other provisions contained in any other Loan
Document, it is the intention of the parties hereto that both such
B-24
priority provisions in such documents shall be read together and construed, to
the fullest extent possible, to be in concert with each other. In the event of
any actual, irreconcilable conflict that cannot be resolved as aforesaid, the
terms and provisions of this Section 3.04 shall control and govern.
Section 3.05 INCREASED COSTS AND REDUCED RETURN. (a) If any Lender or
the Agent shall have determined that the adoption or implementation of, or any
change in, any law, rule, treaty or regulation, or any policy, guideline or
directive of, or any change in, the interpretation or administration thereof by,
any court, central bank or other administrative or Governmental Authority, or
compliance by any Lender or the Agent or any Person controlling any such Lender
or the Agent with any directive of, or guideline from, any central bank or other
Governmental Authority or the introduction of, or change in, any accounting
principles applicable to any Lender or the Agent or any Person controlling any
such Lender or the Agent (in each case, whether or not having the force of law),
shall (i) subject any Lender or the Agent, or any Person controlling any such
Lender or the Agent to any tax, duty or other charge with respect to this
Agreement or any Loan made by such Lender or the Agent, or change the basis of
taxation of payments to any Lender or the Agent or any Person controlling any
such Lender or the Agent of any amounts payable hereunder (except for taxes on
the overall net income of any Lender or the Agent or any Person controlling any
such Lender or the Agent), (ii) impose, modify or deem applicable any reserve,
special deposit or similar requirement against any Loan, or against assets of or
held by, or deposits with or for the account of, or credit extended by, any
Lender or the Agent or any Person controlling any such Lender or the Agent or
(iii) impose on any Lender or the Agent or any Person controlling any such
Lender or the Agent or any other condition regarding this Agreement or any Loan,
and the result of any event referred to in clauses (i), (ii) or (iii) above
shall be to increase the cost to any Lender or the Agent of making any Loan, or
agreeing to make any Loan, or to reduce any amount received or receivable by any
Lender or the Agent hereunder, then, within ten (10) days after demand and
receipt of a detailed calculation and statement of cause by the Agent, on behalf
of the affected Lenders, the Borrower shall pay to the Agent, for the benefit of
the affected Lenders, such additional amounts as will compensate such Lenders
for such increased costs or reductions in amount.
(b) If any Lender or the Agent shall have determined that any
Capital Guideline or the adoption or implementation of, or any change in, any
Capital Guideline by the Governmental Authority charged with the interpretation
or administration thereof, or compliance by any Lender or the Agent or any
Person controlling such Lender or the Agent with any Capital Guideline or with
any request or directive of any such Governmental Authority with respect to any
Capital Guideline, or the implementation of, or any change in, any applicable
accounting principles (in each case, whether or not having the force of law),
either (i) affects or would affect the amount of capital required or expected to
be maintained by any Lender or the Agent or any Person controlling such Lender
or the Agent, and any Lender or the Agent determines that the amount of such
capital is increased as a direct or indirect consequence of any Loan made or
maintained, or any guaranty or participation with respect thereto, any Lender's
or the Agent's or any such other controlling Person's other obligations
hereunder; or (ii) has or would have the effect of reducing the rate of return
on any Lender's or the Agent's any such other controlling Person's capital to a
level below that which such Lender or the Agent or such controlling Person could
have achieved but for such circumstances as a consequence of any Loan made or
maintained, or any guaranty or participation with respect thereto or any
agreement to make Loan, or such Lender's or the Agent's or such other
controlling Person's other obligations hereunder (in each case, taking into
consideration, such Lender's, Agent's or other controlling Person's policies
with respect to capital adequacy), then, within ten (10) days after demand and
receipt of a detailed calculation and statement of cause by the Agent, on behalf
of the affected Lenders, the Borrower shall pay to the Agent, for the benefit of
such affected Lenders, from time to time such additional amounts as will
compensate such Lenders for such cost of maintaining such increased capital or
such reduction in the rate of return on such Lender's or the Agent's or such
other controlling Person's capital.
(c) All amounts payable under this Section 3.05 shall bear interest
from the date that is ten (10) days after the date of demand by any Lender or
the Agent until payment in full to such Lender or the Agent at the Reference
Rate. A certificate of the Agent, on behalf of the affected Lenders, claiming
compensation under this Section 3.05, specifying the event herein above
described and the nature of such event shall be submitted by the Agent, on
behalf of the affected Lenders, to the Borrower, setting forth the additional
amount due and an explanation of the calculation thereof, and the Agent's
reasons for invoking the provisions of this Section 3.05, and shall be
rebuttably presumed to be correct, absent manifest error.
B-25
(d) If any Lender incurs increased costs and requests compensation
under this Section 3.05, then the Borrower may (i) request such Lender use
reasonable efforts to designate a different lending office for booking its loans
hereunder or to assign its rights and obligations hereunder to another of its
offices, branches, or Affiliates, if in the judgment of such Lender, such
designation or assignment (A) would eliminate or reduce amounts payable pursuant
to Section 3.05 hereof, and (B) would not subject such Lender to any
unreimbursed cost or expense, and would not otherwise be disadvantageous to such
Lender. The Borrower shall pay all reasonable costs and expenses incurred by
such Lender in connection with any such designation of assignment; and (ii) at
its sole expense and effort, upon notice to such Lender and the Agent, require
such Lender to assign and delegate, without recourse (in accordance with and
subject to the restrictions contained in Section 12.07), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts such
assignment), provided that (A) if such assignee is not an existing Lender, the
Borrower shall have received the prior written consent of the Agent, which
consent shall not unreasonably be withheld, (B) such Lender shall have received
payment of an amount equal to the outstanding principal of its Pro Rata Share of
the Loan, accrued interest thereon, accrued fees and all other amounts payable
to it hereunder, from the assignee (to the extent of such outstanding principal
and accrued interest and fees) or the Borrower (in the case of all other
amounts, which shall be paid to the Agent for distribution to such Lender) and
(C) such assignment will result in a reduction in such compensation, payments or
costs. A Lender shall not be required to make any such assignment and delegation
if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply.
Section 3.06 ADDITIONAL FEES. Notwithstanding anything to the contrary
contained herein, in the event that the Requisite Approval is not obtained and
all of the Conversion Shares are not approved for listing on the NYSE (i) on or
prior to the Listing Deadline Date, the Borrower shall pay a fee at a rate per
annum equal to 3% of the principal amount of the Loan outstanding on the
Effective Date until the date such Requisite Approval is obtained and such
Conversion Shares are listed on the NYSE and (ii) prior to the Final Maturity
Date (whether upon demand, by acceleration, by prepayment in full or otherwise),
the Borrower shall pay a closing fee in an amount equal to 5% of the principal
amount of the Loan outstanding on the Effective Date.
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
Section 4.01 CONDITIONS PRECEDENT TO EFFECTIVENESS. This Agreement
shall become effective as of the Business Day (the "EFFECTIVE DATE") when each
of the following conditions precedent shall have been satisfied in a manner
satisfactory to the Agent:
(a) PAYMENT OF FEES, ETC. The Borrower shall have paid on or before
the date of this Agreement all fees, costs, expenses and taxes then payable
pursuant to Section 12.04.
(b) REPRESENTATIONS AND WARRANTIES; NO EVENT OF DEFAULT. The
following statements shall be true and correct: (i) the representations and
warranties contained in Article V and in each other Loan Document, certificate
or other writing delivered to the Agent or any Lender pursuant hereto or thereto
on or prior to the Effective Date are true and correct on and as of the
Effective Date as though made on and as of such date; and (ii) no Default or
Event of Default shall have occurred and be continuing on the Effective Date or
would result from this Agreement or the other Loan Documents becoming effective
in accordance with its or their respective terms.
(c) LEGALITY. Amending and restating this Agreement and maintaining
of the Loan shall not contravene any law, rule or regulation applicable to the
Agent or any Lender.
(d) DELIVERY OF DOCUMENTS. The Agent shall have received on or
before the Effective Date the following, each in form and substance satisfactory
to the Agent and, unless indicated otherwise, dated the Effective Date, and all
conditions precedent to the effectiveness of such documents (where applicable)
shall have been satisfied:
B-26
(i) the Note, payable to the order of each Lender and duly
executed by the Borrower;
(ii) certified copies of request for copies of information on
Form UCC-11, listing all effective financing statements which name as debtor any
Loan Party and which are filed in the offices referred to in paragraph (x)
below, together with copies of such financing statements, none of which, except
for Permitted Liens and as otherwise agreed in writing by the Agent, shall cover
any of the Loan Parties' properties or assets and the results of searches for
any tax Lien and judgment Lien filed against such Person or its property, which
results, except for Permitted Liens and as otherwise agreed to in writing by the
Agent, shall not show any such Liens;
(iii) the Registration Rights Agreement;
(iv) an opinion of Porter, Wright, Morris & Arthur LLP,
counsel to the Loan Parties, substantially in the form of Exhibit H and as to
such other matters as the Agent may reasonably request as well as opinions of
local counsel with respect to Guarantors formed in Michigan and Missouri;
(v) a certificate of the appropriate official(s) of the state
of organization and each state of foreign qualification of each Loan Party
certifying as to the subsistence in good standing of, and the payment of taxes
by, such Loan Party in such states;
(vi) a true and complete copy of the charter, certificate of
formation, certificate of limited partnership or other publicly filed
organizational document of each Loan Party certified as of a recent date not
more than thirty (30) days prior to the Effective Date (except as otherwise
agreed by the Agent) by an appropriate official of the state of organization of
such Loan Party, which shall set forth the same complete name of such Loan Party
as is set forth herein and the organizational number, if an organizational
number is issued in such jurisdiction, and Federal employee identification
number as of the Effective Date of such Loan Party;
(vii) a copy of the by-laws, limited liability company
agreement, operating agreement, agreement of limited partnership or other
organizational document of each Loan Party, together with all amendments
thereto, certified as of the Effective Date by an Authorized Officer of such
Loan Party;
(viii) a copy of the resolutions of each Loan Party, certified
as of the Effective Date by an Authorized Officer thereof, authorizing (A) the
borrowings hereunder and the transactions contemplated by the Loan Documents to
which such Loan Party is or will be a party, and (B) the execution, delivery and
performance by such Loan Party of each Loan Document to which such Loan Party is
or will be a party and the execution and delivery of the other documents to be
delivered by such Person in connection herewith and therewith;
(ix) a certificate of an Authorized Officer of each Loan
Party, certifying the names and true signatures of the representatives of such
Loan Party authorized to sign each Loan Document to which such Loan Party is or
will be a party and the other documents to be executed and delivered by such
Loan Party in connection herewith and therewith, together with evidence of the
incumbency of such authorized officers;
(x) a certificate of an Authorized Officer of the Borrower,
certifying the names and true signatures of the persons that are authorized to
provide the Notices of Election and all other notices under this Agreement and
the other Loan Documents;
(xi) certificate of the chief financial officer of the
Borrower, certifying as to the Solvency the Loan Parties taken as a whole, which
certificate shall be satisfactory in form and substance to the Agent;
(xii) a certificate of an Authorized Officer of each Loan
Party, certifying as to the matters set forth in subsection (b) of this Section
4.01;
B-27
(xiii) evidence of the insurance coverage required by Section
6.01 and the terms of each Security Agreement and each Mortgage and such other
insurance coverage with respect to the business and operations of the Loan
Parties as the Agent may reasonably request, in each case, where requested by
the Agent, with such endorsements as to the named insureds or loss payees
thereunder as the Agent may request and providing that such policy may be
terminated or canceled (by the insurer or the insured thereunder) only upon
thirty (30) days' prior written notice to the Agent and each such named insured
or loss payee, together with evidence of the payment of all premiums due in
respect thereof for such period as the Agent may request;
(xiv) a copy of the Financial Statements and other such
financial information regarding the Loan Parties, as the Agent or the Lenders
may request, including, but not limited to interim Financial Statements;
(xv) a copy of the Business Plan, certified as true and
correct by an Authorized Officer of the Borrower;
(xvi) copies of the Material Contracts as in effect on the
Effective Date, certified as true and correct copies thereof by an Authorized
Officer of the Borrower, together with a certificate of an Authorized Officer of
the Borrower stating that such agreements remain in full force and effect and
that none of the Loan Parties has breached or defaulted on any of its
obligations under such agreements in any material respect;
(xvii) such other agreements, instruments, approvals, opinions
and other documents, each satisfactory to the Agent in form and substance, as
the Agent may reasonably request.
(e) MATERIAL ADVERSE EFFECT. The Agent shall have determined, in
its sole judgment, that no event or development shall have occurred since
February 2, 2002 which could have a Material Adverse Effect.
(f) APPROVALS. All consents, authorizations and approvals of, and
filings and registrations with, and all other actions in respect of, any
Governmental Authority or other Person required in connection with amending this
Agreement or the maintaining of the Loan or the conduct of the Loan Parties'
business shall have been obtained and shall be in full force and effect.
(g) PROCEEDINGS; RECEIPT OF DOCUMENTS. All proceedings in
connection with the Loan and the other transactions contemplated by this
Agreement and the other Loan Documents, and all documents incidental hereto and
thereto, shall be satisfactory to the Agent and its counsel, and the Agent and
such counsel shall have received all such information and such counterpart
originals or certified copies or other copies of such documents as the Agent or
such counsel may reasonably request, including, without limitation, interim
financial statements and monthly availability projections.
(h) MANAGEMENT. The Lenders shall be satisfied with the ongoing
management of each Loan Party and the Agent shall have received satisfactory
reference checks for key management of each Loan Party.
(i) DUE DILIGENCE. The Agent shall have completed its business and
legal due diligence with respect to each Loan Party and the results thereof
shall be acceptable to the Agent, in its sole and absolute discretion.
(j) CONVERSION SHARES. The Borrower shall have reserved out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
exercise of the Conversion, 1,666,667 shares of Common Stock issuable upon the
exercise of the Conversion in accordance with the terms of Article XIII. The
Conversion Shares shall have been authorized for listing on the New York Stock
Exchange upon the official notice of its issuance.
(k) SENIOR INDEBTEDNESS. The Obligations under this Agreement and
the other Loan Documents rank at least pari passu in right of payment to all
existing and future senior Indebtedness and senior to all other Indebtedness of
each Loan Party.
B-28
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01 REPRESENTATIONS AND WARRANTIES. Each Loan Party hereby
represents and warrants to the Agent and the Lenders as follows:
(a) ORGANIZATION; GOOD STANDING, ETC. Each Loan Party (i) is a
corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the laws of the state or
jurisdiction of its organization; (ii) has all requisite power and authority to
conduct its business as now conducted and as presently contemplated and, to
execute and deliver each Loan Document to which it is a party, and to consummate
the transactions contemplated thereby; and (iii) is duly qualified to do
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to so qualify is
not reasonably likely to have a Material Adverse Effect.
(b) AUTHORIZATION, ETC. The execution, delivery and performance by
each Loan Party of each Loan Document to which it is or will be a party (i) have
been duly authorized by all necessary action other than the receipt of the
Requisite Approval in connection with the issuance of Conversion Shares in
excess of 19.9% of the Borrower's outstanding Common Stock on the Effective
Date; (ii) do not and will not contravene in any material respect its charter or
by-laws, its limited liability company or operating agreement or its certificate
of partnership or partnership agreement, as applicable, or any Applicable Law or
any contractual restriction binding on or otherwise affecting it or any of its
properties; (iii) do not and will not result in or require the creation of any
Lien upon or with respect to any of its properties; and (iv) do not and will not
result in any default, noncompliance, suspension, revocation, impairment,
forfeiture or nonrenewal of any material permit, license, authorization or
approval applicable to its operations or any of its properties.
(c) GOVERNMENTAL APPROVALS. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority is
required in connection with the due execution, delivery and performance by any
Loan Party of any Loan Document to which it is or will be a party.
(d) ENFORCEABILITY OF LOAN DOCUMENTS. This Agreement is, and each
other Loan Document to which any Loan Party is or will be a party, when
delivered hereunder, will be, a legal, valid and binding obligation of such
Person, enforceable against such Person in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
(e) CAPITALIZATION; SUBSIDIARIES. On the Effective Date, after
giving effect to the transactions contemplated hereby to occur on the Effective
Date, the authorized Capital Stock of the Borrower and the issued and
outstanding Capital Stock of the Borrower are as set forth on Schedule
5.01(e)(i). All of the issued and outstanding shares of Capital Stock of the
Borrower have been validly issued and are fully paid and nonassessable, and the
holders thereof are not entitled to any preemptive, first refusal or other
similar rights. There are no securities or instruments containing anti-dilution
or similar provisions that will be triggered by the issuance of the Conversion
Shares, except for anti-dilution provisions which have been validly waived on or
prior to the date hereof in respect of the issuance of the Conversion Shares.
The Conversion Shares have been duly authorized and reserved for issuance upon
Conversion of the Loan, and upon such conversion, will be validly issued, fully
paid and non-assessable, free from all taxes, liens and charges with respect to
the issue thereof, and will not be subject to preemptive rights or other similar
rights of stockholders of the Borrower.
(i) Except as described on Schedule 5.01(e)(i), as of the
Effective Date, there are no outstanding debt or equity securities of the
Borrower or any of its Subsidiaries and no outstanding obligations of the
Borrower or any of its Subsidiaries convertible into or exchangeable for, or
warrants, options or other rights for the purchase or acquisition from the
Borrower or any of its Subsidiaries, or other obligations of the Borrower or any
of its Subsidiaries to issue, directly or indirectly, any shares of Capital
Stock of the Borrower or any of its Subsidiaries.
B-29
(ii) Schedule 5.01(e)(ii) is a complete and correct
description of the name, jurisdiction of incorporation and ownership of the
outstanding Capital Stock of each of the Subsidiaries of the Borrower in
existence on the date hereof. All of the issued and outstanding shares of
Capital Stock of such Subsidiaries have been validly issued and are fully paid
and nonassessable, and the holders thereof are not entitled to any preemptive,
first refusal or other similar rights. Except as indicated on such Schedule, all
such Capital Stock is owned by the Borrower or one or more of its wholly-owned
Subsidiaries, free and clear of all Liens.
(f) LITIGATION; COMMERCIAL TORT CLAIMS. Except as set forth in
Schedule 5.01(f), (i) there is no pending or, to the best knowledge of any Loan
Party, threatened action, suit or proceeding affecting any Loan Party before any
court or other Governmental Authority or any arbitrator that (A) if adversely
determined, could have a Material Adverse Effect or (B) relates to this
Agreement or any other Loan Document or any transaction contemplated hereby or
thereby and (ii) as of the Effective Date, none of the Loan Parties holds any
commercial tort claims in respect of which a claim has been filed in a court of
law or a written notice by an attorney has been given to a potential defendant.
(g) FINANCIAL CONDITION.
(i) All financial statements furnished to the Agent and to
each Lender by the Loan Parties on a consolidated basis have been prepared in
accordance with GAAP consistently applied (PROVIDED, HOWEVER, that unaudited
financial statements are subject to normal year-end adjustments and to the
absence of footnotes). All financial statements furnished to the Agent and to
each Lender by the Loan Parties present fairly the condition of the Loan Parties
at the date(s) thereof and the results of operations and cash flows (to the
extent cash flows are required to be prepared) for the period(s) covered
(PROVIDED, HOWEVER, that unaudited financial statements are subject to normal
year end adjustments and to the absence of footnotes). There has been no change
in the consolidated financial condition, results of operations, or cash flows of
the Loan Parties since the date(s) of such financial statements, other than
changes in the ordinary course of business, which changes have not been
materially adverse, either singularly or in the aggregate.
(ii) No Loan Party has any material Contingent Obligations or
material obligation under any Lease or Capitalized Lease which is not noted in
the Loan Parties' Consolidated financial statements furnished to the Agent and
to each Lender prior to the execution of this Agreement.
(h) COMPLIANCE WITH LAW, ETC. No Loan Party is in violation or has
received notice of any violation of its organizational documents, any law, rule,
regulation, judgment or order of any Governmental Authority applicable to it or
any of its property or assets, or any material term of any agreement or
instrument (including, without limitation, any Material Contract) binding on or
otherwise affecting it or any of its properties, except where such violation is
not reasonably likely to have a Material Adverse Effect and no default or event
of default has occurred and is continuing.
(i) ERISA. Except to the extent that such action is not reasonably
likely to have a Material Adverse Effect, neither any Loan Party nor any ERISA
Affiliate has within the past three (3) years:
(i) violated or failed to be in full compliance with any Loan
Party's Employee Benefit Plan;
(ii) failed timely to file all reports and filings required by
ERISA to be filed by any Loan Party;
(iii) engaged in any nonexempt "prohibited transactions" or
"reportable events" (respectively as described in ERISA);
(iv) engaged in, or committed, any act such that a tax or
penalty reasonably could be imposed upon any Loan Party on account thereof
pursuant to ERISA;
B-30
(v) incurred any material accumulated funding deficiency
within the meaning of ERISA;
(vi) terminated any Employee Benefit Plan such that a Lien
could be asserted against any assets of any Loan Party on account thereof
pursuant to ERISA; or
(vii) failed to make any required contribution or payment to,
or made a complete or partial withdrawal from, any Employee Benefit Plan which
is a multiemployer plan within the meaning of Section 4001(a) of ERISA.
(j) TAXES, ETC.
(i) To the best knowledge of the Borrower, all Federal and all
material state and local tax returns and other reports required by Applicable
Law to be filed by any Loan Party have been filed, or extensions have been
obtained, and all taxes, assessments and other governmental charges imposed upon
any Loan Party or any property of any Loan Party and which have become due and
payable on or prior to the date hereof have been paid, except to the extent
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves have been set aside for the payment thereof on the
Financial Statements in accordance with GAAP.
(ii) Except as described on Schedule 5.01(j):
(A) currently no Loan Party has received from any taxing
authority any request to perform any examination of or with respect to any Loan
Party nor any other written or verbal notice in any way relating to any claimed
failure by any Loan Party to comply with all Applicable Law concerning payment
of any taxes or other amounts in the nature of taxes in excess of $500,000 in
any one instance;
(B) no agreement exists which waives or extends any
statute of limitations applicable to the right of any taxing authority to assert
a deficiency or make any other claim for or in respect to Federal income taxes;
and
(C) no issue has been raised in any tax examination of
any Loan Party which reasonably could be expected to result in the assertion of
a deficiency for any fiscal year open for examination, assessment, or claim by
any taxing authority in excess of $500,000 in the aggregate for all Loan
Parties.
(k) REGULATIONS T, U AND X. No Loan Party is or will be engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation T, U or X), and no proceeds of
the Loan have been or 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) NATURE OF BUSINESS. No Loan Party is engaged in any business
other than a Permitted Business.
(m) ADVERSE AGREEMENTS, ETC. To the best of such Loan Party's
knowledge, no Loan Party is a party to any agreement or instrument, or subject
to any charter, limited liability company agreement, partnership agreement or
other corporate, partnership or limited liability company restriction or any
judgment, order, regulation, ruling or other requirement of a court or other
Governmental Authority, which is reasonably likely to have a Material Adverse
Effect.
(n) PERMITS, ETC. Each Loan Party has, and is in compliance with,
all permits, licenses, authorizations, approvals, entitlements and
accreditations required for such Person lawfully to own, lease, manage or
operate, or to acquire, each business currently owned, leased, managed or
operated, or to be acquired, by such Person except where failure to so have or
to so comply is not reasonably likely to have a Material Adverse Effect. No
condition exists or event has occurred which, in itself or with the giving of
notice or lapse of time or both, would
B-31
result in the suspension, revocation, impairment, forfeiture or non-renewal of
any such permit, license, authorization, approval, entitlement or accreditation,
and there is no claim that any of the foregoing are not in full force and
effect.
(o) PROPERTIES. (i) Each Loan Party has good and marketable title
to, valid leasehold interests in, or valid licenses to use, all property and
assets material to its business, free and clear of all Liens, except Permitted
Liens. All such properties and assets are in good working order and condition,
ordinary wear and tear excepted. No Loan Party has possession of any property on
consignment to that Loan Party, except as listed on Schedule 5.01(o)(i), and
those as to which the Loan Parties notify the Agent in accordance with the
provisions of Section 7.03.
(ii) Schedule 5.01(o)(ii) sets forth a complete and accurate
list, as of the Effective Date, of the location, by state and street address, of
all real property owned or leased by each Loan Party and the name and address of
the landlord with respect thereto. As of the Effective Date, each Loan Party has
valid leasehold interests in the Leases described on Schedule 5.01(o)(ii) to
which it is a party. Except as otherwise indicated on Schedule 5.01(o)(ii),
there are no Leases for which any Affiliate of any Loan Party is the lessor.
Each such Lease is valid and enforceable in accordance with its terms in all
material respects and is in full force and effect. No consent or approval of any
landlord or other third party in connection with any such Lease is necessary for
any Loan Party to enter into and execute the Loan Documents to which it is a
party, except as set forth on Schedule 5.01(o)(ii). No Loan Party and to the
best knowledge of any Loan Party, no other party to any such Lease is in
material default of its obligations thereunder, and no Loan Party (or any other
party to any such Lease) has at any time delivered or received any notice of
default which remains uncured under any such Lease and, as of the Effective
Date, no event has occurred which, with the giving of notice or the passage of
time or both, would constitute a material default under any such Lease.
(p) FULL DISCLOSURE. Each Loan Party has disclosed to the Agent all
agreements, instruments and corporate or other restrictions to which it is
subject, and all other matters known to it, that, individually or in the
aggregate, is reasonably likely to result in a Material Adverse Effect. None of
the documents, instruments, agreements, other reports, financial statements,
certificates or other information furnished by or on behalf of any Loan Party to
the Agent in connection with the negotiation of this Agreement or delivered
hereunder (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which it was made, not misleading; PROVIDED, that, with respect to
projected financial information, each Loan Party represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time. There is no contingent liability or fact that is
reasonably likely to have a Material Adverse Effect which has not been set forth
in a footnote included in the Financial Statements or a Schedule hereto.
(q) LEASES. Schedule 5.01(q), annexed hereto, sets forth as of the
Effective Date a schedule of all presently effective Capitalized Leases.
(Schedule 5.01(o)(ii) includes a list of all other presently effective Leases).
Each of such Leases and Capitalized Leases is in full force and effect. No Loan
Party, to the best of its knowledge, is in default or violation of any such
Leases or Capitalized Leases, except where such violation is not reasonably
likely to have a Material Adverse Effect. No Loan Party has received any notice
or threat of cancellation of any such Lease or Capitalized Lease, which
cancellation (together with all other similar cancellations) is reasonably
likely to have a Material Adverse Effect.
(r) ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.01(r),
(i) the operations of each Loan Party are in material compliance with all
Environmental Laws; (ii) to the best of each Loan Party's knowledge, there has
been no Release at any of the properties owned or operated by any Loan Party or
a predecessor in interest, or at any disposal or treatment facility which
received Hazardous Materials generated by any Loan Party or any predecessor in
interest which is reasonably likely to have a Material Adverse Effect; (iii) no
Environmental Action has been asserted against any Loan Party or any predecessor
in interest nor does any Loan Party have knowledge or notice of any threatened
or pending Environmental Action against any Loan Party or any predecessor in
interest which is reasonably likely to have a Material Adverse Effect; (iv) no
Loan Party has knowledge of any Environmental Actions that have been asserted
against any facilities that may have received Hazardous Materials generated by
any Loan Party or any predecessor in interest which are reasonably likely to
have a Material Adverse
B-32
Effect; (v) to the best of each Loan Party's knowledge, no property now or
formerly owned or operated by a Loan Party has been used as a treatment or
disposal site for any Hazardous Material; (vi) no Loan Party has failed to
report to the proper Governmental Authority any Release which is required to be
so reported by any Environmental Laws which is reasonably likely to have a
Material Adverse Effect; (vii) each Loan Party holds all licenses, permits and
approvals required under any Environmental Laws in connection with the operation
of the business carried on by it, except for such licenses, permits and
approvals as to which a Loan Party's failure to maintain or comply with is not
reasonably likely to have a Material Adverse Effect; and (viii) no Loan Party
has received any notification pursuant to any Environmental Laws that (A) any
work, repairs, construction or Capital Expenditures are required to be made as a
condition of continued compliance with any Environmental Laws, or any license,
permit or approval issued pursuant thereto or (B) any license, permit or
approval referred to above is about to be reviewed, made, subject to limitations
or conditions, revoked, withdrawn or terminated, in each case, except as is not
reasonably likely to have a Material Adverse Effect.
(s) INSURANCE. Schedule 5.01(s) sets forth a list of all insurance
maintained by each Loan Party or under which any Loan Party is the named insured
on the Effective Date. Each of such policies is in full force and effect and
meets each of the requirements set forth in Section 6.01(e). To the best of such
Loan Party's knowledge, neither the issuer of any such policy nor any Loan Party
is in default or violation of such policy.
(t) [Intentionally Omitted]
(u) SOLVENCY. After giving effect to the transactions contemplated
by this Agreement and before and after giving effect to each Loan, each Loan
Party is, and the Loan Parties on a consolidated basis are, Solvent.
(v) LOCATION OF BANK ACCOUNTS. Schedule 5.01(v) sets forth a
complete and accurate list as of the Effective Date of all deposit, checking and
other bank accounts, all securities and other accounts maintained with any
broker dealer and all other similar accounts maintained by each Loan Party,
together with a description thereof (I.E., the bank or broker dealer at which
such deposit or other account is maintained, the account number and a contact
person at such bank or broker dealer).
(w) INTELLECTUAL PROPERTY. Except as set forth on Schedule 5.01(w),
each Loan Party owns or licenses or otherwise has the right to use all material
licenses, permits, patents, patent applications, trademarks, trademark
applications, service marks, tradenames, copyrights, copyright applications,
franchises, authorizations, non-governmental licenses and permits and other
intellectual property rights that are necessary for the operation of its
business, without infringement upon or conflict with the rights of any other
Person with respect thereto, except for such infringements and conflicts which,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. Set forth on Schedule 5.01(w) is a complete and accurate list as
of the Effective Date of all such material licenses, permits, patents, patent
applications, trademarks, trademark applications, service marks, tradenames,
copyrights, copyright applications, franchises, authorizations, non-governmental
licenses and permits and other intellectual property rights of each Loan Party.
To the best knowledge of each Loan Party, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by any Loan Party infringes upon or conflicts with
any rights owned by any other Person, and no claim or litigation regarding any
of the foregoing is pending or threatened, except for such infringements and
conflicts which are not reasonably likely to have a Material Adverse Effect. To
the best knowledge of each Loan Party, no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or proposed, which is reasonably likely to have a Material Adverse
Effect.
(x) MATERIAL CONTRACTS AND LICENSES. Schedule 5.01(x) sets forth a
complete and accurate list as of the Effective Date of all Material Contracts
and all material licenses of each Loan Party, showing the parties and subject
matter thereof. Each such Material Contract and license (i) is in full force and
effect and is binding upon and enforceable against each Loan Party that is a
party thereto and, to the best knowledge of such Loan Party, all other parties
thereto in accordance with its terms, and (ii) is not in default due to or has
not been violated by, the action of any Loan Party or, to the best knowledge of
any Loan Party, any other party thereto, except where such default is not
reasonably likely to have a Material Adverse Effect. No Loan Party has received
any notice or threat of cancellation of any such Material Contract or license
which cancellation (together with all similar cancellations) is reasonably
likely to have a Material Adverse Effect.
B-33
(y) HOLDING COMPANY AND INVESTMENT COMPANY ACTS. None of the Loan
Parties is (i) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company", as such terms are defined in
the Public Utility Holding Company Act of 1935, as amended; or (ii) an
"investment company" or an "affiliated person" or "promoter" of, or "principal
underwriter" of or for, an "investment company", as such terms are defined in
the Investment Company Act of 1940, as amended.
(z) LABOR RELATIONS.
(i) As of the Effective Date, no Loan Party has been, and none
is presently a party to any collective bargaining or other labor contract except
as listed on Schedule 5.01(z), annexed hereto.
(ii) There is not presently pending and, to any Loan Party's
knowledge, there is not threatened any of the following, except to the extent
any of the following is not reasonably likely to have a Material Adverse Effect:
(A) any strike, slowdown, picketing, work stoppage, or
employee grievance process;
(B) any proceeding against or affecting any Loan Party
relating to the alleged violation of any Applicable Law pertaining to labor
relations or before the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any comparable governmental body, organizational
activity, or other labor or employment dispute against or affecting any Loan
Party, which, if determined adversely to that Loan Party, is reasonably likely
to have a Material Adverse Effect on that Loan Party;
(C) any lockout of any employees by any Loan Party (and
no such action is contemplated by any Loan Party); or
(D) any application for the certification of a collective
bargaining agent.
(iii) No event has occurred or circumstance exists which could
provide the basis for any work stoppage or other labor dispute that would be
reasonably likely to have a Material Adverse Effect.
(iv) Each Loan Party:
(A) has complied in all material respects with all
Applicable Law relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing; and
(B) is not liable for the payment of compensation,
damages, taxes, fines, penalties, or other amounts, however designated, for that
Loan Party's failure to comply with any Applicable Law referenced in Section
5.01(z)(iv)(A) which is reasonably likely to have a Material Adverse Effect.
(aa) NO BANKRUPTCY FILING. No Loan Party is contemplating either an
Insolvency Proceeding or the liquidation of all or a major portion of such Loan
Party's assets or property, and no Loan Party has any knowledge of any Person
contemplating an Insolvency Proceeding against it.
B-34
(bb) SEPARATE EXISTENCE. Except where the failure to observe,
maintain or perform the following is not reasonably likely to have a Material
Adverse Effect, all customary formalities regarding the corporate existence of
each Loan Party will be observed.
(cc) NAME; JURISDICTION OF ORGANIZATION; ORGANIZATIONAL ID NUMBER;
CHIEF PLACE OF BUSINESS; CHIEF EXECUTIVE OFFICE; FEIN. Schedule 5.01(cc) sets
forth a complete and accurate list as of the date hereof of (i) the exact legal
name of each Loan Party; (ii) the jurisdiction of organization of each Loan
Party; (iii) the organizational identification number of each Loan Party as of
the Effective Date (or indicates that such Loan Party has no organizational
identification number); (iv) each place of business of each Loan Party; (v) the
chief executive office of each Loan Party; and (vi) the Federal employer
identification number of each Loan Party as of the Effective Date.
(dd) TRADENAMES. Schedule 5.01(dd) hereto sets forth a complete and
accurate list as of the Effective Date of (i) all names under which, to the
knowledge of the Borrower, any Loan Party has conducted its business in the past
five (5) years; and (ii) all Persons with whom any Loan Party has consolidated
or merged, or from whom any Loan Party has acquired in a single transaction or
in a series of related transactions substantially all of such Person's assets in
the past five (5) years.
(ee) [INTENTIONALLY OMITTED].
(ff) [INTENTIONALLY OMITTED].
(gg) [INTENTIONALLY OMITTED].
(hh) SCHEDULES. All of the information which is required to be
scheduled to this Agreement is set forth on the Schedules attached hereto, is
correct and accurate in all material respects and does not omit to state any
information material thereto.
(ii) REPRESENTATIONS AND WARRANTIES IN DOCUMENTS; NO DEFAULT. All
representations and warranties set forth in this Agreement and the other Loan
Documents are true and correct in all material respects at the time as of which
such representations were made and on the Effective Date. No Event of Default
has occurred and is continuing and no condition exists which constitutes a
Default or an Event of Default.
(jj) INDEBTEDNESS. The Loan Parties do not have any Indebtedness
other than (i) Permitted Indebtedness, and (ii) a Loan Party's guaranties of
Permitted Indebtedness.
(kk) UNRESTRICTED SUBSIDIARIES. Each Subsidiary of the Borrower
that is not a party to this Agreement is set forth on Schedule 5.01(kk) (the
"UNRESTRICTED SUBSIDIARY"). Each Unrestricted Subsidiary is inactive or in the
process of being liquidated or dissolved and the Unrestricted Subsidiaries do
not, in the aggregate, have assets in excess of $500,000.
(ll) PROXY STATEMENT. The proxy statement described in Section
6.01(n), including any amendments or supplements thereto, shall not, at the time
filed with the SEC, as of the date mailed to the Borrower's shareholders or at
the time of the shareholders meeting described in Section 6.01(n), contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, the Borrower makes no representation or warranty
with respect to any information provided by a Lender in writing specifically for
use in the proxy statement. The proxy statement will comply as to form in all
material respects with the provisions of the Exchange Act.
(mm) VOTING REQUIREMENTS. The Requisite Approval is the only vote
of the holders of any class or series of the Borrower's Capital Stock or other
securities of the Borrower necessary under Applicable Law or stock exchange (or
similar self-regulatory organization) regulations to approve the issuance of the
Conversion Shares.
B-35
(nn) PROXY. The Borrower has received an irrevocable proxy from SSC
(the "PROXY") to vote 17,946,766 shares of Common Stock held by SSC in favor of
the approval of the issuance of the Conversion Shares. The shares of Common
Stock that are subject to the Proxies constitute all Capital Stock of the
Borrower held by SSC.
ARTICLE VI
COVENANTS OF THE LOAN PARTIES
Section 6.01 AFFIRMATIVE COVENANTS. So long as any principal or
interest on the Loan or any other Obligation (whether or not due) shall remain
unpaid, each Loan Party shall:
(a) ADDITIONAL GUARANTIES. Cause (i) each Subsidiary of any Loan
Party not in existence on the Effective Date, or any Unrestricted Subsidiary
that at any time fails to meet the requirements for an Unrestricted Subsidiary,
to execute and deliver to the Agent promptly and in any event within three (3)
Business Days after the formation, acquisition or change in status thereof a
Guaranty guaranteeing the Obligations, PROVIDED, however, that nothing contained
herein shall be deemed a modification of any other provisions of this Agreement
restricting the formation or Acquisition of Subsidiaries by the Loan Parties, or
the requirements applicable to Unrestricted Subsidiaries.
(b) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
Subsidiaries to comply, and use its assets in compliance with all Applicable
Laws, rules, regulations and orders (including, without limitation, all
Environmental Laws) except where the failure of such compliance will not have a
Material Adverse Effect. Without limiting the foregoing such compliance shall
include (i) paying before the same become delinquent all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
upon any of its properties, and (ii) paying all lawful claims, making all
required withholdings, and filing all required reports and returns with
Governmental Authorities which if unpaid, not withheld or unfiled might become a
Lien or charge upon any of its properties, except (x) to the extent contested in
good faith by proper proceedings which stay the imposition of any penalty, fine
or Lien resulting from the non-payment thereof and with respect to which
adequate reserves have been set aside for the payment thereof in accordance with
GAAP, or (y) for the inadvertent failure of a Loan Party to pay such lawful
claims, make such withholdings or file such returns or reports so long as (A)
the aggregate amount thereof does not exceed $500,000, (B) no Lien has been
filed on account thereof and (C) promptly upon the date an Authorized Officer
obtains knowledge or should have obtained knowledge thereof, the Loan Parties
pay such claims, make such withholdings or file such returns or reports.
(c) PRESERVATION OF EXISTENCE, ETC. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, its existence, rights
and privileges, and become or remain, and cause each of its Subsidiaries to
become or remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary except where the
failure to so qualify would not have a Material Adverse Effect.
(d) MAINTENANCE OF PROPERTIES AND LEASES, ETC. (i)Maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve its
properties and assets in good working order and condition (ordinary wear and
tear and insured casualty excepted); and
(ii) comply, and cause each of its Subsidiaries to comply, in
all material respects, at all times with the provisions of all Leases to which
it is a party as lessee or under which it occupies property, so as to prevent
any loss or forfeiture thereof or thereunder.
(e) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with responsible and reputable insurance companies or associations
(which shall include the companies presently providing such insurance, or such
other companies as may be selected by the Borrower with the consent of the
Agent, whose consent shall not be unreasonably withheld) with respect to its
properties (including all real properties leased or owned by it) and business,
in such amounts, in such form, for such periods and covering such
B-36
risks as is required by any Governmental Authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated and in any event
in amount, adequacy and scope reasonably satisfactory to the Agent. The Borrower
shall provide the Agent with prompt written notice of any change in the
insurance policies owned by the Loan Parties, or under which any Loan Party is
the named insured, from those in effect as of the Effective Date.
(f) OBTAINING OF PERMITS, ETC. Obtain, maintain and preserve, and
cause each of its Subsidiaries to obtain, maintain and preserve, and take, and
cause each of its Subsidiaries to take, all necessary action to timely renew,
all permits, licenses, authorizations, approvals, entitlements and
accreditations which are necessary or useful in the proper conduct of its
business, except where the failure to do so is not reasonably likely to have a
Material Adverse Effect.
(g) ENVIRONMENTAL. Except where a violation or failure is not
reasonably likely to have a Material Adverse Effect, (i) keep any material
property either owned or operated by it or any of its Subsidiaries free of any
Environmental Liens; (ii) comply, and cause each of its Subsidiaries to comply,
in all material respects with Environmental Laws and provide to the Agent any
documentation of such compliance which the Agent may reasonably request; (iii)
provide the Agent with written notice within five (5) days of any Release of a
Hazardous Material in excess of any reportable quantity from or onto property at
any time owned or operated by it or any of its Subsidiaries and take any
Remedial Actions required to abate said Release; (iv) provide the Agent with
written notice within ten (10) days of the receipt of any of the following: (A)
notice that a material Environmental Lien has been filed against any property of
any Loan Party or any of its Subsidiaries; (B) commencement of any Environmental
Action or notice that an Environmental Action will be filed against any Loan
Party or any of its Subsidiaries which is reasonably likely to have a Material
Adverse Effect; and (C) notice of a violation, citation or other administrative
order to the extent that any of the foregoing are reasonably likely to have a
Material Adverse Effect; and (v) defend, indemnify and hold harmless the Agent
and the Lenders and their transferees, and their respective employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses (including, without
limitation, attorney and consultant fees, investigation and laboratory fees,
court costs and litigation expenses) arising out of (A) the generation,
presence, disposal, Release or threatened Release of any Hazardous Materials on,
under, in, originating or emanating from any property at any time owned or
operated by any Loan Party or any of its Subsidiaries (or its predecessors in
interest or title), (B) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to the presence or
Release of such Hazardous Materials, (C) any request for information,
investigation, lawsuit brought or threatened, settlement reached or order by a
Governmental Authority relating to the presence or Release of such Hazardous
Materials, (D) any violation of any Environmental Law and/or (E) any
Environmental Action filed against the Agent or any Lender to the extent that
any of the foregoing is reasonably likely to have a Material Adverse Effect.
(h) FURTHER ASSURANCES. Take such action and execute, acknowledge
and deliver, and cause each of its Subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense, such agreements,
instruments or other documents as the Agent may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
and the other Loan Documents, (ii) [Intentionally Omitted], (iii) to establish
and maintain the validity and effectiveness of any of the Loan Documents, and
(iv) to better assure, convey, grant, assign, transfer and confirm unto the
Agent and each Lender the rights now or hereafter intended to be granted to it
under this Agreement or any other Loan Document. In furtherance of the
foregoing, to the maximum extent permitted by Applicable Law, each Loan Party
authorizes the Agent to execute any such agreements, instruments or other
documents deemed reasonably necessary by the Agent in connection with this
Agreement in such Loan Party's name and to file such agreements, instruments or
other documents in any appropriate filing office.
(i) [Intentionally Omitted].
(j) CONDUCT OF BUSINESS. Conduct their business substantially in
accordance with the Business Plan, or as otherwise approved by the Agent
pursuant to Section 7.10 hereof. The foregoing shall not obligate the Borrower
to achieve any specific financial performance and no financial covenants are
intended to be imposed thereby.
B-37
(k) MAINTENANCE OF LISTING. Maintain and cause to be quoted at all
times, shares of the Borrower's Common Stock on a national securities exchange
registered under the Exchange Act (a "National Securities Exchange") or the
Nasdaq Stock Market;
(l) SEC. Maintain, at all times, the Borrower's status as reporting
company under the Exchange Act, and make timely filings thereunder;
(m) CONVERSION. Comply in all respects with the covenants and other
requirements of Article XIII;
(n) SHAREHOLDER MEETING. At the next annual meeting of shareholders
of the Borrower, which meeting shall occur on or before October 31, 2002, (the
"MEETING"), the issuance of the Conversion Shares in excess of 19.9% of the
Borrower's issued and outstanding Common Stock shall be submitted to the
shareholders for approval; PROVIDED, HOWEVER, that in the event that a
unilateral action by SSC or its shareholders results in the delay of the
Meeting, then the Meeting shall occur on or before December 31, 2002. The
Borrower shall provide each shareholder entitled to vote at the Meeting with a
proxy statement, which has been previously reviewed by the Agent and counsel of
Agent's choice, soliciting each such shareholder's affirmative vote at the
Meeting in favor of the issuance of the Conversion Shares in excess of 19.9% of
the Borrower's issued and outstanding Common Stock. The Borrower shall use its
reasonable best efforts to solicit and obtain proxies from its shareholders and
shall take all other action necessary and advisable to secure the vote of
shareholders required by applicable law and the rules and regulations of the
NYSE to obtain their approval of the issuance of the Conversion Shares in excess
of 19.9% of the Borrower's issued and outstanding Common Stock. The Board of
Directors of the Borrower has unanimously approved the issuance of the
Conversion Shares in excess of 19.9% of the Borrower's issued and outstanding
Common Stock and shall recommend that the shareholders of the Borrower vote in
favor of the approval of the issuance of the Conversion Shares in excess of
19.9% of the Borrower's issued and outstanding Common Stock at the Meeting, and
the Borrower agrees that it shall include in the proxy statement such
recommendation of the Board of Directors of the Borrower that the shareholders
of the Borrower approve the issuance of the Conversion Shares in excess of 19.9%
of the Borrower's issued and outstanding Common Stock;
(o) PROXY. The Borrower agrees to vote all shares of Common Stock
subject to the Proxy in favor of the approval of the issuance of the Conversion
Shares in excess of 19.9% of the Borrower's issued and outstanding Common Stock;
and
(p) NYSE LISTING. The Borrower shall use its reasonable best
efforts to list the Conversion Shares in excess of 19.9% of the Borrower's
Common Stock on the Effective Date on the NYSE promptly following its receipt of
the Requisite Approval.
Section 6.02 NEGATIVE COVENANTS. So long as any principal of or
interest on the Loan, or any other Obligation (whether or not due) shall remain
unpaid, each Loan Party shall not:
(a) LIENS, ETC. (i) Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien upon or with respect to any of its properties, whether now owned or
hereafter acquired; file or suffer to exist under the Uniform Commercial Code or
any similar law or statute of any jurisdiction, a financing statement (or the
equivalent thereof) that names it or any of its Subsidiaries as debtor; sign or
suffer to exist any security agreement authorizing any secured party thereunder
to file such financing statement (or the equivalent thereof); sell any of its
property or assets subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets (including sales of accounts
receivable) with recourse to it or any of its Subsidiaries or assign or
otherwise transfer, or permit any of its Subsidiaries to assign or otherwise
transfer, any account or other right to receive income; other than, as to all of
the above, Permitted Liens, or (ii) have possession of any property or
consignment to that Loan Party, except as of the Effective Date as set forth on
Schedule 5.01(o)(i), and after the Effective Date, those as to which the Loan
Parties have notified the Agent, in accordance with Section 7.03.
(b) INDEBTEDNESS. Create, incur, assume, guarantee or suffer to
exist, or otherwise become or remain liable with respect to, or permit any of
its Subsidiaries to create, incur, assume, guarantee or
B-38
suffer to exist or otherwise become or remain liable with respect to, any
Indebtedness other than (i) Permitted Indebtedness and (ii) guaranties of
Permitted Indebtedness of another Loan Party.
(c) FUNDAMENTAL CHANGES; DISPOSITIONS. (i) Wind-up, liquidate or
dissolve, or permit any of its Subsidiaries to wind-up, liquidate or dissolve;
(ii) merge, consolidate or amalgamate with any Person, or permit any of its
Subsidiaries to merge, consolidate or amalgamate with any Person; (iii) purchase
or otherwise acquire, whether in one transaction or a series of related
transactions, all or substantially all of the assets of any Person (or any
division thereof), or permit any of its Subsidiaries to do any of the foregoing;
(iv) suffer or cause, or permit any of its Subsidiaries to suffer or cause the
waste or destruction of any material part of its assets or properties; (v) use
or permit any of its Subsidiaries to use, any of its properties or assets in
violation of any policy of insurance thereon; (vi) sell, lease, sublease,
convey, transfer or otherwise dispose of, or permit any of its Subsidiaries to
sell, lease, sublease, convey, transfer or otherwise dispose of any of its
assets or properties; and (vii) other than leased departments and similar
arrangements with third parties, commit to open or close any location at which
any Loan Party maintains, offers for sale, or stores any of its assets or
properties, in any fiscal year such that the actual number of stores of all Key
Loan Parties in the aggregate (x) exceeds by ten (10) the number of stores
reflected on the Business Plan for such fiscal year, or (y) is more than ten
(10) fewer than the number of stores reflected on the Business Plan for such
fiscal year (without giving effect to any new stores which the Business Plan
projected to be opened or closed, but which have not in fact been opened or
closed); PROVIDED, HOWEVER, that if no Default or Event of Default shall have
occurred and be continuing or would result therefrom, each of the following
shall be permitted:
(A) if no Default or Event of Default shall have
occurred and be continuing or would result therefrom, with the prior written
consent of the Agent (which consent shall not be unreasonably withheld) any
wholly-owned Subsidiary may merge, consolidate or amalgamate with or into a Key
Loan Party or with or into another wholly-owned Subsidiary of a Key Loan Party,
so long as in any merger, consolidation or amalgamation involving a Key Loan
Party, the Key Loan Party is the surviving, continuing or resulting corporation;
(B) if no Default or Event of Default shall have occurred
and be continuing or would result therefrom, any Loan Party may liquidate or
dissolve any Unrestricted Subsidiary;
(C) if no Default or Event of Default shall have occurred
and be continuing or would result therefrom, any Loan Party may engage in any
Acquisition which is a Permitted Acquisition, provided that all of the
conditions contained in the definition of the term Permitted Acquisition are
satisfied; and
(D) any Loan Party may engage in (1) the sale of
Inventory in compliance with this Agreement; (2) the disposal of Equipment which
is obsolete, worn out, or damaged beyond repair, or no longer useful in the Loan
Parties' businesses; and (3) Permitted Dispositions.
(d) LINE OF BUSINESS. Engage in any business other than the
business in which it is currently engaged or a business reasonably related
thereto, or any retail lease department operation.
(e) LOANS; ADVANCES; INVESTMENTS, ETC. (i) Make or commit or agree
to make any loan, advance guarantee of obligations, other extension of credit or
capital contributions to, or hold or invest in or commit or agree to hold or
invest in, or purchase or otherwise acquire any shares of the Capital Stock,
bonds, notes, debentures or other securities of, or make or commit or agree to
make any other investment in, any other Person; (ii) purchase or own any futures
contract or otherwise become liable for the purchase or sale of currency or
other commodities at a future date in the nature of a futures contract; (iii)
subordinate any debts or obligations owed to that Loan Party by any third party
(but not by another Loan Party) to any other debts owed by such third party to
any other Person; (iv) enter into leases of property or assets not constituting
Permitted Acquisitions, unless such leases are not otherwise in violation of
this Agreement; (v) organize or create any Affiliate other than in connection
with a Permitted Acquisition; or (vi) acquire any assets other than in the
ordinary course and conduct of that Loan Party's business as conducted at the
execution of this Agreement, other than in connection with a Permitted
Acquisition or as otherwise permitted in this Agreement, or permit any of its
Subsidiaries to do any of the foregoing, except for:
B-39
(A) Permitted Investments and investments directly
related to Permitted Acquisitions;
(B) advance payments made to that Loan Party's suppliers
in the ordinary course;
(C) advances to that Loan Party's officers, employees,
and salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of that Loan Party, which
expenses are properly substantiated by the Person seeking such advance and
properly reimbursable by that Loan Party;
(D) loans and advances to employees for business-related
moving expenses, costs of replacement homes, business machines or supplies,
automobiles and other similar expenses, in each case incurred in the ordinary
course of business not to exceed (together with loans and advances under Section
6.02(e)(E) and investments permitted under clause (xiii) of the definition of
Permitted Investment) $6,000,000 in the aggregate outstanding to all employees
at any one time;
(E) loans and advances to that Loan Party's officers,
employees, and salespersons in connection with any employment agreements or
arrangements, or any stock options or option plans not to exceed $6,000,000
(together with loans and advances under Section 6.02(e)(D) and investments
permitted under clause (xiii) of the definition of Permitted Investments) in the
aggregate outstanding to all employees at any one time;
(F) intercompany loans existing on the date hereof and
described on Schedule 6.02(e)(vi)(F) hereof;
(G) loans and advances of a Person outstanding at the
time such Person becomes a Subsidiary as a result of a Permitted Acquisition,
PROVIDED, that any such loans or advances were not made at the time of or in
contemplation of the acquisition of such Person by a Loan Party or any
Subsidiaries;
(H) to the extent not permitted by the foregoing clauses,
the existing loans and advances described on Schedule 6.02(e)(vi)(H) hereto;
(I) any other loans and advances to or for the benefit
of any Person which (1) is not itself a Loan Party, (2) are not otherwise
permitted by the foregoing clauses, and (3) are made after the Effective Date,
which loans and advances have been approved in advance by the Agent.
(f) CAPITALIZED LEASE OBLIGATIONS. Create, incur or suffer to
exist, or permit any of its Subsidiaries to create, incur or suffer to exist,
any Capitalized Lease Obligations which would cause the aggregate amount of all
obligations under Capitalized Leases entered into after the Effective Date owing
by all Loan Parties and their Subsidiaries in any Fiscal Year to exceed the
amount set forth in clause (iv) of the definition of Permitted Indebtedness.
(g) RESTRICTED PAYMENTS.
(i) Pay any cash dividend or other distribution, in respect of any
class of such Loan Party's or any of its Subsidiaries' Capital Stock, other than
dividends payable to another Loan Party or payable solely in the Capital Stock
of such paying Loan Party;
(ii) make any repurchase, redemption, retirement, defeasance,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Capital Stock of any Loan Party or any direct or indirect
parent of any Loan Party, now or hereafter outstanding; PROVIDED that the Loan
Parties may make cash payments for any such purposes if:
B-40
(A) no Default or Event of Default shall have occurred
and be continuing at the time of declaration or payment thereof;
(B) after giving effect to the making of any such cash
payment, the aggregate amount so expended for such purposes subsequent to the
Effective Date does not exceed $1,500,000; and
(C) after giving effect to the making of any such cash
payment, the aggregate amount so expended for such purposes in any Fiscal Year
of the Key Loan Parties does not exceed $500,000.
(h) FEDERAL RESERVE REGULATIONS. Permit any Loan or the proceeds of
any Loan under this Agreement to be used for any purpose that would cause such
Loan to be a margin loan under the provisions of Regulation T, U or X of the
Board.
(i) TRANSACTIONS WITH AFFILIATES. (i) Except as set forth in that
certain confidential side letter from the Borrower to the Agent and for loans
which may be made between Loan Parties permitted pursuant to Section 6.02(e)
above, make any payment, nor give any value to any Affiliate except for leases,
goods and services with such Affiliate for a price and on terms which shall be
in the ordinary course of business at prices and on terms and conditions no less
favorable to that Loan Party than those which would have been charged and
imposed in an arm's-length transaction from unrelated third parties, except (A)
sales of goods to an Affiliate for use or distribution outside of the United
States of America which complies with the any applicable legal requirements of
the Internal Revenue Code of 1986 and the Treasury Regulations, each as amended
from time to time, PROVIDED, that such sales shall not exceed $500,000 in the
aggregate in any Fiscal Year of the Key Loan Parties, (B) loans, advances and
other payments to officers and directors as part of their compensation which are
entered into in the ordinary course of business and which are not otherwise
prohibited under the Loan Documents, (C) other dividends and distributions to
officers, directors and shareholders otherwise permitted under this Agreement,
or (D) transactions between or among the Loan Parties not prohibited hereunder
and not involving any other Affiliate; (ii) (A) without prior written consent of
the Agent, amend, modify or waive any of the provisions of the instruments,
documents or agreements described in the confidential side letter referred to in
clause (i) above, the effect of which is to increase the payments or value to be
furnished by a Loan Party to any Affiliate (other than for ordinary increases
under such instruments, documents and agreements in the ordinary course of
business, for which the Loan Parties are presently obligated to make payment in
such instrument, document or agreement as in effect on the Effective Date) or
which would cause such instruments, documents or agreements to be at prices and
on terms and conditions no less favorable to that Loan Party than those which
would have been charged and imposed in an arm's-length transaction from
unrelated third parties, or (B) make any payments under such instruments,
documents or agreements in advance of the date when due other than payments made
to Affiliates to fund obligations or anticipated claims under medical claims,
employee benefit plans or agreements, and other similar plans, all in accordance
with current practice; and (iii) fail to use its best efforts to cause its
Affiliates to execute and deliver to the Agent and the Lenders such
documentation as the Agent may reasonably require to evidence the Affiliates'
agreement with the provisions of this Section 6.02(i).
(j) LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES AND RESTRICTIONS ON OBLIGATIONS. Create or otherwise
cause, incur, assume, suffer or permit to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of (i) any Loan
Party to create or grant liens in favor of the Agent or to incur Obligations or
(ii) any Subsidiary of any Loan Party (A) to pay dividends or to make any other
distribution on any shares of Capital Stock of such Subsidiary owned by any Loan
Party or any of its Subsidiaries, (B) to pay or prepay or to subordinate any
Indebtedness owed to any Loan Party or any of its Subsidiaries, (C) to make
loans or advances to any Loan Party or any of its Subsidiaries or (D) to
transfer any of its property or assets to any Loan Party or any of its
Subsidiaries, or permit any of its Subsidiaries to do any of the foregoing;
PROVIDED, HOWEVER, that nothing in any of clauses (A) through (D) of this
Section 6.02(j) shall prohibit or restrict compliance with:
(1) this Agreement and the other
Loan Documents;
(2) any agreements in effect on the date of
this Agreement and described on Schedule 6.02(j);
B-41
(3) any Applicable Law, rule or regulation
(including, without limitation, applicable currency control
laws and applicable state corporate statutes restricting the
payment of dividends in certain circumstances);
(4) in the case of clause (D) any agreement
setting forth customary restrictions on the subletting,
assignment or transfer of any property or asset that is a
lease, license, conveyance or contract of similar property or
assets; or
(5) in the case of clause (D), any
agreement, instrument or other document evidencing a Permitted
Lien from restricting on customary terms the transfer of any
property or assets subject thereto.
(k) LIMITATION ON ISSUANCE OF CAPITAL STOCK. Issue or sell or enter
into any agreement or arrangement for the issuance and sale of, or permit any of
its Subsidiaries to issue or sell or enter into any agreement or arrangement for
the issuance and sale of, any shares of its Capital Stock, any securities
convertible into or exchangeable for its Capital Stock or any warrants,
PROVIDED, that the Borrower may issue (i) [Intentionally Omitted], (ii) the
Conversion Shares, (iii) up to 5,000,000 shares of Common Stock (and following
the fifth anniversary of the Effective Date, up to an additional 5,000,000
shares of Common Stock) that are issued to Persons other than Affiliates of the
Borrower, including (A) shares of Common Stock or options exercisable therefor,
issued or to be issued under the Borrower's 2000 Stock Option Plan as in effect
on the Effective Date or under any other employee stock option or purchase plan
or plans, or pursuant to compensatory or incentive agreements, for officers,
employees or consultants of the Borrower or any of its Subsidiaries, in each
case adopted or assumed after such date by the Borrower's Board of Directors;
provided in each case that the exercise or purchase price for any such share
shall not be less than 95% of the fair market value (determined in good faith by
the Borrower's Board of Directors) of the Common Stock on the date of the grant,
and such additional number of shares as may become issuable pursuant to the
terms of any such plans by reason of adjustments required pursuant to
antidilution provisions applicable to such securities in order to reflect any
subdivision or combination of Common Stock, by reclassification or otherwise, or
any dividend on Common Stock payable in Common Stock, (B) shares of restricted
stock issued by the Borrower to executive officers of the Borrower, and (C)
shares of Common Stock issued by the Borrower as charitable gifts.
(l) MODIFICATIONS OF INDEBTEDNESS, ORGANIZATIONAL DOCUMENTS AND
CERTAIN OTHER AGREEMENTS, ETC. (i) Amend, modify or otherwise change (or permit
the amendment, modification or other change) in any manner of any of the
provisions of any of its or its Subsidiaries' Indebtedness or of any instrument
or agreement (including, without limitation, any purchase agreement, indenture,
loan agreement or security agreement) relating to any such Indebtedness if such
amendment, modification or change (A) would shorten the final maturity or
average life to maturity of, or require any payment to be made earlier than the
date originally scheduled on, such Indebtedness, or would increase the interest
rate applicable to such Indebtedness, unless (x) Excess Availability, both
immediately prior to, immediately after giving effect thereto and projected
Excess Availability on a pro forma projected basis for the 12 months immediately
following, such amendment, modification or change is at least $100 million, or
(y) the total amount of such Indebtedness so amended, modified or changed since
the Effective Date (together with the amounts permitted under clause (ii)
hereof), does not exceed $500,000 in the aggregate in any Fiscal Year of the Key
Loan Parties, (B) would change the subordination provision, if any, of such
Indebtedness, or (C) would otherwise be adverse to the Lenders in any respect;
(ii) except for the Obligations and except as otherwise explicitly permitted
herein, make any voluntary or optional payment, prepayment, redemption,
defeasance, sinking fund payment or other acquisition for value of any of its or
its Subsidiaries' Indebtedness (including, without limitation, by way of
depositing money or securities with the trustee therefor before the date
required for the purpose of paying any portion of such Indebtedness when due),
or refund, refinance, replace or exchange any other Indebtedness for any such
Indebtedness (except to the extent such Indebtedness is otherwise expressly
permitted by the definition of "Permitted Indebtedness"), or make any payment,
prepayment, redemption, defeasance, sinking fund payment or repurchase of any
outstanding Indebtedness as a result of any asset sale, change of control,
issuance and sale of debt or equity securities or similar event, or give any
notice with respect to any of the foregoing, unless (x) Excess Availability,
both immediately prior to, immediately after giving effect thereto and projected
Excess Availability on a pro forma projected basis for the 12 months immediately
following, such payment is at least $100 million, or (y) the total amount of
such Indebtedness so paid since the Effective Date (together with the amounts
permitted under clause (i)(A) hereof), does not exceed $500,000 in the aggregate
in any Fiscal Year of the Key Loan
B-42
Parties; (iii) except as permitted by Section 6.02(c), amend, modify or
otherwise change its name, jurisdiction of organization, organizational
identification number or FEIN; (iv) amend, modify or otherwise change its
certificate of incorporation or bylaws (or other similar organizational
documents), including, without limitation, by the filing or modification of any
certificate of designation, or any agreement or arrangement entered into by it,
with respect to any of its Capital Stock (including any shareholders'
agreement), or enter into any new agreement with respect to any of its Capital
Stock, except any such amendments, modifications or changes or any such new
agreements or arrangements pursuant to this clause (iv) that either individually
or in the aggregate, could not have a Material Adverse Effect; (v)
[Intentionally Omitted]; (vi) agree to any material amendment or other material
change to or waiver of any of its rights under any Material Contract without the
consent of the Agent (which consent shall not be unreasonably withheld); or
(vii) alter, modify or amend any Lease in a manner which is reasonably likely to
have a Material Adverse Effect.
(m) INVESTMENT COMPANY ACT OF 1940. Engage in any business, enter
into any transaction, use any securities or take any other action or permit any
of its Subsidiaries to do any of the foregoing, that would cause it or any of
its Subsidiaries to become subject to the registration requirements of the
Investment Company Act of 1940, as amended, by virtue of being an "investment
company" or a company "controlled" by an "investment company" not entitled to an
exemption within the meaning of such Act.
(n) [INTENTIONALLY OMITTED].
(o) ERISA. Do or permit any ERISA Affiliate to do any of the
following, if as a result thereof, such Loan Party or ERISA Affiliate will, or
could reasonably be expected to, incur liability that is reasonably likely to
have a Material Adverse Effect:
(i) violate or fail to be in full compliance with any Loan
Party's Employee Benefit Plan;
(ii) fail timely to file all reports and filings required by
ERISA to be filed by any Loan Party;
(iii) engage in any nonexempt "prohibited transactions" or
"reportable events" (respectively as described in ERISA);
(iv) engage in, or commit any act such that a tax or penalty
reasonably could be imposed upon any Loan Party on account thereof pursuant to
ERISA;
(v) incur any material accumulated funding deficiency within
the meaning of ERISA;
(vi) terminate any Employee Benefit Plan such that a Lien
could be asserted against any assets of any Loan Party on account thereof
pursuant to ERISA; or
(vii) fail to make any required contribution or payment to, or
make a complete or partial withdrawal from, any Employee Benefit Plan which is a
multiemployer plan within the meaning of Section 4001(a) of ERISA.
(p) ENVIRONMENTAL. Knowingly or negligently permit the use,
handling, generation, storage, treatment, Release or disposal of Hazardous
Materials at any property owned or leased by it or any of its Subsidiaries,
except in compliance with Environmental Laws and so long as such use, handling,
generation, storage, treatment, Release or disposal of Hazardous Materials is
not reasonably likely to result in a Material Adverse Effect.
(q) [INTENTIONALLY OMITTED].
(r) [Intentionally Omitted].
B-43
(s) UNRESTRICTED SUBSIDIARIES. Permit any Unrestricted Subsidiary
at any time to carry on any business activity or have any assets in excess of
$500,000 in the aggregate;
(t) INTELLECTUAL PROPERTY. Conduct its business so as to infringe
the patents, industrial designs, trademarks, trade names, trade styles, brand
names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, or other intellectual or proprietary property of any third Person,
except where such infringement is not reasonably likely to have a Material
Adverse Effect.
ARTICLE VII
REPORTING REQUIREMENTS
Section 7.01 MAINTAIN RECORDS. The Loan Parties shall:
(a) At all times, keep proper books of account, in which full,
true, and accurate entries shall be made of all of the Loan Parties' financial
transactions, all in accordance with GAAP applied consistently with prior
periods to fairly reflect the consolidated financial condition of the Loan
Parties at the close of, and its results of operations for, the periods in
question.
(b) Timely provide the Agent with those financial reports,
statements, and schedules required by this Article VII or otherwise, each of
which reports, statements and schedules shall be prepared, to the extent
applicable, in accordance with GAAP applied consistently with prior periods to
fairly reflect the Consolidated financial condition of the Loan Parties at the
close of, and the results of operations for, the period(s) covered therein.
(c) At all times, keep accurate current records of its assets and
properties including, without limitation, accurate current stock, cost, and
sales records of its Inventory for each Division, accurately and sufficiently
itemizing and describing the kinds, types, and quantities of Inventory and the
cost and selling prices thereof.
(d) At all times, retain (i) Deloitte and Touche, LLP, or such
other nationally recognized independent certified public accountants who are
reasonably satisfactory to SSC (as long as it remains in Control of the Key Loan
Parties) and the Agent, and instruct such accountants, subject to the terms of
such accountants' internal policies, and subject to the confidentiality
provisions of this Agreement, to fully cooperate with, and be available to, the
Agent to discuss the Loan Parties' financial performance, financial condition,
operating results, controls, and such other matters, within the scope of the
retention of such accountants, as may be raised by the Agent.
(e) Not change any Loan Party's Fiscal Year.
Section 7.02 ACCESS TO RECORDS.
(a) Each Loan Party shall accord the Agent with reasonable access
during normal business hours from time to time as the Agent may require to all
properties owned by or over which any Loan Party has control. The Agent shall
have the right, and each Loan Party will permit the Agent from time to time as
the Agent may request, to examine, inspect, copy, and make extracts from any and
all of the Loan Parties' books, records, electronically stored data, papers, and
files. Each Loan Party shall make that Loan Party's copying facilities available
to the Agent.
(b) Each Loan Party hereby authorizes the Agent to inspect, copy,
duplicate, review, cause to be reduced to hard copy, run off, draw off, and
otherwise use any and all computer or electronically stored information or data
which relates to any Loan Party. Each Loan Party shall request full cooperation
with the Agent from any service bureau, contractor, accountant, or other Person.
B-44
(c) The Agent from time to time may designate one or more
representatives to exercise the Agent's rights under this Section 7.02 as fully
as if the Agent were doing so; PROVIDED, that the Agent shall not designate a
Person which is in a Competitive Business.
Section 7.03 PROMPT NOTICE TO ADMINISTRATIVE AGENT.
(a) The Borrower shall provide the Agent with written notice
promptly upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given (i) any change in any Loan
Party's president, chief executive officer, chief operating officer, and chief
financial officer (without regard to the title(s) actually given to the Persons
discharging the duties customarily discharged by officers with those titles);
(ii) any ceasing of any Loan Party's payment of the debts of that Loan Party
generally as they mature, in the ordinary course, to its creditors (other than
its ceasing of making of such payments on account of a dispute which, if
adversely determined to the Loan Parties is not reasonably likely to have a
Material Adverse Effect); (iii) any failure by any Loan Party to pay rent at any
of that Loan Party's locations, which failure continues for more than three (3)
days following the last day on which such rent was payable unless such failure
is not reasonably likely to have a Material Adverse Effect; (iv) any material
adverse change in the business, operations, or financial affairs of any
Borrower; (v) the occurrence of any Default; (vi) any intention on the part of
any Loan Party to discharge that Loan Party's present independent accountants or
any withdrawal or resignation by such independent accountants from their acting
in such capacity (as to which, see Section 7.01(d)); (vii) any litigation which,
if determined adversely to any Loan Party, is reasonably likely to have a
Material Adverse Effect; (viii) any intention of a Key Loan Party to enter into
a consignment arrangement or licensing or other similar agreement (whether for
intellectual property, leased departments in stores or otherwise) with any other
Person; (ix) any additional or amended collective bargaining or other labor
contract entered into after the Effective Date; (x)any Material Accounting
Changes; (xi) [Intentionally Omitted]; (xii) any event, occurrence or
circumstance not specifically described herein that is reasonably likely to have
a Material Adverse Effect; (xiii) any Loan Party's entering into a license
agreement after the Effective Date; (xiv) any Loan Party's entering into a
Capitalized Lease after the Effective Date; and (xv) any Loan Party's entering
into a Lease after the Effective Date.
(b) The Borrower shall (i) provide the Agent, when so distributed,
with copies of any materials distributed to the shareholders of the Borrower;
(ii) provide the Agent (A) when filed, copies of all filings with the SEC. Such
copies may be provided in electronic format; (B) when received, copies of all
correspondence from the SEC, other than routine general communications from the
SEC; and (C) should any of the information on any of the Schedules hereto become
misleading in any material respect, promptly advise the Agent in writing with
such revisions or updates as may be necessary or appropriate to update or
correct the same; PROVIDED, HOWEVER, that no such Schedule shall be deemed to
have been amended, modified or superseded by any such correction or update, nor
shall any breach of any representation or warranty resulting from the inaccuracy
or incompleteness of such Schedule be deemed to have been cured or waived,
unless and until the Agent, in its discretion shall have accepted in writing
such revisions; (iii) at the request of Agent, from time to time, provide the
Agent with copies of all advertising (including copies of all print advertising
and duplicate tapes of all video and radio advertising); and (iv)provide the
Agent, when received by and Loan Party, with a copy of any management letter or
similar communications from any independent accountant of any Loan Party.
Section 7.04 [INTENTIONALLY OMITTED].
Section 7.05 [INTENTIONALLY OMITTED].
Section 7.06 QUARTERLY REPORTS. Quarterly, within forty-five (45) days
following the end of each of the Loan Parties' fiscal quarters, the Borrower
shall provide the Agent with the following:
(a) An original counterpart of a management prepared financial
statement (which shall be prepared in the same manner and using the same
assumptions as set forth in the forecasts furnished to, and approved by, the
Agent pursuant to the provisions of Section 7.10(c) hereof) for (A) the Loan
Parties on a consolidated basis, (B) the DSW/Shonac Business, (C) the Filene's
Business, and (D) the Value City Business, in each case for the fiscal quarter
most recently ended, and for the period from the beginning of the Loan Parties'
then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the
B-45
previous fiscal year, which statement shall include a balance sheet, statement
of operations and cash flows and comparisons for the corresponding quarter of
the then immediately previous year, as well as to the Loan Party's forecast;
(b) A list of all leases entered into or terminated during such
quarter; and
(c) The officer's compliance certificate described in Section 7.08.
Section 7.07 ANNUAL REPORTS.
(a) Annually, within ninety (90) days following the end of the Loan
Parties' fiscal year, the Borrower shall furnish the Agent with the following:
(i) an original signed counterpart of the Loan Parties' consolidated annual
financial statement, which statement shall have been prepared by, and bear the
unqualified opinion of, the Borrower's independent certified public accountants
(i.e. said statement shall be "certified" by such accountants) and shall
include, at a minimum (with comparative information for the then prior fiscal
year) a balance sheet, statement of operations, statement of changes in
shareholders' equity, and cash flows; (ii) a consolidating annual financial
statement for (x) the DSW/Shonac Business, (y) the Filene's Business, and (z)
the Value City Business which shall include (with comparative information for
the then prior fiscal year) a balance sheet, statement of changes in
shareholders' equity, and cash flows; and (iii) the officer's compliance
certificate described in Section 7.08.
(b) No later than fifteen (15) days prior to the end of each of the
Loan Parties' fiscal years, the Borrower shall give written notice to such
independent certified accountants (with a copy of such notice, when sent, to the
Agent) that such annual financial statement will be delivered by the Borrower to
the Agent and that the Borrower has been advised that the Agent and each Lender
will rely thereon with respect to the administration of, and transactions under,
the credit facilities contemplated by this Agreement.
Section 7.08 OFFICER'S CERTIFICATES. The Borrower shall cause either
the Borrower's chief executive officer, president, executive vice president,
chief financial officer, controller, or treasurer (collectively, an "AUTHORIZED
OFFICER"), in each instance, to provide such Person's Certificate with those
monthly financial statements to be provided within thirty (30) days of the end
of each month and with those to be provided quarterly and annual statements to
be furnished pursuant to this Agreement, which Certificate shall:
(a) Indicate that (i) with respect to the Consolidated financial
statement, the subject statement was prepared in accordance with GAAP
consistently applied, and (ii) with respect to all financial statements,
presents fairly the financial condition of the applicable Loan Parties at the
close of, and the results of the applicable Loan Parties' operations and cash
flows (where such cash flows are required to be provided) for, the period(s)
presented, SUBJECT, HOWEVER, to the following: (x) usual year end adjustments
(this exception shall note be included in the Certificate which accompanies such
annual statement); and (y) Material Accounting Changes, in which event, such
Certificate shall include a schedule (in reasonable detail) of the effect of
each such Material Accounting Change.
(b) Indicate either that (i) no Default has occurred and is
continuing, or (ii) if such an event has occurred, its nature (in reasonable
detail) and the steps (if any) being taken or contemplated by the Loan Parties
to be taken on account thereof.
Section 7.09 [Intentionally Omitted].
Section 7.10 ADDITIONAL FINANCIAL INFORMATION.
(a) In addition to all other information required to be provided
pursuant to this Article VII, the Borrower promptly shall provide the Agent with
such other and additional information concerning the Loan Parties, the operation
of the Loan Parties' business, and the Loan Parties' financial condition,
including original counterparts of financial reports and statements, as the
Agent may from time to time reasonably request from the Borrower.
B-46
(b) The Borrower shall, upon the Agent's request, provide the
Agent, from time to time hereafter, with updated forecasts of the Loan Parties'
anticipated performance and operating results for the current fiscal year. Such
forecasts shall be in a format consistent with the format previously provided to
the Agent.
(c) In all events, the Borrower, no sooner than ninety (90) nor
later than sixty (60) days prior to the end of each of the Loan Parties' fiscal
years, shall provide the Agent with an updated and extended forecast which shall
go out at least through the end of the then next fiscal year and shall include a
statement of operations, balance sheet, and statement of cash flow, by month,
each consolidated (with consolidating schedules by Division) and each prepared
in conformity with GAAP and consistent with the Loan Parties' then current
accounting practices.
(d) When available the "Annual Budget", as approved by the
Borrower's Board of Directors, shall be provided to the Agent. The Annual Budget
shall be subject to the approval of the Agent (whose approval shall not be
unreasonably withheld) only if the Annual Budget varies in a material way from
the Business Plan for such fiscal year.
(e) Each Loan Party recognizes that all commercial finance
examinations, inventories, analysis, financial information, and other materials
which the Agent may obtain, develop, or receive with respect to the Loan Parties
(other than appraisals and inventories received from third parties) are
confidential to the Agent and that, except as otherwise provided herein, no Loan
Party is entitled to receipt of any of such commercial finance examinations,
inventories, analysis, financial information, and other materials, nor copies or
extracts thereof or therefrom.
Section 7.11 FORMAT OF INFORMATION. All information required to be
delivered pursuant to this Article VII may be delivered by and in electronic
format.
ARTICLE VIII
[INTENTIONALLY OMITTED.]
ARTICLE IX
EVENTS OF DEFAULT
Section 9.01 EVENTS OF DEFAULT. The occurrence of any event described
in this Article IX respectively shall constitute an Event of Default herein. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Agent or any Lender and
any Loan Party and instruments and papers heretofore, now, or hereafter given
the Agent or any Lender by any Loan Party in connection with any of the Loan
Documents. An Event of Default shall occur upon:
(a) The failure by any Loan Party to pay when due any principal of,
interest on, or fees in respect of, the Loan;
(b) The failure by any Loan Party to pay when due (or upon demand,
if payable on demand) any payment Obligation other than any payment Obligation
on account of the principal of, or interest on, or fees in respect of the Loan;
(c) The failure by any Loan Party to promptly, punctually,
faithfully and timely perform, discharge, or comply with any covenant or
Obligation included in any of the following provisions hereof:
B-47
SECTION RELATES TO
------- ----------
6.02(b) Indebtedness
6.01(b) Pay Taxes
6.02(g) Dividends. Investments. Other
Corporate Actions
6.02(e) Loans and Advances
6.02(i) Affiliate Transactions
Article VII Reporting Requirements
(d) [Intentionally Omitted].
(e) the failure by any Loan Party, within twenty (20) days
following the earlier of any Authorized Officer's knowledge of a breach of any
covenant or Obligation not described in any of clauses (a) through (d) above, or
of its receipt of written notice from the Agent of the breach of any of such
covenants or Obligations, provided that if such failure cannot be reasonably
cured within such twenty (20) day period and the Loan Parties have diligently
proceeded, and continue to diligently proceed, to effectuate a cure of such
failure, such failure shall not be an Event of Default hereunder unless (i) such
failure is not cured within twenty (20) days after the expiration of such
initial twenty (20) day period, or (b) such failure, in the reasonable judgment
of the Agent, is reasonably likely to have a Material Adverse Effect;
(f) the determination by the Agent that any representation or
warranty at any time made by any Loan Party to the Agent or any Lender was not
true or complete in all material respects when given;
(g) the occurrence and continuance of any Event of Default or other
event, which with the giving of notice, the passage of time or both, would be an
Event of Default under any Indebtedness of any Loan Party equal to or in excess
of One Million Dollars ($1,000,000.00) to any creditor other than the Agent or
any Lender, (whether or not such Indebtedness has been accelerated), or, Leases
aggregating more than five percent (5%) of all Leases of the Loan Parties
existing from time to time could be terminated due to a default by a Loan Party
thereunder (whether or not the subject creditor or lessor takes any action on
account of such occurrence);
(h) the occurrence of any breach of any covenant or Obligation
imposed by, or of any default under, any agreement between the Agent or any
Lender and any Loan Party or instrument given by any Loan Party to any Agent or
any Lender relating to Indebtedness of any Loan Party in excess of $1,000,000 in
the aggregate and the expiration, without cure, of any applicable grace period
(notwithstanding that the Agent or Lender may not have exercised all or any of
its rights on account of such breach or default);
(i) the occurrence of any uninsured loss, theft, damage, or
destruction of or to any material portion of the property or assets of the Loan
Parties;
(j) (i) the entry of any judgment in excess of Two Million Five
Hundred Thousand Dollars ($2,500,000.00) against any Loan Party, which judgment
(A) is not covered by insurance (as to which the insurer has not notified the
applicable Loan Party of the insurer's reservation of rights) or (B) is not
satisfied, stayed (if a money judgment) or appealed from (with execution or
similar process stayed) within thirty (30) days of its entry;
(ii) the entry of any order or the imposition of any other
process having the force of law, the effect of which is to restrain the conduct
by any Key Loan Party of its business in the ordinary course and which is
reasonably likely to have a Material Adverse Effect;
(k) any act by, against, or relating to any Loan Party, or its
property or assets, which act constitutes the determination, by any Loan Party,
to initiate a program of substantial or total self-liquidation; application for,
consent to, or sufferance of the appointment of a receiver, trustee, or other
Person, pursuant to court action or otherwise, over all, or any part of any Loan
Party's property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of any Loan Party, or the occurrence
of any other
B-48
voluntary or involuntary liquidation or extension of debt agreement for any Loan
Party; the offering by or entering into by any Loan Party of any composition,
extension, or any other arrangement seeking relief generally from or extension
of the debts of any Loan Party; or the initiation of any judicial or
non-judicial proceeding or agreement by, against, or including any Loan Party
which seeks or intends to accomplish a reorganization or arrangement with
creditors; and/or the initiation by or on behalf of any Loan Party of the
liquidation or winding up of all or any part of any Loan Party's business or
operations except that any of the foregoing actions which are commenced against
a Loan Party shall not be deemed an Event of Default hereunder as long as such
action is timely contested in good faith by that Loan Party by appropriate
proceedings and is dismissed within 60 days of the institution of the foregoing;
(l) the failure by any Loan Party to generally pay the debts of
that Loan Party as they mature; adjudication of bankruptcy or insolvency
relative to any Loan Party; the entry of an order for relief or similar order
with respect to any Loan Party in any proceeding pursuant to the Bankruptcy Code
or any other Federal bankruptcy law; the filing of any complaint, application,
or petition by any Loan Party initiating any matter in which any Loan Party is
or may be granted any relief from the debts of that Loan Party pursuant to the
Bankruptcy Code or any other insolvency statute or procedure; the filing of any
complaint, application, or petition against any Loan Party initiating any matter
in which that Loan Party is or may be granted any relief from the debts of that
Loan Party pursuant to the Bankruptcy Code or any other insolvency statute or
procedure, which complaint, application, or petition is not timely contested in
good faith by that Loan Party by appropriate proceedings or, if so contested, is
not dismissed within 60 days of when filed;
(m) the termination or attempted termination of any Guaranty by any
Guarantor;
(n) (i) any challenge by or on behalf of any Loan Party to the
validity of any Loan Document or the applicability or enforceability of any Loan
Document strictly in accordance with the subject Loan Document's terms or which
seeks to void, avoid, limit, or otherwise adversely affect any payment made
pursuant thereto;
(ii) any determination by any court or any other judicial or
Government Authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any payment made pursuant thereto; or
(o) any Change in Control;
(p) an event or development occurs which, as determined by the
Agent in its discretion, has, or could reasonably be expected to have, a
Material Adverse Effect; or
(q) [Intentionally Omitted].
then, and in any such event, the Agent may, with the consent
or at the direction of the Required Lenders, by notice to the Borrower, (i)
declare all or any portion of the Loan and other Obligations then outstanding to
be due and payable, whereupon all or such portion of the aggregate principal of
the Loan and other Obligations, all accrued and unpaid interest thereon, all
fees and all other amounts payable under this Agreement and the other Loan
Documents shall become due and payable immediately, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by each Loan Party and (ii) exercise any and all of its other rights and
remedies under Applicable Law, hereunder and under the other Loan Documents;
PROVIDED, HOWEVER, that upon the occurrence and during the continuance of any
Event of Default described in subsection (k) or (l) of this Section 9.01,
without any notice to any Loan Party or any other Person or any act by the Agent
or any Lender, and the Loan, together with all accrued and unpaid interest and
PIK Interest thereon, all fees and all other amounts due under this Agreement
and the other Loan Documents shall become due and payable automatically and
immediately, without presentment, demand, protest or notice of any kind, all of
which are expressly waived by each Loan Party.
B-49
ARTICLE X
AGENT
Section 10.01 APPOINTMENT. Each Lender (and each subsequent maker of
any Loan by its making thereof) hereby irrevocably appoints and authorizes the
Agent to perform the duties of the Agent as set forth in this Agreement
including: (i) to receive on behalf of each Lender any payment of principal of
or interest on the Loan outstanding hereunder and all other amounts accrued
hereunder for the account of the Lenders and paid to the Agent, and, subject to
Sections 2.02 and 3.02 of this Agreement, to distribute promptly to each Lender
its Pro Rata Share of all payments so received; (ii) to distribute to each
Lender copies of all material notices and agreements received by the Agent and
not required to be delivered to each Lender pursuant to the terms of this
Agreement, provided that the Agent shall not have any liability to the Lenders
for the Agent's inadvertent failure to distribute any such notices or agreements
to the Lenders; (iii) to maintain, in accordance with its customary business
practices, ledgers and records reflecting the status of the Obligations, the
Loan, and related matters and to maintain, in accordance with its customary
business practices, ledgers and records reflecting the status of the properties
and assets of the Loan Parties and related matters; (iv) to execute or file any
and all financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim, notices and other written
agreements with respect to this Agreement or any other Loan Document; (v)
[Intentionally Omitted]; (vi) to perform, exercise, and enforce any and all
other rights and remedies of the Lenders with respect to the Loan Parties, the
Obligations, or otherwise related to any of same to the extent reasonably
incidental to the exercise by the Agent of the rights and remedies specifically
authorized to be exercised by the Agent by the terms of this Agreement or any
other Loan Document, or as directed by the Required Lenders; (vii) to incur and
pay such fees necessary or appropriate for the performance and fulfillment of
its functions and powers pursuant to this Agreement or any other Loan Document;
and (viii) subject to Section 10.03 of this Agreement, to take such action as
the Agent deems appropriate on its behalf to administer the Loan and the Loan
Documents and to exercise such other powers delegated to the Agent by the terms
hereof or the other Loan Documents (including, without limitation, the power to
give or to refuse to give notices, waivers, consents, approvals and instructions
and the power to make or to refuse to make determinations and calculations)
together with such powers as are reasonably incidental thereto to carry out the
purposes hereof and thereof. As to any matters not expressly provided for by
this Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Loan), the Agent shall not be required to
exercise any discretion or take any action, which, in the reasonable opinion of
the Agent, exposes the Agent to liability or which is contrary to this Agreement
or any other Loan Document or Applicable Law. The Lenders hereby agree that the
Required Lenders shall make all decisions concerning (A) waivers, (B)
amendments, (C) remedial action, including, without limitation, the right to
call a default, accelerate and take any enforcement action, and (D) performance
by the Lenders or enforcement of the rights of the Lenders hereunder and under
the Intercreditor Agreement; PROVIDED, HOWEVER, that the foregoing shall not
limit the rights of all Lenders under Section 12.02 hereof.
Section 10.02 NATURE OF DUTIES. The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement or in the
other Loan Documents. The duties of the Agent shall be mechanical and
administrative in nature. Neither the Agent nor the Lenders shall have by reason
of this Agreement or any other Loan Document any fiduciary relationship. Nothing
in this Agreement or any other Loan Document, express or implied, is intended to
or shall be construed to impose upon the Agent or the Required Lenders any
obligations in respect of this Agreement or any other Loan Document except as
expressly set forth herein or therein. Each Lender shall make its own
independent investigation of the financial condition and affairs of the Loan
Parties in connection with the making and the continuance of the Loan hereunder
and shall make its own appraisal of the creditworthiness of the Loan Parties and
the value of the properties and assets of the Loan Parties, and neither the
Agent nor the Required Lenders shall have any duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before the initial Loan hereunder or at any time or times thereafter; PROVIDED,
that, upon the reasonable request of a Lender, the Agent shall provide to such
Lender any documents or reports delivered to the Agent by the Loan Parties
pursuant to the terms of this Agreement or any other Loan Document.
Section 10.03 RIGHTS; EXCULPATION, ETC. Neither the Agent nor the
Lenders, nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by them under or in
connection with this Agreement or the other Loan Documents, except for their own
gross negligence or
B-50
willful misconduct as determined by a final judgment of a court of competent
jurisdiction. Without limiting the generality of the foregoing, the Agent and
the Lenders (i) may treat the payee of any Loan as the owner thereof until the
Agent receives written notice of the assignment or transfer thereof, pursuant to
Section 12.07 hereof, signed by such payee and in form satisfactory to the
Agent; (ii) may consult with legal counsel (including, without limitation,
counsel to the Agent or counsel to the Loan Parties), independent public
accountants, and other experts selected by any of them and shall not be liable
for any action taken or omitted to be taken in reasonable good faith by any of
them in accordance with the advice of such counsel or experts; (iii) make no
warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, certificates, warranties or representations made in
or in connection with this Agreement or the other Loan Documents; (iv) 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 this Agreement or the other Loan
Documents on the part of any Person, the existence or possible existence of any
Default or Event of Default, or to inspect the Collateral or other property
(including, without limitation, the books and records) of any Person; and (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto. Neither the Agent nor the Required Lenders shall be liable
for any apportionment or distribution of payments made in good faith pursuant to
Section 3.04. The Agent may at any time (but shall not be required to) request
instructions from the Required Lenders with respect to any actions or approvals
which by the terms of this Agreement or of any of the other Loan Documents the
Agent is permitted or required to take or to grant, and if such instructions are
promptly requested, the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval under any of the Loan Documents
until it shall have received such instructions from the Required Lenders.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting under this Agreement or any of the other Loan Documents in accordance
with the instructions of the Required Lenders, or against the Required Lenders
on the same basis for which a right of action could be brought against the Agent
in connection with such acting or refraining from acting, except to the extent
such action, lack of action or instruction is determined by a court of competent
jurisdiction, pursuant to a final judgment, to have constituted gross negligence
or willful misconduct.
Section 10.04 RELIANCE. The Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in reasonable good faith to be genuine and
correct and to have been signed, sent or made by the proper Person, and with
respect to all matters pertaining to this Agreement or any of the other Loan
Documents and its duties hereunder or thereunder, upon advice of counsel
selected by it.
Section 10.05 INDEMNIFICATION. To the extent that the Agent is not
reimbursed and indemnified by any Loan Party, the Lenders will reimburse and
indemnify the Agent from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising out
of this Agreement or any of the other Loan Documents (it being understood that
the foregoing shall not be deemed to include principal, interest or fees owed by
a Loan Party to the Agent) or any action taken or omitted by the Agent under
this Agreement or any of the other Loan Documents, in proportion to each
Lender's Pro Rata Share, including, without limitation, advances and
disbursements made pursuant to Section 10.08; PROVIDED, HOWEVER, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, advances or
disbursements for which there has been a final judicial determination that such
liability resulted from the Agent's gross negligence or willful misconduct. The
obligations of the Lenders under this Section 10.05 shall survive the payment in
full of the Loan and the termination of this Agreement.
Section 10.06 AGENT INDIVIDUALLY. With respect to its Pro Rata Share of
the Loan made by it, the Agent shall have and may exercise the same rights and
powers hereunder and is subject to the same obligations and liabilities as and
to the extent set forth herein for any other Lender or maker of a Loan. The term
"Lenders" or "Required Lenders" or any similar terms shall, unless the context
clearly otherwise indicates, include the Agent in its individual capacity as a
Lender. The Agent and its Affiliates may accept deposits from, lend money to,
and generally engage in any kind of banking, trust or other business with any
Key Loan Party as if it were not acting as the Agent pursuant hereto without any
duty to account to the other Lenders.
B-51
Section 10.07 SUCCESSOR AGENT. (a) The Agent may resign from the
performance of all its functions and duties hereunder and under the other Loan
Documents at any time by giving at least thirty (30) Business Days' prior
written notice to the Borrower and each Lender. Such resignation shall take
effect upon the acceptance by a successor Agent of appointment pursuant to
clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Borrower shall appoint
a successor Agent acceptable to SSC. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the Agent, and the Agent shall be discharged from its duties and obligations
under this Agreement and the other Loan Documents. After the Agent's resignation
hereunder as the Agent, the provisions of this Article X shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the
Agent under this Agreement and the other Loan Documents.
(c) If a successor Agent shall not have been so appointed within
said thirty (30) Business Day period, the Agent shall then appoint a successor
Agent who shall serve as the Agent until such time, if any, as the Borrower
(with the consent of SSC) appoints a successor Agent as provided above.
Section 10.08 [Intentionally Omitted].
Section 10.09 [Intentionally Omitted].
ARTICLE XI
GUARANTY
Section 11.01 GUARANTY. Each Guarantor hereby unconditionally and
irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations of the Borrower now
or hereafter existing under any Loan Document, whether for principal, interest
(including, without limitation, all interest that accrues after the commencement
of any Insolvency Proceeding of the Borrower), fees, commissions,
indemnifications or otherwise (such obligations, to the extent not paid by the
Borrower, being THE "GUARANTEED OBLIGATIONS"), and agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by the Agent
and the Lenders in enforcing any rights under the Guaranty set forth in this
Article XI. Without limiting the generality of the foregoing, each Guarantor's
liability shall extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by the Borrower to the Agent and the Lenders under
any Loan Document but for the fact that they are unenforceable or not allowable
due to the existence of an Insolvency Proceeding involving the Borrower.
Section 11.02 GUARANTY ABSOLUTE. Each Guarantor 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
Agent or the Lenders with respect thereto. The Obligations of each Guarantor
under this Article XI are independent of the Guaranteed Obligations, and a
separate action or actions may be brought and prosecuted against each Guarantor
to enforce such Obligations, irrespective of whether any action is brought
against any Loan Party or whether any Loan Party is joined in any such action or
actions. The liability of each Guarantor under this Article XI shall be
irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:
(a) Any lack of validity or enforceability of any Loan Document or
any 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
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
otherwise;
B-52
(c) Any taking, release or amendment or waiver of or consent to
departure from any other Guaranty, for all or any of the Guaranteed Obligations;
(d) Any change, restructuring or termination of the corporate,
limited liability company or partnership structure or existence of any Loan
Party; or
(e) Any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any representation by
the Agent or the Lenders that might otherwise constitute a defense available to,
or a discharge of, any Loan Party or any other Guarantor or surety.
This Article XI 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 Agent, the Lenders or any other person upon
the insolvency, bankruptcy or reorganization of the Borrower or otherwise, all
as though such payment had not been made.
Section 11.03 WAIVER. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Article XI and any requirement that the Agent or
the Lenders exhaust any right or take any action against any Loan Party or any
other Person. Each Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated herein and that
the waiver set forth in this Section 11.03 is knowingly made in contemplation of
such benefits. Each Guarantor hereby waives any right to revoke this Article XI,
and acknowledges that this Article XI is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
Section 11.04 CONTINUING GUARANTY; ASSIGNMENTS. This Article XI is a
continuing guaranty and shall (a) remain in full force and effect until the
later of the cash payment in full of the Guaranteed Obligations (other than
indemnification obligations as to which no claim has been made) and all other
amounts payable under this Article XI and the Final Maturity Date, (b) be
binding upon each Guarantor, its successors and assigns and (c) inure to the
benefit of and be enforceable by the Agent and the Lenders and their successors,
pledgees, transferees and assigns. Without limiting the generality of the
foregoing clause (c), any Lender may pledge, 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 Pro Rata Share of the Loan owing
to it) to any other Person, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted such Lender herein or
otherwise, in each case as provided in Section 12.07.
Section 11.05 SUBROGATION. No Guarantor will exercise any rights that
it may now or hereafter acquire against any Loan Party or any other Guarantor
that arise from the existence, payment, performance or enforcement of such
Guarantor's obligations under this Article XI, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification and any right to participate in any claim or remedy of the Agent
and the Lenders against any Loan Party or any other Guarantor, 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 any
Loan Party or any other Guarantor, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security solely on
account of such claim, remedy or right, unless and until all of the Guaranteed
Obligations and all other amounts payable under this Article XI shall have been
paid in full in cash and the Final Maturity Date shall have occurred. If any
amount shall be paid to any Guarantor in violation of the immediately preceding
sentence at any time prior to the later of the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Article XI and
the Final Maturity Date, such amount shall be held in trust for the benefit of
the Agent and the Lenders and shall forthwith be paid to the Agent and the
Lenders to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Article XI, whether matured or unmatured, in
accordance with the terms of this Agreement. If (i) any Guarantor shall make
payment to the Agent and the Lenders of all or any part of the Guaranteed
Obligations, (ii) all of the Guaranteed Obligations and all other amounts
payable under this Article XI shall be paid in full in cash and (iii) the Final
Maturity Date shall have occurred, the Agent and the Lenders will, at such
Guarantor's request and expense, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to such Guarantor of an
interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.
B-53
ARTICLE XII
MISCELLANEOUS
Section 12.01 NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing and shall be mailed (by certified
mail, postage prepaid and return receipt requested), telecopied or delivered, if
to any Loan Party, at the following address:
Value City Department Stores, Inc.
3241 Westerville Road
Columbus, OH 43224
Attention: James A. McGrady
Telephone: (614) 478-2300
Telecopier: (614) 473-2721
with a copy to:
Porter Wright Morris & Arthur LLP
41 South High Street
Columbus, OH 43215
Attention: Robert J. Tannous, Esq. and Timothy E. Grady, Esq.
Telephone: 614-227-1953
Telecopier: 614-227-2100
if to the Agent, to it at the following address:
Schottenstein Stores Corporation
1800 Moler Road
Columbus, OH 43207
Attention: Irwin A. Bain, Esq.
Telephone: 614-449-4332
Telecopier: 614-443-0927
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Dennis J. Block, Esq.
Telephone: 212-504-6000
Telecopier: 614-504-6666
or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties complying as
to delivery with the terms of this Section 12.01. All such notices and other
communications shall be effective, (i) if sent by certified mail, return receipt
requested, the date when actually received, (ii) if sent by recognized overnight
express delivery, the Business Day following the day when sent, (iii) if
delivered by hand on a Business Day after 9:00 AM and no later than three (3)
hours prior to the close of customary business hours of the recipient, when
delivered (otherwise, at the opening of the then next Business Day), and (iv) by
telecopier and sent on a Business Day after 9:00 AM and no later than three (3)
hours prior to the close of customary business hours of the recipient, one (1)
hour after being sent (otherwise, at the opening of the then next Business Day).
Section 12.02 AMENDMENTS, ETC. Subject to Section 6.02(l), no amendment
or waiver of any provision of any Loan Document, including this Agreement, and
no consent to any departure by any Loan Party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent, the
Required
B-54
Lender, the Borrower and the Guarantors, 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 no amendment, waiver or consent shall (i)
reduce the principal of, or interest on, the Loan, reduce the amount of any fee
payable for the account of any Lender, or postpone or extend any date fixed for
any payment of principal of, or interest or fees on the Loan payable to any
Lender, in each case without the written consent of any Lender affected thereby,
(ii) amend the definition of "Pro Rata Share", (iii) release the Borrower or any
Guarantor or (iv) amend, modify or waive Section 3.04, Article XIII or this
Section 12.02 of this Agreement in each case, without the written consent of
each Lender. Notwithstanding the foregoing, no amendment, waiver or consent
shall, unless in writing and signed by the Agent, affect the rights or duties of
the Agent (but not in its capacity as a Lender) under this Agreement or the
other Loan Documents.
Section 12.03 NO WAIVER; REMEDIES, ETC. No failure on the part
of the Agent or any Lender to exercise, and no delay in exercising, any right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any right under any Loan Document
preclude any other or further exercise thereof or the exercise of any other
right. The rights and remedies of the Agent and the Lenders provided herein and
in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the Agent
and the Lenders under any Loan Document against any party thereto are not
conditional or contingent on any attempt by the Agent and the Lenders to
exercise any of their rights under any other Loan Document against such party or
against any other Person.
Section 12.04 EXPENSES; TAXES; ATTORNEYS' FEES. The Borrower
will pay within ten (10) days after demand therefor (which demand shall include
a statement of the nature thereof), all costs and expenses incurred by or on
behalf of the Agent (and, in the case of clauses (b) through (m) below, each
Lender), regardless of whether the transactions contemplated hereby are
consummated, including, without limitation, reasonable fees, costs, client
charges and expenses of counsel for the Agent (and, in the case of clauses (b)
through (m) below, each Lender), accounting, due diligence, periodic field
audits, physical counts, valuations, investigations, searches and filings,
monitoring of assets, title searches and reviewing environmental assessments,
miscellaneous disbursements, examination, travel, lodging and meals, arising
from or relating to the following: (a) the negotiation, preparation, execution,
delivery, performance and administration of this Agreement and the other Loan
Documents (including, without limitation, the preparation of any additional Loan
Documents pursuant to Section 6.01(b) or the review of any of the agreements,
instruments and documents referred to in Section 6.01(f)); (b) any requested
amendments, waivers or consents to this Agreement or the other Loan Documents
whether or not such documents become effective or are given; (c) the
preservation and protection of any of the Lenders' rights under this Agreement
or the other Loan Documents; (d) the defense of any claim or action asserted or
brought against the Agent or any Lender by any Person that arises from or
relates to this Agreement, any other Loan Document, the Agent's or the Lenders'
claims against any Loan Party, or any and all matters in connection therewith;
(e) the commencement or defense of, or intervention in, any court proceeding
arising from or related to this Agreement or any other Loan Document; (f) the
filing of any petition, complaint, answer, motion or other pleading by the Agent
or any Lender; (g) [Intentionally Omitted]; (h) [Intentionally Omitted]; (i) any
attempt to collect from any Loan Party; (j) all liabilities and costs arising
from or in connection with the past, present or future operations of any Loan
Party involving any damage to real or personal property or natural resources or
harm or injury alleged to have resulted from any Release of Hazardous Materials
on, upon or into such property; (k) any Environmental Liabilities and Costs
incurred in connection with the investigation, removal, cleanup and/or
remediation of any Hazardous Materials present or arising out of the operations
of any facility of any Loan Party; (l) any Environmental Liabilities and Costs
incurred in connection with any Environmental Lien; or (m) the receipt by the
Agent or any Lender of any advice from professionals with respect to any of the
foregoing; PROVIDED THAT with respect to clauses (d), (e) and (f) above, such
costs and expenses shall not include those costs and expenses that have been
determined by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of such Lender or Agent, as the case may be.
Without limitation of the foregoing or any other provision of any Loan Document:
(x) the Borrower agree to pay all stamp, document, transfer, recording or filing
taxes or fees and similar impositions now or hereafter determined by the Agent
or any Lender to be payable in connection with this Agreement or any other Loan
Document, and the Borrower agrees to save the Agent and each Lender harmless
from and against any and all present or future claims, liabilities or losses
with respect to or resulting from any omission to pay or delay in paying any
such taxes, fees or impositions unless such omission is the result of the gross
negligence or willful misconduct of any Lender; (y) the Borrower agrees to pay
all broker and investment banking fees that may become due in connection with
the transactions contemplated by this Agreement and the other Loan Documents
(the Agent and the
B-55
Lenders represent and warrant that no brokers have been engaged or retained by
any of them in connection with the transactions evidenced by the Loan
Documents); and (z) if the Borrower fails to perform any covenant or agreement
contained herein or in any other Loan Document, the Agent may itself perform or
cause performance of such covenant or agreement, and the expenses of the Agent
incurred in connection therewith shall be reimbursed on demand by the Borrower.
Section 12.05 RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default, the Agent or any Lender may, and is hereby
authorized to, at any time and from time to time, without notice to any Loan
Party (any such notice being expressly waived by the Loan Parties) and to the
fullest extent permitted by law, set off and 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 the Agent or such Lender to or for the credit
or the account of any Loan Party against any and all obligations of the Loan
Parties either now or hereafter existing under any Loan Document, irrespective
of whether or not the Agent or such Lender shall have made any demand hereunder
or thereunder and although such obligations may be contingent or unmatured. The
Agent and each Lender agree to notify such Loan Party promptly after any such
set-off and application made by the Agent or such Lender provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Agent and the Lenders under this Section 12.05
are in addition to the other rights and remedies (including other rights of
set-off) which the Agent and the Lenders may have under this Agreement or any
other Loan Documents of law or otherwise.
Section 12.06 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 12.07 ASSIGNMENTS AND PARTICIPATIONS. (a) This Agreement and
the other Loan Documents shall be binding upon and inure to the benefit of each
Loan Party and the Agent and each Lender and their respective successors and
assigns; PROVIDED, HOWEVER, that none of the Loan Parties may assign or transfer
any of its rights hereunder without the prior written consent of each Lender and
any such assignment without the Lenders' prior written consent shall be null and
void.
(b) Each Lender may, with the written consent (which consent shall
not be unreasonably withheld) of SSC (so long as SSC is the Agent or a Lender
under this Agreement) and the Borrower (so long as no Event of Default has
occurred and is continuing), assign to one or more other Lenders or other
entities all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of the Loan made by it);
PROVIDED, HOWEVER, that (i) such assignment is in an amount which is at least
$5,000,000 or a multiple of $1,000,000 in excess thereof (or the remainder of
such Lender's Pro Rata Share of the Loan) (except such minimum amount shall not
apply to an assignment by a Lender to an Affiliate of such Lender or a fund or
account managed by such Lender or an Affiliate of such Lender or, in the case of
SSC, a shareholder of such Lender), (ii) the parties to each such assignment
shall execute and deliver to the Agent, for its acceptance, an Assignment and
Acceptance, together with any promissory note subject to such assignment and
such parties shall deliver to the Agent a processing and recordation fee of
$5,000 (except the payment of such fee shall not be required in connection with
an assignment by a Lender to an Affiliate of such Lender or a fund or account
managed by such Lender or an Affiliate of such Lender, or, in the case of SSC, a
shareholder of such Lender) and (iii) no written consent of the SSC and the
Borrower shall be required in connection with any assignment by a Lender to an
Affiliate of such Lender or a fund or account managed by such Lender or an
Affiliate of such Lender, or in the case of SSC, a shareholder of such Lender.
Upon such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least three (3) Business Days after the delivery thereof to the Agent (or such
shorter period as shall be agreed to by the Agent and the parties to such
assignment), (A) the assignee thereunder shall become a "Lender" hereunder and,
in addition to the rights and obligations hereunder held by it immediately prior
to such effective date, have the rights and obligations hereunder that have been
assigned to it pursuant to such Assignment and Acceptance and (B) the assigning
Lender 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 rights and obligations under this Agreement, such
Lender shall cease to be a party hereto).
B-56
(i) By executing and delivering an Assignment and Acceptance,
the assigning Lender and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (A) other than as provided in
such Assignment and Acceptance, the assigning Lender 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 this Agreement or any other Loan Document
furnished pursuant hereto provided that such assigning Lender's obligations and
responsibilities under the confidentiality provisions of this Agreement shall
continue despite any assignment by such assigning Lender; (B) the assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Loan Party or any of its Subsidiaries
or the performance or observance by any Loan Party of any of its obligations
under this Agreement or any other Loan Document furnished pursuant hereto; (C)
such assignee confirms that it has received a copy of this Agreement and the
other Loan Documents, together with such other documents and information it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (D) such assignee will, independently and
without reliance upon the assigning Lender, the Agent or any Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents; (E) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental hereto and thereto; and (F) such assignee agrees that it
will perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender.
(ii) The Borrower authorizes the Agent, and the Agent agrees,
to maintain, or cause to be maintained at the Payment Office, a copy of each
Assignment and Acceptance delivered to and accepted by it and a register (THE
"REGISTER") for the recordation of the names and addresses of the Lenders, and
the principal amount of the Loan (the "REGISTERED LOANS") owing to each Lender
from time to time. The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrower, the Agent and the
Lenders shall treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(iii) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an assignee, together with any promissory
notes subject to such assignment, the Agent shall, if the Agent consents to such
assignment and if such Assignment and Acceptance has been completed (A) accept
such Assignment and Acceptance and (B) record the information contained therein
in the Register.
(iv) In addition to the other requirements contained in this
Section 12.07, a Registered Loan (and the registered note, if any, evidencing
the same) may be assigned or sold in whole or in part only by registration of
such assignment or sale on the Register (and each registered note shall
expressly so provide). Any assignment or sale of all or part of such Registered
Loan (and the registered note, if any, evidencing the same) may be effected only
by registration of such assignment or sale on the Register, together with the
surrender of the registered note, if any, evidencing the same duly endorsed by
(or accompanied by a written instrument of assignment or sale duly executed by)
the holder of such registered note, whereupon, at the request of the designated
assignee(s) or transferee(s), one or more new registered notes in the same
aggregate principal amount shall be issued to the designated assignee(s) or
transferee(s). Prior to the registration of assignment or sale of any Registered
Loan (and the registered note, if any, evidencing the same), the Agent shall
treat the Person in whose name such Registered Loan (and the registered note, if
any, evidencing the same) is registered as the owner thereof for the purpose of
receiving all payments thereon and for all other purposes, notwithstanding
notice to the contrary.
(v) In the event that any Lender sells participations in a
Registered Loan, such Lender shall maintain a register on which it enters the
name of all participants in the Registered Loans held by it (the "PARTICIPANT
REGISTER"). A Registered Loan (and the registered note, if any, evidencing the
same) may be participated in whole or in part only by registration of such
participation on the Participant Register (and each registered note shall
expressly so provide). Any participation of such Registered Loan (and the
registered note, if
B-57
any, evidencing the same) may be effected only by the registration of such
participation on the Participant Register.
(vi) Any foreign Person who purchases or is assigned or
participates in any portion of such Registered Loan shall provide the Agent and
the assigning or selling Lender with a completed Internal Revenue Service Form
W-8BEN (Certificate of Foreign Status) or a substantially similar form for such
purchaser, participant or any other affiliate who is a holder of beneficial
interests in the Registered Loan.
(c) Each Lender may, with the written consent (which consent shall
not be unreasonably withheld) of SSC (so long as SSC is the Agent or a Lender
under this Agreement) and the Borrower (so long as no Event of Default has
occurred and is continuing), sell participations to one or more banks or other
entities in or to all or a portion of its rights and obligations under this
Agreement and the other Loan Documents (including, without limitation, all or a
portion of its Pro Rata Share of the Loan made by it); PROVIDED, that (i) such
Lender's obligations under this Agreement (including without limitation, its
Commitments hereunder) and the other Loan Documents shall remain unchanged; (ii)
such Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, and the Borrower, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents; (iii) a participant shall not be entitled to require
such Lender to take or omit to take any action hereunder except (A) action
directly effecting an extension of the maturity dates or decrease in the
principal amount of the Loan, (B) action directly effecting an extension of the
due dates or a decrease in the rate of interest payable on the Loan or the fees
payable under this Agreement, or (C) actions directly effecting a release of any
Loan Party (except as provided otherwise by this Agreement or any other Loan
Document); and (iv) no consent of SSC or the Borrower will be required for the
sale by a Lender to an Affiliate of such Lender or a fund or account managed by
such Lender or an Affiliate of such Lender.
Section 12.08 COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of this Agreement by telecopier shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telecopier also
shall deliver an original executed counterpart of this Agreement but the failure
to deliver an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement. The foregoing shall apply
to each other Loan Document mutatis mutandis.
SECTION 12.09 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND
VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE
COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
LOAN PARTY HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE AGENT AND THE LENDERS TO SERVICE OF PROCESS IN ANY
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANY LOAN PARTY IN ANY OTHER JURISDICTION. EACH LOAN PARTY HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT ANY LOAN PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR
B-58
TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 12.11 WAIVER OF JURY TRIAL, ETC. EACH LOAN PARTY, THE AGENT AND
EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR
OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH LOAN
PARTY CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE AGENT
OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE AGENT OR ANY
LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK
TO ENFORCE THE FOREGOING WAIVERS. EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT.
Section 12.12 CONSENT BY THE AGENT AND LENDERS. Except as otherwise
expressly set forth herein to the contrary, if the consent, approval,
satisfaction, determination, judgment, acceptance or similar action (an
"ACTION") of the Agent shall be permitted or required pursuant to any provision
hereof or any provision of any other agreement to which any Loan Party is a
party and to which the Agent or any Lender has succeeded thereto, such Action
shall be required to be in writing and may be withheld or denied by the Agent,
in its sole good faith discretion.
Section 12.13 NO PARTY DEEMED DRAFTER. Each of the parties hereto
agrees that no party hereto shall be deemed to be the drafter of this Agreement.
Section 12.14 REINSTATEMENT; CERTAIN PAYMENTS. If any claim is ever
made upon the Agent or any Lender for repayment or recovery of any amount or
amounts received by the Agent or such Lender in payment or on account of any of
the Obligations, the Agent or such Lender shall give prompt notice of such claim
to each other Lender and the Borrower, and if the Agent or such Lender repays
all or part of such amount by reason of (i) any judgment, decree or order of any
court or administrative body having jurisdiction over the Agent or such Lender
or any of its property, or (ii) any good faith settlement or compromise of any
such claim effected by the Agent or such Lender with any such claimant, then and
in such event each Loan Party agrees that (A) any such judgment, decree, order,
settlement or compromise shall be binding upon it notwithstanding the
cancellation of any Indebtedness hereunder or under the other Loan Documents or
the termination of this Agreement or the other Loan Documents, and (B) it shall
be and remain liable to the Agent or such Lender hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by the Agent or such Lender.
Section 12.15 INDEMNIFICATION.
(a) GENERAL INDEMNITY. In addition to each Loan Party's other
Obligations under this Agreement, each Loan Party agrees to, jointly and
severally, defend, protect, indemnify and hold harmless the Agent and each
Lender and all of their respective officers, directors, employees, attorneys,
consultants and agents (collectively called the "INDEMNITEES") from and against
any and all losses, damages, liabilities, obligations, penalties, reasonable
fees, costs and expenses (including, without limitation, reasonable attorneys'
fees, costs and expenses) incurred by such Indemnitees, whether prior to or from
and after the Effective Date, whether direct, indirect or consequential, as a
result of or arising from or relating to or in connection with any of the
following: (i) the negotiation, preparation, execution or performance or
enforcement of this Agreement, any other Loan Document or of any other document
executed in connection with the transactions contemplated by this Agreement;
(ii) the Agent's or any Lender's furnishing of funds to the Borrower under this
Agreement or the other Loan Documents, including, without limitation, the
management of the Loan; (iii) any matter relating to the financing transactions
contemplated by this Agreement or the other Loan Documents or by any document
executed in connection with the transactions contemplated by this Agreement or
the other Loan Documents; or (iv) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a
party thereto
B-59
(collectively, the "INDEMNIFIED MATTERS"); PROVIDED, HOWEVER, that
the Loan Parties shall not have any obligation to any Indemnitee under this
subsection (a) for any Indemnified Matter caused by the gross negligence or
willful misconduct of such Indemnitee, as determined by a final judgment of a
court of competent jurisdiction.
(b) ENVIRONMENTAL INDEMNITY. Without limiting Section 12.15(a)
hereof, each Loan Party agrees to, jointly and severally, defend, indemnify, and
hold harmless the Indemnitees against any and all Environmental Liabilities and
Costs and all other claims, demands, penalties, fines, liability (including
strict liability), losses, damages, costs and expenses (including without
limitation, reasonable legal fees and expenses, consultant fees and laboratory
fees), arising out of (i) any Releases or threatened Releases (A) at any
property presently or formerly owned or operated by any Loan Party or any
Subsidiary of any Loan Party, or any predecessor in interest, or (B) of any
Hazardous Materials generated and disposed of by any Loan Party or any
Subsidiary of any Loan Party, or any predecessor in interest; (ii) any
violations of Environmental Laws; (iii) any Environmental Action relating to any
Loan Party or any Subsidiary of any Loan Party, or any predecessor in interest;
(iv) any personal injury (including wrongful death) or property damage (real or
personal) arising out of exposure to Hazardous Materials used, handled,
generated, transported or disposed by any Loan Party or any Subsidiary of any
Loan Party, or any predecessor in interest; and (v) any breach of any warranty
or representation regarding environmental matters made by the Loan Parties in
Section 6.01(g) or the breach of any covenant made by the Loan Parties in
Section 5.01(r). Notwithstanding the foregoing, the Loan Parties shall not have
any obligation to any Indemnitee under this subsection (b) regarding any
potential environmental matter covered hereunder which is caused by the gross
negligence or willful misconduct of such Indemnitee, as determined by a final
judgment of a court of competent jurisdiction.
(c) To the extent that the undertaking to indemnify, pay and hold
harmless set forth in this Section 12.15 may be unenforceable because it is
violative of any law or public policy, each Loan Party shall, jointly and
severally, contribute the maximum portion which it is permitted to pay and
satisfy under Applicable Law, to the payment and satisfaction of all Indemnified
Matters incurred by the Indemnitees. The indemnities set forth in this Section
12.15 shall survive the repayment of the Obligations and discharge of any Liens
granted under the Loan Documents.
Section 12.16 [Intentionally Omitted.]
Section 12.17 RECORDS. The unpaid principal of and interest on the
Loan, the interest rate or rates applicable to such unpaid principal and
interest, the duration of such applicability, and the accrued and unpaid fees
shall at all times be ascertained from the records of the Agent, which shall be
rebuttably presumed to be correct, absent manifest error.
Section 12.18 BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by each Loan Party, the Agent and each Lender
and when the conditions precedent set forth in Section 4.01 hereof have been
satisfied or waived in writing by the Agent, and thereafter shall be binding
upon and inure to the benefit of each Loan Party, the Agent and each Lender, and
their respective successors and assigns, except that the Loan Parties shall not
have the right to assign their rights hereunder or any interest herein without
the prior written consent of each Lender, and any assignment by any Lender shall
be governed by Section 12.07 hereof.
Section 12.19 MAXIMUM INTEREST. It is the intention of the parties
hereto that the Agent and each Lender shall conform strictly to usury laws
applicable to it. Accordingly, if the transactions contemplated hereby or by any
other Loan Document would be usurious as to the Agent or any Lender under laws
applicable to it (including the laws of the United States of America and the
State of New York or any other jurisdiction whose laws may be mandatorily
applicable to the Agent or such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in this Agreement or any other Loan Document or any agreement entered into in
connection with or as security for the Obligations, it is agreed as follows: (i)
the aggregate of all consideration which constitutes interest under law
applicable to the Agent or any Lender that is contracted for, taken, reserved,
charged or received by the Agent or such Lender under this Agreement or any
other Loan Document or agreements or otherwise in connection with the
Obligations shall under no circumstances exceed the maximum amount allowed by
such applicable law, any excess shall be canceled automatically and if
theretofore paid shall be credited by the Agent or such Lender on the principal
amount of the Obligations (or, to the extent that the principal amount of the
Obligations shall have been or would thereby be paid in full, refunded by the
Agent or
B-60
such Lender, as applicable, to the Borrower); and (ii) in the event that the
maturity of the Obligations is accelerated by reason of any Event of Default
under this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to the Agent or any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any, provided for
in this Agreement or otherwise shall be canceled automatically by the Agent or
such Lender, as applicable, as of the date of such acceleration or prepayment
and, if theretofore paid, shall be credited by the Agent or such Lender, as
applicable, on the principal amount of the Obligations (or, to the extent that
the principal amount of the Obligations shall have been or would thereby be paid
in full, refunded by the Agent or such Lender to the Borrower). All sums paid or
agreed to be paid to the Agent or any Lender for the use, forbearance or
detention of sums due hereunder shall, to the extent permitted by law applicable
to the Agent or such Lender, be amortized, prorated, allocated and spread
throughout the full term of the Loan until payment in full so that the rate or
amount of interest on account of the Loan hereunder does not exceed the maximum
amount allowed by such applicable law. If at an time and from time to time (x)
the amount of interest payable to the Agent or any Lender on any date shall be
computed at the Highest Lawful Rate applicable to the Agent or such Lender
pursuant to this Section 12.19 and (y) in respect of any subsequent interest
computation period the amount of interest otherwise payable to the Agent or such
Lender would be less than the amount of interest payable to the Agent or such
Lender computed at the Highest Lawful Rate applicable to the Agent or such
Lender, then the amount of interest payable to the Agent or such Lender in
respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to the Agent or such Lender until
the total amount of interest payable to the Agent or such Lender shall equal the
total amount of interest which would have been payable to the Agent or such
Lender if the total amount of interest had been computed without giving effect
to this Section 12.19.
For purposes of this Section 12.19, the term "applicable law"
shall mean that law in effect from time to time and applicable to the loan
transaction between the Borrower, on the one hand, and the Agent and the
Lenders, on the other, that lawfully permits the charging and collection of the
highest permissible, lawful non-usurious rate of interest on such loan
transaction and this Agreement, including laws of the State of New York and, to
the extent controlling, laws of the United States of America.
The right to accelerate the maturity of the Obligations does
not include the right to accelerate any interest that has not accrued as of the
date of acceleration.
Section 12.20 CONFIDENTIALITY. The Agent and each Lender agrees (on
behalf of itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with its customary procedures for handling confidential information
of this nature and in accordance with safe and sound practices of comparable
commercial finance companies, any non-public information supplied to it by the
Loan Parties pursuant to this Agreement or the other Loan Documents which is
identified in writing by the Loan Parties as being confidential at the time the
same is delivered to such Person (or consists of information (such as business
plans and financial information) which is customarily confidential information)
(and which at the time is not, and does not thereafter become, publicly
available or legally available to such Person from another source (other than
the Loan Parties) on a nonconfidential basis), PROVIDED, that nothing herein
shall limit the disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to counsel for the Agent or
any Lender, (iii) to examiners, auditors, accountants or Securitization Parties,
so long as such Person first agrees, in writing, to be bound by confidentiality
provisions similar in substance to this Section 12.20, (iv) in connection with
any litigation to which the Agent or any Lender is a party or (v) to any
assignee or participant (or prospective assignee or participant) so long as such
assignee or participant (or prospective assignee or participant) first agrees,
in writing, to be bound by confidentiality provisions similar in substance to
this Section 12.20. The Agent and each Lender agrees that, upon receipt of a
request or identification of the requirement for disclosure pursuant to clause
(iv) hereof, it will make reasonable efforts to keep the Loan Parties informed
of such request or identification; PROVIDED, that the each Loan Party
acknowledges that the Agent and each Lender may make disclosure as required or
requested by any Governmental Authority or representative thereof and that the
Agent and each Lender may be subject to review by Securitization Parties or
other regulatory agencies and may be required to provide to, or otherwise make
available for review by, the representatives of such parties or agencies any
such non-public information.
B-61
Section 12.21 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
ARTICLE XIII
CONVERSION OF LOAN
Section 13.01 CONVERSION PRIVILEGE AND CONVERSION PRICE.
(a) Subject to and upon compliance with the provisions of this
Article, at any time and from time to time, to the extent any portion of the
Loan remains outstanding, any Lender may at its option convert all or any
portion of its Pro Rata Share of the Loan into fully paid and nonassessable
shares of Common Stock ("CONVERSION SHARES") at the Conversion Price, determined
as hereinafter provided, in effect at the time of receipt of a Conversion Notice
by the Borrower. Such conversion right shall expire at the close of business on
the Maturity Date.
(b) Each Lender that elects to convert all or any portion of its
Pro Rata Share of the Loan in accordance with the terms of this Article (a
"CONVERTING LENDER") shall convert such portion of its Pro Rata Share of the
Loan into the number of Conversion Shares obtained by dividing the principal
amount of the portion of its Pro Rata Share of the Loan to be converted plus all
accrued and unpaid interest thereon by the Conversion Price. The "CONVERSION
PRICE" shall initially be equal to $4.50 per share, subject to adjustment and
readjustment from time to time as provided in Section 13.03, and, as so
adjusted, shall remain in effect until a further readjustment is required by
Section 13.03.
Section 13.02 EXERCISE OF CONVERSION PRIVILEGE.
(a) In order to exercise the Conversion with respect to the Loan or
portion thereof, a Converting Lender shall deliver to the Borrower written
notice (the "CONVERSION NOTICE") by telecopier, or any other method described in
Section 12.01 hereof, not less than two (2) Business Days nor more than ten (10)
Business Days prior to the date of such Conversion (the "CONVERSION DATE"). The
Conversion Notice shall set forth (i) the Conversion Date, (ii) the amount of
the Lender's Pro Rata Share of the Loan and accrued interest to be converted,
(iii) any portion of the Pro Rata Share of the Loan held by such Converting
Lender that is not to be Converted, (iv) the current Conversion Price, (v) the
number Conversion Shares to be issued and (vi) the amount of cash, if any, to be
paid by the Borrower to the Converting Lender in lieu of fractional shares.
(b) Conversion Shares issued on a Conversion Date shall be deemed
to have been issued immediately prior to the close of business on such
Conversion Date, and a Converting Lender shall be treated for all purposes as
the record holder of such Conversion Shares at such time. On the Conversion
Date, the Borrower shall issue and deliver to the Converting Lender, (i) a
certificate or certificates for the Conversion Shares issuable on such
Conversion Date, (ii) payment in lieu of any fraction of a share, as provided in
Section 13.11 hereof.
(c) All Conversion Shares delivered upon such conversion shall bear
the following restrictive legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS OR
UNLESS THE BORROWER RECEIVES AN OPINION OF COUNSEL TO THE
EFFECT THAT REGISTRATION UNDER SUCH ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SUCH ACT.
B-62
If Conversion Shares to be issued upon conversion are to be
registered in a name other than that of the Converting Lender, the security
registrar shall, prior to such conversion, record in the security register the
name of the Person in whose name such Conversion Shares are to be registered.
Section 13.03 ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(a) SPECIAL DEFINITION. For purposes of this Section 13.03,
"ADDITIONAL SHARES OF COMMON STOCK" shall mean any or all shares of Common Stock
issued (or, pursuant to Section 13.03(c), deemed to be issued) by the Borrower
after the Effective Date, other than shares of Common Stock issued or issuable:
(i) shares issued upon the conversion of the Loan,
(ii) such number of additional shares as may become issuable
upon the conversion of the Loan by reason of adjustments required pursuant to
the applicable anti-dilution provisions as in effect on the date hereof,
(iii) up to 5,000,000 shares of Common Stock (and following
the fifth anniversary of the Effective Date, up to an additional 5,000,000
shares of Common Stock) that are issued to Persons other than Affiliates of the
Borrower, including (A) shares of Common Stock or options exercisable therefor,
issued or to be issued under the Borrower's 2000 Stock Option Plan as in effect
on the date hereof or under any other employee stock option or purchase plan or
plans, or pursuant to compensatory or incentive agreements, for officers,
employees or consultants of the Borrower or any of its Subsidiaries, in each
case adopted or assumed after such date by the Borrower's Board of Directors;
PROVIDED in each case that the exercise or purchase price for any such share
shall not be less than 95% of the fair market value (determined in good faith by
the Borrower's Board of Directors) of the Common Stock on the date of the grant,
and such additional number of shares as may become issuable pursuant to the
terms of any such plans by reason of adjustments required pursuant to
antidilution provisions applicable to such securities in order to reflect any
subdivision or combination of Common Stock, by reclassification or otherwise, or
any dividend on Common Stock payable in Common Stock, (B) shares of restricted
stock issued by the Borrower to executive officers of the Borrower, and (C)
shares of Common Stock issued by the Borrower as charitable gifts; PROVIDED;
HOWEVER, that all options exercisable for shares of Common Stock granted to
executive officers of the Borrower or its Subsidiaries during the six months
following the date hereof shall have an exercise price of no less than $4.50 per
share, and
(iv) [Intentionally Omitted.]
(b) NO ADJUSTMENT OF CONVERSION PRICE. Subject to the provisions of
Section 13.03(c)(ii) and Section 13.03(f) below, no adjustment in the number of
shares of Common Stock into which the Loan is convertible shall be made, by
adjustment in the Conversion Price in respect of the issuance of Additional
Shares of Common Stock or otherwise, unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the Borrower
is less than the greater of the Current Market Price and the Fair Market Value
on the date of, and immediately prior to, the issue of such Additional Share of
Common Stock.
(c) ISSUE OF SECURITIES DEEMED AN ISSUE OF ADDITIONAL SHARES OF
COMMON STOCk.
(i) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
Borrower at any time or from time to time after the Effective Date shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date; PROVIDED, that such Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 13.03(e) hereof) of such
Additional Shares of Common Stock would be less than the Conversion Price in
effect on the date of and immediately prior to such issue, or such
B-63
record date, as the case may be, and PROVIDED, FURTHER, that in any such case in
which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time, pursuant to any provisions designed to
protect against dilution, or otherwise, for any increase or decrease in the
consideration payable to the Borrower, or increase or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the applicable Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease insofar
as it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if such Options or Convertible Securities, as the case may be, were never
issued;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original date on which an
adjustment was made pursuant to this Section 13.03(c)(i), or (ii) the Conversion
Price that would have resulted from any issuance of Additional Shares of Common
Stock between such original adjustment date and the date on which a readjustment
is made pursuant to clause (B) or (C) above; and
(E) if such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective on
such record date shall be cancelled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted pursuant to this
Section 13.03(c) as of the actual date of their issuance.
(ii) STOCK DIVIDENDS, STOCK DISTRIBUTIONS AND SUBDIVISIONS. In
the event the Borrower at any time or from time to time after the Effective Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, Additional Shares of Common Stock
shall be deemed to have been issued:
(A) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend or
distribution, or
(B) in the case of any such subdivision, at the close of
business on the date immediately prior to the date upon which such corporate
action becomes effective.
If such record date shall have been fixed and such dividend
shall not have been fully paid on the date fixed for the payment thereof, the
adjustment previously made in the Conversion Price which became effective on
such record date shall be cancelled as of the close of business on such record
date, and thereafter the Conversion Price shall be adjusted pursuant to this
Section 13.03(c) as of the time of actual payment of such dividend.
(d) Adjustment of Conversion Price.
B-64
(i) UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Borrower shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
13.03(c)(i), but excluding Additional Shares of Common Stock deemed to be issued
pursuant to Section 13.03(c)(ii), which event is dealt with in Section 13.03(f)
hereof) without consideration or for a consideration per share less than the
Conversion Price in effect on the date of and immediately prior to such issue,
then such Conversion Price shall be reduced, concurrently with such issue, to
the price determined by dividing (i) an amount equal to the sum of (a) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale and the number of shares of Common Stock issuable upon conversion of the
aggregate principal amount of the Loan and any Convertible Securities and upon
exercise of any Options multiplied by the then existing Conversion Price and (b)
the consideration, if any, received by the Borrower upon such issue or sale, by
(ii) the total number of shares of Common Stock outstanding immediately after
such issue or sale and the number of shares of Common Stock issuable upon
conversion of the aggregate principal amount of the Loan and any Convertible
Securities and upon exercise of any Options.
(ii) CONVERSION PRICE RESET. If the consolidated EBITDA of the
Borrower and its subsidiaries for the fiscal year ending February 1, 2003, is
less than $90,000,000 or the combined, unconsolidated EBITDA of each of the
Borrower (excluding Subsidiaries), Value City Limited Partnership, Value City of
Michigan, Inc., GB Retailers, Inc., Gramex Retail Stores, Inc., VCM, Ltd. and
any Person acquired after the date hereof that operates Value City department
stores is less than $35,000,000 in the aggregate, then effective as of the close
of business on February 1, 2003, the Conversion Price shall be reduced to $4.00
per share and the number of Conversion Shares shall be increased to give effect
to all other adjustments as provided in this Section 13.03 as if the Conversion
Price on the Effective Date had been $4.00 per share.
(e) DETERMINATION OF CONSIDERATION. For purposes of this Article
XIII, the consideration received by the Borrower for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(i) CASH AND PROPERTY: Such consideration shall:
(A) insofar as it consists of cash, be the aggregate
amount of cash received by the Borrower excluding amounts paid or payable for
accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by a committee of the Borrower's Board of Directors consisting of
directors who are not Affiliates of the Borrower or SSC; PROVIDED, HOWEVER, that
at the request of any Lender, the fair value shall be determined in good faith
by an independent investment banking firm selected jointly by the Borrower and
such Lender or, if that selection cannot be made within ten days, by an
independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and PROVIDED, further, that the
Borrower shall pay all of the reasonable fees and expenses of any third parties
incurred in connection with determining the fair value; and
(C) in the event Additional Shares of Common Stock are
issued together with other shares of securities or other assets of the Borrower
for a single undivided consideration, be the proportion of such consideration so
received allocable to such Additional Shares of Common Stock, computed as
provided in clauses (A) and (B) above, as determined in good faith by a
committee of the Borrower's Board of Directors consisting of directors who are
not Affiliates of the Borrower, a Lender or SSC, or at the request of any
Lender, the proportion of such consideration so received allocable to such
Additional Shares of Common Stock value shall be determined in good faith by an
independent investment banking firm selected jointly by the Borrower and the
Lenders or, if that selection cannot be made within ten days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules, and PROVIDED, further, that the Borrower shall pay
all of the reasonable fees and expenses of any third parties incurred in
connection with determining the proportion of such consideration so received
allocable to such Additional Shares of Common Stock.
(ii) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Borrower for Additional Shares of Common Stock deemed to
have been issued pursuant to Section 13.03(c)(i) shall be determined by
dividing:
B-65
(x) the total amount, if
any, received or receivable by the Borrower
as consideration for the issue of such
Options or Convertible Securities, plus the
minimum aggregate amount of additional
consideration (as set forth in the
instruments relating thereto, without regard
to any provision contained therein for a
subsequent adjustment of such consideration)
payable to the Borrower upon the exercise of
such Options or the conversion or exchange
of such Convertible Securities, or in the
case of Options for Convertible Securities,
the exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities, by
(y) the maximum number of
shares of Common Stock (as set forth in the
instruments relating thereto, without regard
to any provision contained therein for a
subsequent adjustment of such number)
issuable upon the exercise of such Options
or the conversion or exchange of such
Convertible Securities.
(f) ADJUSTMENT FOR STOCK DIVIDENDS, STOCK DISTRIBUTIONS,
SUBDIVISIONS, COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK.
(i) STOCK DIVIDENDS, STOCK DISTRIBUTIONS OR SUBDIVISIONS. In
the event the Borrower shall issue Additional Shares of Common Stock pursuant to
Section 13.03(c)(ii) in a stock dividend, other stock distribution or
subdivision, the Conversion Price in effect immediately prior to such stock
dividend, stock distribution or subdivision shall, concurrently with the
effectiveness of such stock dividend, stock distribution or subdivision, be
proportionately decreased to adjust equitably for such dividend, distribution or
subdivision.
(ii) COMBINATIONS OR CONSOLIDATIONS. In the event the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Conversion Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased to adjust equitably for such
combination or consolidation.
(g) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Borrower with or into another corporation or the
conveyance of all or substantially all of the assets of the Borrower to another
corporation, or any proposed reorganization or reclassification of the Borrower
(except a transaction for which provision for adjustment is otherwise made in
this Article XIII), the Loan shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock deliverable upon conversion of such portion of the
Loan would have been entitled upon such consolidation, merger, conveyance,
reorganization or reclassification; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interest thereafter of the Lenders, to the end that the provisions set forth
herein (including provisions with respect to changes in and other adjustments of
the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Loan. The Borrower shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor corporation or purchaser, as the case may be,
shall assume by written instrument the obligation to deliver to each Lender such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Lender is entitled to receive. Nothing in this Section 13.03
shall be deemed to authorize the Borrower to enter into any transaction not
otherwise permitted by this Agreement.
(h) EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. If the Borrower at
any time or from time to time after the date hereof shall declare, order, pay or
make a dividend or other distribution (including, without limitation, any
distribution of other or additional stock or other securities or property or
Options by way of dividend or spin-off, reclassification, recapitalization or
similar corporate rearrangement) on the Common Stock other than (a) a dividend
payable in Additional Shares of Common Stock or (b) a regularly scheduled cash
dividend payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, adequate provision
shall be made so that the Lender shall receive, upon conversion of its portion
of the
B-66
Loan, a pro rata share of such dividend based upon the maximum number of shares
of Common Stock at the time issuable to the Lender (determined without regard to
whether the Loan is convertible at such time).
Section 13.04 NO IMPAIRMENT. The Borrower will not, by
amendment of its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Borrower but will at all times in good faith assist in the carrying out of all
the provisions of this Article XIII and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights and other
rights of the Lenders against impairment.
Section 13.05 ACCOUNTANTS' REPORT. In each case of any
adjustment or readjustment of the Conversion Price pursuant to this Article
XIII, the Borrower at its sole expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare a report setting
forth such adjustment or readjustment and showing in reasonable detail the
method of calculation thereof and the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or to be received by the Borrower for any Additional Shares of Common Stock
issued or sold or deemed to have been issued, (b) the number of shares of Common
Stock outstanding or deemed to be outstanding, and (c) the Conversion Price in
effect immediately prior to such issue or sale and as adjusted and readjusted
(if required by Article XIII) on account thereof. The Borrower shall forthwith
mail a copy of each such report to each Lender. In the event that a Lender
disagrees with such report, the Borrower shall cause independent certified
public accountants of recognized national standing (which may be the regular
auditors of the Borrower) selected by the Borrower to review and verify or
revise such computation (other than any computation of the fair value of
property) and report. The Borrower shall also keep copies of all such reports at
its principal office and shall cause the same to be available for inspection at
such office during normal business hours by any Lender.
Section 13.06 COMMON STOCK RESERVED. The Borrower shall
reserve and at all times keep available out of its authorized but unissued
Common Stock, free from preemptive or other preferential rights, restrictions,
reservations, dedications, allocations, options, other warrants and other rights
under any stock option, conversion option or similar agreement, such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Loan.
Section 13.07 NO REISSUANCE OF LOAN. Any portion of the
principal amount of the Loan which is converted into shares of Common Stock as
provided herein shall not be reissued.
Section 13.08 ISSUE TAX. The issuance of certificates for
shares of Common Stock upon conversion of the Loan shall be made without charge
to each Lender for any issuance tax in respect thereof; PROVIDED, that the
Borrower shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of a Lender.
Section 13.09 CLOSING OF BOOKS. The Borrower will at no time
close its transfer books against the transfer of any shares of Common Stock
issued or issuable upon the conversion of the Loan in any manner which
interferes with the timely conversion of the Loan, except as may otherwise be
required to comply with applicable securities laws.
Section 13.10 DEFINITION OF COMMON STOCK. As used in this
Article XIII, the term "Common Stock" shall mean and include the Borrower's
authorized Common Stock, no par value per share, as constituted on the date
hereof, and shall also include any capital stock of any class of the Borrower
thereafter authorized which shall neither be limited to a fixed sum or
percentage of par value in respect of the rights of the holders thereof to
participate in dividends nor entitled to a preference in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Borrower; PROVIDED, that the shares of Common Stock receivable upon
conversion of shares of the Loan shall include only shares designated as Common
Stock on the Effective Date.
Section 13.11 FRACTIONS OF SHARES OF COMMON STOCK. No
fractional shares of Common Stock or scrip certificates in respect thereof shall
be issued upon Conversion. The number of full shares which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate
principal amount of the Loan to be Converted plus accrued and unpaid interest
thereon in accordance with the terms of Section 13.01(b) hereof.
B-67
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any portion of the Loan, the Borrower shall pay a
cash adjustment in respect of such fraction (calculated to the nearest 1/100 of
a share) in an amount in Dollars equal to the such fraction multiplied by the
then effective Conversion Price.
Section 13.12 COVENANT AS TO COMMON STOCK. The Borrower
covenants that all shares of Common Stock which may be delivered upon Conversion
of the Loan will be newly issued shares, upon such delivery will have been duly
authorized and validly issued, will be fully paid and nonassessable and the
Borrower will pay all taxes, liens and charges with respect to the issue
thereof. The Borrower further covenants that all governmental, corporate,
shareholder and third-party approvals (including those of any exchange on which
such Conversion Securities are, or are proposed to be listed) will have been
duly obtained and will be in full force and effect on or before any Conversion
Securities are or are required to be issued pursuant to this Article.
B-68
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.
BORROWER:
Value City Department Stores, Inc.,
an Ohio corporation
By: /s/John C. Rossler
-----------------------------------
Name: John C. Rossler
Title: President
SUBSIDIARY GUARANTORS:
---------------------
Shonac Corporation,
an Ohio corporation
By: /s/John C. Rossler
-------------------------------------
Name: John C. Rossler
Title: President
DSW SHOE Warehouse, Inc.,
a Missouri Corporation
By: /s/John C. Rossler
-------------------------------------
Name: John C. Rossler
Title: President
GRAMEX RETAIL STORES, INC.,
a Delaware corporation
By: /s/John C. Rossler
------------------------------------
Name: John C. Rossler
Title: President
B-69
FILENE'S BASEMENT, INC.,
a Delaware corporation
By: /s/John C. Rossler
-------------------------------------
Name: John C. Rossler
Title: President
GB RETAILERS, INC.,
a Delaware corporation
By: /s/John C. Rossler
-------------------------------------
Name: John C. Rossler
Title: President
J.S. OVERLAND DELIVERY, INC.,
a Delaware corporation
By: /s/JOHN C. ROSSLER
-------------------------------------
Name: John C. Rossler
Title: President
VALUE CITY DEPARTMENT STORES SERVICES, INC.
a Delaware corporation
By: /s/John C. Rossler
------------------------------------
Name: John C. Rossler
Title: President
VALUE CITY LIMITED PARTNERSHIP,
an Ohio limited partnership
By: Westerville Road GP, Inc., its
General Partner
By: /s/John C. Rossler
------------------------------
Name: John C. Rossler
Title: President
B-70
VALUE CITY OF MICHIGAN, INC.,
a Michigan corporation
By: /s/John C. Rossler
------------------------------------
Name: John C. Rossler
Title: President
VCM, LTD.,
an Ohio limited liability company
By: /s/John C. Rossler
------------------------------------
Name: John C. Rossler
Title: President
WESTERVILLE ROAD GP, INC.,
a Delaware corporation
By: /s/John C. Rossler
------------------------------------
Name: John C. Rossler
Title: President
WESTERVILLE ROAD LP, INC.,
a Delaware corporation
By: /s/John C. Rossler
------------------------------------
Name: John C. Rossler
Title: President
AGENT AND LENDER:
----------------
SCHOTTENSTEIN STORES CORPORATION,
a Delaware corporation
By: /s/Thomas R. Ketteler
-------------------------------
Name: Thomas R. Kettler
Title: Chief Operating Officer and
Chief Financial Officer
B-71
AMENDMENT NO. 1 TO
AMENDED AND RESTATED SENIOR CONVERTIBLE LOAN AGREEMENT
Amendment No. 1, dated as of June 11, 2002, to the Amended and
Restated Senior Convertible Loan Agreement (the "LOAN AGREEMENT") dated as of
June 11, 2002, by and among Value City Department Stores, Inc., an Ohio
corporation (the "BORROWER"), Shonac Corporation, an Ohio corporation
("SHONAC"), DSW Shoe Warehouse, Inc., a Missouri corporation ("DSW"), Gramex
Retail Stores, Inc., a Delaware corporation ("GRAMEX"), VCM, Ltd., an Ohio
limited liability company ("VCM"), Filene's Basement, Inc., a Delaware
corporation ("FILENE'S"), GB Retailers, Inc., a Delaware corporation ("GB"),
J.S. Overland Delivery, Inc., a Delaware corporation ("JS"), Value City
Department Stores Services, Inc. a Delaware corporation ("VC SERVICES"), Value
City Limited Partnership, an Ohio limited partnership ("VCLP"), Value City of
Michigan, Inc., a Michigan corporation ("VC MICHIGAN"), Westerville Road GP,
Inc., a Delaware corporation ("WESTERVILLE GP"), Westerville Road LP, Inc. a
Delaware corporation ("WESTERVILLE LP", and together with Shonac, DSW, Gramex,
VCM, Filene's, GB, JS, VC Services, VCLP, VC Michigan and Westerville GP, each a
"GUARANTOR", and collectively, the "GUARANTORS"), the lenders from time to time
party hereto (each a "LENDER" and collectively, the "LENDERS"), and
Schottenstein Stores Corporation, a Delaware corporation ("SSC"), as Agent (in
such capacity, together with its successors, if any, the "AGENT") and as a
Lender.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Lenders and the
Agent are parties to the Loan Agreement;
WHEREAS, SSC, the sole Lender under the Loan Agreement, will,
concurrently with the effectiveness of this Amendment, sell and assign to
Cerberus Partners, L.P. ("CPLP"), 50% of its right, title and interest as Lender
under the Loan Agreement pursuant to the terms of the Assignment and Acceptance,
dated the date hereof, between SSC and CPLP (the "SSC ASSIGNMENT");
WHEREAS, it is a condition precedent to the effectiveness of
the SSC Assignment that the Loan Agreement be amended to reflect the
transactions contemplated by the SSC Assignment;
WHEREAS, in connection with such amendment the Borrower has
requested and the Lenders have agreed to amend certain terms and conditions of
the Loan Agreement; and
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
1. DEFINITIONS. All terms used herein which are defined in the
Loan Agreement and not otherwise defined herein are used herein as defined
therein.
2. DEFINITIONS IN LOAN AGREEMENT.
(a) Section 1.01 of the Loan Agreement is hereby amended by
adding the following defined terms in the appropriate alphabetical order
therein:
"ACCOUNT DEBTOR" means each debtor, customer or obligor in any
way obligated on or in connection with any Accounts Receivable.
"ACCOUNTS RECEIVABLE" means, with respect to any Person, any
and all rights of such Person to payment for goods sold and/or services
rendered, including accounts, general intangibles and any and all such rights
evidenced by chattel paper, instruments or documents, whether due or to become
due and whether or not earned by performance, and whether now or hereafter
acquired or arising in the future, and any proceeds arising therefrom or
relating thereto.
B-72
"AGENT ADVANCES" has the meaning specified therefor in section
10.08(a).
"ALLOCATED WARRANTS" has the meaning specified therefor in
Section 14.02(c).
"APPROVED EXISTING TRANSACTION" has the meaning specified
therefor in Section 14.01.
"BORROWING BASE CERTIFICATE" has the meaning set forth in the
Revolving Credit Facility as in effect from time to time.
"BUYOUT EXERCISE NOTICE" has the meaning specified therefor in
Section 14.02(a).
"BUYOUT OPTION" has the meaning specified therefor in Section
14.02(a).
"BUYOUT SECURITIES" has the meaning specified therefor in
Section 14.02(c).
"COLLATERAL" means all of the property and assets and all
interests therein and proceeds thereof now owned or hereafter acquired by any
Person upon which a Lien is granted or purported to be granted by such Person as
security for all or any part of the Obligations.
"CONTROL AGREEMENT" means the Collection Account Agreements
(as defined in the Revolving Credit Facility) made by a Loan Party and the
financial institutions maintaining Collection Accounts (as defined in the
Revolving Credit Facility) in favor of the Revolving Credit Facility Agent for
the benefit of the Lenders (among others) securing the Obligations (and the
obligations owing to certain other lenders).
"CPLP" has the meaning specified therefore in the preamble
hereto.
"CPLP NON-CONVERSION NOTICE" has the meaning specified in
Section 14.02.
"DRAG ALONG CONVERSION NOTICE" has the meaning specified
therefor in Section 13.01(c).
"DRAG ALONG CONVERSION RIGHT" has the meaning specified
therefor in Section 13.01(c).
"EXCESS AVAILABILITY" has the meaning specified in the
Revolving Credit Facility.
"EXCESS AVAILABILITY RESERVE" has the meaning specified in the
Revolving Credit Facility.
"FAIRNESS COMMITTEE" has the meaning specified therefor in
Section 14.02(b).
"INTERCREDITOR AGREEMENT" means the Intercreditor and Lien
Subordination Agreement, by and among the Agent, on behalf of itself and the
Lenders, the Revolving Credit Facility Agent, on behalf of itself and the
Revolving Facility Lenders, the Term Loan Agent, on behalf of itself and the
Term Loan Lenders and acknowledged and agreed by the Borrower and the
Guarantors.
"KEY LOAN PARTIES" means, collectively, the Borrower, Shonac,
DSW, Gramex, VCM, Filene's, GB, VCLP and VC Michigan.
"LANDLORD'S AGREEMENT" means a landlord's agreement consenting
to the recording of the Mortgages, in form and substance satisfactory to the
Agent, made by the fee owner (or ground or prime lessee with the consent of the
fee owner) of the real property secured by a Mortgage in favor of the Agent for
the benefit of the Lenders (among others) and delivered to the Agent pursuant to
Sections 4.01(d) and 6.01(a) and (i).
"LEASEHOLD MORTGAGE STATUS REPORT" means a monthly report that
reflects the Loan Parties' efforts to obtain leasehold Mortgages on
substantially all Leases of the Loan Parties, such report to contain sufficient
detail to enable the Agent to evaluate the status of the Loan Parties' efforts
on a property-by-property basis.
B-73
"MORTGAGE" means a mortgage (including, without limitation, a
leasehold mortgage, deed of trust or deed to secure debt), in form and substance
satisfactory to the Agent, made by a Loan Party in favor of the Agent for the
benefit of the Lenders (among others), securing the Obligations and the
obligations owing to certain other lenders, and delivered to the Agent pursuant
to Section 4.01(d), Section 6.01(a), Section 6.01(i) or otherwise.
"NON-CONVERSION NOTICE" has the meaning specified therefore in
Section 13.02(c).
"NOTIFICATION DATE" has the meaning specified therefor in
Section 14.01.
"OBJECTION DATE" has the meaning specified therefor in Section
14.01.
"OBJECTION NOTICE" has the meaning specified therefor in
Section 14.01.
"PLEDGE AGREEMENT" means a Pledge and Security Agreement made
by a Loan Party in favor of the Agent for the benefit of the Lenders,
substantially in the form of Exhibit F, securing the Obligations and delivered
to the Agent.
"REFERRAL NOTICE" has the meaning specified therefor in
Section 14.02(b).
"REFERRED SSC TRANSACTION" has the meaning specified therefor
in Section 14.02(b).
"REVOLVING CREDIT FACILITY" means the $350,000,000 working
capital facility, of even date herewith, among the Borrower and certain of its
Subsidiaries, as borrowers and as guarantors, the Revolving Credit Facility
Agent and the Revolving Credit Facility Lenders.
"REVOLVING CREDIT FACILITY AGENT" means National City
Commercial Finance, Inc. ("NCCF"), as Administrative Agent and/or NCCF and Fleet
Retail Finance, Inc., as Collateral Agents for the Revolving Credit Facility
Lenders, and each of their respective successors and assigns.
"REVOLVING CREDIT FACILITY DOCUMENTS" means any agreement,
instrument or other document executed and delivered pursuant to the Revolving
Credit Facility or otherwise securing or evidencing any loan or obligation
thereunder.
"REVOLVING CREDIT FACILITY LENDERS" means the financial
institutions party to the Revolving Credit Facility.
"SECURITY AGREEMENT" means a Security Agreement made by a Loan
Party in favor of the Agent for the benefit of the Lenders, substantially in the
form of Exhibit E, securing the Obligations and delivered to the Agent.
"SSC" means Schottenstein Stores Corporation.
"SSC ASSIGNMENT" means the sale and assignment by SSC to CPLP
of a 50% interest in the Borrower's Obligations under this Agreement, pursuant
to the terms of the SSC Assignment Agreement.
"SSC ASSIGNMENT AGREEMENT" means the Assignment and Acceptance
Agreement, dated June 11, 2002 by and between SSC and CPLP.
"SSC ASSIGNMENT DOCUMENTS" means the SSC Assignment Agreement
and each of the other documents delivered in connection with the SSC Agreement.
"SSC TRANSACTION" has the meaning specified therefor in
Section 14.01.
B-74
"TERM LOAN AGENT" means CPLP, in its capacity as agent to the
Term Loan Lenders, or any successor thereto.
"TERM LOAN AGREEMENT" means the Financing Agreement dated as
of June 11, 2002, among the Borrower and certain of its Subsidiaries, as
borrowers and as guarantors, the Term Loan Agent and the Term Loan Lenders.
"TERM LOAN DOCUMENTS" means the Term Loan Agreement and any
agreement, instrument or other document executed and delivered pursuant to the
Term Loan Agreement or otherwise securing evidencing any loan or obligation
thereunder.
"TERM LOAN LENDERS" means the financial institutions party to
the Term Loan Agreement.
"UCC FILING AUTHORIZATION LETTER" means a letter duly executed
by each Loan Party authorizing the Agent to file appropriate financing
statements on Form UCC-1 without the signature of such Loan Party in such office
or offices as may be necessary or, in the opinion of the Agent, desirable to
perfect the security interests purported to be created by each Security
Agreement, each Pledge Agreement and each Mortgage.
"UNIFORM COMMERCIAL CODE" has the meaning specified therefor
in Section 1.03.
"WARRANTS" means any of the warrants issued pursuant to the
terms of the Term Loan Agreement.
"WARRANT STOCK" means the shares of Common Stock issuable on
the exercise of the Warrants.
(b) Section 1.01 of the Loan Agreement is hereby amended by deleting the
definitions of the terms "Change in Control", "Equipment", "Fair Market Value",
"Loan Documents", "Market Price", "Payment Office", "Registration Rights
Agreement" and "Required Lenders" and substituting the following therefor:
"CHANGE IN CONTROL" means the occurrence of any of the
following: (i) the acquisition, by any person or group (within the meaning of
Section 13(d)(3) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 of the Exchange Act) of 25% or more of the issued and
outstanding capital stock of the Borrower having the right, under ordinary
circumstances, to vote for the election of directors of the Borrower, excluding
from the foregoing any acquisition pursuant to the issuance of the Warrants or
the exercise of conversion rights under this Agreement; (ii) other than as a
result of the exercise by CPLP of Board representation rights under this
Agreement, more than half of the Persons who were directors of the Borrower on
the first day of any period consisting of twelve (12) consecutive calendar
months (the first of which twelve (12) month periods commencing with the first
day of the month during which this Agreement was executed), cease, for any
reason other than death, disability, or replacement by other Persons nominated
by a nominating committee controlled by SSC to be directors of the Borrower;
(iii) the failure of the Borrower to own, directly or indirectly, 95% of the
capital stock of each of the other Loan Parties; or (iv) the failure of SSC to
possess, directly or indirectly, the power to cause the direction of the
management and policies of the Key Loan Parties.
"EQUIPMENT" means, , without limitation, "equipment" as
defined in the UCC, and also all furniture, store fixtures, motor vehicles,
rolling stock, machinery, office equipment, plant equipment, tools, dies, molds,
and other goods, property, and assets which are used and/or were purchased for
use in the operation or furtherance of a Borrower's business, and any and all
accessions or additions thereto, and substitutions therefor.
"FAIR MARKET VALUE" means, on any date specified herein (i) in
the case of cash, the dollar amount thereof, (ii) in the case of a security, the
Current Market Price, and (iii) in all other cases, the fair value thereof (as
of a date which is within 20 days of the date as of which the determination is
to be made) determined in good faith by a committee of Borrower's Board of
Directors consisting of directors who are not Affiliates of Borrower, SSC or
CPLP; PROVIDED, however, that at the request of CPLP, the Fair Market Value
shall be determined in good faith by an independent investment banking firm
selected by Borrower, SSC and CPLP or, if that selection cannot be made
B-75
within ten days, by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules, and PROVIDED,
further, that Borrower shall pay all of the reasonable fees and expenses of any
third parties incurred in connection with determining the Fair Market Value.
"LOAN DOCUMENT" means this Agreement, any Guaranty, any
Security Agreement, any Pledge Agreement, any Mortgage, any Landlord's
Agreement, any Control Agreement, any UCC Filing Authorization Letter, the
Intercreditor Agreement, the Warrants, the Registration Rights Agreement and any
other agreement, instrument or other document executed and delivered pursuant
hereto or thereto or otherwise evidencing or securing any Loan or any other
Obligation.
"MARKET PRICE" means, on any date specified herein, the amount
per share of the Common Stock, equal to (i) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof regular way
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, (ii) if such Common Stock is not then listed or admitted for trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Common Stock on
such date, (iii) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, (iv) if trading in such Common Stock is quoted in the over-the-counter
market, the average of the closing bid and asked prices of the Common Stock on
such date as shown on the OTC Bulletin Board, or (v) if such Common Stock is not
then listed or admitted for trading on any national exchange or quoted in the
over-the-counter market, the fair value thereof (as of a date which is within 20
days of the date as of which the determination is to be made) determined in good
faith by a committee of Borrower's Board of Directors consisting of directors
who are not Affiliates of Borrower or SSC; PROVIDED, however, that at the
request of CPLP, the Market Price shall be determined in good faith by an
independent investment banking firm selected by Borrower, SSC and CPLP or, if
that selection cannot be made within 10 days, by an independent investment
banking firm selected by the American Arbitration Association in accordance with
its rules, and PROVIDED, further, that Borrower shall pay all of the reasonable
fees and expenses of any third parties incurred in connection with determining
the Market Price.
"PAYMENT OFFICE" means the Agent's office located at 450 Park
Avenue, 28th Floor, New York, New York, 10022, or at such other office or
offices of the Agent as may be designated in writing from time to time by the
Agent to the Borrower.
"REGISTRATION RIGHTS AGREEMENT" means the Amended and Restated
Registration Rights Agreement, in form and substance satisfactory to the Agent,
by and between the Borrower, the Lenders and the Term Loan C Lenders (as defined
in the Term Loan Agreement) with respect to the matters covered thereby.
"REQUIRED LENDERS" means CPLP and any of its affiliates to
whom it assigns all or any portion of its rights and obligations under this
Agreement or any of the Loan Documents.
(c) The definition of "EBITDA" in Section 1.01 of the
Loan Agreement is hereby amended by deleting the existing clause (E) and
substituting the following therefor:
(E) expenses incurred in connection with the Term Loan
Agreement, this Agreement, the Revolving Credit Facility, the
refinancing of the Borrower's existing credit facilities and
any subsequent refinancing of the Borrower.
(d) The definition of "Permitted Acquisition" in Section 1.01
of the Loan Agreement is hereby amended by restating clauses (g) and (h) thereof
in their entirety, and by adding a new section (i) thereto, in each case, to
read as follows:
(g) if the Person which is the subject of such Acquisition
will be maintained as a Subsidiary of a key Loan Party, such
Subsidiary shall have executed such documents as may be
necessary to be joined as a "Guarantor" hereunder, and the
B-76
Agent shall have received subject to the terms of the
Intercreditor Agreement a first priority security and mortgage
interest (subject to Permitted Liens) in such Subsidiary's
capital stock, inventory, accounts, equipment, real estate,
leaseholds, and other property of the same nature as
constitutes Collateral under this Agreement in order to secure
the Obligations; (h) the total consideration paid for all
Acquisitions (whether in cash, tangible property, notes or
other property (other than capital stock of the Borrower))
after the Effective Date, shall not exceed in the aggregate
the sum of $15,000,000; and (i) Excess Availability
immediately prior to such Acquisition, immediately after
giving effect thereto, and projected Excess Availability on a
pro forma projected basis for the twelve (12) months
immediately following such Acquisition, shall not be less than
$70,000,000.
(e) The definition of "Permitted Indebtedness" in
Section 1.01 of the Loan Agreement is hereby amended by restating clauses (ii)
and (v) thereof to read in their entirety as follows:
(ii) any Indebtedness incurred under the Revolving Credit
Facility and the Term Loan Agreement;
(v) Indebtedness of the Loan Parties and any Subsidiary under
(a) the NCB Hedging Agreement, and (b) Hedging Agreements with
any Revolving Credit Lender or an Affiliate of a Revolving
Credit Lender; PROVIDED that (1) such agreement is
non-speculative in nature, and (2) the Loan Parties have
received the written consent of the Agent (which consent shall
not be unreasonably withheld) prior to entering into such
agreement;
(f) The definition of "Permitted Liens" in Section
1.01 of the Loan Agreement is hereby amended by deleting the words "property or
assets of such Loan Party" in clause (ii)(y) thereof, and substituting the word
"Collateral" therefor, and (ii) by adding a new clause (xiv) and (xv) at the end
thereof to read in their entirety as follows:
(xiv) Liens securing Indebtedness assumed in connection with,
or continuing to exist after, but not incurred in connection
with, or contemplation of, a Permitted Acquisition, which
Liens were in effect prior to the consummation of the
Permitted Acquisition; PROVIDED, that such Liens may not
extend to any Collateral of the Loan Parties, or the
Inventory, Accounts Receivable or General Intangibles of the
Person so acquired; and (xv) a Lien granted by any Loan Party
in connection with the Revolving Credit Facility or the Term
Loan Documents.
3. PREPAYMENTS. Section 2.04 of the Loan Agreement is hereby
amended by inserting the following after the words "After March 31, 2007" in the
second sentence thereof:
, and subject in all respects to the limitations contained in
the Revolving Credit Facility, the Term Loan Agreement and the
Intercreditor Agreement as in effect on the Effective Date,
4. FEES. (a) Section 3.01 of the Loan Agreement is hereby amended
and restated in its entirety to read as follows:
Section 3.01 AUDIT AND COLLATERAL MONITORING FEES. The Key
Loan Parties acknowledge that representatives of the Agent may
visit any or all of the Loan Parties and/or conduct audits,
inspections and valuations of any or all of the Loan Parties
in accordance with the terms and conditions set forth in
Sections 7.02 and 7.09. The Borrower agrees to pay the costs
and expenses of such
B-77
visits, audits, inspections and valuations, whether conducted
by the Agent itself or by third-party representatives of the
Agent.
(b) Section 3.04(b) of the Loan Agreement is hereby amended by
adding the words "and all proceeds of the Collateral," immediately prior to the
words "subject to the provisions of this Agreement".
5. REPRESENTATIONS AND WARRANTIES. (a) Section 5.01(e)(ii) of the
Loan Agreement is hereby amended by deleting the last sentence thereof and
substituting the following therefore:
Except as indicated on such Schedule and the Liens created
pursuant to the Term Loan Documents, the Revolving Credit
Facility Documents and the Loan Documents, all such Capital
Stock is owned by the Borrower or one or more of its
wholly-owned Subsidiaries, free and clear of all Liens.
(b) Section 5.01(ee) of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
(ee) LOCATION OF COLLATERAL. Except as permitted by Section
6.02(r), there is no location at which any Loan Party has any
Collateral or the books, records and papers of the Loan
Parties pertaining thereto other than (i) those locations
listed on Schedule 5.01(ee) and (ii) at such other locations
as to which the Borrower has provided ten (10) days prior
written notice to the Agent of the intended location of the
Collateral, books, records and papers thereat. Schedule
5.01(ee) hereto contains a true, correct and complete list, as
of the Effective Date, of the legal names and addresses of
each warehouse at which Collateral of each Loan Party is
stored and/or the name and address of the landlord on the
Lease which covers such location and of all service bureaus
with which such records are maintained. None of the receipts
received by any Loan Party from any warehouse states that the
goods covered thereby are to be delivered to bearer or to the
order of a named Person or to a named Person and such named
Person's assigns. No tangible personal property of any Loan
Party is in the care or custody of any third party or stored
or entrusted with a bailee or other third party, except (x) as
otherwise disclosed pursuant to, or permitted by this Section,
or (y) for Inventory in an amount not to exceed $1,000,000 at
Cost (as defined in the Revolving Credit Facility) in the
aggregate at any time in the ordinary course of business.
(c) Section 5.01(ff) of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
(ff) SECURITY INTERESTS. Each Security Agreement creates in
favor of the Agent, for the benefit of the Lenders, a legal,
valid and enforceable security interest in the Collateral
secured thereby. Upon the filing of the UCC-1 financing
statements described in Section 4.01(d) and the recording of
the Collateral Assignments for Security referred to in each
Security Agreement in the United States Patent and Trademark
Office and the United States Copyright Office, as applicable,
such security interests in and Liens on the Collateral granted
thereby shall be perfected security interests to the extent
such security interests may be perfected by such filings, and
no further recordings or filings are or will be required in
connection with the creation, perfection or enforcement of
such security interests and Liens, other than (i) the filing
of continuation statements in accordance with Applicable Law,
(ii) the recording of the Collateral Assignments for Security
pursuant to each Security Agreement in the United States
Patent and Trademark Office and the United States Copyright
Office, as applicable, with respect to after-acquired U.S.
patent and trademark applications
B-78
and registrations and U.S. copyrights, (iii) the recordation
of appropriate evidence of the security interest in the
appropriate foreign registry with respect to all foreign
intellectual property, and (iv) control agreements for deposit
accounts, liens on titles and similar items. Subject to
Permitted Liens, such security interests in, and Liens on the
Collateral shall be first-priority security interests;
provided, however, that any security interest in and Lien on
Collateral that is Revolving Lender Primary Collateral (as
defined in the Intercreditor Agreement) shall be a perfected,
second-priority Lien on and security interest (subject only to
Permitted Liens and the prior Lien on and security interest in
favor of the Revolving Credit Facility Agent for the benefit
of the Revolving Credit Facility Lenders).
(d) Section 5.01(gg) of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
(gg) LIENS IN FAVOR OF AGENT. Other than the Excluded Property
(as defined in the Security Agreement), no Loan Party is the
owner of, nor has any interest in, any property or asset which
is not subject to a Lien in favor of the Agent (subject only
to Permitted Liens) to secure the Obligations.
6. COVENANTS.
(g) Section 6.01(a) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(a) ADDITIONAL GUARANTIES AND COLLATERAL SECURITY. Cause (i)
each Subsidiary of any Loan Party not in existence on the
Effective Date, or any Unrestricted Subsidiary that at any
time fails to meet the requirements for an Unrestricted
Subsidiary, to execute and deliver to the Agent promptly and
in any event within three (3) Business Days after the
formation, acquisition or change in status thereof (A) a
Guaranty guaranteeing the Obligations, (B) a Security
Agreement, (C) if such Subsidiary has any Subsidiaries, a
Pledge Agreement together with (x) certificates evidencing all
of the Capital Stock of any Person owned by such Subsidiary,
(y) undated stock powers executed in blank with signature
guaranteed, and (z) such opinion of counsel and such approving
certificate of such Subsidiary as the Agent may reasonably
request in respect of complying with any legend on any such
certificate or any other matter relating to such shares, (D)
one or more Mortgages creating on any real property having a
book value in excess of $1,000,000, or leased property having
an annual minimum fixed rent in excess of $750,000 (if the
lease term (including extensions) is less than five years) or
$250,000 (if the lease term (including extensions) is equal to
or greater than five years) of such Subsidiary a perfected,
Lien on such real property subject only to Permitted Liens, a
Title Insurance Policy covering such owned real property, a
current ALTA survey thereof and a surveyor's certificate, each
in form and substance satisfactory to the Agent, together with
such other agreements, instruments and documents as the Agent
may reasonably require whether comparable to the documents
required under Section 6.01(i) or otherwise (it being
understood that the Loan Parties shall use their reasonable
best efforts (which shall not include the payment of
additional sums (other than incidental expenses)) to obtain
such Mortgage and other documents) , and (E) such other
agreements, instruments, approvals, legal opinions or other
documents reasonably requested by the Agent in order to
create, perfect, establish the first priority of or otherwise
protect any Lien purported to be covered by any such Security
Agreement, Pledge Agreement or Mortgage or otherwise to effect
the intent that such Subsidiary shall become bound by all of
the terms, covenants
B-79
and agreements contained in the Loan Documents and that all
property and assets of such Subsidiary shall become Collateral
for the Obligations; and (ii) each owner of the Capital Stock
of any such Subsidiary to execute and deliver promptly and in
any event within three (3) Business Days after the formation
or acquisition of such Subsidiary a Pledge Agreement, together
with (A) certificates evidencing all of the Capital Stock of
such Subsidiary, (B) undated stock powers or other appropriate
instruments of assignment executed in blank with signature
guaranteed, (C) such opinion of counsel and such approving
certificate of such Subsidiary as the Agent may reasonably
request in respect of complying with any legend on any such
certificate or any other matter relating to such shares and
(D) such other agreements, instruments, approvals, legal
opinions or other documents requested by the Agent; PROVIDED,
HOWEVER, that nothing contained herein shall be deemed a
modification of any other provisions of this Agreement
restricting the formation or Acquisition of Subsidiaries by
the Loan Parties, or the requirements applicable to
Unrestricted Subsidiaries.
(h) Section 6.01(d) of the Loan Agreement is hereby
amended by deleting the words "its properties and assets" in clause (i) thereof,
and substituting the words "the Collateral" therefor.
(i) Section 6.01(e) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(e) MAINTENANCE OF INSURANCE. Maintain, and cause each of its
Subsidiaries to maintain, insurance (including, without
limitation, comprehensive general liability, hazard, rent and
business interruption insurance) with responsible and
reputable insurance companies or associations (which shall
include the companies presently providing such insurance, or
such other companies as may be selected by the Borrower with
the consent of the Agent, whose consent shall not be
unreasonably withheld) with respect to its properties
(including all real properties leased or owned by it) and
business, in such amounts, in such form, for such periods and
covering such risks as is required by any Governmental
Authority having jurisdiction with respect thereto or as is
carried generally in accordance with sound business practice
by companies in similar businesses similarly situated and in
any event in amount, adequacy and scope reasonably
satisfactory to the Agent. All policies covering the
Collateral are to be made payable to the Agent for the benefit
of the Lenders, as its interests may appear, in case of loss,
under a standard non-contributory "lender" or "secured party"
clause and shall provide that the insurance, to the extent of
the Agent's interest therein, shall not be impaired or
invalidated, in whole or in part, by reason of any act or
neglect of any Loan Party or by the failure of any Loan Party
to comply with any warranty or condition of the policy and are
to contain such other provisions as the Agent may reasonably
require to fully protect the Lenders' interest in the
Collateral and to obtain any payments to be made under such
policies. Such policy shall not include an endorsement in
favor of any other Person (other than the Revolving Credit
Agent, the Term Loan Agent, the holder of any Permitted Liens
and those Persons intended as beneficiaries of any builder's
risk insurance). All certificates of insurance are to be
delivered to the Agent and the policies are to be premium
prepaid or with customary payment terms (which shall be
complied with in a timely fashion by such Loan Parties), with
the loss payable and additional insured endorsement in favor
of the Agent and such other Persons as the Agent may designate
from time to time, and shall provide for not less than thirty
(30) days' prior written notice to the Agent of the exercise
of any right of cancellation. The Key Loan Parties shall
furnish the Agent with certificates or other evidence
satisfactory to the Agent regarding compliance by the Loan
Parties with the foregoing requirements. If any Loan
B-80
Party or any of its Subsidiaries fails to maintain such
insurance, the Agent may arrange for such insurance, but at
the Key Loan Parties' expense and without any responsibility
on the Agent's part for obtaining the insurance, the solvency
of the insurance companies, the adequacy of the coverage, or
the collection of claims; PROVIDED, HOWEVER, that the Agent's
obtaining such insurance shall not constitute a waiver of any
Event of Default occasioned by the Loan Parties' failure to
have maintained such insurance. Upon the occurrence and during
the continuance of an Event of Default and subject to the
terms of the Intercreditor Agreement, the Agent shall have the
sole right, in the name of the Lenders, any Loan Party and its
Subsidiaries, to file claims under any insurance policies, to
receive, receipt and give acquittance for any payments that
may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments
or other documents that may be necessary to effect the
collection, compromise or settlement of any claims under any
such insurance policies. The Borrower shall provide the Agent
with prompt written notice of any change in the insurance
policies owned by the Loan Parties, or under which any Loan
Party is the named insured, from those in effect as of the
Effective Date.
(j) Section 6.01(h) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(h) FURTHER ASSURANCES. Take such action and execute,
acknowledge and deliver, and cause each of its Subsidiaries to
take such action and execute, acknowledge and deliver, at its
sole cost and expense, such agreements, instruments or other
documents as the Agent may reasonably require from time to
time in order (i) to carry out more effectively the purposes
of this Agreement and the other Loan Documents, (ii) to
subject to valid and perfected first priority Liens (subject
to Permitted Liens) any of the Collateral of any Loan Party
and its Subsidiaries, (iii) to establish and maintain the
validity and effectiveness of any of the Loan Documents and
the validity, perfection and priority of the Liens intended to
be created thereby, and (iv) to better assure, convey, grant,
assign, transfer and confirm unto the Agent and each Lender
the rights now or hereafter intended to be granted to it under
this Agreement or any other Loan Document. In furtherance of
the foregoing, to the maximum extent permitted by Applicable
Law, each Loan Party (x) authorizes the Agent to execute any
such agreements, instruments or other documents deemed
reasonably necessary by the Agent in connection with this
Agreement in such Loan Party's name and to file such
agreements, instruments or other documents in any appropriate
filing office, (y) authorizes the Agent to file any financing
statement required hereunder or under any other Loan Document,
and any continuation statement or amendment with respect
thereto, in any appropriate filing office without the
signature of such Loan Party, and (z) ratifies the filing of
any financing statement, and any continuation statement or
amendment with respect thereto, filed without the signature of
such Loan Party prior to the date hereof.
(k) Section 6.01(i) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(i) AFTER ACQUIRED REAL PROPERTY. Upon the acquisition by it
or any of its Subsidiaries after the date hereof of any
interest (whether fee or leasehold) in any real property
(wherever located) (each such interest being an "AFTER
ACQUIRED PROPERTY") (x) with a Current Value (as defined
below) in excess of $1,000,000 in the case of a fee interest,
or (y) requiring, in the case of a leasehold interest, the
payment of annual minimum fixed rent exceeding in the
B-81
aggregate $750,000 (if the Lease term (including extensions)
is less than five years) or $250,000 (if the Lease term
(including extensions) is equal to or greater than five
years), immediately so notify the Agent, setting forth with
specificity a description of the interest acquired, the
location of the real property, any structures or improvements
thereon and either an appraisal or such Loan Party's
good-faith estimate of the current value of such real property
(for purposes of this Section, the "CURRENT VALUE"). The Agent
shall notify such Loan Party whether it intends to require a
Mortgage and the other documents referred to below or in the
case of leasehold, a leasehold Mortgage or Landlord's
Agreement (pursuant to Section 6.01(i) hereof). Upon receipt
of such notice requesting a Mortgage, the Person which has
acquired such After Acquired Property shall promptly furnish
to the Agent the following, each in form and substance
satisfactory to the Agent: (i) a Mortgage with respect to such
real property and related assets located at the After Acquired
Property, each duly executed by such Person and in recordable
form; (ii) evidence of the recording of the Mortgage referred
to in clause (i) above in such office or offices as may be
necessary or, in the reasonable good faith opinion of the
Agent, desirable to create and perfect a valid and enforceable
first priority lien on the property purported to be covered
thereby or to otherwise protect the rights of the Agent and
the Lenders thereunder; (iii) in the case of a fee interest, a
title insurance policy, a survey of such real property,
certified to the Agent and to the issuer of the Title
Insurance Policy by a licensed professional surveyor
reasonably satisfactory to the Agent and a Phase I
Environmental Site Assessment with respect to such real
property, certified to the Agent by a company reasonably
satisfactory to the Agent; (iv) in the case of a leasehold
interest, a certified copy of the lease between the landlord
and such Person with respect to such real property in which
such Person has a leasehold interest, and the certificate of
occupancy with respect thereto; (v) in the case of a leasehold
interest, an attornment and nondisturbance agreement between
the landlord (and any fee mortgagee) with respect to such real
property and the Agent; and (vi) such other documents or
instruments (including, without limitation, guarantees and
opinions of counsel) as the Agent may reasonably require,
PROVIDED, HOWEVER, that nothing contained herein shall be
deemed a modification of any other provisions of this
Agreement restricting Acquisitions or investments by the Loan
Parties. The Key Loan Parties shall pay all reasonable fees
and expenses, including reasonable attorneys' fees and
expenses, and all title insurance charges and premiums, in
connection with each Loan Party's obligations under this
Section 6.01(i).
(l) Section 6.01 of the Loan Agreement is hereby
amended by inserting the following provisions at the end thereof to read in
their entirety as follows:
(q) LEASEHOLD MORTGAGES. Each of the Loan Parties shall use
their reasonable best efforts to obtain leasehold Mortgages on
substantially all Leases of the Loan Parties it being
understood that reasonable best efforts shall require a bona
fide request be made in writing to the appropriate parties
with a copy to the Agent (or in lieu thereof, a short
memorandum describing a telephone request made in respect
thereof, which memorandum shall include the date of the
conversation and the name of the person with whom the Loan
Party spoke) with appropriate follow-up as reasonably required
by the Agent, which in each case shall be included in the
Leasehold Mortgage Status Report; PROVIDED, that no Loan
Parties shall be required to pay any money (other than
incidental expenses), agree to amended Lease terms (unless
such amendments are immaterial in the reasonable judgment of
the Key Loan Parties), or commence any legal action.
B-82
(r) BOARD OF DIRECTORS RIGHTS.
(i) BOARD OBSERVERS. From the Effective Date until the
date that the provisions of Section 6.01(r)(ii) below
are applicable, the Borrower shall allow two
representatives designated by CPLP to attend all
meetings, including telephonic meetings, of the
Borrower's Board of Directors in a non-voting
capacity. The Borrower will give such representatives
written notice of each meeting of its Board of
Directors in advance and at the same time and in the
same manner as notice is given to the directors. Such
representatives shall also be provided with all
written materials and other information (including
minutes of meetings) given to directors in connection
with such meetings at the same time such materials
and information are given to the directors. If the
Borrower proposes to take any action by written
consent in lieu of a meeting of its Board of
Directors, the Borrower shall give written notice
thereof to such representatives promptly following
the effective date of such consent describing in
reasonable detail the nature and substance of such
action. In the event the Borrower establishes
separate committees of the Board of Directors, the
right to representatives granted hereunder shall
extend to meetings of such committees.
(ii) BOARD REPRESENTATIVES. From and after the date on
which CPLP holds 50% of the Conversion Shares
issuable upon the conversion of its Pro Rata share of
the Loan as of the Effective Date, CPLP shall be
entitled to designate two directors to serve on the
Board of Directors of the Borrower. The Borrower
shall promptly take all action necessary to cause
such individuals to be appointed to the Board,
including either increasing the size of the Board or
securing the resignations of incumbent directors or
both. At each annual or other meeting of shareholders
at which the election of directors is considered, if
CPLP is entitled to designate directors under this
Section 6.01(r)(ii), the Board of Directors of the
Borrower shall continue to nominate at least two
designees of CPLP for election to the Board. At any
such shareholder meeting, if CPLP is entitled to
designate directors under this Section 6.01(r)(ii),
SSC hereby agrees that it shall vote all shares of
Common Stock and other voting securities of the
Borrower over which such SSC has voting control, and
shall take all other reasonably necessary actions
within its control (whether in its capacity as a
shareholder, director, member of a Board committee or
officer of the Borrower or otherwise, and including
attendance at meetings in person or by proxy for
purposes of obtaining a quorum and execution of
written consents in lieu of meetings), and the
Borrower shall take all reasonably necessary actions
within its control (including calling special board
and shareholder meetings), so that persons designated
by CPLP will be elected to the Borrower's Board of
Directors. Any vacancy on the Board of Directors
created by reason of the death, removal or
resignation of a director who is a designee of CPLP
shall be filled by an individual designated by the
CPLP.
(iii) TERMINATION. The rights of CPLP pursuant to Section
6.01(r)(i) shall terminate and be of no further force
and effect from and after the date that CPLP converts
at least 50% of its Pro Rata Share of the Loan as of
the Effective Date. The rights of CPLP pursuant to
Section 6.01(r)(ii) shall terminate and be of no
further force and effect from and after the
B-83
date that CPLP holds, or is entitled to hold upon
conversion of its Pro Rata Share of the Loan, in the
aggregate shares of Common Stock representing less
than 50% of the Conversion Shares issued or issuable
upon Conversion of its Pro Rata Share of the Loan as
of the Effective Date.
(m) Section 6.02(c) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(c) FUNDAMENTAL CHANGES; DISPOSITIONS. (i) Wind-up, liquidate
or dissolve, or permit any of its Subsidiaries to wind-up,
liquidate or dissolve; (ii) merge, consolidate or amalgamate
with any Person, or permit any of its Subsidiaries to merge,
consolidate or amalgamate with any Person; (iii) purchase or
otherwise acquire, whether in one transaction or a series of
related transactions, all or substantially all of the assets
of any Person (or any division thereof), or permit any of its
Subsidiaries to do any of the foregoing; (iv) suffer or cause,
or permit any of its Subsidiaries to suffer or cause the waste
or destruction of any material part of the Collateral; (v) use
or permit any of its Subsidiaries to use, any of the
Collateral in violation of any policy of insurance thereon;
(vi) sell, lease, sublease, convey, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease,
sublease, convey, transfer or otherwise dispose of any of the
Collateral; and (vii) other than leased departments and
similar arrangements with third parties, commit to open or
close any location at which any Loan Party maintains, offers
for sale, or stores any of the Collateral, in any fiscal year
such that the actual number of stores of all Key Loan Parties
in the aggregate (x) exceeds by ten (10) the number of stores
reflected on the Business Plan for such fiscal year, or (y) is
more than ten (10) fewer than the number of stores reflected
on the Business Plan for such fiscal year (without giving
effect to any new stores which the Business Plan projected to
be opened or closed, but which have not in fact been opened or
closed); PROVIDED, HOWEVER, that each of the following shall
be permitted:
(A) if no Default or Event of Default shall
have occurred and be continuing or would result therefrom, with the prior
written consent of the Agent (which consent shall not be unreasonably withheld)
any wholly-owned Subsidiary may merge, consolidate or amalgamate with or into a
Borrower or with or into another wholly-owned Subsidiary of a Borrower, so long
as in any merger, consolidation or amalgamation involving a Borrower, the
Borrower is the surviving, continuing or resulting corporation;
(B) if no Default or Event of Default shall
have occurred and be continuing or would result therefrom, any Loan Party may
liquidate or dissolve any Unrestricted Subsidiary;
(C) if no Default or Event of Default shall
have occurred and be continuing or would result therefrom, any Loan Party may
engage in any Acquisition which is a Permitted Acquisition, provided that all of
the conditions contained in the definition of the term Permitted Acquisition are
satisfied; and
(D) any Loan Party may engage in (1) the
sale of Inventory in compliance with this Agreement; (2) the disposal of
Equipment which is obsolete, worn out, or damaged beyond repair, or no longer
useful in the Loan Parties' businesses; (3) Permitted Dispositions; (4) the
turning over to the Agent of certain Collateral as provided herein, or to the
Revolving Credit Agent of all Receipts (as defined in the Revolving Credit
Facility) as provided in the Revolving Credit Facility; and (5) the use of the
Collateral to pay obligations arising in the ordinary course.
B-84
(n) Section 6.02(e) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(e) LOANS; ADVANCES; INVESTMENTS, ETC. (i) Make or commit or
agree to make any loan, advance guarantee of obligations,
other extension of credit or capital contributions to, or hold
or invest in or commit or agree to hold or invest in, or
purchase or otherwise acquire any shares of the Capital Stock,
bonds, notes, debentures or other securities of, or make or
commit or agree to make any other investment in, any other
Person; (ii) purchase or own any futures contract or otherwise
become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures
contract; (iii) subordinate any debts or obligations owed to
that Loan Party by any third party (but not by another Loan
Party) to any other debts owed by such third party to any
other Person; (iv) enter into leases of property or assets not
constituting Permitted Acquisitions, unless such leases are
not otherwise in violation of this Agreement; (v) organize or
create any Affiliate other than in connection with a Permitted
Acquisition; or (vi) acquire any assets other than in the
ordinary course and conduct of that Loan Party's business as
conducted at the execution of this Agreement, other than in
connection with a Permitted Acquisition or as otherwise
permitted in this Agreement, or permit any of its Subsidiaries
to do any of the foregoing, except for:
(A) Permitted Investments and investments
directly related to Permitted Acquisitions;
(B) advance payments made to that Loan
Party's suppliers in the ordinary course;
(C) advances to that Loan Party's officers,
employees, and salespersons with respect to reasonable expenses to be incurred
by such officers, employees, and salespersons for the benefit of that Loan
Party, which expenses are properly substantiated by the Person seeking such
advance and properly reimbursable by that Loan Party;
(D) loans and advances to employees for
business-related moving expenses, costs of replacement homes, business machines
or supplies, automobiles and other similar expenses, in each case incurred in
the ordinary course of business not to exceed (together with loans and advances
under Section 6.02(e)(E) and investments permitted under clause (xiii) of the
definition of Permitted Investment) $6,000,000 in the aggregate outstanding to
all employees at any one time;
(E) loans and advances to that Loan Party's
officers, employees, and salespersons in connection with any employment
agreements or arrangements, or any stock options or option plans not to exceed
$6,000,000 (together with loans and advances under Section 6.02(e)(D) and
investments permitted under clause (xiii) of the definition of Permitted
Investments) in the aggregate outstanding to all employees at any one time;
(F) intercompany loans (1) existing on the
date hereof and described on Schedule 6.02(e)(vi)(F) hereof, and (2) hereafter
made amongst any Loan Parties pursuant to the terms of the Revolving Credit
Facility;
(G) loans and advances of a Person
outstanding at the time such Person becomes a Subsidiary as a result of a
Permitted Acquisition, PROVIDED, that any such loans or advances were not made
at the time of or in contemplation of the acquisition of such Person by a Loan
Party or any Subsidiaries;
B-85
(H) to the extent not permitted by the
foregoing clauses, the existing loans and advances described on Schedule
6.02(e)(vi)(H) hereto;
(I) any other loans and advances to or for
the benefit of any Person which (1) is not itself a Loan Party, (2) are not
otherwise permitted by the foregoing clauses, and (3) are made after the
Effective Date, which loans and advances have been approved in advance by the
Agent.
(o) Section 6.02(i) of the Loan Agreement is hereby
amended by adding the following proviso at the end thereof:
PROVIDED, HOWEVER, that notwithstanding anything to the
contrary contained in this Section 6.02(i), no Loan Party may
engage in any SSC Transaction or CPLP Transaction except in
accordance with the terms of Article XIV.
(p) Section 6.02(j) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(j) LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
AFFECTING SUBSIDIARIES AND RESTRICTIONS ON OBLIGATIONS. Create
or otherwise cause, incur, assume, suffer or permit to exist
or become effective any consensual encumbrance or restriction
of any kind on the ability of (i) any Loan Party to create or
grant liens in favor of the Agent or to incur Obligations or
(ii) any Subsidiary of any Loan Party (A) to pay dividends or
to make any other distribution on any shares of Capital Stock
of such Subsidiary owned by any Loan Party or any of its
Subsidiaries, (B) to pay or prepay or to subordinate any
Indebtedness owed to any Loan Party or any of its
Subsidiaries, (C) to make loans or advances to any Loan Party
or any of its Subsidiaries or (D) to transfer any of its
property or assets to any Loan Party or any of its
Subsidiaries, or permit any of its Subsidiaries to do any of
the foregoing; PROVIDED, HOWEVER, that nothing in any of
clauses (A) through (D) of this Section 6.02(j) shall prohibit
or restrict compliance with:
(1) this Agreement and the other Loan
Documents, the Revolving Credit Facility Documents or the Term Loan Documents;
(2) any agreements in effect on the date
of this Agreement and described on Schedule 6.02(j);
(3) any Applicable Law, rule or
regulation (including, without limitation, applicable currency control laws and
applicable state corporate statutes restricting the payment of dividends in
certain circumstances);
(4) in the case of clause (D) any
agreement setting forth customary restrictions on the subletting, assignment or
transfer of any property or asset that is a lease, license, conveyance or
contract of similar property or assets; or
(5) in the case of clause (D), any
agreement, instrument or other document evidencing a Permitted Lien from
restricting on customary terms the transfer of any property or assets subject
thereto.
(q) Section 6.02(k) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
B-86
(k) LIMITATION ON ISSUANCE OF CAPITAL STOCK. Issue or sell or
enter into any agreement or arrangement for the issuance and
sale of, or permit any of its Subsidiaries to issue or sell or
enter into any agreement or arrangement for the issuance and
sale of, any shares of its Capital Stock, any securities
convertible into or exchangeable for its Capital Stock or any
warrants, PROVIDED, that Borrower may issue (i) the Warrant
Stock, (ii) the shares issuable upon conversion of the Loan
pursuant to the terms of this Agreement, (iii) up to 5,000,000
shares of Common Stock (and following the fifth anniversary of
the Effective Date, up to an additional 5,000,000 shares of
Common Stock) that are issued to Persons other than Affiliates
of the Borrower, including (A) shares of Common Stock or
options exercisable therefor, issued or to be issued under the
Borrower's 2000 Stock Option Plan as in effect on the
Effective Date or under any other employee stock option or
purchase plan or plans, or pursuant to compensatory or
incentive agreements, for officers, employees or consultants
of the Borrower or any of its Subsidiaries, in each case
adopted or assumed after such date by the Borrower's Board of
Directors; provided in each case that the exercise or purchase
price for any such share shall not be less than 95% of the
fair market value (determined in good faith by the Borrower's
Board of Directors) of the Common Stock on the date of the
grant, and such additional number of shares as may become
issuable pursuant to the terms of any such plans by reason of
adjustments required pursuant to antidilution provisions
applicable to such securities in order to reflect any
subdivision or combination of Common Stock, by
reclassification or otherwise, or any dividend on Common Stock
payable in Common Stock, (B) shares of restricted stock issued
by the Borrower to executive officers of the Borrower, and (C)
shares of Common Stock issued by the Borrower as charitable
gifts.
(r) Section 6.02(l) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(l) MODIFICATIONS OF INDEBTEDNESS, ORGANIZATIONAL DOCUMENTS
AND CERTAIN OTHER AGREEMENTS, ETC. (i) Amend, modify or
otherwise change (or permit the amendment, modification or
other change) in any manner of any of the provisions of any of
its or its Subsidiaries' Indebtedness or of any instrument or
agreement (including, without limitation, any purchase
agreement, indenture, loan agreement or security agreement)
relating to any such Indebtedness if such amendment,
modification or change (A) would shorten the final maturity or
average life to maturity of, or require any payment to be made
earlier than the date originally scheduled on, such
Indebtedness, or would increase the interest rate applicable
to such Indebtedness unless (x) Excess Availability, both
immediately prior to, immediately after giving effect to and
on a pro forma projected basis for the 12 months immediately
following such amendment, modification or change, is at least
$100 million, or (y) the total amount of such Indebtedness so
amended, modified or changed since the Effective Date
(together with the amounts permitted under clause (ii)
hereof), does not exceed $500,000 in any Fiscal Year of the
Borrower; (B) would change the subordination provision, if
any, of such Indebtedness, or (C) would otherwise be adverse
to the Lenders in any respect; (ii) except for the Obligations
and except as otherwise explicitly permitted herein, make any
voluntary or optional payment, prepayment, redemption,
defeasance, sinking fund payment or other acquisition for
value of any of its or its Subsidiaries' Indebtedness
(including, without limitation, by way of depositing money or
securities with the trustee therefor before the date required
for the purpose of paying any portion of such Indebtedness
when due), or refund, refinance, replace or exchange any other
Indebtedness for any such Indebtedness (except to the extent
such Indebtedness
B-87
is otherwise expressly permitted by the definition of
"Permitted Indebtedness"), or make any payment, prepayment,
redemption, defeasance, sinking fund payment or repurchase of
any outstanding Indebtedness as a result of any asset sale,
change of control, issuance and sale of debt or equity
securities or similar event, or give any notice with respect
to any of the foregoing unless (x) Excess Availability, both
immediately prior to, immediately after giving effect to and
on a pro forma projected basis for the 12 months immediately
following such event is at least $100 million, or (y) the
total amount of such Indebtedness so paid since the Effective
Date (together with the amounts permitted under clause (i)(A)
hereof), does not exceed $500,000 in any Fiscal Year of the
Borrower; (iii) except as permitted by Section 6.02(c), amend,
modify or otherwise change its name, jurisdiction of
organization, organizational identification number or FEIN;
(iv) amend, modify or otherwise change its certificate of
incorporation or bylaws (or other similar organizational
documents), including, without limitation, by the filing or
modification of any certificate of designation, or any
agreement or arrangement entered into by it, with respect to
any of its Capital Stock (including any shareholders'
agreement), or enter into any new agreement with respect to
any of its Capital Stock, except any such amendments,
modifications or changes or any such new agreements or
arrangements pursuant to this clause (iv) that either
individually or in the aggregate, could not have a Material
Adverse Effect; (v) amend, modify, waive or otherwise change
(or permit the amendment, modification, waiver or other change
in any manner) of any provisions in the Revolving Credit
Facility Documents relating to (A) Availability, Excess
Availability, Excess Availability Reserve, Gross Availability
or the Borrowing Base (as each is defined in the Revolving
Credit Facility) which amendment has or could have the effect
of increasing Availability, Excess Availability, Gross
Availability or the Borrowing Base or decreasing the
Availability Reserve, (B) the Credit Card Advance Rate, the
Inventory Advance Rate, the Appraised Inventory Percentage or
the Appraised Inventory Liquidation Value (as each is defined
in the Revolving Credit Facility), in each case, to an amount
in excess of the rates set forth in the Revolving Credit
Facility as in effect on the date hereof, (C) the definition
of Cash Control Event and the related provisions contained in
Article VII of the Revolving Credit Agreement, (D) the
provisions of the Revolving Credit Agreement relating to the
Term Loan Debt, and (E) any covenants or Events of Default
contained in the Revolving Credit Agreement, if such
amendments imposes any additional or more restrictive
representations, covenants (financial or otherwise) or events
of default than is contained in the Revolving Credit
Agreements in effect on the date hereof, and, if,
notwithstanding the foregoing, such amendment is made, the
Borrower shall promptly notify, and furnish a copy thereof to
the Agent; (vi) agree to any material amendment or other
material change to or waiver of any of its rights under any
Material Contract without the consent of the Agent (which
consent shall not be unreasonably withheld); or (vii) alter,
modify or amend any Lease in a manner which is reasonably
likely to have a Material Adverse Effect.
(s) Section 6.02(n) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(n) PROPERTIES. Other than in the ordinary course of business,
permit any property to become a fixture with respect to real
property or to become an accession with respect to other
personal property with respect to which real or personal
property the Agent does not have a valid and perfected first
priority Lien.
B-88
(t) Section 6.02(q) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(q) EXCESS AVAILABILITY RESERVE. Permit the Excess
Availability Reserve at any time to be less than the sum of $35,000,000.
(u) Section 6.02(r) of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(r) LOCATION OF COLLATERAL. (i) Remove any Collateral from
locations described in Schedule 5.01(ee) except for the following purposes:
(A) to accomplish sales of Inventory in the
ordinary course of business;
(B) to move Inventory or other Collateral
from one such location to another such location; or
(C) to utilize such of the Collateral as is
removed from such locations in the ordinary course of business.
(ii) place any tangible personal property of any Loan
Party in the care or custody of any third party, or
store or entrust any such personal property with a
bailee or other third party, except (A) as otherwise
disclosed to the Agent pursuant to Section 5.01(ee),
or permitted by this Section 6.02(r), or (B) for
Inventory in an amount not to exceed $1,000,000 at
Cost (as defined in the Revolving Credit Facility) in
the aggregate at any time in the ordinary course of
business;
7. REPORTING REQUIREMENTS. (a) Section 7.01(c) of the Loan Agreement is
hereby amended and restated in its entirety to read as follows:
(c) At all times, keep accurate current records of the
Collateral including, without limitation, accurate current
stock, cost, and sales records of its Inventory for each
Division, accurately and sufficiently itemizing and describing
the kinds, types, and quantities of Inventory and the cost and
selling prices thereof.
(b) Section 7.02(b) of the Loan Agreement is hereby amended
and restated in its entirety to read as follows:
(b) Each Loan Party hereby authorizes the Agent to (i)
inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all
computer or electronically stored information or data which
relates to any Loan Party. Each Loan Party shall request full
cooperation with the Agent from any service bureau,
contractor, accountant, or other Person; and (ii) verify at
any time the Collateral or any portion thereof, including
verification with Account Debtors, and/or with each Loan
Party's computer billing companies, collection agencies, and
accountants.
(c) Section 7.03(a)(xi) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(xi) any material adverse change relating to the type,
quantity or quality of the Collateral or the Lien granted
thereon;
B-89
(d) Sections 7.04, 7.05 and 7.09 of the Loan Agreement are
hereby amended and restated to read in their entirety as follows:
Section 7.04 WEEKLY REPORTS. Weekly, on Friday of each week
(as of the then immediately preceding Saturday) the Borrower
shall provide the Agent with Borrowing Base Certificates (in
the form of Exhibit G annexed hereto, as such form may be
revised from time to time by the Revolving Credit Agent)
prepared separately for each Division and combined for all Key
Loan Parties, and sales audit reports and flash collateral
reports (each in such form as may be specified from time to
time by the Collateral Agents) prepared separately for each
Division and combined for all Key Loan Parties. Such reports
may be sent to the Agent by facsimile transmission, provided
that the original thereof is forwarded to the Agent on the
date of such transmission.
Section 7.05 MONTHLY REPORTS. Monthly, the Borrower shall
provide the Agent with those financial statements and reports
described on Schedule 7.05, annexed hereto, at the times set
forth in such Schedule and a Leasehold Mortgage Status Report.
Section 7.09 INVENTORY, APPRAISALS AND AUDITS.
(a) The Agent, at the reasonable expense of the Loan Parties,
may participate in and/or observe each scheduled physical
count of Inventory which is undertaken on behalf of any Loan
Party.
(b) The Loan Parties, at their own expense, shall cause not
less than one (1) physical inventory of each of Division to be
undertaken in each twelve (12) month period during which this
Agreement is in effect; (i) the Borrower, within forty-five
(45) days following the completion of such inventory, shall
provide the Agent with a reconciliation of the results of each
such inventory (as well as of any other physical inventory
undertaken by any Loan Party) and shall post such results to
the Loan Parties' stock ledger and, as applicable to the Loan
Parties' other financial books and records; and (ii) the
Agent, in its reasonable, good faith discretion, if any Event
of Default has occurred and is continuing, may cause such
additional inventories to be taken as the Agent determines
(each, at the expense of the Loan Parties).
(c) The Agent may require the Collateral Agents (as defined in
the Revolving Credit Facility) to obtain appraisals of the
Collateral (copies of which, subject to the approval of the
appraiser, shall be provided to the Borrower promptly upon
receipt thereof), at any time (i) after the occurrence and
during the continuance of an Event of Default, (ii) that
Excess Availability (as defined in the Revolving Credit
Facility) is equal to or less than $60,000,000, or (iii) after
an Inadvertent Overadvance (as defined in the Intercreditor
Agreement) has occurred (in all events, at the Loan Parties'
expenses) conducted by Hilco Appraisal Services, LLC or such
appraisers as are satisfactory to the Agent and the Revolving
Credit Agent, in addition to those appraisals permitted to be
obtained by the Collateral Agents (as defined in the Revolving
Credit Facility) pursuant to Section 5.9 of the Revolving
Credit Facility. Following the termination of the Revolving
Credit Facility, the Agent shall be entitled to conduct
appraisals independently on the same terms granted to the
Collateral Agents under the terms of the Revolving Credit
Facility in effect on the Effective Date.
B-90
(d) If made available to any Loan Party, the Agent shall
receive copies of the results of any commercial finance field
examination of the Loan Parties' books and records conducted
during any period in which this Agreement is in effect.
(e) The Agent from time to time may undertake "mystery
shopping" (so-called) visits to all or any of the Loan
Parties' business premises.
8. USE OF COLLATERAL. Article VIII is hereby amended and restated
to read in its entirety as follows:
ARTICLE VIII
USE OF COLLATERAL
Section 8.01 USE OF INVENTORY CONTROL.
(a) No Loan Party shall engage in any of the following
with respect to its Inventory (i) any sale, other than for fair consideration in
the conduct of the Loan Parties' business in the ordinary course; (ii) sales or
other dispositions to creditors, except returns in the ordinary course of
business; (iii) sales or other dispositions in bulk, except in the ordinary
course of business consistent with past practices; (iv) sales in breach of any
provision of this Agreement; and (v) sales in connection with Permitted
Dispositions.
(b) No sale of Inventory shall be on consignment (other
than between Loan Parties), approval, or under any other circumstances such
that, with the exception of the Loan Parties' customary return policy applicable
to the return of inventory purchased by the Loan Parties' retail customers in
the ordinary course, such Inventory may be returned to a Loan Party without the
consent of the Agent.
Section 8.02 INVENTORY QUALITY. All Inventory now owned or
hereafter acquired by each Loan Party is and will be of good and merchantable
quality, consistent with past practices.
Section 8.03 ADJUSTMENTS AND ALLOWANCES. Each Loan Party may
grant such allowances or other adjustments to that Loan Party's Account Debtors
as that Loan Party may reasonably deem to accord with sound business practice
and which are normal and customary extensions and adjustments in the ordinary
course of business, provided, however, the authority granted the Loan Parties
pursuant to this Section 8.03 may be limited or terminated by the Agent at any
time in the Agent's reasonable, good faith discretion after the occurrence and
during the continuance of an Event of Default.
Section 8.04 VALIDITY OF ACCOUNTS.
(a) Except for adjustments and disputes in the ordinary
course of business, the amount of each of the Accounts Receivable shown on the
books, records, and invoices of the Loan Parties represented as owing by each
Account Debtor is the correct amount actually owing by such Account Debtor and
shall have been fully earned by performance by the Loan Parties.
(b) No Loan Party has any knowledge of any impairment of
the validity or collectibility of any of the Accounts Receivable, other than
returns, reserves, unauthorized use of credit cards, bad checks, adjustments and
disputes which occur in the ordinary course of business. The Borrower shall
notify the Agent of any such impairment immediately after any Loan Party becomes
aware of any such impairment.
(c) No Loan Party shall post any bond to secure any Loan
Party's performance under any agreement to which any Loan Party is a party nor
cause any surety, guarantor, or other third party obligee to become liable to
perform any obligation of any Loan Party (other than to the Agent) in the event
of any Loan Party's failure so to perform, if, as a result of the surety,
guarantor or third party obligee's performance, such Person would obtain a Lien
on any Collateral having priority to the Lien of the Agent.
B-91
Section 8.05 NOTIFICATION TO ACCOUNT DEBTORS. The Agent shall
have the right (after the occurrence of a Cash Control Event (as defined in the
Revolving Credit Facility)) to notify any of the Loan Parties' Account Debtors
to make payment directly to the Agent and to collect all amounts due on account
of the Collateral, in each case, subject to the terms of the Intercreditor
Agreement.
Section 8.06 APPOINTMENT AS ATTORNEY-IN-FACT. Each Key Loan
Party hereby irrevocably constitutes and appoints the Agent (acting through any
officer of the Agent) as that Key Loan Party's true and lawful attorney, with
full power of substitution, following the occurrence and during the continuance
of an Event of Default and subject to the terms of the Intercreditor Agreement,
to convert the Collateral into cash at the sole risk, cost, and expense of that
Key Loan Party, but for the sole benefit of the Agent and the Lenders. The
rights and powers granted the Agent by this appointment include but are not
limited to the right and power to:
(a) Prosecute, defend, compromise, or release any action
relating to the Collateral;
(b) Sign change of address forms to change the address to
which each Key Loan Parties' mail is to be sent to such address as the Agent
shall designate (after which copies of all such mail shall be promptly furnished
to the Borrower); receive and open each Key Loan Parties' mail; remove any
Collateral and proceeds of Collateral therefrom and turn over the balance of
such mail either to the Key Loan Party or to any trustee in bankruptcy or
receiver of the Borrower, or other legal representative of a Borrower whom the
Agent determines to be the appropriate Person to whom to so turn over such mail;
(c) Endorse the name of the relevant Key Loan Party in
favor of the Agent upon any and all checks, drafts, notes, acceptances, or other
items or instruments; sign and endorse the name of the relevant Key Loan Party
on, and receive as secured party, any of the Collateral, any invoices, schedules
of Collateral, freight or express receipts, or bills of lading, storage
receipts, warehouse receipts, or other documents of title respectively relating
to the Collateral;
(d) Sign the name of the relevant Key Loan Party on any
notice to that Key Loan Parties' Account Debtors or verification of the
Collateral; sign the relevant Key Loan Parties' name on any proof of claim in
bankruptcy against Account Debtors, and on notices of lien, claims of mechanic's
liens, or assignments or releases of mechanic's liens securing the Accounts
Receivable;
(e) Take all such action as may be necessary to obtain the
payment of any letter of credit and/or banker's acceptance of which any Key Loan
Party is a beneficiary;
(f) Repair, manufacture, assemble, complete, package,
deliver, alter or supply goods, if any, necessary to fulfill in whole or in part
the purchase order of any customer of each Key Loan Party; and
(g) Use, license or transfer any or all General
Intangibles of each Key Loan Party.
Section 8.07 NO OBLIGATION TO ACT. The Agent shall not be
obligated to do any of the acts or to exercise any of the powers authorized by
Section 8.06 herein, but if the Agent elects to do any such act or to exercise
any of such powers, it shall not be accountable for more than it actually
receives as a result of such exercise of power, and shall not be responsible to
any Borrower for any act or omission to act except for any act or omission to
act as to which there is a final determination made in a judicial proceeding (in
which proceeding the Agent has had an opportunity to be heard) which
determination includes a specific finding that the subject act or omission to
act had been grossly negligent or in actual bad faith, or willful misconduct.
9. EVENTS OF DEFAULT.
(a) Section 9.01(c) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
B-92
(c) the failure by any Loan Party to promptly, punctually,
faithfully and timely perform, discharge, or comply with any
covenant or Obligation included in any of the following
provisions hereof:
SECTION RELATES TO
--------------- -----------------------------------
6.02(b) Indebtedness
6.01(b) Pay Taxes
6.02(g) Dividends. Investments. Other
Corporate Actions
6.02(e) Loans and Advances
6.02(i) Affiliate Transactions
6.02(q) Excess Availability Reserve
Article VII Reporting Requirements (except as
set forth in Section 9.01(d))
5(k) of the Security Cash Management
Agreement
(b) Section 9.01(d) of the Loan Agreement is hereby
amended and restated in is entirety as follows:
(d) the failure by the Key Loan Parties to promptly,
punctually, faithfully and timely perform, discharge, or
comply with the financial reporting requirements included in
Section 7.04, subject, however, to the following limited
number of grace periods applicable to certain of those
requirements:
NUMBER OF
REPORT/STATEMENT REQUIRED BY SECTION GRACE PERIOD GRACE PERIODS
------------------------- ---------------------- ----------------- -------------
Weekly Report 7.04 2 Business Days Twice any 12 consecutive
months
(c) Section 9.01(g) of the Loan Agreement is hereby
amended and restated in is entirety as follows:
(g) the occurrence and continuance of any Event of Default or
other event, which with the giving of notice, the passage of
time or both, would be an Event of Default under (i) the
Revolving Credit Facility, (ii) the Term Loan Documents, or
(iii) any other Indebtedness of any Loan Party equal to or in
excess of One Million Dollars ($1,000,000.00) to any creditor
other than the Agent or any Lender, (whether or not such
Indebtedness has been accelerated), or, Leases aggregating
more than five percent (5%) of all Leases of the Loan Parties
existing from time to time could be terminated due to a
default by a Loan Party thereunder (whether or not the subject
creditor or lessor takes any action on account of such
occurrence);
(d) Section 9.01(i) of the Loan Agreement is hereby
amended by deleting the words "property or assets of the Loan Parties" and
substituting the word "Collateral" therefor.
(e) Section 9.01(n) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(n) (i) any challenge by or on behalf of any Loan Party to the
validity of any Loan Document or the applicability or
enforceability of any Loan Document
B-93
strictly in accordance with the subject Loan Document's terms
or which seeks to void, avoid, limit, or otherwise adversely
affect any security interest created by or in any Loan
Document or any payment made pursuant thereto;
(ii) any determination by any court or any other judicial or
Government Authority that any Loan Document is not enforceable
strictly in accordance with the subject Loan Document's terms
or which voids, avoids, limits, or otherwise adversely affects
any security interest created by any Loan Document or any
payment made pursuant thereto; or
(f) Section 9.01(q) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(q) the Loan Parties refinance the Loan (as defined in the
Term Loan Agreement) and 80% or more of the proceeds of such
refinancing is derived from the incurrence of Indebtedness.
10. AGENT.
(a) Section 10.01 of the Loan Agreement is hereby amended by
deleting the words "properties and assets of the Loan Parties" in clause (iii)
thereof and substituting the word "Collateral" therefor, deleting the words "and
take any enforcement action in clause (C) thereof, and substituting the words
"take action to realize upon the Collateral" therefor and amending and restating
clause (v) thereof to read in its entirety as follows:
(v) to make Agent Advances, for the Agent or on behalf of the
applicable Lenders as provided in this Agreement or any other
Loan Document;
(b) Section 10.02 of the Loan Agreement is hereby amended by
deleting the words "properties and asset of the Loan Parties" in the final
sentence thereof and substituting the word "Collateral" therefor.
(c) Section 10.03 of the Loan Agreement is hereby amended by
deleting the word "and" immediately prior to clause (v) thereof and inserting
the following at the end thereof:
; and (vi) shall not be deemed to have made any representation
or warranty regarding the existence, value or collectibility
of the Collateral, the existence, priority or perfection of
the Agent's Lien thereon, or any certificate prepared by any
Loan Party in connection therewith, nor shall the Agent or the
Required Lenders be responsible or liable to the Lenders for
any failure to monitor or maintain any portion of the
Collateral.
(d) Section 10.08 and 10.09 of the Loan Agreement is hereby
amended and restated in their entirety to read as follows:
Section 10.08 COLLATERAL MATTERS.
(a) The Agent may from time to time make such
disbursements and advances ("AGENT ADVANCES") which the Agent, in its sole
discretion, deems reasonably necessary or desirable to preserve, protect,
prepare for sale or lease or dispose of the Collateral or any portion thereof,
to enhance the likelihood or maximize the amount of repayment by the Borrower of
the Loan and other Obligations or to pay any other amount chargeable to the Key
Loan Parties pursuant to the terms of this Agreement, including, without
limitation, costs, fees and expenses as described in Section 12.04. The Agent
Advances shall be repayable on demand and be secured by the Collateral. The
Agent Advances shall constitute Obligations hereunder. The Agent shall notify
each Lender and the Borrower in writing of each such Agent Advance, which notice
shall include a description of the purpose of such
B-94
Agent Advance. Without limitation to its obligations pursuant to Section 10.05,
each Lender agrees that it shall make available to the Agent, upon the Agent's
demand, in Dollars in immediately available funds, the amount equal to such
Lender's Pro Rata Share of each such Agent Advance. If such funds are not made
available to the Agent by such Lender, the Agent shall be entitled to recover
such funds on demand from such Lender, together with interest thereon for each
day from the date such payment was due until the date such amount is paid to the
Agent, at the Federal Funds Rate for three Business Days and thereafter at the
Reference Rate.
(b) The Lenders hereby irrevocably authorize the Agent, at
its option and in its discretion, to release any Lien granted to or held by the
Agent upon any Collateral upon payment and satisfaction of the Loan and all
other Obligations which have matured and which the Agent has been notified in
writing are then due and payable; or constituting property being sold or
disposed of in the ordinary course of any Loan Party's business and in
compliance with the terms of this Agreement and the other Loan Documents; or
constituting property in which the Loan Parties owned no interest at the time
the Lien was granted or at any time thereafter; or if approved, authorized or
ratified in writing by the Lenders. Upon request by the Agent at any time, the
Lenders will confirm in writing the Agent's authority to release particular
types or items of Collateral pursuant to this Section 10.08(b).
(c) Without in any manner limiting the Agent's authority
to act without any specific or further authorization or consent by the Lenders
(as set forth in Section 10.08(b)), each Lender agrees to confirm in writing,
upon request by the Agent, the authority to release Collateral conferred upon
the Agent under Section 10.08(b). Upon receipt by the Agent of confirmation from
the Lenders of its authority to release any particular item or types of
Collateral, and upon prior written request by any Loan Party, the Agent shall
(and is hereby irrevocably authorized by the Lenders to) execute such documents
as may be necessary to evidence the release of the Liens granted to the Agent
for the benefit of the Lenders upon such Collateral; PROVIDED, HOWEVER, that (i)
the Agent shall not be required to execute any such document on terms which, in
the Agent's opinion, would expose the Agent to liability or create any
obligations or entail any consequence other than the release of such Liens
without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Lien upon (or obligations of
any Loan Party in respect of) all interests in the Collateral retained by any
Loan Party.
(d) The Agent shall have no obligation whatsoever to any
Lender to assure that the Collateral exists or is owned by the Loan Parties or
is cared for, protected or insured or has been encumbered or that the Lien
granted to the Agent pursuant to this Agreement or any other Loan Document has
been properly or sufficiently or lawfully created, perfected, protected or
enforced or is entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to the Agent in this Section 10.08 or in any other Loan Document, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it may deem
appropriate, in its sole discretion, given the Agent's own interest in the
Collateral as one of the Lenders and that the Agent shall have no duty or
liability whatsoever to any other Lender, except as otherwise provided herein.
Section 10.09 AGENCY FOR PERFECTION. Each Lender hereby
appoints the Agent and each other Lender as agent and bailee for the purpose of
perfecting the security interests in and liens upon the Collateral in assets
which, in accordance with Article 9 of the Uniform Commercial Code, can be
perfected only by possession or control (or where the security interest of a
secured party with possession or control has priority over the security interest
of another secured party) and each Agent and each Lender hereby acknowledges
that it holds possession of or otherwise controls any such Collateral for the
benefit of the Agent and the Lenders as secured party. Should any Lender obtain
possession or control of any such Collateral, such Lender shall notify the Agent
thereof, and, promptly upon the Agent's request therefor shall deliver such
Collateral to the Agent or in accordance with the Agent's instructions. Each
Loan Party by its execution and delivery of this Agreement hereby consents to
the foregoing.
B-95
11. GUARANTY.
(a) Section 11.02(c) of the Loan Agreement is hereby amended
and restated in its entirety as follows:
(c) Any taking, exchange, release or non-perfection of any
Collateral, or any taking, release or amendment or waiver of
or consent to departure from any other Guaranty, for all or
any of the Guaranteed Obligations;
(b) Section 11.03 of the Loan Agreement is hereby amended by
adding the words "or any Collateral" at the end of the first sentence thereof.
(c) Section 11.05 of the Loan Agreement is hereby amended (i)
by adding the words "or any Collateral" immediately prior to the word "whether"
in the first sentence thereof, and (ii) by adding the words "or to be held as
Collateral for any Guaranteed Obligations or other amounts payable under this
Article XI thereafter arising" at the end of the penultimate sentence thereof.
12. MISCELLANEOUS.
(a) Section 12.01 of the Loan Agreement shall be amended and
restated to read in its entirety as follows:
Section 12.01 NOTICES, ETC. All notices and other
communications provided for hereunder shall be in writing and shall be mailed
(by certified mail, postage, prepaid and return receipt requested), telecopied
or delivered, if to any Loan Party, at the following address:
Value City Department Stores, Inc.
3241 Westerville Road
Columbus, OH 43224
Attention: James A. McGrady
Telephone: (614) 478-2300
Telecopier: (614) 473-2721
with a copy to:
Schottenstein Stores Corporation
1800 Moler Road
Columbus, OH 43207
Attention: Irwin A. Bain, Esq.
Telephone: 614-449-4332
Telecopier: 614-443-0927
and
Porter Wright Morris & Arthur LLP
41 South High Street
Columbus, OH 43215
Attention: Robert J. Tannous, Esq. and Timothy E. Grady, Esq.
Telephone: 614-227-1953
Telecopier: 614-227-2100
B-96
if to the Agent, to it at the following address:
Cerberus Partners, L.P.
450 Park Avenue, 28th Floor
New York, New York 10022
Attention: Lenard Tessler
Telephone: (212) 909-1464
Telecopier: (212) 755-3009
with a copy to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention: Nancy Finkelstein, Esq.
Telephone: 212-756-2419
Telecopier: 212-593-5955
or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties complying as
to delivery with the terms of this Section 12.01. All such notices and other
communications shall be effective, (i) if sent by certified mail, return receipt
requested, the date when actually received, (ii) if sent by recognized overnight
express delivery, the Business Day following the day when sent, (iii) if
delivered by hand on a Business Day after 9:00 AM and no later than three (3)
hours prior to the close of customary business hours of the recipient, when
delivered (otherwise, at the opening of the then next Business Day), and (iv) by
telecopier and sent on a Business Day after 9:00 AM and no later than three (3)
hours prior to the close of customary business hours of the recipient, one (1)
hour after being sent (otherwise, at the opening of the then next Business Day).
(b) Section 12.02 of the Loan Agreement is hereby amended and
restating in its entirety to read as follows:
AMENDMENTS, ETC. Subject to Section 6.02(l), no amendment or
waiver of any provision of this Agreement, and no consent to
any departure by any Loan Party therefrom, shall in any event
be effective unless the same shall be in writing and signed by
the Agent, the Borrower and the Guarantors, 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 no amendment, waiver or consent shall
(i) reduce the principal of, or interest on, the Loan, reduce
the amount of any fee payable for the account of any Lender,
or postpone or extend any date fixed for any payment of
principal of, or interest or fees on the Loan payable to any
Lender, in each case without the written consent of any Lender
affected thereby, (ii) amend the definition of "Pro Rata
Share", (iii) release all or a substantial portion of the
Collateral (except as otherwise provided in this Agreement and
the other Loan Documents), subordinate any Lien granted in
favor of the Agent for the benefit of the Lenders, or release
the Borrower or any Guarantor or (iv) amend, modify or waive
Section 3.04, Article XII or this Section 12.02 of this
Agreement in each case, without the written consent of each
Lender. Notwithstanding the foregoing, no amendment, waiver or
consent shall, unless in writing and signed by the Agent,
affect the rights or duties of the Agent (but not in its
capacity as a Lender) under this Agreement or the other Loan
Documents.
(c) Section 12.04 of the Loan Agreement is hereby amended by
adding the words "appraisals of Collateral," after the words "monitoring of
assets" in the first sentence thereof, and by amending and restating clauses
(f), (g), and (h) in their entirety and substituting the following therefor:
B-97
(f) the filing of any petition, complaint, answer, motion or
other pleading by the Agent or any Lender, or the taking of
any action in respect of the Collateral or other security, in
connection with this Agreement or any other Loan Document; (g)
the protection, collection, lease, sale, taking possession of
or liquidation of, any Collateral or other security in
connection with this Agreement or any other Loan Document; (h)
any attempt to enforce any Lien or security interest in any
Collateral or other security in connection with this Agreement
or any other Loan Document;
13. CONVERSION PROVISIONS. (a) Section 13.01 of the Loan Agreement
is hereby amended by adding the following subsection (c) at the end thereof:
(c) Except as provided in Section 14.03, at any time
that CPLP converts all or any portion of its Pro Rata
Share of the Loan into Conversion Shares, CPLP may
require that simultaneous with such Conversion, SSC
convert up to an equivalent amount of the Loan owed
to it into Conversion Shares (the "DRAG ALONG
CONVERSION RIGHT"). In order to exercise its Drag
Along Conversion Right, CPLP must provide SSC with
five (5) Business Days prior written notice of its
conversion (the "DRAG ALONG CONVERSION NOTICE") which
shall set forth (i) the amount of the Loan that it
intends to convert, (ii) the Conversion Date for such
conversion and (iii) the amount of the Loan that SSC
must convert. Within two (2) Business Days of receipt
of a Drag Along Conversion Notice, SSC shall provide
the Borrower with a Conversion Notice (as defined
below) that it will convert at least the same amount
of the Loan as is set forth in such Drag Along
Conversion Notice on the Conversion Date set forth in
such Drag Along Conversion Notice; PROVIDED, HOWEVER,
that if SSC has already converted a portion of the
Loan initially held by it other than in response to a
Drag Along Conversion Notice, it shall only be
required to convert that portion of its Loan up to
the amount set forth in the Drag Along Conversion
Notice as is necessary so that following the
conversion set forth in the Conversion Notice
delivered in response to such Drag Along Conversion
Notice, it shall have converted the same amount of
its initial Loan as is set forth in the Drag Along
Conversion Notice. In the event that CPLP converts
all or any portion of the Loan after it receives a
Buyout Exercise Notice (as defined below) relating to
an SSC Transaction (defined below) which is not a
Referred SSC Transaction (as defined below) and
before thirty-one (31) days following the receipt of
such Buyout Exercise Notice, CPLP shall not be
entitled to exercise its Drag Along Conversion Right
with respect to such conversion.
(b) Section 13.03(a)(iv) of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
(iv) (A) shares of Common Stock issued upon exercise
of the Warrants and (B) such additional number of
shares as may become issuable upon the exercise of
any such securities by reason of adjustments required
pursuant to anti-dilution provisions applicable to
such securities as in effect on the date hereof.
(c) Sections 13.03(e)(i)(B) and (C) of the Loan Agreement are
hereby amended and restated in their entirety as follows:
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the
time of such issue, as determined in good faith by a
committee of the Borrower's Board of Directors
consisting of directors
B-98
who are not Affiliates of the Borrower, SSC or CPLP;
PROVIDED, HOWEVER, that at the request of any Lender,
the fair value shall be determined in good faith by
an independent investment banking firm selected by
the Borrower, SSC and CPLP or, if that selection
cannot be made within ten days, by an independent
investment banking firm selected by the American
Arbitration Association in accordance with its rules,
and PROVIDED, FURTHER, that the Borrower shall pay
all of the reasonable fees and expenses of any third
parties incurred in connection with determining the
fair value; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares of securities
or other assets of the Borrower for a single
undivided consideration, be the proportion of such
consideration so received allocable to such
Additional Shares of Common Stock, computed as
provided in clauses (A) and (B) above, as determined
in good faith by the a committee of the Borrower's
Board of Directors consisting of directors who are
not Affiliates of the Borrower, SSC or CPLP, or at
the request of any Lender, of the proportion of such
consideration so received allocable to such
Additional Shares of Common Stock value shall be
determined in good faith by an independent investment
banking firm selected by the Borrower, SSC and CPLP
or, if that selection cannot be made within ten days,
by an independent investment banking firm selected by
the American Arbitration Association in accordance
with its rules, and PROVIDED, FURTHER, that the
Borrower shall pay all of the reasonable fees and
expenses of any third parties incurred in connection
with determining the proportion of such consideration
so received allocable to such Additional Shares of
Common Stock.
(d) The Loan Agreement is hereby amended by adding a new
Section 13.13 to read in its entirety as follows:
Section 13.13. TERMINATION. All provisions of the Loan
Agreement except Section 6.01(r) shall terminate upon the conversion of the
entirety of the Loan into Conversion Shares. Section 6.01(r) shall terminate in
accordance with the terms set forth in Section 6.01(r)(iii).
14. The Loan Agreement is hereby amended to add a new Article XIV
to read in its entirety as follows:
ARTICLE XIV
TRANSACTIONS WITH AFFILIATES
Section 14.01 TRANSACTION APPROVAL. Unless the Buyout Option
(as defined below) has been exercised, neither Borrower nor any of their
respective Subsidiaries shall enter into an SSC Transaction (as defined below)
without the prior written consent of CPLP. In the event that the Borrower, SSC
or any of its Subsidiaries propose to enter into an SSC Transaction, Borrower
shall promptly notify CPLP in writing of the proposed SSC Transaction (the
"NOTIFICATION DATE") which notice shall (i) describe the proposed SSC
Transaction in reasonable detail and (ii) be accompanied by such information as
Borrower reasonably believes that a third party investor would reasonably
require in order to determine the fairness of the proposed SSC Transaction. The
Borrower shall promptly provide such additional information (and make personnel
available to discuss the same) as CPLP may reasonably request regarding the SSC
Transaction during the three (3) Business Days following the Notification Date.
Within five (5) Business Days of the Notification Date, CPLP shall deliver to
the Borrower and SSC a written notice (an "OBJECTION NOTICE") stating that it
objects to such SSC Transaction (the "OBJECTION DATE"). If CPLP does not deliver
an Objection Notice with respect to an SSC Transaction on or prior to the
Objection Date, it shall be deemed (subject to the provisions of Section
14.02(b)) to have consented to such SSC Transaction.
B-99
An "SSC TRANSACTION" means any transaction, agreement,
arrangement, lease, guaranty, loan or advance of money (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) or a series of related transactions or the material
amendment or modification of any existing or previously approved transaction,
between (i) the Borrower or any of its Subsidiaries and (ii) SSC or any
Affiliate of SSC (other than Borrower and its Subsidiaries) unless: (x) the
transaction, or series of related transactions, has a value of at less than
$500,000, (y) such transactions and other prior transactions of the Borrower and
its Subsidiaries in any fiscal year of the Borrower have a value of less than
$5,000,000 in the aggregate, or (iii) the transaction is an Approved Existing
Transaction.
An "APPROVED EXISTING TRANSACTION" means a transaction,
agreement, arrangement, lease, guaranty, loan or advance of money (including,
without limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) described in the confidential side letter between the
Borrower and the Agent of even date herewith on the terms in effect as of the
date hereof and excluding any material modification or amendment thereto.
Section 14.02 BUYOUT OPTION. (a) In the event that CPLP
delivers an Objection Notice, SSC shall have the right exercisable by delivering
a written notice, not more that five (5) Business Days after the Objection Date,
to CPLP stating that it elects to exercise its Buyout Option (a "BUYOUT EXERCISE
NOTICE") to purchase all but not less than all of the Buyout Securities (as
defined below) for a cash purchase price equal to all principal and interest due
to CPLP pursuant to the Term Loan Agreement, all principal and interest due to
CPLP with respect to the Loan and CPLP's pro rata portion of any fees payable to
it under the Term Loan Agreement or this Agreement (the "BUYOUT OPTION");
PROVIDED, HOWEVER, that if CPLP has exercised a portion of the Warrants that
would otherwise be deemed Allocated Warrants (the shares of Common Stock issued
upon exercise of the Allocated Warrants shall be referred to as the "ALLOCATED
SHARES"), then the purchase price paid by SSC for the Buyout Option shall be
reduced (by an amount not less than zero) (i) if CPLP then owns all or a portion
of the Allocated Shares, by the product of (a) the number of Allocated Shares
then owned and (b) the difference between the Current Market Price on the date
of the Buyout Exercise Notice and the exercise price paid by CPLP for such
Allocated Shares or (ii) if CPLP has sold all or a portion of the Allocated
Shares, by the product of (x) the number of Allocated Shares so sold and (y) the
difference between the consideration received by CPLP upon the sale of the
Allocated Shares so sold and the exercise price paid by CPLP for such Allocated
Shares; PROVIDED, FURTHER, that if CPLP has acquired the Allocated Shares via
cashless exercise, the foregoing computation shall be made as if such exercise
had been a cash exercise. If SSC does not deliver a Buyout Exercise Notice in
accordance with the terms of this Section 14.02, then SSC shall be deemed to
have waived its Buyout Option as to the transactions stated in the Buyout
Exercise Notice, and the parties may not proceed with the SSC Transaction that
is the subject of such Objection Notice.
(b) If a Buyout Exercise Notice is delivered, CPLP, within
five (5) Business Days of delivery of such Buyout Exercise Notice, may request
by written notice to Borrower and SSC (a "REFERRAL NOTICE") that a committee
comprised of all of the independent directors of the Borrower not affiliated
with SSC, CPLP or the Borrower's management (the "FAIRNESS COMMITTEE") review
and approve the SSC Transaction that is the subject of the Buyout Exercise
Notice (a "REFERRED SSC TRANSACTION") as to its fairness to the Borrower and its
unaffiliated shareholders. The Borrower shall cause a Fairness Committee to be
appointed within five (5) Business Days of its receipt of a Referral Notice. In
the event that the Fairness Committee reviews and approves as fair to Borrower
and its unaffiliated shareholders the Referred SSC Transaction as proposed by
SSC or if the Fairness Committee modifies the Referred SSC Transaction, and as
modified approves the Referred SSC Transaction as fair to Borrower and its
unaffiliated shareholders, CPLP shall be deemed to have consented to the SSC
Transaction as so approved. In the event that CPLP requests that an SSC
Transaction be reviewed by a Fairness Committee, such request shall be
irrevocable, SSC shall not have any rights to exercise a Buyout Option in
connection with such Referred SSC Transaction, and Section 14.03 shall not apply
to such Referred SSC Transaction.
(c) If SSC elects to exercise the Buyout Option and CPLP
does not timely deliver a Referral Notice pursuant to Section 14.02(b), then the
closing of the Buyout Option regarding the amounts payable under the Term Loan
Agreement shall occur on the 30th day following the delivery of the Buyout
Exercise Notice. CPLP shall have the right to convert or elect not to convert
any portion of the Loan payable to CPLP for a period of up to 30 days following
the delivery of the Buyout Exercise Notice. The closing of the Buyout Option
regarding the portion of the Loan payable to CPLP shall occur on the earlier to
occur of (i) the 30th day following the delivery by
B-100
CPLP to the Borrower and SSC of a notice that it does not elect to convert the
outstanding portion of the Loan payable to it or specifying which portion of the
Loan it does elect to convert (the "CPLP NON-CONVERSION NOTICE") and (ii) the
60th day following the delivery of a Buyout Exercise Notice.
"BUYOUT SECURITIES" means (i) amounts payable to CPLP under
the Term Loan Agreement, (ii) the portion of the Loan payable to CPLP and (iii)
the Allocated Warrants (as defined below) but shall in no event include (a)
Conversion Shares, (b) shares issued upon exercise of the Warrant previously
issued to CPLP (subject to the provisions of Section 14.02(a)) and (c) the
portion of the Warrant not constituting the Allocated Warrants. To the extent
that CPLP has partially exercised the Warrant prior to the delivery of a Buyout
Exercise Notice, the Warrant shall be deemed first exercised as to the portion
of the Warrant that is not deemed Allocated Warrants. The "ALLOCATED WARRANTS"
shall be (x) 75% of the Warrant until the first anniversary of the Effective
Date, (y) 50% of the Warrant from the first anniversary of the Effective Date
until the second anniversary of the Effective Date, (z) 25% of the Warrant from
the second anniversary of the Effective Date until the third anniversary of the
Effective Date, and (iv) zero from and after the third anniversary of the
Effective Date.
Section 14.03 EXERCISABILITY. The Allocated Warrants shall not
be exercisable by CPLP from the date on which CPLP receives the Buyout Exercise
Notice until the date which is thirty-one (31) days after the receipt by CPLP of
the Buyout Exercise Notice. The Loan shall not be convertible by CPLP from the
date of delivery of the Non-Conversion Notice until the date which is thirty-one
(31) days following the date of delivery of the Non-Conversion Notice.
Section 14.04 CPLP TRANSACTION. Neither the Borrower nor its
Subsidiaries will enter into any transaction with CPLP or its Affiliates, other
than the transactions contemplated by the Term Loan Agreement and this
Agreement, without the prior written consent of the Borrower's Board of
Directors and SSC unless the transaction, or series of related transactions, is
valued at less than $500,000.
15. RESIGNATION/APPOINTMENT OF AGENT. On the effectiveness of this
Amendment on the First Amendment Effective Date (as defined below), SSC shall
resign all of its functions and duties as agent, and CPLP will thereupon become
the successor Agent and shall succeed to and become vested with all the rights,
powers and privileges of the Agent. Each of the parties hereto hereby agrees to
such resignation and such appointment and waives the notice requirements of
Section 10.07 of the Loan Agreement.
16. CONDITIONS. This Amendment shall become effective on the date
(the "First Amendment Effective Date") as of which each of the following
conditions precedent shall have been satisfied in a manner satisfactory to each
Lender:
(a) FEES AND EXPENSES.
(i) All fees, expenses and taxes accrued and unpaid or
otherwise due and payable by the Borrower or a Loan Party pursuant to either the
Loan Agreement or this Amendment shall have been paid in full.
(ii) The Lenders shall have received either (A) evidence
that any and all placement fees associated with the SSC Assignment have been
paid in full, or (B) a certificate from an Authorized Officer of the Borrower
that no such fees are applicable.
(b) REPRESENTATIONS AND WARRANTIES; NO EVENT OF DEFAULT. Both
before and after giving effect to the transactions contemplated by this
Amendment, the representations and warranties contained in the Loan Agreement,
as amended, are true and correct in all respects, and no Default or Event of
Default has occurred and is continuing.
(c) LEGALITY. This Amendment and the transactions contemplated
thereby shall not contravene any law, rule or regulation applicable top the
Agent or any Lender. The Agent shall have received on or before the First
Amendment Effective Date, each of the following in form and substance
satisfactory to the Agent:
B-101
(i) this Amendment, duly executed by each of the Loan
Parties;
(ii) the Notes, payable to the order of each Lender and
duly executed by the Borrower;
(iii) a Security Agreement, duly executed by each Loan
Party;
(iv) an Assignment for Security (as defined in the
Security Agreement) with respect to trademarks and trademark licenses, duly
executed by each Loan Party;
(v) an Assignment for Security (as defined in the Security
Agreement) with respect to copyrights and copyright licenses, duly executed by
each Loan Party;
(vi) a Pledge Agreement, duly executed by each Loan Party
(as applicable) together with the original stock certificates or other
certificated securities or instruments representing all of the Capital Stock of
such Loan Party's subsidiaries accompanied by undated stock powers executed in
blank and other proper instruments of transfer;
(vii) Mortgages and Landlord's Agreements with respect to
all Leases set forth on Schedule 4.01(d) hereto;
(viii) the Control Agreements and such other depository
account, notices and other similar documents entered into in connection with the
Revolving Credit Facility Documents with respect to the accounts controlled
under such agreements subject to the priority set forth in the Intercreditor
Agreement, each in form and substance satisfactory to the Agent, with respect to
the Key Loan Parties' cash management system;
(ix) payoff letters and termination and release agreements
and all related documents, and UCC-3 termination statements for all UCC-1
financing statements covering any portion of the Collateral; a UCC Filing
Authorization Letter, duly executed by each Loan Party, together with
appropriate financing statements on Form UCC-1, duly executed by each Loan Party
and duly filed in such office or offices as may be necessary or, in the opinion
of the Agent, desirable to perfect the security interests purported to be
created by each Security Agreement, each Pledge Agreement and each Mortgage;
(x) evidence of the recording of the leasehold Mortgages
in such office or offices as may be necessary or, in the opinion of the Agent,
desirable to perfect the Lien purported to be created thereby or to otherwise
protect the rights of the Agent and the Lenders thereunder;
(xi) the Intercreditor Agreement, in form and substance
satisfactory to the Agent, duly executed by each of the parties thereto;
(xii) the Registration Rights Agreement, duly executed by
each of the parties thereto;
(xiii) an opinion of Porter, Wright, Morris & Arthur LLP,
counsel to the Loan Parties, substantially in the form of Exhibit H and as to
such other matters as the Agent may reasonably request as well as opinions of
local counsel with respect to Key Loan Parties or Guarantors formed in Michigan
and Missouri;
(xiv) a copy of the resolutions of each Loan Party,
certified as of the Effective Date by an Authorized Officer thereof, authorizing
(A) the transactions contemplated by the Loan Documents to which such Loan Party
is or will be a party, and (B) the execution, delivery and performance by such
Loan Party of each Loan Document to which such Loan Party is or will be a party
and the execution and delivery of the other documents to be delivered by such
Person in connection herewith and therewith;
(xv) evidence of the insurance coverage required by
Section 6.01 and the terms of each Security Agreement and each Mortgage and such
other insurance coverage with respect to the business and operations of the Loan
Parties as the Agent may reasonably request, in each case, where requested by
the Agent,
B-102
with such endorsements as to the named insureds or loss payees thereunder as the
Agent may request and providing that such policy may be terminated or canceled
(by the insurer or the insured thereunder) only upon thirty (30) days' prior
written notice to the Agent and each such named insured or loss payee, together
with evidence of the payment of all premiums due in respect thereof for such
period as the Agent may request;
(xvi) copies of the Revolving Credit Facility Documents, the
Term Loan Documents and the SSC Assignment Documents, in each case, duly
executed by the parties thereto and certified as true and correct copies thereof
by an Authorized Officer of the Borrower, each of which shall be in form and
substance satisfactory to the Agent; and
(xvii) evidence of completion of certain documentation as
requested by the Agent in connection with Collateral consisting of intellectual
property.
(e) MATERIAL ADVERSE EFFECT. The Agent shall have determined,
in its sole judgment, that no event or development shall have occurred since
February 2, 2002 which could have a Material Adverse Effect.
(f) APPROVALS. All consents, authorizations and approvals of,
and filings and registrations with, and all other actions in respect of, any
Governmental Authority or other Person required in connection with the making of
the Loans or the conduct of the Loan Parties' business shall have been obtained
and shall be in full force and effect.
(g) PROCEEDINGS; RECEIPT OF DOCUMENTS. All proceedings in
connection with the making of the Loans and the other transactions contemplated
by this Agreement and the other Loan Documents, and all documents incidental
hereto and thereto, shall be satisfactory to the Agent and its counsel, and the
Agent and such counsel shall have received all such information and such
counterpart originals or certified copies or other copies of such documents as
the Agent or such counsel may reasonably request, including, without limitation,
interim financial statements and monthly availability projections.
(h) CASH MANAGEMENT. The Lenders shall be satisfied with the
cash management systems and procedures of each of the Loan Parties.
(i) EXCESS AVAILABILITY. After giving effect to all the
transactions contemplated hereby (including transaction costs), the Key Loan
Parties shall have Excess Availability (calculated without regard to the Excess
Availability Reserve) of not less than $115,000,000.
(j) TRANSACTION COSTS. The Lenders shall be satisfied with the
costs in connection with the transactions contemplated hereby.
(k) REVOLVING CREDIT FACILITY AND TERM LOAN AGREEMENT. All
conditions precedent to the Revolving Credit Facility shall have been met to the
satisfaction of the Lenders and Agents thereto.
17. MISCELLANEOUS.
(a) CONTINUED EFFECTIVENESS OF THE LOAN AGREEMENT. Except
as otherwise expressly provided herein, each Loan Agreement and the other Loan
Documents are, and shall continue to be, in full force and effect and are hereby
ratified and confirmed in all respects.
(b) COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
(c) HEADINGS. Section headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
B-103
(d) GOVERNING LAW. This Amendment shall be governed by,
and construed in accordance with, the law of the State of New York.
(e) COSTS AND EXPENSES. The Borrower and other Loan
Parties jointly and severally agree to pay on demand all reasonable fees, costs
and expenses of the Lenders in connection with the preparation, execution and
delivery of this Amendment and the other related agreements, instruments and
documents.
(f) AMENDMENT AS LOAN DOCUMENT. The Borrower and other
Loan Parties hereby acknowledge and agree that this Amendment constitutes a
"Loan Document" under the Loan Agreement. Accordingly, it shall be an Event of
Default under the Loan Agreement if (i) any representation or warranty made by
the Borrower or any other Loan Party under or in connection with this Amendment
shall have been untrue, false or misleading in any material respect when made,
or (ii) the Borrower or any other Loan Party shall fail to perform or observe in
any material respect any term, covenant or agreement contained in this Amendment
(g) WAIVER OF JURY TRIAL. THE BORROWER, EACH OTHER LOAN
PARTY AND THE LENDERS EACH HEREBY 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 THIS AMENDMENT OR THE ACTIONS OF EITHER
LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
B-104
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.
BORROWER:
--------
Value City Department Stores, Inc.,
an Ohio corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
SUBSIDIARY GUARANTORS:
---------------------
Shonac Corporation,
an Ohio corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
DSW SHOE Warehouse, Inc.,
a Missouri Corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
GRAMEX RETAIL STORES, INC.,
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
B-105
FILENE'S BASEMENT, INC.,
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
GB RETAILERS, INC.,
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
J.S. OVERLAND DELIVERY, INC.,
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
VALUE CITY DEPARTMENT STORES SERVICES, INC.
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
VALUE CITY LIMITED PARTNERSHIP,
an Ohio limited partnership
By: Westerville Road GP, Inc., its General
Partner
By: /s/John C. Rossler
---------------------------------------
Name: John C. Rossler
Title: President
B-106
VALUE CITY OF MICHIGAN, INC.,
a Michigan corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
VCM, LTD.,
an Ohio limited liability company
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
WESTERVILLE ROAD GP, INC.
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
WESTERVILLE ROAD LP, INC.
a Delaware corporation
By: /s/John C. Rossler
--------------------------------------------
Name: John C. Rossler
Title: President
B-107
RESIGNING AGENT AND LENDER:
--------------------------
SCHOTTENSTEIN STORES CORPORATION
By: /s/Thomas R. Ketteler
-------------------------------
Name: Thomas R. Ketteler
Title: Chief Operating Officer and
Chief Financial Officer
SUCCESSOR AGENT AND LENDER:
--------------------------
CERBERUS PARTNERS, L.P.
By: /s/Mark A. Neporent
-------------------------------
Name: Mike Neporent
Title: Vice President and Chief Operating
Officer
B-108
APPENDIX C
VALUE CITY DEPARTMENT STORES, INC.
2000 STOCK INCENTIVE PLAN
1. BACKGROUND, PURPOSE AND DURATION
1.1 Effective Date. The Plan is effective as of December 4, 2000,
subject to ratification by an affirmative vote of the holders of a majority of
the Shares which are present in person or by proxy and entitled to vote at the
2001 Annual Meeting of Shareholders. Awards may be granted prior to the receipt
of such vote, but such grants shall be null and void if such vote is not in fact
received.
1.2 Purpose of the Plan. The Plan is intended to further the growth and
profitability of the Company by providing increased incentive to and encourage
Share ownership on the part of (a) employees of the Company and its Affiliates,
(b) consultants who provide significant services to the Company and its
Affiliates, and (c) directors of the Company who are not employees of the
Company. All management and key Employees, Consultants and Directors of the
Company are eligible to receive Awards under the Plan.
2. DEFINITIONS
The following words and phrases shall have the following meanings
unless a different meaning is plainly required by the context:
2.1 "1934 Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.2 "Affiliate" means any corporation or any other entity (including,
but not limited to, partnerships, limited liability corporations and joint
ventures) controlling, controlled by, or under common control with the Company.
2.3 "Affiliated SAR" means a SAR that is granted in connection with a
related Option, and which automatically will be deemed to be exercised at the
same time that the related Option is exercised. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option, except to the extent of the exercise of the related
Option.
2.4 "Award" means, individually or collectively, a grant under the Plan
of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock,
Performance Units, or Performance Shares.
2.5 "Award Agreement" means the written agreement setting forth the
terms and provisions applicable to each Award granted under the Plan.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Change of Control" will be deemed to have occurred if and when (a)
an individual, partnership, corporation, trust or other entity ("Person")
acquires or combines with the Company, or 50 percent or more of the Company's
assets or earning power, in one or more transactions, and after such acquisition
or combination, less than a majority of the outstanding voting shares of the
Person surviving such transaction (or the ultimate parent of the surviving
Person) are owned by the owners of the voting shares of the Company outstanding
immediately prior to such acquisition or combination; or (b) during any period
of two consecutive years during the term of this Plan, individuals who at the
beginning of such period are members of the Board ("Original Board Members")
cease for any reason to constitute at least a majority of the Board, unless the
election of each Board member who was not an Original Board Member has been
approved in advance by Board members representing at least two-thirds of the
Board members then in office who were Original Board Members or elected by them.
C-1
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.
2.9 "Committee" means the committee appointed by the Board (pursuant to
Section 3.1) to administer the Plan.
2.10 "Company" means Value City Department Stores, Inc., an Ohio
corporation, its Subsidiaries and any successors.
2.11 "Consultant" means any consultant, independent contractor, or
other person who provides significant services to the Company or its Affiliates,
but who is neither an Employee nor a Director.
2.12 "Covered Officers" means those Participants who the Committee
designates, for each Performance Period, in order to maintain qualified
performance-based compensation within the meaning of Code Section 162(m).
2.13 "Director" means any individual who is a member of the Board.
2.14 "Disability" means a permanent and total disability within the
meaning of Code section 22(e)(3), provided that in the case of Awards other than
Incentive Stock Options, the Committee in its discretion may determine whether a
permanent and total disability exists in accordance with uniform and
non-discriminatory standards adopted by the Committee from time to time.
2.15 "Employee" means any management or key employee of the Company or
of an Affiliate, whether such employee is so employed at the time the Plan is
adopted or becomes so employed subsequent to the adoption of the Plan.
2.16 "Exercise Price" means the price at which a Share may be purchased
by a Participant pursuant to the exercise of an Option.
2.17 "Extraordinary Events" shall mean (a) asset write-downs, (b)
litigation or claim judgments or settlements, (c) the effect of changes in tax
law, accounting principles or other such laws or provisions affecting reported
results, (d) accruals for reorganization and restructuring programs, (e) capital
gains and losses, (f) special charges in connection with mergers and
acquisitions, and (g) any extraordinary non-recurring items as described in
Accounting Principles Board Opinion No. 30 and/or in management's discussion and
analysis of financial condition and results of operation appearing or
incorporated by reference in the Company's Annual Report on Form 10-K filed with
the Securities and Exchange Commission for the applicable year.
2.18 "Fair Market Value" means (a) the average of the high and low
sales price per share reported on the New York Stock Exchange on the Grant Date,
or if there be no reported sale on that date, the next preceding date on which
the Shares were traded. In all other cases, the fair market value will be
determined in accordance with procedures established in good faith by the
Committee and with respect to Incentive Stock Options, shall conform to
regulations issued by the Internal Revenue Service.
2.19 "Fiscal Year" means the fiscal year of the Company.
2.20 "Freestanding SAR" means a SAR that is granted independently of
any Option.
2.21 "Grant Date" means, with respect to an Award, the date that the
Award was granted.
2.22 "Incentive Stock Option" means an Option to purchase Shares which
is designated as an Incentive Stock Option and is intended to meet the
requirements of section 422 of the Code.
C-2
2.24 "Nonqualified Stock Option" means an option to purchase Shares
which is not intended to be an Incentive Stock Option.
2.25 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.26 "Participant" means an Employee, Consultant, or Nonemployee
Director who has an outstanding Award.
2.27 "Performance Goal" shall mean any one or more of the following
performance criteria:
(a) Income (loss) per common share from continuing operations as
disclosed in the Company's annual report to shareholders for a particular Fiscal
Year;
(b) Income (loss) per common share disclosed in the Company's annual
report to shareholders for a particular Fiscal Year;
(c) Income (loss) per common share or income (loss) per common share
from continuing operations excluding (i) extraordinary charge(s); and/or (ii)
any accruals for restructuring programs, merger integration costs, or merger
transaction costs; and/or (iii) other unusual or infrequent items (whether gains
or losses) as defined by generally accepted accounting principles (GAAP) which
are disclosed as a separate component of income or loss on the face of the
income statement or as may be disclosed in the notes to the financial statements
(hereinafter "EPS");
(d) Ratio of (i) operating profit, or other objective and specific
income (loss) category results to (ii) average common shares outstanding
(adjustments to (i) in this paragraph may be made at the time of the goal/target
establishment by the Committee in its discretion);
(e) Any of items (a), (b), (c) or (d) on a diluted basis as described
in Statement of Financial Accounting Standards No. 128 including official
interpretations or amendments thereof which may be issued from time to time as
long as such interpretations or amendments are utilized on the face of the
income statement or in the notes to the financial statements disclosed in the
Company's annual report to shareholders;
(f) Share price;
(g) Total shareholder return expressed on a dollar or percentage basis
as is customarily disclosed in the proxy statement accompanying the notice of
annual meetings of shareholders;
(h) Income (loss) (i) from continuing operations before extraordinary
charge(s), or (ii) before extraordinary charge (s), or (iii) net, as the case
may be, adjusted to remove the effect of any accruals for restructuring programs
or other unusual or infrequent items as defined by generally accepted accounting
principles (GAAP) disclosed as a separate component of income on the face of the
income statement or in the notes to the financial statements;
(i) Net income;
(j) Income (loss) before income taxes;
(k) Percentage increase in comparable store sales as disclosed in the
Company's annual report on Form 10-K;
(1) Any of items (a) through (k) above with respect to any Subsidiary,
Affiliate, division, business unit or business group of the Company whether or
not such information is included in the Company's annual report to shareholders,
proxy statement or notice of annual meeting of shareholders;
(m) Any of items (a) though (k) above with respect to a Performance
Period whether or not such information is included in the Company's annual
report to shareholders, proxy statement or notice of annual meetings of
shareholders;
C-3
(n) Total Shareholder Return Ranking Position meaning the relative
placement of the Company's Total Shareholder Return compared to those publicly
held companies in the Company's peer group as established by the Committee prior
to the beginning of a vesting period or such later date as permitted under the
Code. The peer group shall be comprised of not less than six (6) companies,
including the Company; or
(o) Any other objective criteria established by the Committee and
approved by the shareholders of the Company prior to payment of any Award based
on the criteria.
With respect to items (a), (b), (c) and (d) above, other terminology may be used
for "income (loss) per common share" (such as "Basic EPS", "earnings per common
share", "diluted EPS", or "earnings per common share-assuming dilution") as
contemplated by Statement of Financial Accounting Standards No. 128.
2.28 "Performance Period" means the Fiscal Year except in the following
cases: (a) the Employee's service period within a Fiscal Year in the case of a
new hire or promoted Employee; or (b) a period of service determined at the
discretion of the Committee prior to the expiration of more than 25% of the
period. Notwithstanding any provision contained herein, Performance Periods of
Awards granted to Section 16 Persons shall exceed six (6) months in length (or
such shorter period as may be permissible while maintaining compliance with Rule
16b-3).
2.29 "Performance Share" means a Performance Share granted to a
Participant pursuant to Section 8.
2.30 "Performance Unit" means a Performance Unit granted to a
Participant pursuant to Section 8.
2.31 "Period of Restriction" means the period during which shares of
Restricted Stock are subject to forfeiture and/or restrictions on
transferability; provided, however, that the Period of Restriction on Shares
granted to a Section 16 Person may not lapse until at least six (6) months after
the Grant Date.
2.32 "Plan" means Value City Department Stores, Inc. 2000 Stock
Incentive Plan, as set forth in this instrument and as hereafter amended from
time to time.
2.33 "Restricted Stock" means an Award granted to a Participant
pursuant to Section 7.
2.34 "Retirement" means, in the case of an Employee, a Termination of
Service by reason of the Employee's retirement at or after his or her having
satisfied the requirements for retirement under the applicable Company or
Affiliate qualified retirement plan. With respect to a Consultant, no
Termination of Service shall be deemed to be on account of "Retirement." With
respect to a Nonemployee Director, "Retirement" means termination of service on
the Board with the consent of the remaining Directors.
2.35 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, as
amended, and any future regulation amending, supplementing or superseding such
regulation.
2.36 "Section 16 Person" means a person who, with respect to the
Shares, is subject to section 16 of the 1934 Act.
2.37 "Shares" means the shares of the Company's common shares, without
par value.
2.38 "Stock Appreciation Right" or "SAR" means an Award, granted alone
or in connection with a related Option, that pursuant to Section 6 is designated
as a SAR.
2.39 "Subsidiary" means any entity in an unbroken chain of entities
beginning with the Company if each of the entities other than the last entity in
the chain then owns fifty percent (50%) or more of the total combined voting
power in one of the other entities in the chain.
C-4
2.40 "Tandem SAR" means a SAR that is granted in connection with a
related Option, the exercise of which shall require forfeiture of the right to
purchase an equal number of Shares under the related Option (and when a Share is
purchased under the Option, the SAR shall be canceled to the same extent).
2.41 "Termination of Service" means (a) in the case of an Employee, a
cessation of the employee-employer relationship between an Employee and the
Company or an Affiliate for any reason, including, but not by way of limitation,
a termination by resignation, discharge, death, Disability, Retirement, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous reemployment by the Company or an Affiliate; (b) in the case
of a Consultant, a cessation of the service relationship between a Consultant
and the Company or an Affiliate for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, Disability, or the
disaffiliation of an Affiliate, but excluding any such termination where there
is a simultaneous re-engagement of the consultant by the Company or an
Affiliate; and (c) in the case of a Nonemployee Director, a cessation of the
Nonemployee Director's service on the Board for any reason.
3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Committee. The
Committee shall consist of not less than two (2) Directors. The members of the
Committee shall be appointed from time to time by, and shall serve at the
pleasure of, the Board. The Committee shall be comprised solely of Directors who
both are (a) "non-employee directors" under Rule 16b-3, and (b) "outside
directors" under section 162(m) of the Code.
3.2 Authority of the Committee. It shall be the duty of the Committee
to administer the Plan in accordance with the Plan's provisions. The Committee
shall have all powers and discretion necessary or appropriate to administer the
Plan and to control its operation, including, but not limited to, the power to
(a) determine which Employees and Consultants shall be granted Awards, (b)
prescribe the terms and conditions of the Awards (other than the Options granted
to Nonemployee Directors pursuant to Section 9), (c) interpret the Plan and the
Awards, (d) adopt such procedures and subplans as are necessary or appropriate
to permit participation in the Plan by Employees, Consultants and Directors who
are foreign nationals or employed outside of the United States, (e) adopt rules
for the administration, interpretation and application of the Plan as are
consistent therewith, and (f) interpret, amend or revoke any such rules.
3.3 Delegation by the Committee. The Committee, in its sole discretion
and on such terms and conditions as it may provide, may delegate all or any part
of its authority and powers under the Plan to one or more directors or officers
of the Company; provided, however, that the Committee may not delegate its
authority and powers (a) with respect to Section 16 Persons, or (b) in any way
which would jeopardize the Plan's qualification under Section 162(m) of the Code
or Rule 16b-3.
3.4 Nonemployee Directors. Notwithstanding any contrary provision of
this Section 3, the Board shall administer Section 9 of the Plan, and the
Committee shall exercise no discretion with respect to Section 9. In the Board's
administration of Section 9 and the Options and any Shares granted to
Nonemployee Directors, the Board shall have all of the authority and discretion
otherwise granted to the Committee with respect to the administration of the
Plan.
3.5 Decisions Binding. All determinations and decisions made by the
Committee, the Board, and any delegate of the Committee pursuant to the
provisions of the Plan shall be final, conclusive, and binding on all Persons,
and shall be given the maximum deference permitted by law.
4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3,
the total number of Shares available for grant under the Plan shall not exceed
13,000,000. Shares granted under the Plan may be either authorized but unissued
Shares or treasury Shares.
4.2 Lapsed Awards. If an Award terminates, expires, or lapses for any
reason, any Shares subject to such Award again shall be available to be the
subject of an Award.
C-5
4.3 Adjustments in Awards and Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limit of Section 10.5 in such manner as the Committee (in its sole
discretion) shall determine to be appropriate to prevent the dilution or
diminution of such Awards. In the case of Options granted to Nonemployee
Directors pursuant to Section 9, no adjustments by stock dividends or split up
will be made to the number of Shares in original grants (i.e., 1,000 per
quarter), but the foregoing adjustments to outstanding Options may be made by
the Board in its sole discretion to prevent the dilution or diminution of such
Awards. Notwithstanding the preceding, the number of Shares subject to any Award
always shall be a whole number.
5. STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees and Consultants at any time and from time to
time as determined by the Committee in its sole discretion. The Committee, in
its sole discretion, shall determine the number of Shares subject to each
Option. The Committee may grant Incentive Stock Options, Nonqualified Stock
Options, or a combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award
Agreement that shall specify the Exercise Price, the expiration date of the
Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option, and such other terms and conditions as the Committee, in
its discretion, shall determine. The Award Agreement shall specify whether the
Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price for each Option shall be determined by the Committee in its sole
discretion.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified Stock
Option, the Exercise Price shall be not less than twenty five percent (25%) of
the Fair Market Value of a Share on the Grant Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock
Option, the Exercise Price shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date; provided, however, that if
on the Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the Code) owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its Subsidiaries, the Exercise Price shall be not
less than one hundred and ten percent (110%) of the Fair Market Value of a Share
on the Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of Sections
5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates a
transaction described in section 424(a) of the Code (e.g., the acquisition of
property or stock from an unrelated corporation), persons who become Employees
or Consultants on account of such transaction may be granted Options in
substitution for options granted by their former employer. If such substitute
Options are granted, the Committee, in its sole discretion and consistent with
section 424(a) of the Code, shall determine the exercise price of such
substitute Options.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate no later than the
first to occur of the following events:
(a) The date for termination of the Option set forth in the written
Award Agreement; or
(b) The expiration of ten (10) years from the Grant Date (except as
provided in Section 5.8.4 regarding Incentive Stock Options; or
C-6
(c) Immediately upon the date and time of the Participant's Termination
of Service for a reason other than the Participant's death, Disability or
Retirement, unless the Committee in its sole discretion elects to extend the
exercisability of an Option to not more than three (3) months from Termination
of Service; or
(d) The expiration of one (1) year from the date of the Participant's
Termination of Service by reason of death, Disability or Retirement (except as
provided in Section 5.8.2 regarding Incentive Stock Options).
5.4.2 Committee Discretion. Subject to the limits of Sections 5.4.1,
the Committee, in its sole discretion, (a) shall provide in each Award Agreement
when each Option expires and becomes unexercisable, and (b) may, after an Option
is granted, extend the maximum term of the Option (subject to Section 5.8.4
regarding Incentive Stock Options).
5.5 Exercisability of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall determine in its sole discretion. After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option. However, in no event may any Option granted to a
Section 16 Person be exercisable until at least six (6) months following the
Grant Date.
5.6 Payment. Options shall be exercised by the Participant's delivery
of a written notice of exercise to the Secretary of the Company (or the
Company's designee), setting forth the number of Shares with respect to which
the Option is to be exercised, accompanied by full payment for the Shares.
Upon the exercise of any Option, the Exercise Price shall be payable to
the Company in full in cash or its equivalent. The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.
As soon as practicable after receipt of a written notification of
exercise and full payment for the Shares purchased, the Company shall deliver to
the Participant (or the Participant's designated broker), Share certificates
(which may be in book entry form) representing such Shares.
5.7 Restrictions on Share Transferability. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
as it may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
Notwithstanding anything to the contrary contained in this Section 5, the
following provisions shall apply to any Incentive Stock Option granted pursuant
to the Plan.
5.8.1 Exercisability. The aggregate Fair Market Value (determined on
the Grant Date(s)) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by any Employee during any calendar year
(under all plans of the Company and its Subsidiaries) shall not exceed $100,000.
5.8.2 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant's Termination of
Service for any reason other than Disability or death, unless (a) the
Participant dies during such three-month period, and (b) the Award Agreement or
the Committee permits later exercise.
5.8.3 Company and Subsidiaries Only. Incentive Stock Options may be
granted only to persons who are Employees of the Company or a Subsidiary on the
Grant Date.
5.8.4 Expiration. No Incentive Stock Option may be exercised after the
expiration of ten (10) years from the Grant Date; provided, however, that if the
Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee pursuant to section 424(d) of the Code,
owns stock possessing
C-7
more than 10% of the total combined voting power of all classes of the stock of
the Company or any of its Subsidiaries, the Option may not be exercised after
the expiration of five (5) years from the Grant Date.
5.9 Grant of Reload Options. The Committee may provide in an Award
Agreement that a Participant who exercises all or part of an Option by payment
of the Exercise Price with already owned Shares, shall be granted an additional
option (a "Reload Option") for a number of shares equal to the number of Shares
tendered to exercise the previously granted Option plus, if the Committee so
determines, any Shares withheld or delivered in satisfaction of any tax
withholding requirements. As determined by the Committee, each Reload Option
shall: (a) have a Grant Date which is the date as of which the previously
granted Option is exercised, and (b) be exercisable on the same terms and
conditions as the previously granted Option, except that the Exercise Price
shall be determined as of the Grant Date.
5.10 Acceleration on Change of Control. Unless provided otherwise in
the Award Agreement, if a Change of Control occurs, all outstanding Options
granted under the Plan will become immediately exercisable to the extent of 100%
of the Shares subject thereto notwithstanding any contrary exercise or vesting
periods specified in this Plan.
6. STOCK APPRECIATION RIGHTS.
6.1 Grant of SARs. Subject to the terms and conditions of the Plan, a
SAR may be granted to Employees and Consultants at any time and from time to
time as shall be determined by the Committee, in its sole discretion. The
Committee may grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any
combination thereof. The Committee shall have complete discretion to determine
the number of SARs granted to any Participant.
6.1.1 Exercise Price and Other Terms. The Committee, subject to the
provisions of the Plan, shall have complete discretion to determine the terms
and conditions of SARs granted under the Plan. However, the exercise price of a
Freestanding SAR shall be not less than twenty five percent (25%) of the Fair
Market Value of a Share on the Grant Date. The exercise price of Tandem or
Affiliated SARs shall equal the Exercise Price of the related Option. In no
event shall a SAR granted to a Section 16 Person become exercisable until at
least six (6) months after the Grant Date (or such shorter period as may be
permissible while maintaining compliance with Rule 16b-3).
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the right
to exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price of the underlying Incentive
Stock Option and the Fair Market Value of the Shares subject to the underlying
Incentive Stock Option at the time the Tandem SAR is exercised; and (c) the
Tandem SAR shall be exercisable only when the Fair Market Value of the Shares
subject to the Incentive Stock Option exceeds the Exercise Price of the
Incentive Stock Option.
6.3 Exercise of Freestanding SARs. Freestanding SARs shall be
exercisable on such terms and conditions as the Committee, in its sole
discretion, shall determine. However, no SAR granted to a Section 16 Person
shall be exercisable until at least six (6) months after the Grant Date (or such
shorter period as may be permissible while maintaining compliance with Rule
16b-3).
6.4 SAR Agreement. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the exercise price, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the Committee, in
its sole discretion, shall determine.
6.5 Expiration of SARs. A SAR granted under the Plan shall expire upon
the date determined by the Committee, in its sole discretion, and set forth in
the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4
also shall apply to SARs.
C-8
6.6 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date
of exercise over the exercise price; times
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, payment for a SAR may be in cash,
Shares or a combination thereof.
7. RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of
the Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees and Consultants in such amounts as the Committee,
in its sole discretion, shall determine. The Committee, in its sole discretion,
shall determine the number of Shares to be granted to each Participant.
7.2 Restricted Stock Agreement. Each Award of Restricted Stock shall be
evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, any price to be paid for the Shares, and such
other terms and conditions as the Committee, in its sole discretion, shall
determine. Unless the Committee determines otherwise, Shares of Restricted Stock
shall be held by the Company as escrow agent until the restrictions on such
Shares have lapsed.
7.3 Transferability. Shares of Restricted Stock may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction. In no event may the restrictions on
Restricted Stock granted to a Section 16 Person lapse prior to six (6) months
following the Grant Date.
7.4 Other Restrictions. The Committee, in its sole discretion, may
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate, in accordance with this Section 7.4. For example, the
Committee may set restrictions based upon the achievement of specific
performance objectives (Company-wide, divisional, or individual), applicable
Federal or state securities laws, or any other basis determined by the Committee
in its discretion. The Committee, in its discretion, may legend the certificates
representing Restricted Stock to give appropriate notice of the restrictions
applicable to such Shares.
7.5 Removal of Restrictions. Shares of Restricted Stock covered by each
Restricted Stock grant made under the Plan shall be released from escrow as soon
as practicable after the last day of the Period of Restriction. The Committee,
in its discretion, may accelerate the time at which any restrictions shall
lapse, and remove any restrictions; provided, however, that the Period of
Restriction on Shares granted to a Section 16 Person may not lapse until at
least six (6) months after the Grant Date. After the restrictions have lapsed,
the Participant shall be entitled to have any legend or legends under Section
7.4 removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.
7.6 Voting Rights. During the Period of Restriction, Participants
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless otherwise provided in the Award
Agreement.
7.7 Dividends and Other Distributions. During the Period of
Restriction, Participants holding Shares of Restricted Stock shall be entitled
to receive all dividends and other distributions paid with respect to such
Shares unless otherwise provided in the Award Agreement. If any such dividends
or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid. With respect to Restricted Stock
granted to a Section 16 Person, any dividend or distribution that constitutes a
"derivative security" or an "equity security" under Section 16 of the 1934 Act
shall be subject to a Period of Restriction equal to the longer of: (a) the
remaining Period of Restriction on the Shares of Restricted Stock with respect
to which the dividend or distribution is paid; or (b) six (6) months.
C-9
7.8 Return of Restricted Stock to Company. On the date set forth in the
Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.
8. PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1 Grant of Performance Units/Shares. Performance Units and
Performance Shares may be granted to Employees and Consultants at any time and
from time to time, as shall be determined by the Committee, in its sole
discretion. The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to any Participant.
8.2 Initial Value. Each Performance Unit shall have an initial value
that is established by the Committee on or before the Grant Date. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the Grant Date.
8.3 Performance Objectives and Other Terms. The Committee shall set
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units or Shares
that will be paid out to the Participants. The Committee may set performance
objectives based upon the achievement of Company-wide, divisional, or individual
goals, or any other basis determined by the Committee in its discretion. The
time period during which the performance objectives must be met shall be called
the "Performance Period". Performance Periods of Awards granted to Section 16
Persons shall exceed six (6) months in length (or such shorter period as may be
permissible while maintaining compliance with Rule 16b-3). Each Award of
Performance Units/Shares shall be evidenced by an Award Agreement that shall
specify the Performance Period, and such other terms and conditions as the
Committee, in its sole discretion, shall determine.
8.4 Earning of Performance Units and Performance Shares. After the
applicable Performance Period has ended, the Participant shall be entitled to
receive a payout of the number of Performance Units or Shares earned during the
Performance Period, depending upon the extent to which the applicable
performance objectives have been achieved. After the grant of a Performance Unit
or Share, the Committee, in its sole discretion, may reduce or waive any
performance objectives for Award; provided that Performance Periods of Awards
granted to Section 16 Persons shall not be less than six (6) months (or such
shorter period as may be permissible while maintaining compliance with Rule
16b-3).
8.5 Form and Timing of Payment. Payment of earned Performance Units or
Performance Shares shall be made as soon as practicable after the expiration of
the applicable Performance Period. The Committee, in its sole discretion, may
pay earned Performance Units or Performance Shares in cash, Shares or a
combination thereof
8.6 Cancellation. On the date set forth in the Award Agreement, all
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and again shall be available for grant under the Plan.
9. NONEMPLOYEE DIRECTORS
9.1 Granting of Options. If any class of equity securities of the
Company is registered under Section 12 of the 1934 Act, on the first trading day
of each fiscal quarter of the Company, each Nonemployee Director will
automatically receive under the Plan a Nonqualified Stock Option to purchase
1,000 Shares. Future automatic grants will cease and be suspended at any time
that there are not sufficient Shares available under the Plan.
9.2 Terms of Options.
9.2.1 Option Agreement. Each Option granted pursuant to this Section 9
shall be evidenced by a written stock option agreement which shall be executed
by the Participant and the Company.
9.2.2 Exercise Price. The Exercise Price for the Shares subject to each
Option granted pursuant to this Section 9 shall be 100% of the Fair Market Value
of such Shares on the Grant Date.
C-10
9.2.3 Exercisability. Each Option granted pursuant to this Section 9
shall become exercisable in full one year after the date the Option is granted.
If a Nonemployee Director incurs a Termination of Service for a reason other
than Retirement, death or Disability, his or her Options which are not
exercisable on the date of such Termination shall never become exercisable. If
the Termination of Service is on account of Retirement, death or Disability, the
Option shall become exercisable in full on the date of the Termination of
Service.
9.2.4 Expiration of Options. Each Option shall terminate upon the first
to occur of the following events:
(a) The expiration of ten (10) years from the Grant Date; or
(b) The expiration of three (3) months from the date of the
Participant's Termination of Service for a reason other than death, Disability
or Retirement; or
(c) The expiration of one (1) year from the date of the Participant's
Termination of Service by reason of Disability or Retirement.
9.2.5 Death of Director. Notwithstanding Section 9.2.4, if a Director
dies prior to the expiration of his or her options in accordance with Section
9.2.4, his or her options shall terminate one (1) year after the date of his or
her death.
9.2.6 Special Rule for Retirement. Notwithstanding the provisions of
Section 9.2.4, if the exercisability of an Option is accelerated under Section
9.2.3 on account of the Participant's Retirement, such Option shall terminate
upon the first to occur of: (a) The expiration of ten (10) years from the date
the Option was granted; or (b) the expiration of one year from the date of the
Participant's death.
9.2.7 Not Incentive Stock Options. Options granted pursuant to this
Section 9 shall not be designated as Incentive Stock Options.
9.2.8 Other Terms. All provisions of the Plan not inconsistent with
this Section 9, including, but not limited to, Section 5.10, shall apply to
Options granted to Nonemployee Directors; provided, however, that Section 5.2
(relating to the Committee's discretion to set the terms and conditions of
Options) shall be inapplicable with respect to Nonemployee Directors.
9.3 Elections by Nonemployee Directors. Pursuant to such procedures as
the Board (in its discretion) may adopt from time to time, each Nonemployee
Director may elect to forego receipt of all or a portion of committee fees and
meeting fees otherwise due to the Nonemployee Director in exchange for Shares.
The number of Shares received by any Nonemployee Director shall equal the amount
of foregone compensation divided by the Fair Market Value of a Share on the date
that the compensation otherwise would have been paid to the Nonemployee
Director, rounded up to the nearest whole number of Shares. The procedures
adopted by the Board for elections under this Section 9.3 shall be designed to
ensure that any such election by a Nonemployee Director will not disqualify him
or her as a "non-employee director" under Rule 16b-3.
10. SECTION 162(m) DEDUCTION QUALIFICATION. Except as otherwise provided in
Section 10.5, the provisions of this Section 10 shall apply only to Awards of
Covered Officers.
10.1 Awards for Covered Officers. Any other provision of the Plan
notwithstanding, all Awards to Covered Officers shall be made in a manner that
allows for the full deductibility of the Award by the Company or its
Subsidiaries under Section 162(m) of the Code. All Awards for Covered Officers
shall comply with the provisions of this Section 10.
10.2 Designation of Covered Officers. For each Performance Period, the
Committee will designate which Participants are Covered Officers prior to the
completion of 25% of the Performance Period (or such earlier or later date as is
permitted or required by Section 162(m) of the Code).
C-11
10.3 Establishment of Performance Goals and Awards for Covered
Officers. Prior to the completion of 25% of a Performance Period (or such
earlier or later date as is permitted or required by Section 162(m) of the
Code), the Committee shall in its sole discretion, for each such Performance
Period: (a) determine and establish in writing one or more Performance Goals
applicable to the Performance Period for each Covered Officer; and (b) either
(i) assign each Covered Officer a target Award expressed as a fixed number of
Shares or a whole dollar amount or (ii) establish a payout table or formula for
purposes of determining the Award payable to each Covered Officer. Each payout
table or formula: (a) shall be in writing; (b) shall be based on a comparison of
actual performance to the Performance Goals; (c) may include a "floor" which is
the level of achievement of the Performance Goal in which payout begins; and (d)
shall provide for an actual Award equal to or less than the Covered Officer's
target Award, depending on the extent to which actual performance approached or
reached the Performance Goal. Such preestablished Performance Goals and Awards
must state, in terms of an objective formula or standard, the method for
computing the amount of the Award payable to each Covered Officer if the
Performance Goal is met. A formula or standard is objective if a third party
having knowledge of the relevant performance results could calculate the amount
to be paid to the Covered Officer. The Committee may establish any number of
Performance Periods, Performance Goals and Awards for any Covered Officer
running concurrently, in whole or in part, provided, that in so doing the
Committee does not jeopardize the Company's deduction for such Awards under
Section 162(m) of the Code. The Committee may select different Performance Goals
and Awards for different Covered Officers.
10.4 Certification of Achievement of Performance Goals and Amount of
Awards. After the end of each Performance Period, or such earlier date if the
Performance Goals are achieved, the Committee shall certify in writing, prior to
the unconditional payment of any Award, that the Performance Goals for the
Performance Period and all other material terms of the Plan were satisfied and
to what extent they were satisfied. The Committee shall determine the actual
Award for each Covered Officer based on the payout table/formula established in
Section 10.3, as the case may be. Extraordinary Events shall either be excluded
or included in determining the extent to which the corresponding Performance
Goal has been achieved, whichever will produce the higher Award, provided,
however, notwithstanding the attainment of specified Performance Goals, the
Committee has the discretion to reduce or eliminate an Award that would
otherwise be paid to any Participant, including any Covered Officer, based on
the Committee's evaluation of Extraordinary Events or other factors. Without
limiting the manner of computing Awards set forth in the preceding sentence,
with respect to Covered Officers, the Committee may not under any circumstances
increase the amount of an Award.
10.5 Maximum Award. Any other provision of the Plan notwithstanding,
the maximum aggregate Awards payable to any Participant under the Plan for any
Performance Period shall not exceed three million (3,000,000) Shares, which
maximum number of Shares shall be adjusted pursuant to Section 4.3.
11. MISCELLANEOUS
11.1 Forfeiture. Notwithstanding anything in the Plan or in any Award
Agreement to the contrary, in the event of a breach of conduct by a Participant
or former Participant (including, without limitation, any conduct prejudicial to
or in conflict with the Company or an Affiliate), or any activity of a
Participant or former Participant in competition with any of the businesses of
the Company or an Affiliate, the Committee may (a) cancel any outstanding Award
granted to the Participant, in whole or in part, whether or not vested, and/or
(b) if such conduct or activity occurs within one year following the exercise or
payment of an Award, require the former Participant to repay to the Company any
gain realized or payment received upon the exercise or payment of such Award
(with such gain or repayment valued as of the date of exercise or payment). Such
cancellation or repayment obligation shall be effective as of the date specified
by the Committee. Any repayment obligation may be satisfied in Shares or cash or
a combination thereof (based upon the Fair Market Value of the Shares on the day
prior to the date of payment), and the Committee may provide for an offset to
any future payments owed by the Company or Affiliate to such individual if
necessary to satisfy the repayment obligation. The determination of whether any
Participant or former Participant has engaged in a breach of conduct or any
activity in competition with any of the businesses of the Company or an
Affiliate shall be determined by the Committee in good faith and in its sole
discretion.
11.2 No Effect on Employment or Service. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service at any time, with or without cause. For
purposes of the Plan, transfer of employment of a Participant between the
Company and any one of its Affiliates
C-12
(or between Affiliates) shall not be deemed a Termination of Service. Unless
there is a written agreement between the Employee and the Company or an
Affiliate to the contrary, employment of an Employee with the Company and its
Affiliates is on an at-will basis only.
11.3 Participation. No Employee or Consultant shall have the right to
be selected to receive an Award under this Plan, or, having been so selected, to
be selected to receive a future Award.
11.4 Indemnification. Each person who is or shall have been a member of
the Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any Award Agreement, and (b) from any and all
amounts paid by him or her in settlement thereof, with the Company's approval,
or paid by him or her in satisfaction of any judgment in any such claim, action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such individuals may be entitled under the Company's
Articles of Incorporation or Code of Regulations, by contract, as a matter of
law, or otherwise, or under any power that the Company may have to indemnify
them or hold them harmless.
11.5 Successors. All obligations of the Company under the Plan, with
respect to Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all or substantially
all of the business or assets of the Company.
11.6 Beneficiary Designations. If permitted by the Committee, a
Participant under the Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant and
shall be effective only if given in a form and manner acceptable to the
Committee. In the absence of any such designation, any vested benefits remaining
unpaid at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Award Agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.
11.7 Nontransferability of Awards; Unfunded Plan. No Award granted
under the Plan may be sold, transferred, pledged, assigned, or otherwise
alienated or hypothecated, other than by will, by the laws of descent and
distribution, or to the limited extent provided in Section 11.5. All rights with
respect to an Award granted to a Participant shall be available during his or
her lifetime only to the Participant. Notwithstanding the foregoing, to the
extent provided in the applicable Award Agreement, a Participant may transfer a
Nonqualified Stock Option either (a) to members of his or her immediate family
(as defined in Rule 16a-1 promulgated under the 1934 Act), to one or more trusts
for the benefit of such family members, or to partnerships or other entities in
which such family members are the only partners or owners, provided that the
Participant does not receive any consideration for the transfer, or (b) if such
transfer is approved by the Committee. If such transfer is permitted under the
Award Agreement, any Nonqualified Stock Option held by such transferees are
subject to the same terms and conditions that applied to such Nonqualified Stock
Options immediately prior to transfer based on the transferor Participant's
continuing relationship with the Company. It is intended that the Plan be an
"unfunded" plan for incentive compensation. The Plan does not give a Participant
any interest, lien or claim against any specific asset of the Company. No
Participant or beneficiary shall have any rights under this Plan other than as a
general unsecured creditor of the Company.
11.8 No Rights as Shareholder. Except to the limited extent provided in
Sections 7.6 and 7.7, no Participant (nor any beneficiary) shall have any of the
rights or privileges of a shareholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).
C-13
11.9 Withholding Requirements. Prior to the delivery of any Shares or
cash pursuant to an Award (or exercise thereof), the Company shall have the
power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy Federal, state, and local taxes
(including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
11.10 Withholding Arrangements. The Committee, in its sole discretion
and pursuant to such procedures as it may specify from time to time, may permit
or require a Participant to satisfy all or part of the tax withholding
obligations in connection with an Award by (a) having the Company withhold
otherwise deliverable Shares, or (b) delivering to the Company already-owned
Shares having a Fair Market Value equal to the amount required to be withheld.
The amount of the withholding requirement shall be deemed to include any amount
which the Committee determines, not to exceed the amount determined by using the
minimum federal, state or local marginal income tax rates applicable to the
Participant with respect to the Award on the date that the amount of tax to be
withheld is to be determined. The Fair Market Value of the Shares to be withheld
or delivered shall be determined as of the date that the taxes are required to
be withheld.
11.11 Deferrals. The Committee, in its sole discretion, may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be delivered to a Participant under the Plan. Any such
deferral elections shall be subject to such rules and procedures as shall be
determined by the Committee in its sole discretion.
12. AMENDMENT, TERMINATION AND DURATION
12.1 Amendment, Suspension, or Termination. The Board, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason. However, if and to the extent required to maintain the
Plan's qualification under applicable law or stock exchange regulation, any such
amendment shall be subject to shareholder approval. In addition, as required by
Rule 16b-3, the provisions of Section 9 regarding the formula for determining
the amount, exercise price, and timing of Nonemployee Director Options shall in
no event be amended more than once every six (6) months, other than to comport
with changes in the Code. The amendment, suspension, or termination of the Plan
shall not, without the consent of the Participant, alter or impair any rights or
obligations under any Award previously granted to such Participant. No Award may
be granted during any period of suspension or after termination of the Plan.
12.2 Duration of the Plan. The Plan shall commence on the date
specified herein, and subject to Section 12.1 (regarding the Board's right to
amend or terminate the Plan), shall remain in effect thereafter. However,
without further shareholder approval, no Incentive Stock Option may be granted
under the Plan after December 4, 2010.
C-14
13. LEGAL CONSTRUCTION
13.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
13.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
13.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
13.4 Compliance with Rule 16b-3. Transactions under this Plan with
respect to Section 16 Persons are intended to comply with all applicable
conditions of Rule 16b-3. To the extent any provision of the Plan, Award
Agreement or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
Notwithstanding any contrary provision of the Plan, if the Committee
specifically determines that compliance with Rule 16b-3 no longer is required,
all references in the Plan to Rule 16b-3 shall be null and void.
13.5 Governing Law. The Plan and all Award Agreements shall be
construed in accordance with and governed by the laws of the State of Ohio.
13.6 Captions. Captions are provided herein for convenience only, and
shall not serve as a basis for interpretation or construction of the Plan.
C-15
Appendix D
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of the ______ day of September, 2002, by and among Value City Department Stores,
Inc., an Ohio corporation ("Value City"), Value City Merger Sub, Inc., an Ohio
corporation ("Merger Sub"), and [_____________________], an Ohio corporation
("Holdings").
RECITALS
A. This Agreement provides for the merger of Merger Sub with and into
Value City (the "Merger"), which will be the surviving corporation, in
accordance with General Corporate Law of the State of Ohio (the "OGCL"), upon
the terms and conditions set forth herein and in accordance with the applicable
provisions of the OGCL. The purpose of the Merger is to implement a holding
company organizational structure under which Holdings will be the holding
company for Value City's operating subsidiaries and Value City would become a
direct wholly-owned subsidiary of Holdings.
B. The respective Boards of Directors of Value City, Holdings, and
Merger Sub have approved the Merger upon the terms and subject to the conditions
set forth herein.
AGREEMENT
Accordingly, in consideration of the mutual promises and agreements set
forth herein, and in order to set forth the terms and conditions of the Merger
and the mode of carrying the same into effect, the parties hereby agree as
follows:
1. THE MERGER.
1.1 THE MERGER. At the Effective Time (as defined in Section 1.3
hereof), and subject to the terms and conditions of this Agreement and the OGCL,
Merger Sub shall be merged with and into Value City, the separate corporate
existence of Merger Sub shall thereupon cease, and Value City shall be the
surviving corporation in the Merger (the "Surviving Corporation").
1.2 SURVIVING CORPORATION. At the Effective Time, Value City shall
continue its corporate existence under the laws of the State of Ohio and shall
thereupon and thereafter possess all rights, privileges, powers and franchises
and all property of Merger Sub and shall be subject to all debts, liabilities
and duties of Merger Sub, all as provided under the OGCL. The name of the
Surviving Corporation shall continue to be "Value City Department Stores, Inc."
1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective and
be consummated when the Surviving Corporation shall have caused to be filed a
Certificate of Merger
D-1
with the Secretary of State of the State of Ohio (the "Ohio Secretary of State")
in accordance with the OGCL (the "Effective Time").
1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation following the Effective Time.
1.5 CODE OF REGULATIONS OF THE SURVIVING CORPORATION. The Code of
Regulations of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Code of Regulations of the Surviving Corporation following the
Effective Time until thereafter amended or repealed as provided therein and
under the OGCL.
1.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
of Merger Sub in office immediately prior to the Effective Time shall serve as
the directors of the Surviving Corporation from and after the Effective Time in
accordance with the Code of Regulations of the Surviving Corporation. The
officers of Merger Sub in office immediately prior to the Effective Time shall
serve as the officers of the Surviving Corporation from and after the Effective
time in accordance with the Code of Regulations of the Surviving Corporation.
1.7 STATUTORY AGENT. The name and address of the agent upon whom any
process, notice, or demand against any of the parties may be served is CSC -
Lawyers Incorporating Service (Corporation Service Company), 50 West Broad
Street, Columbus, Ohio 43215.
2. CONVERSION OF SECURITIES AND ASSUMPTION OF CERTAIN OBLIGATIONS.
2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of the
Merger and without any further action on the part of Value City, Holdings,
Merger Sub or the holders of any securities of the foregoing corporations:
2.1.1 COMMON STOCK OF MERGER SUB. Each share of common stock,
without par value, of Merger Sub issued and outstanding immediately prior to the
Effective Time, shall be converted into one share of common stock, without par
value, of the Surviving Corporation.
2.1.2 COMMON STOCK OF VALUE CITY. Each share of common stock,
without par value, of Value City ("Value City Common Stock") issued and
outstanding or held in its treasury immediately prior to the Effective Time
shall be converted into one share of common stock, without par value, of
Holdings ("Holdings Common Stock"), and shall have the same designations, rights
and powers and preferences, and the qualifications, limitations and restrictions
thereof, as the Value City Common Stock being converted. Each certificate
representing shares of Value City Common Stock immediately prior to the
Effective Time shall be deemed to represent the same number of shares of
Holdings Common Stock.
D-2
2.1.3 COMMON STOCK OF HOLDINGS. Each share of Holdings Common Stock
issued and outstanding immediately prior to the Effective Time shall
automatically be cancelled and retired and shall cease to exist.
2.1.4 VALUE CITY STOCK OPTIONS AND OTHER AWARDS. Holdings shall
assume sponsorship and continue all the rights and obligations of Value City
under the 1991 Stock Option Plan, the Non-Employee Director Stock Option Plan,
the 2000 Stock Incentive Plan, the 401(k) Plan and all other stock option and
employee benefit plans and agreements of Value City (collectively, the "Plans").
The outstanding options and other awards assumed by Holdings shall be
exercisable upon the same terms and conditions as under the Plans immediately
prior to the Effective Time, except that, upon the exercise of each such option
or award, shares of Holdings Common Stock shall be issuable in lieu of each
share of Value City Common Stock issuable upon the exercise thereof immediately
prior to the Effective Time.
2.1.5 SUCCESSOR ISSUER. It is the intent of the parties hereto that
Holdings, as of the Effective Time, be deemed a "successor issuer" for purposes
of continuing offerings under the Securities Exchange Act of 1933, as amended.
2.2 EXCHANGE OF CERTIFICATES. Each holder of a certificate formerly
representing shares of Value City Common Stock shall be required to surrender
such certificate to Value City's transfer agent ("Transfer Agent"), along with a
properly completed transmittal letter in order to receive a certificate or
certificates of Holdings representing the number of shares of Holdings common
stock into which the shares of Value City Common Stock previously represented by
such Value City certificate have been converted pursuant to this Agreement. A
letter of transmittal will be mailed by the Transfer Agent to each former
shareholder of Value City as soon as reasonably practicable after the Effective
Time. Until surrendered and exchanged in accordance with this Section 2.2 or in
the ordinary course, each certificate representing Value City Common Stock shall
be deemed and treated for all corporate purposes at any time after the Effective
Time to evidence the ownership of the number of shares of Holdings into which
such shares of Value City were converted pursuant to Section 2.1.2 herein.
2.3 VALUE CITY STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books for the shares of Value City Common Stock which will be converted
to Holdings Common Stock pursuant to Section 2.1 hereof shall be deemed closed,
and no transfer of such shares shall thereafter be made or consummated.
2.4 OTHER AGREEMENTS. At the Effective Time, Holdings shall assume any
obligation of Value City to deliver or make available shares of Value City
Common Stock under any agreement, including but not limited to, all warrants and
option agreements, or employee benefit plan not specifically referred to in this
Section 2 to which Value City or any of its subsidiaries is a party. Any
reference to Value City Common Stock under any such agreement or employee
benefit plan shall be deemed to be a reference to Holdings Common Stock and one
share of Holdings Common Stock shall be issuable in lieu of each share of Value
City Common Stock required to be issued by any such
D-3
agreement or employee benefit plan, subject to subsequent adjustment as provided
in any such agreement or employee benefit plan.
3. MISCELLANEOUS.
3.1 AMENDMENT. At any time prior to the Effective Time, the parties
hereto may, to the extent permitted by the OGCL, by written agreement amend,
modify or supplement any provision of this Agreement.
3.2 TERMINATION. This Agreement may be terminated and the Merger
abandoned by the Board of Directors or duly authorized committees thereof of
Value City at any time prior to the filing of the Certificate of Merger with the
Ohio Secretary of State. Upon termination provided herein, this Agreement shall
become void and there shall be no further obligations or liability on the part
of any party hereto or their respective shareholders, officers or directors.
3.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without reference to Ohio's
choice of law rules.
3.4 HEADINGS. The headings set forth herein are for convenience only
and shall not be used in interpreting the text of the section in which they
appear.
3.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts which together shall constitute a single agreement.
3.6 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, between the parties with
respect thereto.
D-4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
VALUE CITY DEPARTMENT STORES, INC.
____________________________________________
Name:
Title: President and Chief Executive Officer
VALUE CITY MERGER SUB, INC.
____________________________________________
Name:
Title: President and Chief Executive Officer
[___________________________]
____________________________________________
Name:
Title: President and Chief Executive Officer
D-5
APPENDIX E
OHIO REVISED CODE
TITLE XVII. CORPORATIONS--PARTNERSHIPS
CHAPTER 1701. GENERAL CORPORATION LAW
MERGER AND CONSOLIDATION
Section 1701.85. Relief For Dissenting Shareholders; Qualifications;
Procedures.---(A)(1) A shareholder of a domestic corporation is entitled to
relief as a dissenting shareholder in respect of the proposals described in
sections 1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance
with this section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation,
E-1
which in case of a merger or consolidation may be the surviving or new entity,
within three months after the service of the demand by the dissenting
shareholder, may file a complaint in the court of common pleas of the county in
which the principal office of the corporation that issued the shares is located
or was located when the proposal was adopted by the shareholders of the
corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts,
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or apportioned as the court considers equitable.
The proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken and,
in the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be willing to accept and that a willing
buyer who is under no compulsion to purchase would be willing to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section, unless
the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally enjoined or
prevented from carrying it out, or the shareholders rescind their adoption of
the action involved;
(c) The dissenting shareholder withdraws his demand, with the consent of
the corporation by its directors;
E-2
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder nor
the corporation has filed or joined in a complaint under division (B) of this
section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
E-3
APPENDIX F
VALUE CITY DEPARTMENT STORES, INC.
2003 INCENTIVE COMPENSATION PLAN
1.1 Plan Adoption. Value City Department Stores, Inc., an Ohio Corporation
("Corporation"), hereby adopts the Value City 2003 Incentive Compensation Plan
("Plan"), subject to the approval of the Corporation's shareholders. The Plan
shall become effective upon the approval of the shareholders of the Corporation
(the "Effective Date") and shall remain in effect through fiscal 2007, subject
to the right of the Board of Directors to amend or terminate the Plan.
1.2 Purpose. The purpose of the Plan is to optimize the growth and profitability
of the Corporation by providing to key executive officers incentives that
encourage, recognize, and reward exceptional levels of corporate, business unit,
or individual performance. The Plan's intent is to use award dollars as a clear
communication vehicle linking the interests of eligible key executive officers
with the interests of the Corporation by establishing a direct link between
performance and incentive payments. The Plan is designed to qualify compensation
paid under the Plan as performance based compensation that is fully deductible
by the Corporation.
DEFINITIONS
The following terms used in the Plan shall have the meanings set forth below.
2.1 "Associate" means any full-time, active employee of the Corporation.
2.2 "Award" means, individually or collectively, a grant under this Plan of an
opportunity to earn a cash bonus payment upon the terms and conditions set forth
in the action of the Committee granting the Award.
2.3 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.4 "Committee" has the meaning set forth in Section 3.1 herein.
2.5 "Corporation" means Value City Department Stores, Inc., an Ohio corporation,
together with any parent, subsidiary or successor thereto.
2.6 "Covered Officer" means an Officer designated as a "covered officer"
pursuant to Section 4.1.
2.7 "Director" means any individual who is a member of the Board of Directors of
the Corporation.
2.8 "Disability" means any injury of the body or any disorder of the body or
mind which renders the Participant unable to perform the material and
substantial duties of his regular employment by the Corporation at the time of
his termination of employment with the Corporation. The Corporation's
determination that a termination of employment was not due to Disability may be
disputed by a Participant for purposes of determining any Award payable under
Section 5.4 of this Plan upon written notice to the Corporation's Chief
Financial Officer within 30 days after the Participant's termination of
employment. If so disputed, the Corporation will promptly select a physician,
the Participant will promptly select a physician, and the physicians so selected
will select a third physician ("Independent Physician") who will make a binding
determination of Disability. The Participant will make himself available for and
submit to examinations by such physicians as may be directed by the Corporation.
Failure of the Participant to submit to any examination or failure of the
Independent Physician to render his determination within 90 days of the date of
the notice that the Participant disputed the Corporation's determination shall
constitute acceptance of the Corporation's determination as to Disability.
F-1
2.9 "Effective Date" shall have the meaning ascribed to such term in Section 1.1
hereof.
2.10 "Officer" means any Associate elected as an executive officer of the
Corporation by the Board of Directors.
2.11 "Participant" means any Covered Officer who has outstanding an Award
granted under the Plan.
2.12 "Performance-based Exception" means the performance-based exception from
the tax deductibility limitations of Code Section 162(m).
2.13 "Parent" means any corporation, partnership, joint venture or other entity
which has a majority voting interest in the Corporation.
2.14 "Subsidiary" means any corporation, partnership, joint venture or other
entity in which the Corporation has a majority voting interest.
ADMINISTRATION
3.1 The Committee. The Plan will be administered by the Compensation Committee
("Committee") of the Board of Directors of the Corporation composed of two or
more "outside directors" within the meaning of Code Section 162(m).
3.2 Authority. The Committee shall have the full power to select Covered
Officers who shall participate in the Plan; determine the size, terms and
conditions of Awards in a manner consistent with the Plan; interpret and
construe the Plan; and adopt such rules, regulations, and procedures for the
administration of the Plan as the Committee deems necessary or advisable. The
Plan may be in addition to one or more other incentive compensation plans of the
Corporation that cover Associates that are not Covered Officers and which are
not administered by the Committee. The Plan may be designed to be consistent
with such other plan or plans, but must comply with the requirements set forth
in this Plan.
3.3 Decisions Binding. The Committee's interpretations of the Plan, and all
decisions and determinations made by the Committee, shall be conclusive and
binding on all parties, including the Corporation and any Participant or other
person claiming a right to payment with respect to an Award under the Plan.
ELIGIBILITY
4.1 Covered Officers. All Executive Officers are eligible to be chosen to
participate in the Plan. Not later than 90 days after the beginning of each
fiscal year of the Corporation, the Committee will identify those Officers,
referred to herein as "Covered Officers," whose compensation for that year is
anticipated to be affected by the Code Section 162(m) limitation on the
deductibility of compensation and assign each such Covered Officer to a
Participant group for the purposes of defining their Awards under the Plan. The
Committee may withdraw its approval for participation for a Participant at any
time. In the event of such withdrawal, the Covered Officer concerned shall cease
to be an active Participant as of the date selected by the Committee.
4.2 Partial Year Participation. Persons who become Covered Officers after the
date of the Committee's initial grant of Awards but prior to the end of the
fiscal year, whether due to promotion, transfer or initial commencement of
employment with the Corporation, may be granted Awards by the Committee on a
partial year basis. In each such case, the Committee shall specify the terms and
conditions of such Award, including any pro rata allocations of the performance
measures to such partial year Participants.
F-2
AWARDS
5.1 Performance Measures. For each fiscal year, the Committee shall first
establish written annual performance goals based on any one or more of the
following objective performance measures:
(a) sales;
(b) operating profit (loss);
(c) income (loss) before provision for income taxes;
(d) net income (loss);
(e) net income (loss) per common share;
(f) earnings (loss) before interest and taxes:
(g) earnings (loss) before interest, taxes, amortization and depreciation;
(h) price of the Corporation's common stock;
(i) return on shareholders' equity;
(j) gross margin;
(k) inventory levels or inventory turnover;
(l) controllable selling, general and administrative expenses or separate
categories thereof;
(m) merchandise inventory shrinkage;
(n) new store openings and/or related start-up and capital expenditures; or
(o) any one or more of the foregoing (a) through (i) may be adjusted by the
Committee to include or exclude (A) extraordinary charges, and/or (B) any
accruals for restructuring programs, merger integration costs, or merger
transaction costs, and/or (C) adjustments for changes in accounting principles
and/or (D) other unusual or infrequent items (whether gains or losses) as
defined by generally accepted accounting principles (GAAP) which are disclosed
as a separate component of income or loss on the face of the income statement or
as may be disclosed in the notes to the financial statements.
Subject to the terms of the Plan, each of the performance goals may be defined
by the Committee on a corporate, affiliate, business unit or individual basis.
Each performance goal shall have a minimum performance standard below which no
payments will be made. The performance goals and determination of results shall
be based entirely on objective measures for all Covered Officers.
5.2 Grant of Performance Awards. Performance goals based on the preestablished
performance measures and the potential Awards that will be payable upon
attainment of those performance goals, expressed as a percentage of base salary
as of the end of each fiscal year, will be established in writing by the
Committee within 90 days after the commencement of the fiscal year to which the
goals relate. The target incentive compensation percentage for each selected
Participant will be based on the level and functional responsibility of his or
her position, size of the business for which the Participant is responsible, and
competitive practices. Performance goals may differ for Awards granted to any
one Participant or to different Participants. The Committee may determine that
any Award shall be based on more than one performance measure.
F-3
5.3 Award Agreements. The Committee may require that any Award be evidenced by a
written agreement which may contain such terms and conditions as the Committee
may require. In the event of any conflict between such Award agreements and the
Plan, however, the terms of the Plan shall control.
5.4 Payment of Awards. Unless payment is deferred as provided in Section 5.6,
Awards will be payable in cash annually after the date the Corporation's audited
financial statements have been certified by the Corporation's auditor for the
relevant fiscal year of computation; provided that awards will be paid to
Covered Officers only after the Committee has certified in writing in the
minutes of a committee meeting or otherwise that the performance goals
applicable to Covered Officers have been satisfied. No Award will be paid to any
Participant who is not employed by the Corporation on the last day of the fiscal
year to which the Award relates; provided, however, in the event of a
Participant's death or a termination of a Participant's employment by the
Corporation prior to the last day of the fiscal year by reason of Disability,
the Participant or his estate shall be paid, at the same time that other Awards
are paid, an amount based upon the actual achievement of the relevant
performance objectives for that fiscal year, pro rated for the number of days
that elapsed within the fiscal year prior to such termination of employment.
Awards are subject to income and other payroll tax withholding by the
Corporation.
5.5 Maximum Award. The annual Award payable to any Participant under the Plan
will not exceed $4 million.
5.6 Deferrals. The Committee may permit a Participant to defer such
Participant's receipt of payment of an Award that would otherwise be due to the
Participant. In any such case, the Committee shall, in its sole discretion,
determine the rules and procedures for such deferral.
5.7 Adjustment of Awards Upon the Occurrence of Certain Unusual or Non-Recurring
Events. The Committee may make adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or non-recurring
events (including, without limitation, acquisitions or dispositions of assets or
businesses) affecting the Corporation or the financial statements of the
Corporation or of changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan; provided,
however, the Committee may not use any discretion to modify award results if
such modification would affect the deductibility of the Award under Code Section
162(m).
MISCELLANEOUS
6.1 Guidelines. From time to time the Committee may adopt written guidelines for
implementation and administration of the Plan.
6.2 No Right to Awards. No Officer or other person shall have the right to be
selected to receive an Award under the Plan or, if so selected, to be selected
to receive a future Award.
6.3 Non-Funded Plan. The Corporation will not be required to establish any
special or separate fund or make any other segregation of assets to assure the
payment of any award under the Plan, and all Participants shall be general
creditors with respect to any Awards payable to them.
6.4 Non-Transferability of Awards. No Award granted under the Plan may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
F-4
6.5 Expenses of Plan. The costs and expenses of administering the Plan will be
borne by the Corporation.
6.6 No Contract of Employment. Nothing in the Plan, in any Award, or in any
action taken under the Plan shall confer on the Participant any right to
continue in the service of the Corporation or interfere with the right of the
Corporation to terminate at will such Participant's employment or other services
at any time. This Agreement shall in no way, now or hereafter, reduce, enlarge
or modify the employment relationship between the Corporation and the
Participant.
6.7 Governing Law. The validity, construction and effect of the Plan, any rules
and regulations under the Plan, and any awards made under the Plan shall be
determined in accordance with the laws of the state of Ohio without giving
effect to principles of conflicts of laws, and any applicable federal law.
6.8 Successors. All obligations under the Plan shall be binding upon and inure
to the benefit of any successor of the Corporation, whether such successor is
the result of a direct or indirect purchase of all or substantially all of the
business and assets of the Corporation or a merger, consolidation, or
reorganization, or otherwise.
6.9 Severability. In the event that any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
EFFECTIVE DATE; AMENDMENT; TERMINATION
7.1 Effective Date. The Plan will become effective upon approval by a majority
of the votes cast by the shareholders of the Corporation, and will relate to
performance beginning with the fiscal year of the Corporation commencing
February 2, 2003.
7.2 Amendment; Termination. The Corporation may at any time terminate or, from
time to time, amend the Plan by action of the Board of Directors or by action of
the Committee without shareholder approval unless such approval is required to
satisfy the applicable provisions of Code Section 162(m) or other relevant laws.
The Corporation and the Committee may amend the Plan and take such other action
as they may deem necessary or appropriate to comply with Code Section 162(m) and
regulations issued thereunder.
7.3 Code Section 162(m) Compliance. In the event that changes are made to Code
Section 162(m) to permit greater flexibility with respect to any Award available
under the Plan, the Committee may, subject to Section 7.2, make any adjustments
it deems appropriate. If the applicable tax or securities laws change to permit
the Committee discretion to alter the governing performance goal measures set
forth in Section 5.1 without obtaining shareholder approval of such change, the
Committee shall have sole discretion to make such changes without obtaining
shareholder approval.
VALUE CITY DEPARTMENT STORES, INC.
By: /s/ JAY L. SCHOTTENSTEIN
-------------------------------
Jay L. Schottenstein, Chairman
Adopted: August 14, 2002
F-5
DETACH CARD
--------------------------------------------------------------------------------
VALUE CITY DEPARTMENT STORES, INC. PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
3241 Westerville Road, Columbus, Ohio 43224 SEPTEMBER 26, 2002
The undersigned shareholder of Value City Department Stores, Inc. (the
"Company") hereby appoints John C. Rossler, James A. McGrady and Robert J.
Tannous, or any one of them, as attorneys and proxies with full power of
substitution to each, to vote all shares of common stock of the Company which
the undersigned is entitled to vote at the Annual Meeting of Shareholders of the
Company to be held at the Radisson Airport Hotel located at 1375 Cassady Avenue,
Columbus, Ohio, on Thursday, September 26, 2002, at 9:30 a.m. local time, and at
any adjournment or adjournments thereof, with all of the powers such undersigned
shareholder would have if personally present, for the following purposes:
1. ELECTION OF THE FOLLOWING DIRECTORS:
Henry L. Aaron
William Fields
Roger D. Blackwell
Marvin W. Goldstein
Ari Deshe
Jay L. Schottenstein
Jon P. Diamond
Harvey L. Sonnenberg
Elizabeth M. Eveillard
James L. Weisman
[ ] FOR [ ] WITHHOLD AUTHORITY FOR EACH NOMINEE
(INSTRUCTION: To Withhold Authority For A Specific Nominee, Write That Nominee's
Name Here:
2. To approve the issuance of warrants to purchase shares of the Company's
common stock initially exercisable for up to 2,954,793 shares of common stock
and the issuance of shares of common stock upon exercise thereof, as well as
any additional shares of common stock issuable pursuant to the anti-dilution
and other provisions of the warrants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the issuance of shares of the Company's common stock as interest
on and upon conversion of amounts outstanding under the Amended and Restated
Senior Convertible Loan, as well as any additional shares of common stock
issuable pursuant to the terms of the Amended and Restated Senior Convertible
Loan Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To amend the Company's 2000 Stock Incentive Plan to increase the number of
shares that may be issued thereunder from 3,000,000 to 13,000,000 and to
increase the number of shares that may be awarded to an individual in any
performance period from 2,500,000 to 3,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. To approve the merger of a subsidiary of the Company with and into the
Company in order to create a holding company structure.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the Other Side)
DETACH CARD
--------------------------------------------------------------------------------
(Continued from Other Side)
6. To approve the Company's 2003 Incentive Compensation Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. TO TRANSACT ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE ANNUAL
MEETING OR ANY ADJOURNMENT THEREOF.
THIS PROXY, WHEN EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3, 4, 5, 6 AND 7.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders, dated August 26, 2002, and the proxy statement of the Company
furnished therewith. Any proxy heretofore given to vote said shares is hereby
revoked.
Dated: ____________________, 2002
---------------------------------
Signature
---------------------------------
Signature
Signature(s) shall agree with the
name(s) printed on this Proxy. If
shares are registered in two
names, both stockholders should
sign this Proxy. If signing as
attorney, executor,
administrator, trustee or
guardian, please give your full
title as such.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. PLEASE SIGN AND
DATE THIS PROXY BELOW AND RETURN IN THE ENCLOSED ENVELOPE.