UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 2011
Commission File Number 1-6049
TARGET CORPORATION
(Exact name of registrant as specified in its charter)
Minnesota |
|
41-0215170 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
1000 Nicollet Mall, Minneapolis, Minnesota |
|
55403 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants telephone number, including area code: 612/304-6073
Former name, former address and former fiscal year, if changed since last report: N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller Reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Indicate the number of shares outstanding of each of registrants classes of common stock, as of the latest practicable date. Total shares of common stock, par value $0.0833, outstanding at November 18, 2011 were 671,596,926.
TARGET CORPORATION
TABLE OF CONTENTS
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1 | |
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2 | |
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3 | |
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4 | |
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5 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
15 | ||
27 | |||
27 | |||
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28 | |||
28 | |||
28 | |||
28 | |||
28 | |||
28 | |||
29 | |||
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30 | ||
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31 |
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Three Months Ended |
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Nine Months Ended |
| ||||||||||
|
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| ||||||
(millions, except per share data) (unaudited) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||||
Sales |
|
$ |
16,054 |
|
$ |
15,226 |
|
$ |
47,529 |
|
$ |
45,509 |
| ||
Credit card revenues |
|
348 |
|
379 |
|
1,048 |
|
1,220 |
| ||||||
Total revenues |
|
16,402 |
|
15,605 |
|
48,577 |
|
46,729 |
| ||||||
Cost of sales |
|
11,165 |
|
10,562 |
|
32,874 |
|
31,267 |
| ||||||
Selling, general and administrative expenses |
|
3,525 |
|
3,345 |
|
10,230 |
|
9,749 |
| ||||||
Credit card expenses |
|
109 |
|
198 |
|
283 |
|
693 |
| ||||||
Depreciation and amortization |
|
546 |
|
533 |
|
1,568 |
|
1,545 |
| ||||||
Earnings before interest expense and income taxes |
|
1,057 |
|
967 |
|
3,622 |
|
3,475 |
| ||||||
Net interest expense |
|
|
|
|
|
|
|
|
| ||||||
Nonrecourse debt collateralized by credit card receivables |
|
18 |
|
20 |
|
55 |
|
64 |
| ||||||
Other interest expense |
|
184 |
|
175 |
|
522 |
|
505 |
| ||||||
Interest income |
|
(2 |
) |
(1 |
) |
(3 |
) |
(2 |
) | ||||||
Net interest expense |
|
200 |
|
194 |
|
574 |
|
567 |
| ||||||
Earnings before income taxes |
|
857 |
|
773 |
|
3,048 |
|
2,908 |
| ||||||
Provision for income taxes |
|
302 |
|
238 |
|
1,100 |
|
1,023 |
| ||||||
Net earnings |
|
$ |
555 |
|
$ |
535 |
|
$ |
1,948 |
|
$ |
1,885 |
| ||
Basic earnings per share |
|
$ |
0.82 |
|
$ |
0.75 |
|
$ |
2.85 |
|
$ |
2.59 |
| ||
Diluted earnings per share |
|
$ |
0.82 |
|
$ |
0.74 |
|
$ |
2.84 |
|
$ |
2.57 |
| ||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
| ||||||
Basic |
|
673.2 |
|
715.4 |
|
682.2 |
|
728.8 |
| ||||||
Diluted |
|
678.3 |
|
721.0 |
|
686.9 |
|
734.4 |
| ||||||
See accompanying Notes to Consolidated Financial Statements.
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|
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|
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|
October 29, |
|
January 29, |
|
October 30, |
| |||
(millions) |
|
2011 |
|
2011 |
|
2010 |
| |||
Assets |
|
(unaudited) |
|
|
|
(unaudited) |
| |||
Cash and cash equivalents, including marketable securities of $66, $1,129 and $349 |
|
$ |
821 |
|
$ |
1,712 |
|
$ |
936 |
|
Credit card receivables, net of allowance of $431, $690 and $775 |
|
5,713 |
|
6,153 |
|
5,955 |
| |||
Inventory |
|
9,890 |
|
7,596 |
|
9,550 |
| |||
Other current assets |
|
1,948 |
|
1,752 |
|
1,905 |
| |||
Total current assets |
|
18,372 |
|
17,213 |
|
18,346 |
| |||
Property and equipment |
|
|
|
|
|
|
| |||
Land |
|
6,069 |
|
5,928 |
|
5,891 |
| |||
Buildings and improvements |
|
26,850 |
|
23,081 |
|
23,101 |
| |||
Fixtures and equipment |
|
5,153 |
|
4,939 |
|
4,908 |
| |||
Computer hardware and software |
|
2,457 |
|
2,533 |
|
2,461 |
| |||
Construction-in-progress |
|
546 |
|
567 |
|
448 |
| |||
Accumulated depreciation |
|
(12,035 |
) |
(11,555 |
) |
(11,219 |
) | |||
Property and equipment, net |
|
29,040 |
|
25,493 |
|
25,590 |
| |||
Other noncurrent assets |
|
1,035 |
|
999 |
|
1,013 |
| |||
Total assets |
|
$ |
48,447 |
|
$ |
43,705 |
|
$ |
44,949 |
|
Liabilities and shareholders investment |
|
|
|
|
|
|
| |||
Accounts payable |
|
$ |
8,053 |
|
$ |
6,625 |
|
$ |
7,761 |
|
Accrued and other current liabilities |
|
3,273 |
|
3,326 |
|
3,179 |
| |||
Unsecured debt and other borrowings |
|
2,313 |
|
119 |
|
814 |
| |||
Nonrecourse debt collateralized by credit card receivables |
|
500 |
|
|
|
36 |
| |||
Total current liabilities |
|
14,139 |
|
10,070 |
|
11,790 |
| |||
Unsecured debt and other borrowings |
|
12,897 |
|
11,653 |
|
11,737 |
| |||
Nonrecourse debt collateralized by credit card receivables |
|
3,259 |
|
3,954 |
|
3,943 |
| |||
Deferred income taxes |
|
1,199 |
|
934 |
|
814 |
| |||
Other noncurrent liabilities |
|
1,689 |
|
1,607 |
|
1,786 |
| |||
Total noncurrent liabilities |
|
19,044 |
|
18,148 |
|
18,280 |
| |||
Shareholders investment |
|
|
|
|
|
|
| |||
Common stock |
|
56 |
|
59 |
|
59 |
| |||
Additional paid-in capital |
|
3,431 |
|
3,311 |
|
3,128 |
| |||
Retained earnings |
|
12,340 |
|
12,698 |
|
12,254 |
| |||
Accumulated other comprehensive loss |
|
(563 |
) |
(581 |
) |
(562 |
) | |||
Total shareholders investment |
|
15,264 |
|
15,487 |
|
14,879 |
| |||
Total liabilities and shareholders investment |
|
$ |
48,447 |
|
$ |
43,705 |
|
$ |
44,949 |
|
Common shares outstanding |
|
671.4 |
|
704.0 |
|
707.9 |
|
See accompanying Notes to Consolidated Financial Statements.
|
|
|
|
| |||
|
|
Nine Months Ended |
| ||||
|
|
October 29, |
|
October 30, |
| ||
(millions) (unaudited) |
|
2011 |
|
2010 |
| ||
Operating activities |
|
|
|
|
| ||
Net earnings |
|
$ |
1,948 |
|
$ |
1,885 |
|
Reconciliation to cash flow |
|
|
|
|
| ||
Depreciation and amortization |
|
1,568 |
|
1,545 |
| ||
Share-based compensation expense |
|
61 |
|
77 |
| ||
Deferred income taxes |
|
397 |
|
249 |
| ||
Bad debt expense |
|
67 |
|
445 |
| ||
Non-cash (gains)/losses and other, net |
|
76 |
|
(112 |
) | ||
Changes in operating accounts: |
|
|
|
|
| ||
Accounts receivable originated at Target |
|
120 |
|
241 |
| ||
Inventory |
|
(2,294 |
) |
(2,371 |
) | ||
Other current assets |
|
(131 |
) |
(61 |
) | ||
Other noncurrent assets |
|
49 |
|
(113 |
) | ||
Accounts payable |
|
1,428 |
|
1,250 |
| ||
Accrued and other current liabilities |
|
(360 |
) |
(141 |
) | ||
Other noncurrent liabilities |
|
46 |
|
(42 |
) | ||
Cash flow provided by operations |
|
2,975 |
|
2,852 |
| ||
Investing activities |
|
|
|
|
| ||
Expenditures for property and equipment |
|
(3,750 |
) |
(1,607 |
) | ||
Proceeds from disposal of property and equipment |
|
7 |
|
36 |
| ||
Change in accounts receivable originated at third parties |
|
253 |
|
325 |
| ||
Other investments |
|
(114 |
) |
(70 |
) | ||
Cash flow required for investing activities |
|
(3,604 |
) |
(1,316 |
) | ||
Financing activities |
|
|
|
|
| ||
Change in commercial paper, net |
|
1,211 |
|
|
| ||
Additions to long-term debt |
|
1,000 |
|
997 |
| ||
Reductions of long-term debt |
|
(272 |
) |
(1,450 |
) | ||
Dividends paid |
|
(549 |
) |
(432 |
) | ||
Repurchase of stock |
|
(1,693 |
) |
(2,055 |
) | ||
Stock option exercises and related tax benefit |
|
66 |
|
133 |
| ||
Other |
|
1 |
|
7 |
| ||
Cash flow required for financing activities |
|
(236 |
) |
(2,800 |
) | ||
Effect of exchange rate changes on cash and cash equivalents |
|
(26 |
) |
|
| ||
Net decrease in cash and cash equivalents |
|
(891 |
) |
(1,264 |
) | ||
Cash and cash equivalents at beginning of period |
|
1,712 |
|
2,200 |
| ||
Cash and cash equivalents at end of period |
|
$ |
821 |
|
$ |
936 |
|
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders Investment
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
Comprehensive |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
Income/(Loss) |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
Pension and |
|
Derivative |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
Other |
|
Instruments, |
|
|
| ||||||
|
|
Common |
|
Stock |
|
Additional |
|
|
|
Benefit |
|
Foreign |
|
|
| ||||||
|
|
Stock |
|
Par |
|
Paid-in |
|
Retained |
|
Liability |
|
Currency |
|
|
| ||||||
(millions, except footnotes) |
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Adjustments |
|
and Other |
|
Total |
| ||||||
January 30, 2010 |
|
744.6 |
|
$ |
62 |
|
$ |
2,919 |
|
$ |
12,947 |
|
$ |
(537 |
) |
$ |
(44 |
) |
$ |
15,347 |
|
Net earnings |
|
|
|
|
|
|
|
2,920 |
|
|
|
|
|
2,920 |
| ||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension and other benefit liability adjustments, net of taxes of $4 |
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) | ||||||
Cash flow hedges, net of taxes of $2 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
3 |
| ||||||
Currency translation adjustment, net of taxes of $1 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
1 |
| ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,920 |
| ||||||
Dividends declared |
|
|
|
|
|
|
|
(659 |
) |
|
|
|
|
(659 |
) | ||||||
Repurchase of stock |
|
(47.8 |
) |
(4 |
) |
|
|
(2,510 |
) |
|
|
|
|
(2,514 |
) | ||||||
Stock options and awards |
|
7.2 |
|
1 |
|
392 |
|
|
|
|
|
|
|
393 |
| ||||||
January 29, 2011 |
|
704.0 |
|
$ |
59 |
|
$ |
3,311 |
|
$ |
12,698 |
|
$ |
(541 |
) |
$ |
(40 |
) |
$ |
15,487 |
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net earnings |
|
|
|
|
|
|
|
1,948 |
|
|
|
|
|
1,948 |
| ||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension and other benefit liability adjustments, net of taxes of $16 |
|
|
|
|
|
|
|
|
|
25 |
|
|
|
25 |
| ||||||
Cash flow hedges, net of taxes of $2 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
2 |
| ||||||
Currency translation adjustment, net of taxes of $6 |
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
(9 |
) | ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,966 |
| ||||||
Dividends declared |
|
|
|
|
|
|
|
(576 |
) |
|
|
|
|
(576 |
) | ||||||
Repurchase of stock |
|
(34.1 |
) |
(3 |
) |
|
|
(1,730 |
) |
|
|
|
|
(1,733 |
) | ||||||
Stock options and awards |
|
1.5 |
|
|
|
120 |
|
|
|
|
|
|
|
120 |
| ||||||
October 29, 2011 |
|
671.4 |
|
$ |
56 |
|
$ |
3,431 |
|
$ |
12,340 |
|
$ |
(516 |
) |
$ |
(47 |
) |
$ |
15,264 |
|
Dividends declared per share were $0.30 and $0.25 for the three months ended October 29, 2011 and October 30, 2010, respectively. For the fiscal year ended January 29, 2011, dividends declared per share were $0.92.
See accompanying Notes to Consolidated Financial Statements.
Notes to Consolidated Financial Statements
1. Accounting Policies
The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statement disclosures contained in the 2010 Form 10-K for Target Corporation (Target or the Corporation). The same accounting policies are followed in preparing quarterly financial data as are followed in preparing annual data. See the notes in our Form 10-K for the fiscal year ended January 29, 2011, for those policies. In the opinion of management, all adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature.
Assets and liabilities of operations with functional currencies other than the U.S. dollar are translated at period-end exchange rates. Income statement accounts are translated using exchange rates prevailing during the period. Translation adjustments are reflected within accumulated other comprehensive income in shareholders equity. Gains and losses from foreign currency transactions are included in net earnings. During the nine months ended October 29, 2011 the value of $1.00 ranged from C$0.94 (Canadian dollars) to C$1.05 and averaged C$0.98. On October 29, 2011, $1.00 was equivalent to C$0.99.
Due to the seasonal nature of our business, quarterly revenues, expenses, earnings and cash flows are not necessarily indicative of the results that may be expected for the full year. All amounts are in U.S. dollars unless otherwise stated.
2. Earnings Per Share
Basic earnings per share (EPS) is calculated as net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potentially dilutive impact of share-based awards outstanding at period end, consisting of the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.
Earnings Per Share |
|
Three Months Ended |
|
Nine Months Ended | |||||||||
|
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| ||||
(millions, except per share data) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Net earnings |
|
$ |
555 |
|
$ |
535 |
|
$ |
1,948 |
|
$ |
1,885 |
|
Basic weighted average common shares outstanding |
|
673.2 |
|
715.4 |
|
682.2 |
|
728.8 |
| ||||
Dilutive impact of share-based awards(a) |
|
5.1 |
|
5.6 |
|
4.7 |
|
5.6 |
| ||||
Diluted weighted average common shares outstanding |
|
678.3 |
|
721.0 |
|
686.9 |
|
734.4 |
| ||||
Basic earnings per share |
|
$ |
0.82 |
|
$ |
0.75 |
|
$ |
2.85 |
|
$ |
2.59 |
|
Diluted earnings per share |
|
$ |
0.82 |
|
$ |
0.74 |
|
$ |
2.84 |
|
$ |
2.57 |
|
(a) Excludes 13.9 million and 15.6 million share-based awards for the three and nine months ended October 29, 2011, respectively, and 10.7 million and 11.3 million share-based awards for the three and nine months ended October 30, 2010 because their effects were antidilutive.
3. Canadian Leasehold Acquisition
In January 2011, we entered into an agreement to purchase the leasehold interests in up to 220 sites in Canada currently operated by Zellers Inc. (Zellers), in exchange for C$1,825 million. We have completed this real estate acquisition with the selection of 84 additional Zellers sites, bringing the total number of sites selected to 189, which includes the initial group of 105 sites selected in the second quarter of 2011. We believe this transaction will allow us to open 125 to 135 Target stores in Canada, primarily during 2013. We sold our right to acquire the leasehold interests in 54 sites to third party retailers and landlords, for a total of $225 million. These transactions resulted in a final net purchase price of $1,636 million, which is included in expenditures for property and equipment in the Consolidated Statement of Cash Flows.
We recorded the acquired assets in our Canadian Segment at their estimated fair values.
Leasehold Acquisition Summary |
|
Third Quarter |
|
|
Total |
| |||
(millions) |
Balance Sheet Classification |
2011 |
|
|
Transaction |
| |||
Assets |
|
|
|
|
|
|
| ||
Capital lease assets |
Buildings and improvements |
|
$ |
515 |
|
|
$ |
2,887 |
|
Intangible assets(a) |
Other noncurrent assets |
|
23 |
|
|
23 |
| ||
Total assets |
|
|
538 |
|
|
2,910 |
| ||
Liabilities |
|
|
|
|
|
|
| ||
Capital lease obligations |
Unsecured debt and other borrowings |
|
$ |
255 |
|
|
$ |
1,274 |
|
(a) Amortization period of acquired intangible assets range from 3 to 13 years.
The acquired sites are being subleased back to Zellers for terms through March 2013, or earlier, at our option.
4. Fair Value Measurements
Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liabilitys fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).
The following table presents financial assets and liabilities measured at fair value on a recurring basis:
Fair Value Measurements - |
|
Fair Value at |
|
Fair Value at |
|
Fair Value at |
| |||||||||||||||||||||
Recurring Basis |
|
October 29, 2011 |
|
January 29, 2011 |
|
October 30, 2010 |
| |||||||||||||||||||||
(millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| |||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Marketable securities |
|
$ |
66 |
|
$ |
|
|
$ |
|
|
$ |
1,129 |
|
$ |
|
|
$ |
|
|
$ |
349 |
|
$ |
|
|
$ |
|
|
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Prepaid forward contracts |
|
70 |
|
|
|
|
|
63 |
|
|
|
|
|
62 |
|
|
|
|
| |||||||||
Other |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps(a) |
|
|
|
136 |
|
|
|
|
|
139 |
|
|
|
|
|
172 |
|
|
| |||||||||
Company-owned life insurance investments(b) |
|
|
|
365 |
|
|
|
|
|
358 |
|
|
|
|
|
352 |
|
|
| |||||||||
Total |
|
$ |
136 |
|
$ |
507 |
|
$ |
|
|
$ |
1,192 |
|
$ |
497 |
|
$ |
|
|
$ |
411 |
|
$ |
524 |
|
$ |
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Interest rate swaps(a) |
|
|
|
71 |
|
|
|
|
|
54 |
|
|
|
|
|
80 |
|
|
| |||||||||
Total |
|
$ |
|
|
$ |
71 |
|
$ |
|
|
$ |
|
|
$ |
54 |
|
$ |
|
|
$ |
|
|
$ |
80 |
|
$ |
|
|
(a) |
There was one interest rate swap designated as an accounting hedge at October 29, 2011, and no interest rate swaps designated as accounting hedges at January 29, 2011 or October 30, 2010. |
(b) |
Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of loans that are secured by some of these policies of $665 million at October 29, 2011, $645 million at January 29, 2011 and $636 million at October 30, 2010. |
Position |
|
Valuation Technique |
Marketable securities |
|
Initially valued at transaction price. Subsequently valued at carrying value, as cash equivalents (including money market funds) approximate fair value because maturities are less than three months. |
|
|
|
Prepaid forward contracts |
|
Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock. |
|
|
|
Interest rate swaps |
|
Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. |
|
|
|
Company-owned life insurance investments |
|
Includes investments in separate accounts that are valued based on market rates credited by the insurer. |
Certain assets are measured at fair value on a nonrecurring basis; that is, the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The fair value measurements related to long-lived assets in the following table were determined using available market prices at the measurement date based on recent investments or pending transactions of similar assets, third-party independent appraisals, valuation multiples or public comparables, less cost to sell where appropriate. We classify these measurements as Level 2.
Fair Value Measurements - |
|
Other current assets |
|
Property and equipment |
| |||||||||
Nonrecurring Basis |
|
Long-lived assets held for sale |
|
|
Long-lived assets held and used(a) |
| ||||||||
(millions) |
|
Three Months |
|
Nine Months |
|
Three Months |
|
Nine Months |
| |||||
Measured during the period ended October 29, 2011: |
|
|
|
|
|
|
|
|
| |||||
Carrying amount |
|
$ |
6 |
|
$ |
17 |
|
$ |
7 |
|
$ |
97 |
| |
Fair value measurement |
|
5 |
|
15 |
|
6 |
|
64 |
| |||||
Gain/(loss) |
|
$ |
(1 |
) |
$ |
(2 |
) |
$ |
(1 |
) |
$ |
(33) |
| |
Measured during the period ended October 30, 2010: |
|
|
|
|
|
|
|
|
| |||||
Carrying amount |
|
$ |
|
|
$ |
2 |
|
$ |
25 |
|
$ |
73 |
| |
Fair value measurement |
|
|
|
2 |
|
23 |
|
63 |
| |||||
Gain/(loss) |
|
$ |
|
|
$ |
|
|
$ |
(2 |
) |
$ |
(10) |
| |
(a) Primarily relates to real estate and buildings intended for sale in the future but not currently meeting the held for sale criteria.
The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date. The fair value of debt is generally measured using a discounted cash flow analysis based on our current market interest rates for similar types of financial instruments.
Financial Instruments Not |
|
October 29, 2011 |
|
January 29, 2011 |
|
October 30, 2010 | |||||||||||||||
Measured at Fair Value |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| ||||||||
(millions) |
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Amount |
|
Value |
| ||||||||
Financial assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Other current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Marketable securities(a) |
|
$ |
78 |
|
$ |
78 |
|
$ |
32 |
|
$ |
32 |
|
$ |
73 |
|
$ |
73 |
| ||
Other noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Marketable securities(a) |
|
|
|
|
|
4 |
|
4 |
|
|
|
|
| ||||||||
Total |
|
$ |
78 |
|
$ |
78 |
|
$ |
36 |
|
$ |
36 |
|
$ |
73 |
|
$ |
73 |
| ||
Financial liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total debt(b) |
|
$ |
17,228 |
|
$ |
19,793 |
|
$ |
15,241 |
|
$ |
16,661 |
|
$ |
16,037 |
|
$ |
17,880 |
| ||
Total |
|
$ |
17,228 |
|
$ |
19,793 |
|
$ |
15,241 |
|
$ |
16,661 |
|
$ |
16,037 |
|
$ |
17,880 |
| ||
(a) Held-to-maturity investments that are held to satisfy the regulatory requirements of Target Bank and Target National Bank.
(b) Represents the sum of nonrecourse debt collateralized by credit card receivables and unsecured debt and other borrowings excluding unamortized swap valuation adjustments and capital lease obligations.
Based on various inputs and assumptions, including discussions with third parties, we believe the gross balance of our credit card receivables approximates fair value at October 29, 2011. The carrying amounts of accounts payable and certain accrued and other current liabilities also approximate fair value at October 29, 2011.
5. Credit Card Receivables
Credit card receivables are recorded net of an allowance for doubtful accounts and are our only significant class of receivables. Substantially all accounts continue to accrue finance charges until they are written off. All past due accounts were incurring finance charges at October 29, 2011, January 29, 2011, and October 30, 2010. Accounts are written off when they become 180 days past due.
Age of Credit Card Receivables |
|
October 29, 2011 |
|
January 29, 2011 |
|
October 30, 2010 |
| |||||||||
|
|
|
|
Percent of |
|
|
|
Percent of |
|
|
|
Percent of |
| |||
(dollars in millions) |
|
Amount |
|
Receivables |
|
Amount |
|
Receivables |
|
Amount |
|
Receivables |
| |||
Current |
|
$ |
5,568 |
|
90.6 % |
|
$ |
6,132 |
|
89.6 % |
|
$ |
5,947 |
|
88.4 % |
|
1-29 days past due |
|
266 |
|
4.3 |
|
292 |
|
4.3 |
|
298 |
|
4.4 |
| |||
30-59 days past due |
|
109 |
|
1.8 |
|
131 |
|
1.9 |
|
157 |
|
2.3 |
| |||
60-89 days past due |
|
64 |
|
1.1 |
|
79 |
|
1.1 |
|
94 |
|
1.4 |
| |||
90+ days past due |
|
137 |
|
2.2 |
|
209 |
|
3.1 |
|
234 |
|
3.5 |
| |||
Period-end gross credit card receivables |
|
$ |
6,144 |
|
100 % |
|
$ |
6,843 |
|
100 % |
|
$ |
6,730 |
|
100 % |
|
Allowance for Doubtful Accounts
The allowance for doubtful accounts is recognized in an amount equal to the anticipated future write-offs of existing receivables and includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs on the entire credit card portfolio collectively based on historical experience of delinquencies, risk scores, aging trends and industry risk trends.
Allowance for Doubtful Accounts |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||||||
(millions) |
|
October 29, 2011 |
|
October 30, 2010 |
|
October 29, 2011 |
|
October 30, 2010 |
| |||||
Allowance at beginning of period |
|
$ |
480 |
|
$ |
851 |
|
$ |
690 |
|
$ |
1,016 |
| |
Bad debt expense |
|
40 |
|
110 |
|
67 |
|
445 |
| |||||
Write-offs(a) |
|
(122 |
) |
(226 |
) |
(448 |
) |
(799 |
) | |||||
Recoveries(a) |
|
33 |
|
40 |
|
122 |
|
113 |
| |||||
Allowance at end of period |
|
$ |
431 |
|
$ |
775 |
|
$ |
431 |
|
$ |
775 |
|
(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period principal collections on previously written-off balances. These amounts combined represent net write-offs.
Deterioration of the macroeconomic conditions in the United States would adversely affect the risk profile of our credit
card receivables portfolio based on credit card holders ability to pay their balances. If such deterioration were to occur, it would lead to an increase in bad debt expense. The Corporation monitors both the credit quality and the delinquency status of the credit card receivables portfolio. We consider accounts 30 or more days past due as delinquent, and we update delinquency status daily. We also monitor risk in the portfolio by assigning internally-generated scores to each account and by periodically obtaining a statistically representative sample of current FICO scores, a nationally recognized credit scoring model. We update these FICO scores monthly. The credit-quality segmentation presented below is consistent with the approach used in determining our allowance for doubtful accounts.
Receivables Credit Quality |
|
October 29, |
|
January 29, |
|
October 30, |
| |||
(millions) |
|
2011 |
|
2011 |
|
2010 |
| |||
Nondelinquent accounts (Current and 1-29 days past due) |
|
|
|
|
|
|
| |||
FICO score of 700 or above |
|
$ |
2,775 |
|
$ |
2,819 |
|
$ |
2,709 |
|
FICO score of 600 to 699 |
|
2,404 |
|
2,737 |
|
2,677 |
| |||
FICO score below 600 |
|
655 |
|
868 |
|
859 |
| |||
Total nondelinquent accounts |
|
5,834 |
|
6,424 |
|
6,245 |
| |||
Delinquent accounts (30+ days past due) |
|
310 |
|
419 |
|
485 |
| |||
Period-end gross credit card receivables |
|
$ |
6,144 |
|
$ |
6,843 |
|
$ |
6,730 |
|
Under certain circumstances, we offer cardholder payment plans that meet the accounting definition of a troubled debt restructuring (TDR). These plans modify finance charges, minimum payments and/or extend payment terms. Modified terms do not change the balance of the loan. These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholders circumstances. Cardholders are not allowed additional charges while participating in a payment plan. As of October 29, 2011 and October 30, 2010 there were 125,875 and 155,836 modified contracts with outstanding receivables of $304 million and $421 million, respectively.
Troubled Debt Restructurings |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||||||
|
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| |||||
(millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| |||||
Average receivables |
|
$ |
313 |
|
$ |
425 |
|
$ |
344 |
|
$ |
456 |
| |
Finance charges |
|
$ |
5 |
|
$ |
7 |
|
$ |
16 |
|
$ |
23 |
|
Troubled Debt Restructurings |
|
Three Months Ended |
|
|
Nine Months Ended | |||||||||
Defaulted During the Period(a) |
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| |||||
(millions, except contracts) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| |||||
Number of contracts |
|
6,290 |
|
13,753 |
|
17,990 |
|
42,972 |
| |||||
Amount defaulted(b) |
|
$ |
18 |
|
$ |
46 |
|
$ |
53 |
|
$ |
138 |
| |
(a) Includes loans modified within the twelve months prior to each respective period end.
(b) Represents account balance at the time of default. We define default as not paying the full fixed payment amount for two consecutive billing cycles.
Receivables in cardholder payment plans that meet the definition of a TDR are treated consistently with other receivables in determining our allowance for doubtful accounts. Accounts that complete their assigned payment plan are removed from the TDR population. Payments received on troubled debt restructurings are first applied to finance charges and fees, then to the unpaid principal balance.
Funding for Credit Card Receivables
As a method of providing funding for our credit card receivables, we sell, on an ongoing basis, all of our consumer credit card receivables to Target Receivables LLC (TR LLC), formerly known as Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. TR LLC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which from time to time will sell debt securities to third parties, either directly or through a related trust. These debt securities represent undivided interests in the Trust assets. TR LLC uses the proceeds from the sale of debt securities and its share of collections on the receivables to pay the purchase price of the receivables to the Corporation.
We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position based upon the applicable accounting guidance. The receivables transferred to the Trust are not available to general creditors of the Corporation.
During 2006 and 2007, we sold an interest in our credit card receivables by issuing a Variable Funding Certificate. Parties who hold the Variable Funding Certificate receive interest at a variable short-term market rate. The Variable Funding Certificate matures in 2012 and 2013.
In the second quarter of 2008, we sold an interest in our credit card receivables to JPMorgan Chase (JPMC). The interest sold represented 47 percent of the receivables portfolio at the time of the transaction. In the event of a decrease in the receivables principal amount such that JPMCs interest in the entire portfolio would exceed 47 percent for three consecutive months, TR LLC (using the cash flows from the assets in the Trust) would be required to pay JPMC a pro rata amount of principal collections such that the portion owned by JPMC would not exceed 47 percent, unless JPMC provides a waiver. Conversely, at the option of the Corporation, JPMC may be required to fund an increase in the portfolio to maintain their 47 percent interest up to a maximum principal balance of $4.2 billion. Due to declines in gross credit card receivables, TR LLC repaid JPMC $226 million and $530 million during the first nine months of 2011 and 2010, respectively.
If a three-month average of monthly finance charge excess (JPMCs pro rata share of finance charge collections less write-offs and specified expenses) is less than 2 percent of the outstanding principal balance of JPMCs interest, the Corporation must implement mutually agreed-upon underwriting strategies. If the three-month average finance charge excess falls below 1 percent of the outstanding principal balance of JPMCs interest, JPMC may compel the Corporation to implement underwriting and collections activities, provided those activities are compatible with the Corporations systems, as well as consistent with similar credit card receivable portfolios managed by JPMC. If the Corporation fails to implement the activities, JPMC has the right to cause the accelerated repayment of the note payable issued in the transaction. As noted in the preceding paragraph, payments would be made solely from the Trust assets. We have the right to prepay the principal balance on the note payable to JPMC through January 31, 2012. If we elect to prepay the outstanding balance, we will be required to pay a make-whole premium ranging from $85 million to $95 million, dependent upon the prepayment date.
All interests in our Credit Card Receivables issued by the Trust are accounted for as secured borrowings. Interest and principal payments are satisfied provided the cash flows from the Trust assets are sufficient and are nonrecourse to the general assets of the Corporation. If the cash flows are less than the periodic interest, the available amount, if any, is paid with respect to interest. Interest shortfalls will be paid to the extent subsequent cash flows from the assets in the Trust are sufficient. Future principal payments will be made from the third partys pro rata share of cash flows from the Trust assets.
Securitized Borrowings |
|
October 29, 2011 |
|
January 29, 2011 |
|
October 30, 2010 |
| ||||||||||||
|
|
Debt |
|
|
|
Debt |
|
|
|
Debt |
|
|
| ||||||
(millions) |
|
Balance |
|
Collateral |
|
Balance |
|
Collateral |
|
Balance |
|
Collateral |
| ||||||
2008 Series(a) |
$ |
|
2,759 |
|
$ |
2,828 |
|
$ |
2,954 |
|
$ |
3,061 |
|
$ |
2,979 |
|
$ |
3,098 |
|
2006/2007 Series |
|
1,000 |
|
1,266 |
|
1,000 |
|
1,266 |
|
1,000 |
|
1,266 |
| ||||||
Total |
$ |
|
3,759 |
|
$ |
4,094 |
|
$ |
3,954 |
|
$ |
4,327 |
|
$ |
3,979 |
|
$ |
4,364 |
|
(a) The debt balance for the 2008 Series is net of a 7% discount from JPMC. The unamortized portion of this discount was $69 million, $107 million and $119 million as of October 29, 2011, January 29, 2011, and October 30, 2010, respectively.
6. Commitments and Contingencies
As a result of our second and third quarter 2011 acquisition of leases from Zellers, we have assumed additional future minimum lease payments of $3.5 billion, with a net present value of $1.3 billion, at October 29, 2011.
We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of the currently identified claims or litigation will be material to our results of operations, cash flows or financial condition.
7. Notes Payable and Long-Term Debt
We obtain short-term financing from time to time under our commercial paper program, a form of notes payable. As of October 29, 2011, $1,211 million was outstanding under this program. There were no amounts outstanding under our
commercial paper program at January 29, 2011 or October 30, 2010. During the three and nine months ended October 29, 2011 the maximum amount outstanding was $1,211 million and the average amount outstanding was $351 million and $227 million, respectively. There were no amounts outstanding under our commercial paper program at any time during the three or nine months ended October 30, 2010.
In July 2011, we issued $350 million of unsecured fixed rate debt at 1.125% and $650 million of unsecured floating rate debt at three-month LIBOR plus 17 basis points that matures in July 2014. Proceeds from this issuance were used for general corporate purposes.
In October 2011, we entered into a five-year $2.25 billion unsecured revolving credit facility with a group of banks. The new facility replaced our existing credit agreement and will expire in October 2016. No balances were outstanding at any time during the first three quarters of 2011 or 2010 under this or previously existing revolving credit facilities.
In addition, TR LLC has made payments to JPMC to reduce its interest in our credit card receivables as described in Note 5, Credit Card Receivables.
8. Derivative Financial Instruments
Derivative financial instruments are reported at fair value on the Consolidated Statements of Financial Position. Historically our derivative instruments have primarily consisted of interest rate swaps. We use these derivatives to mitigate our interest rate risk. We have counterparty credit risk resulting from our derivative instruments. This risk lies primarily with large global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis.
During 2008, we terminated or de-designated certain interest rate swaps that were accounted for as hedges. Total net gains amortized into net interest expense for terminated or de-designated swaps were $10 million and $11 million during the three months ended October 29, 2011 and October 30, 2010, respectively. Total net gains amortized into net interest expense for terminated or de-designated swaps were $31 million and $34 million during the nine months ended October 29, 2011 and October 30, 2010, respectively. The amount remaining on unamortized hedged debt valuation gains from terminated or de-designated interest rate swaps that will be amortized into earnings over the remaining lives of the underlying debt totaled $122 million, $152 million and $164 million, at October 29, 2011, January 29, 2011 and October 30, 2010, respectively.
Periodic payments, valuation adjustments and amortization of gains or losses from the termination or de-designation of derivative contracts are summarized below:
Derivative Contracts - Effect on Results of Operations |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||
|
|
Classification of |
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| ||||
(millions) |
|
Income/(Expenses) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
Interest rate swaps |
|
Other interest expense |
|
$ |
10 |
|
$ |
12 |
|
$ |
32 |
|
$ |
40 |
|
In July 2011, in conjunction with the $350 million fixed rate debt issuance, we entered into an interest rate swap with a notional amount of $350 million, under which we pay a variable rate and receive a fixed rate. This swap has been designated as a fair value hedge, and there was no ineffectiveness recognized related to this hedge during the three or nine months ended October 29, 2011. There were no derivative instruments designated as hedges as of October 30, 2010. See Note 4, Fair Value Measurements, for a description of the fair value measurement of derivative contracts and their classification on the Consolidated Statements of Financial Position.
9. Income Taxes
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2010 and, with few exceptions, are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.
We accrue for the effects of uncertain tax positions and the related potential penalties and interest.
During the third quarter of 2010, we recorded a reduction to income tax expense of $45 million due to the favorable resolution of various state income tax matters.
Subsequent to the end of the third quarter of 2011, we favorably resolved various state income tax matters, which will be recorded as a reduction to income tax expense of approximately $50 million in our fourth quarter 2011 Statement of Operations.
10. Share Repurchase
We repurchase shares primarily through open market transactions under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007.
Share Repurchases |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||
(millions, except per share data) |
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| ||||||
Total number of shares purchased |
|
4.5 |
|
15.2 |
|
34.1 |
|
40.2 |
| ||||||
Average price paid per share |
|
$ |
50.45 |
|
$ |
52.29 |
|
$ |
50.76 |
|
$ |
52.04 |
| ||
Total investment |
|
$ |
226 |
|
$ |
793 |
|
$ |
1,733 |
|
$ |
2,093 |
| ||
Of the shares reacquired, a portion was delivered upon settlement of prepaid forward contracts as follows:
Settlement of Prepaid Forward Contracts(a) |
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
(millions) |
|
October 29, |
|
October 30, |
|
October 29, |
|
October 30, |
| ||||
Total number of shares purchased |
|
0.5 |
|
0.5 |
|
0.8 |
|
0.8 |
| ||||
Total cash investment |
|
$ |
26 |
|
$ |
24 |
|
$ |
40 |
|
$ |
39 |
|
Aggregate market value(b) |
|
$ |
26 |
|
$ |
26 |
|
$ |
40 |
|
$ |
42 |
|
(a) These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. The details of our positions in prepaid forward contracts have been provided in Note 11.
(b) At their respective settlement dates.
11. Pension, Postretirement Health Care and Other Benefits
We have qualified defined benefit pension plans covering team members who meet age and service requirements, including in certain circumstances, date of hire. We also have unfunded, nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies depending on team members date of hire, length of service and/or team member compensation. Upon early retirement and prior to Medicare eligibility, team members also become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions.
Net Pension and |
|
Pension Benefits |
|
Postretirement Health Care Benefits |
| |||||||||||||||||||||
Postretirement Health |
|
Three Months Ended |
|
Nine Months Ended |
|
Three Months Ended |
|
Nine Months Ended |
| |||||||||||||||||
Care Benefits Expense |
|
Oct. 29, |
|
Oct. 30, |
|
Oct. 29, |
|
Oct. 30, |
|
Oct. 29, |
|
Oct. 30, |
|
Oct. 29, |
|
Oct. 30, |
| |||||||||
(millions) |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| |||||||||
Service cost |
|
$ |
29 |
|
$ |
29 |
|
$ |
87 |
|
$ |
87 |
|
$ |
3 |
|
$ |
2 |
|
$ |
7 |
|
$ |
7 |
| |
Interest cost |
|
34 |
|
32 |
|
103 |
|
96 |
|
1 |
|
1 |
|
3 |
|
3 |
| |||||||||
Expected return on assets |
|
(51 |
) |
(48 |
) |
(153 |
) |
(144 |
) |
|
|
|
|
|
|
|
| |||||||||
Recognized losses |
|
16 |
|
11 |
|
50 |
|
33 |
|
1 |
|
1 |
|
3 |
|
3 |
| |||||||||
Recognized prior service cost |
|
|
|
|
|
(2 |
) |
(1 |
) |
(3 |
) |
(2 |
) |
(7 |
) |
(7 |
) | |||||||||
Total |
|
$ |
28 |
|
$ |
24 |
|
$ |
85 |
|
$ |
71 |
|
$ |
2 |
|
$ |
2 |
|
$ |
6 |
|
$ |
6 |
| |
Even though we are not required by law to make any contributions, we may elect to make contributions depending on investment performance and the pension plan funded status in 2011.
Our unfunded, nonqualified deferred compensation plan is offered to approximately 3,500 current and retired team members whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a
menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan, including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants, excluding members of our management executive committee, in part to recognize the risks inherent to their participation in a plan of this nature. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996, covering substantially fewer than 100 participants, most of whom are retired. In this plan, deferred compensation earns returns tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plans terms.
We mitigate some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion of our economic exposure to the returns of these plans. These investment vehicles are general corporate assets and are marked to market with the related gains and losses recognized in the Consolidated Statements of Operations in the period they occur.
The total change in fair value for contracts indexed to our own common stock recognized in earnings was a pretax gain of $6 million and $1 million during the three months ended October 29, 2011 and October 30, 2010, respectively, and a pretax gain of $3 million and $1 million for the nine months ended October 29, 2011 and October 30, 2010, respectively. For the nine months ended October 29, 2011 and October 30, 2010, we invested approximately $44 million and $26 million, respectively, in such investment instruments. This activity is included in the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts, as described in Note 10.
At October 29, 2011, January 29, 2011 and October 30, 2010, our outstanding interest in contracts indexed to our common stock was as follows:
Prepaid Forward Contracts on Target |
|
|
|
|
|
|
| |||
Common Stock |
|
October 29, |
|
January 29, |
|
October 30, |
| |||
(millions, except per share data) |
|
2011 |
|
2011 |
|
2010 |
| |||
Number of shares |
|
1.3 |
|
1.2 |
|
1.2 |
| |||
Average price paid per share |
|
$ |
43.78 |
|
$ |
44.09 |
|
$ |
43.87 |
|
Fair value |
|
$ |
70 |
|
$ |
63 |
|
$ |
62 |
|
Total cash investment |
|
$ |
55 |
|
$ |
51 |
|
$ |
53 |
|
12. Segment Reporting
Our Canadian Segment was initially reported in our first quarter 2011 financial results, in connection with entering into an agreement to purchase leasehold interests in Canada.
Our segment measure of profit is used by management to evaluate the return we are achieving on our investment and to make operating decisions.
Business Segment Results |
|
Three Months Ended October 29, 2011 |
|
Three Months Ended October 30, 2010 |
| |||||||||||||||||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
|
|
U.S. |
|
|
|
|
| |||||||||||||||||||
|
|
U.S. |
|
Credit |
|
|
|
|
|
U.S. |
|
Credit |
|
|
|
|
| |||||||||||||||||||
(millions) |
|
Retail |
|
Card |
|
Canadian |
|
Total |
|
Retail |
|
Card |
|
Canadian |
|
Total |
| |||||||||||||||||||
Sales/Credit card revenues |
|
$ |
16,054 |
|
$ |
348 |
|
$ |
|
|
$ |
16,402 |
|
$ |
15,226 |
|
$ |
379 |
|
$ |
|
|
$ |
15,605 |
| |||||||||||
Cost of sales |
|
11,165 |
|
|
|
|
|
11,165 |
|
10,562 |
|
|
|
|
|
10,562 |
| |||||||||||||||||||
Bad debt expense(a) |
|
|
|
40 |
|
|
|
40 |
|
|
|
110 |
|
|
|
110 |
| |||||||||||||||||||
Selling, general and administrative/ Operations and marketing expenses(a), (b) |
|
3,433 |
|
143 |
|
18 |
|
3,594 |
|
3,319 |
|
114 |
|
|
|
3,433 |
| |||||||||||||||||||
Depreciation and amortization |
|
525 |
|
4 |
|
17 |
|
546 |
|
529 |
|
5 |
|
|
|
533 |
| |||||||||||||||||||
Earnings/(loss) before interest expense and income taxes |
|
931 |
|
161 |
|
(35) |
|
1,057 |
|
816 |
|
150 |
|
|
|
967 |
| |||||||||||||||||||
Interest expense on nonrecourse debt collateralized by credit card receivables |
|
|
|
18 |
|
|
|
18 |
|
|
|
20 |
|
|
|
20 |
| |||||||||||||||||||
Segment profit/(loss) |
|
$ |
931 |
|
$ |
143 |
|
$ |
(35) |
|
$ |
1,039 |
|
$ |
816 |
|
$ |
130 |
|
$ |
|
|
$ |
947 |
| |||||||||||
Unallocated (income) and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Other interest expense |
|
|
|
|
|
|
|
184 |
|
|
|
|
|
|
|
175 |
| |||||||||||||||||||
Interest income |
|
|
|
|
|
|
|
(2) |
|
|
|
|
|
|
|
(1) |
| |||||||||||||||||||
Earnings before income taxes |
|
|
|
|
|
|
|
$ |
857 |
|
|
|
|
|
|
|
$ |
773 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
|
Nine Months Ended October 29, 2011 |
|
Nine Months Ended October 30, 2010 |
| |||||||||||||||||||||||||||||||
|
|
|
|
U.S. |
|
|
|
|
|
|
|
U.S. |
|
|
|
|
| |||||||||||||||||||
|
|
U.S. |
|
Credit |
|
|
|
|
|
U.S. |
|
Credit |
|
|
|
|
| |||||||||||||||||||
(millions) |
|
Retail |
|
Card |
|
Canadian |
|
Total |
|
Retail |
|
Card |
|
Canadian |
|
Total |
| |||||||||||||||||||
Sales/Credit card revenues |
|
$ |
47,529 |
|
$ |
1,048 |
|
$ |
|
|
$ |
48,577 |
|
$ |
45,509 |
|
$ |
1,220 |
|
$ |
|
|
$ |
46,729 |
| |||||||||||
Cost of sales |
|
32,874 |
|
|
|
|
|
32,874 |
|
31,267 |
|
|
|
|
|
31,267 |
| |||||||||||||||||||
Bad debt expense(a) |
|
|
|
67 |
|
|
|
67 |
|
|
|
445 |
|
|
|
445 |
| |||||||||||||||||||
Selling, general and administrative/ Operations and marketing expenses(a), (b) |
|
9,988 |
|
405 |
|
53 |
|
10,446 |
|
9,689 |
|
307 |
|
|
|
9,997 |
| |||||||||||||||||||
Depreciation and amortization |
|
1,527 |
|
13 |
|
28 |
|
1,568 |
|
1,532 |
|
14 |
|
|
|
1,545 |
| |||||||||||||||||||
Earnings/(loss) before interest expense and income taxes |
|
3,140 |
|
563 |
|
(81) |
|
3,622 |
|
3,021 |
|
454 |
|
|
|
3,475 |
| |||||||||||||||||||
Interest expense on nonrecourse debt collateralized by credit card receivables |
|
|
|
55 |
|
|
|
55 |
|
|
|
64 |
|
|
|
64 |
| |||||||||||||||||||
Segment profit/(loss) |
|
$ |
3,140 |
|
$ |
508 |
|
$ |
(81) |
|
$ |
3,567 |
|
$ |
3,021 |
|
$ |
390 |
|
$ |
|
|
$ |
3,411 |
| |||||||||||
Unallocated (income) and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Other interest expense |
|
|
|
|
|
|
|
522 |
|
|
|
|
|
|
|
505 |
| |||||||||||||||||||
Interest income |
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
|
(2) |
| |||||||||||||||||||
Earnings before income taxes |
|
|
|
|
|
|
|
$ |
3,048 |
|
|
|
|
|
|
|
$ |
2,908 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
(a) The combination of bad debt expense and operations and marketing expenses, less amounts reimbursed to the U.S. Retail Segment, within the U.S. Credit Card Segment represent credit card expenses on the Consolidated Statements of Operations.
(b) Loyalty Program discounts are recorded as reductions to sales in our U.S. Retail Segment. Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which our U.S. Credit Card Segment reimburses our U.S. Retail Segment to better align with the attributes of the new program. In the three and nine months ended October 29, 2011, these reimbursed amounts were $74 million and $189 million compared with $26 million and $60 million in the corresponding periods in 2010. In all periods these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment.
Note: The sum of the segment amounts may not equal the total amounts due to rounding.
Total Assets by Segment |
|
|
|
|
|
|
| |||
(millions) |
|
October 29, 2011 |
|
January 29, 2011 |
|
October 30, 2010 |
| |||
U.S. Retail |
|
$ |
39,142 |
|
$ |
37,324 |
|
$ |
38,617 |
|
U.S. Credit Card |
|
5,978 |
|
6,381 |
|
6,332 |
| |||
Canadian |
|
3,327 |
|
|
|
|
| |||
Total |
|
$ |
48,447 |
|
$ |
43,705 |
|
$ |
44,949 |
|
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Consolidated revenues were $16,402 million for the three months ended October 29, 2011, an increase of $797 million or 5.1 percent from the same period in the prior year. Consolidated earnings before interest expense and income taxes for third quarter 2011 increased by $90 million or 9.4 percent over third quarter 2010 to $1,057 million. Cash flow provided by operations was $2,975 million and $2,852 million for the nine months ended October 29, 2011 and October 30, 2010, respectively. Diluted earnings per share in the third quarter increased 10.2 percent to $0.82 from $0.74 in the same period a year ago. Adjusted earnings per share, which we believe is useful in providing period-to-period comparisons of the results of our U.S. operations, increased 28 percent to $0.87 in third quarter 2011 from $0.68 in the same period a year ago.
Earnings Per Share |
|
Three Months Ended |
|
|
|
|
Nine Months Ended |
|
|
|
| ||||||||
|
|
October 29 |
, |
October 30 |
, |
|
|
|
October 29 |
, |
October 30 |
, |
|
|
| ||||
|
|
2011 |
|
2010 |
|
|
Change |
|
2011 |
|
2010 |
|
|
Change |
| ||||
GAAP diluted earnings per share |
|
$ |
0.82 |
|
$ |
0.74 |
|
|
10.2% |
|
$ |
2.84 |
|
$ |
2.57 |
|
|
10.4 |
% |
Adjustments(a) |
|
0.05 |
|
(0.06 |
) |
|
|
|
0.11 |
|
(0.06 |
) |
|
|
| ||||
Adjusted diluted earnings per share |
|
$ |
0.87 |
|
$ |
0.68 |
|
|
28.0% |
|
$ |
2.95 |
|
$ |
2.51 |
|
|
17.5 |
% |
(a) Adjustments represent the impact of favorable resolution of various state income tax matters and expenses related to investments in our 2013 Canadian market entry.
Note: A reconciliation of non-GAAP financial measures to GAAP measures is provided on page 23.
Our financial results for the third quarter of 2011 in our U.S. Retail Segment reflect increased sales of 5.4 percent over the same period last year due to a 4.3 percent comparable-store increase combined with the contribution from new stores. In third quarter 2011 we experienced U.S. Retail Segment EBITDA and EBIT margin rate improvements compared to third quarter 2010, due primarily to a favorable selling, general and administrative (SG&A) expense rate. We opened 6 new stores in the third quarter of 2011 (5 net of one relocation). During the three months ended October 30, 2010, we opened 10 new stores (9 net of one relocation).
In the U.S. Credit Card Segment, we achieved an increase in segment profit primarily due to declining bad debt expense driven by improved trends in key measures of risk in our accounts receivable portfolio.
Our Canadian Segment was initially reported in our first quarter 2011 financial results, as a result of entering into an agreement to purchase the leasehold interests in up to 220 sites in Canada currently operated by Zellers Inc. (Zellers), in exchange for C$1,825 million (Canadian dollars). We completed this real estate acquisition with the selection of 84 additional Zellers sites, bringing the total number of sites selected to 189, which includes the initial group of 105 sites selected in the second quarter of 2011. We sold our right to acquire the leasehold interests in 54 sites to third party retailers and landlords, for a total of $225 million. These transactions resulted in a final net purchase price of $1,636 million. We believe this transaction will allow us to open 125 to 135 Target stores in Canada, primarily during 2013. During the three and nine months ended October 29, 2011, start-up costs totaled $18 million and $53 million, respectively, and primarily consisted of compensation, benefits and consulting expenses. These expenses are reported in selling, general, and administrative expense within the consolidated statement of operations.
Analysis of Results of Operations
U.S. Retail Segment
U.S. Retail Segment Results |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||||||||||
|
|
October 29, |
|
October 30, |
|
Percent |
|
|
October 29, |
|
October 30, |
|
Percent |
| ||||
(millions) |
|
2011 |
|
2010 |
|
Change |
|
|
2011 |
|
2010 |
|
Change |
| ||||
Sales |
|
$ |
16,054 |
|
$ |
15,226 |
|
5.4 |
% |
|
$ |
47,529 |
|
$ |
45,509 |
|
4.4 |
% |
Cost of sales |
|
11,165 |
|
10,562 |
|
5.7 |
|
|
32,874 |
|
31,267 |
|
5.1 |
| ||||
Gross margin |
|
4,889 |
|
4,664 |
|
4.8 |
|
|
14,655 |
|
14,242 |
|
2.9 |
| ||||
SG&A expenses(a) |
|
3,433 |
|
3,319 |
|
3.5 |
|
|
9,988 |
|
9,689 |
|
3.1 |
| ||||
EBITDA |
|
1,456 |
|
1,345 |
|
8.2 |
|
|
4,667 |
|
4,553 |
|
2.5 |
| ||||
Depreciation and amortization |
|
525 |
|
529 |
|
(0.8 |
) |
|
1,527 |
|
1,532 |
|
(0.3 |
) | ||||
EBIT |
|
$ |
931 |
|
$ |
816 |
|
14.1 |
% |
|
$ |
3,140 |
|
$ |
3,021 |
|
3.9 |
% |
EBITDA is earnings before interest expense, income taxes, depreciation and amortization.
EBIT is earnings before interest expense and income taxes.
(a) |
Loyalty Program discounts are recorded as reductions to sales in our U.S. Retail Segment. Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which our U.S. Credit Card Segment reimburses our U.S. Retail Segment to better align with the attributes of the new program. In the three and nine months ended October 29, 2011, these reimbursed amounts were $74 million and $189 million compared with $26 million and $60 million in the corresponding periods in 2010. In all periods these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment. |
See Note 12 to our consolidated financial statements for a reconciliation of our segment results to earnings before income taxes.
U.S. Retail Segment Rate Analysis |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||
|
|
October 29, |
|
October 30, |
|
|
October 29, |
|
October 30, |
|
|
|
2011 |
|
2010 |
|
|
2011 |
|
2010 |
|
Gross margin rate |
|
30.5% |
|
30.6% |
|
|
30.8% |
|
31.3% |
|
SG&A expense rate |
|
21.4% |
|
21.8% |
|
|
21.0% |
|
21.3% |
|
EBITDA margin rate |
|
9.1% |
|
8.8% |
|
|
9.8% |
|
10.0% |
|
Depreciation and amortization expense rate |
|
3.3% |
|
3.5% |
|
|
3.2% |
|
3.4% |
|
EBIT margin rate |
|
5.8% |
|
5.4% |
|
|
6.6% |
|
6.6% |
|
U.S. Retail Segment rate analysis metrics are computed by dividing the applicable amount by sales.
Sales
Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. See Item 1 in our Form 10-K for the fiscal year ended January 29, 2011 for a description of our product categories.
Sales by Product Category |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||
|
|
October 29, |
|
October 30, |
|
|
October 29, |
|
October 30, |
|
|
|
2011 |
|
2010 |
|
|
2011 |
|
2010 |
|
Household essentials |
|
26% |
|
26% |
|
|
26% |
|
26% |
|
Hardlines |
|
15% |
|
16% |
|
|
17% |
|
17% |
|
Apparel and accessories |
|
20% |
|
21% |
|
|
20% |
|
21% |
|
Home furnishings and décor |
|
19% |
|
19% |
|
|
18% |
|
19% |
|
Food and pet supplies |
|
20% |
|
18% |
|
|
19% |
|
17% |
|
Total |
|
100% |
|
100% |
|
|
100% |
|
100% |
|
Comparable-store sales is a measure that highlights the performance of our existing stores by measuring the growth in sales for such stores for a period over the comparable, prior-year period of equivalent length. The method of calculating comparable-store sales varies across the retail industry. As a result, our comparable-store sales calculation is not necessarily comparable to similarly titled measures reported by other companies.
Comparable-store sales are sales from stores open longer than one year and our online business, including:
· sales from stores that have been remodeled or expanded while remaining open (including our current store remodel program), and
· sales from stores that have been relocated to new buildings of the same format within the same trade area, in which the new store opens at about the same time as the old store closes.
Comparable-store sales do not include:
· sales from general merchandise stores that have been converted, or relocated within the same trade area, to a SuperTarget store format, or
· sales from stores that were intentionally closed to be remodeled, expanded or reconstructed.
Comparable-Store Sales |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||
|
|
October 29, |
|
October 30, |
|
|
October 29, |
|
October 30, |
|
|
|
2011 |
|
2010 |
|
|
2011 |
|
2010 |
|
Comparable-store sales change |
|
4.3% |
|
1.6% |
|
|
3.4% |
|
2.0% |
|
Drivers of change in comparable-store sales: |
|
|
|
|
|
|
|
|
|
|
Number of transactions |
|
0.3% |
|
2.1% |
|
|
0.4% |
|
2.3% |
|
Average transaction amount |
|
4.1% |
|
(0.5)% |
|
|
3.1% |
|
(0.2)% |
|
Units per transaction |
|
2.5% |
|
3.0% |
|
|
2.9% |
|
2.1% |
|
Selling price per unit |
|
1.6% |
|
(3.3)% |
|
|
0.2% |
|
(2.2)% |
|
The comparable-store sales increases or decreases above are calculated by comparing sales in fiscal year periods with comparable prior fiscal year periods of equivalent length.
The collective interaction of a broad array of macroeconomic, competitive and consumer behavioral factors, as well as sales mix, and transfer of sales to new stores makes further analysis of sales metrics infeasible.
Our U.S. Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards; the Target Visa Credit Card and the Target Credit Card (Target Credit Cards). Additionally, we offer a branded proprietary Target Debit Card. Collectively, we refer to these products as REDcards®. In October 2010, guests began to receive a 5 percent discount on virtually all purchases at checkout, every day, when they use a REDcard at any Target store or on Target.com.
We monitor the percentage of store sales that are paid for using REDcards (REDcard Penetration), because our internal analysis has indicated that a meaningful portion of the incremental purchases on our REDcards are also incremental sales for Target, with the remainder of the incremental purchases on the REDcards representing a shift in tender type.
REDcard Penetration |
|
Three Months Ended |
|
|
Nine Months Ended |
| ||||
|
|
October 29, |
|
October 30, |
|
|
October 29, |
|
October 30, |
|
|
|
2011 |
|
2010 |
|
|
2011 |
|
2010 |
|
Target Credit Cards |
|
6.9% |
|
4.9% |
|
|
6.5% |
|
4.7% |
|
Target Debit Card |
|
2.6% |
|
0.6% |
|
|
2.1% |
|
0.5% |
|
Total Store REDcard Penetration |
|
9.5% |
|
5.5% |
|
|
8.6% |
|
5.2% |
|
Gross Margin Rate
Gross margin rate represents gross margin (sales less cost of sales) as a percentage of sales. See Note 3 in our Form 10-K for the fiscal year ended January 29, 2011 for a description of costs included in cost of sales. Markup is the difference between an items cost and its retail price (expressed as a percentage of its retail price). Factors that affect markup include vendor offerings and negotiations, vendor income, sourcing strategies, market forces like raw material and freight costs, and competitive influences. Markdowns are the reduction in the original or previous price of retail merchandise. Factors that affect markdowns include inventory management, competitive influences and economic conditions.
For the three months ended October 29, 2011, our gross margin rate was 30.5 percent, decreasing from 30.6 percent in the comparable period last year, reflecting an adverse sales mix impact of 0.3 percentage points, partially offset by rate improvements within merchandise categories. These changes are largely the result of our integrated growth strategies of 5% REDcard Rewards and expanded food assortment, combined with unrelated rate improvements within merchandise categories.
For the nine months ended October 29, 2011, our gross margin rate was 30.8 percent, decreasing from 31.3 percent in the comparable period last year, reflecting an adverse sales mix impact of 0.4 percentage points and lower margin rates within merchandise categories. These changes are largely the result of the strategies and unrelated rate changes cited above.
Selling, General and Administrative Expense Rate
Our selling, general and administrative expense rate represents SG&A expenses as a percentage of sales. See Note 3 in our Form 10-K for the fiscal year ended January 29, 2011 for a description of costs included in SG&A expenses. SG&A expenses exclude depreciation and amortization, as well as expenses associated with our credit card operations, which are reflected separately in our Consolidated Statements of Operations.
For the three and nine months ended October 29, 2011, the SG&A expense rate was 21.4 percent and 21.0 percent, respectively, a decrease from 21.8 percent and 21.3 percent in the same periods last year. For the quarter and year-to-date periods, these improvements were primarily due to increased U.S. Credit Segment profit sharing (0.3 percentage points) and favorable leverage on store hourly payroll expense. No other areas were individually significant.
Depreciation and Amortization Expense Rate
Our depreciation and amortization expense rate represents depreciation and amortization expense as a percentage of sales. For the three and nine months ended October 29, 2011, our depreciation and amortization expense rate was 3.3 percent and 3.2 percent, respectively, compared with 3.5 percent and 3.4 percent last year. This decrease is due to sales growth outpacing increases in depreciation and amortization expense.
Store Data
During the three months ended October 29, 2011, we opened 6 new stores (5 net of one relocation). During the nine months ended October 29, 2011, we opened 21 new stores (17 net of 4 relocations). During the three months ended October 30, 2010, we opened 10 new stores (9 net of one relocation). During the nine months ended October 30, 2010, we opened 13 new stores (12 net of one relocation). During the first three quarters of 2011, we remodeled 394 stores under our current store remodel program, compared with 341 in the comparable prior year period.
Number of Stores and |
|
Number of Stores |
|
|
Retail Square Feet(a) |
| ||||||||
Retail Square Feet |
|
October 29, |
|
January 29, |
|
October 30, |
|
|
October 29, |
|
January 29, |
|
October 30, |
|
|
|
2011 |
|
2011 |
|
2010 |
|
|
2011 |
|
2011 |
|
2010 |
|
Target general merchandise stores |
|
640 |
|
1,037 |
|
1,039 |
|
|
77,349 |
|
127,292 |
|
127,531 |
|
Expanded food assortment |
|
875 |
|
462 |
|
462 |
|
|
114,218 |
|
61,823 |
|
61,823 |
|
SuperTarget stores |
|
252 |
|
251 |
|
251 |
|
|
44,681 |
|
44,503 |
|
44,503 |
|
Total |
|
1,767 |
|
1,750 |
|
1,752 |
|
|
236,248 |
|
233,618 |
|
233,857 |
|
(a) In thousands; reflects total square feet, less office, distribution center and vacant space.
U.S. Credit Card Segment
We offer credit to qualified guests through the Target Credit Cards. Our credit card program supports our core retail operations and remains an important contributor to our overall profitability and engagement with our guests. Beginning in October 2010, guests receive a 5 percent discount on virtually all purchases at checkout, every day, when they use a REDcard at any Target store or on Target.com.
Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant fees, or the amounts received from merchants who accept the Target Visa Credit Card.
In January 2011, we announced our plan to actively pursue the sale of our credit card receivables portfolio. We intend to execute a transaction only if appropriate strategic and financial conditions are met. We are currently negotiating a potential transaction. We will classify the credit card receivables portfolio as held for sale when a transaction that allows us to meet our strategic and economic objectives has been agreed upon with a potential buyer. It is possible that a sale agreement could be executed as early as the fourth quarter of 2011.
U.S. Credit Card Segment Results |
|
Three Months Ended |
|
Three Months Ended | |||||||||
|
|
October 29, 2011 |
|
October 30, 2010 | |||||||||
|
|
|
|
|
Annualized |
|
|
|
|
Annualized |
| ||
(millions) |
|
|
Amount |
|
Rate(d) |
|
|
Amount |
|
Rate(d) |
| ||
Finance charge revenue |
|
|
$ |
279 |
|
18.1 % |
|
|
$ |
315 |
|
18.4 % |
|
Late fees and other revenue |
|
|
47 |
|
3.1 |
|
|
38 |
|
2.2 |
| ||
Third party merchant fees |
|
|
22 |
|
1.4 |
|
|
26 |
|
1.5 |
| ||
Total revenue |
|
|
348 |
|
22.5 |
|
|
379 |
|
22.1 |
| ||
Bad debt expense |
|
|
40 |
|
2.6 |
|
|
110 |
|
6.4 |
| ||
Operations and marketing expenses(a) |
|
|
143 |
|
9.2 |
|
|
114 |
|
6.7 |
| ||
Depreciation and amortization |
|
|
4 |
|
0.3 |
|
|
5 |
|
0.3 |
| ||
Total expenses |
|
|
187 |
|
12.1 |
|
|
229 |
|
13.4 |
| ||
EBIT |
|
|
161 |
|
10.4 |
|
|
150 |
|
8.8 |
| ||
Interest expense on nonrecourse debt collateralized by credit card receivables |
|
|
18 |
|
|
|
|
20 |
|
|
| ||
Segment profit |
|
|
$ |
143 |
|
|
|
|
$ |
130 |
|
|
|
Average receivables funded by Target(b) |
|
|
$ |
2,427 |
|
|
|
|
$ |
2,811 |
|
|
|
Segment pretax ROIC(c) |
|
|
23.6% |
|
|
|
|
18.5% |
|
|
|
|
|
Nine Months Ended |
|
Nine Months Ended | |||||||||
|
|
October 29, 2011 |
|
October 30, 2010 | |||||||||
|
|
|
|
|
Annualized |
|
|
|
|
Annualized |
| ||
(millions) |
|
|
Amount |
|
Rate(d) |
|
|
Amount |
|
Rate(d) |
| ||
Finance charge revenue |
|
|
$ |
849 |
|
18.0 % |
|
|
$ |
989 |
|
18.4 % |
|
Late fees and other revenue |
|
|
133 |
|
2.8 |
|
|
152 |
|
2.8 |
| ||
Third party merchant fees |
|
|
66 |
|
1.4 |
|
|
79 |
|
1.5 |
| ||
Total revenue |
|
|
1,048 |
|
22.2 |
|
|
1,220 |
|
22.7 |
| ||
Bad debt expense |
|
|
67 |
|
1.4 |
|
|
445 |
|
8.3 |
| ||
Operations and marketing expenses(a) |
|
|
405 |
|
8.6 |
|
|
307 |
|
5.7 |
| ||
Depreciation and amortization |
|
|
13 |
|
0.3 |
|
|
14 |
|
0.3 |
| ||
Total expenses |
|
|
485 |
|
10.3 |
|
|
766 |
|
14.3 |
| ||
EBIT |
|
|
563 |
|
11.9 |
|
|
454 |
|
8.4 |
| ||
Interest expense on nonrecourse debt collateralized by credit card receivables |
|
|
55 |
|
|
|
|
64 |
|
|
| ||
Segment profit |
|
|
$ |
508 |
|
|
|
|
$ |
390 |
|
|
|
Average receivables funded by Target(b) |
|
|
$ |
2,443 |
|
|
|
|
$ |
2,705 |
|
|
|
Segment pretax ROIC(c) |
|
|
27.7% |
|
|
|
|
19.2% |
|
|
|
(a) |
|
Loyalty Program discounts are recorded as reductions to sales in our U.S. Retail Segment. Effective with the October 2010 nationwide launch of our new 5% REDcard Rewards loyalty program, we changed the formula under which our U.S. Credit Card Segment reimburses our U.S. Retail Segment to better align with the attributes of the new program. In the three and nine months ended October 29, 2011, these reimbursed amounts were $74 million and $189 million compared with $26 million and $60 million in the corresponding periods in 2010. In all periods these amounts were recorded as reductions to SG&A expenses within the U.S. Retail Segment and increases to operations and marketing expenses within the U.S. Credit Card Segment. |
(b) |
|
Amounts represent the portion of average gross credit card receivables funded by Target. These amounts exclude $3,754 million and $3,843 million for the three and nine months ended October 29, 2011, respectively, and $4,048 million and $4,461 million for the three and nine months ended October 30, 2010, respectively, of average receivables funded by nonrecourse debt collateralized by credit card receivables. |
(c) |
|
ROIC is return on invested capital, and this rate equals our segment profit divided by average gross credit card receivables funded by Target, expressed as an annualized rate. |
(d) |
|
As an annualized percentage of average gross credit card receivables. |
See Note 12 to our consolidated financial statements for a reconciliation of our segment results to earnings before income taxes.
Spread Analysis - Total Portfolio |
|
Three Months Ended |
|
Three Months Ended |
| ||||||
|
|
Amount |
|
Annualized |
|
Amount |
|
Annualized |
| ||
|
|
(in millions) |
|
Rate |
|
(in millions) |
|
Rate |
| ||
EBIT |
|
$ |
161 |
|
10.4% |
(c) |
$ |
150 |
|
8.8% |
(c) |
LIBOR(a) |
|
|
|
0.2% |
|
|
|
0.3% |
| ||
Spread to LIBOR(b) |
|
$ |
158 |
|
10.2% |
(c) |
$ |
146 |
|
8.5% |
(c) |
|
|
Nine Months Ended |
|
Nine Months Ended |
| ||||||
|
|
Amount |
|
Annualized |
|
Amount |
|
Annualized |
| ||
|
|
(in millions) |
|
Rate |
|
(in millions) |
|
Rate |
| ||
EBIT |
|
$ |
563 |
|
11.9% |
(c) |
$ |
454 |
|
8.4% |
(c) |
LIBOR(a) |
|
|
|
0.2% |
|
|
|
0.3% |
| ||
Spread to LIBOR(b) |
|
$ |
552 |
|
11.7% |
(c) |
$ |
439 |
|
8.1% |
(c) |
(a) |
|
Balance-weighted one-month LIBOR. |
(b) |
|
Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the vast majority of our portfolio earned finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR. |
(c) |
|
As a percentage of average gross credit card receivables. |
Our primary measure of segment profit in our U.S. Credit Card Segment is the EBIT generated by our total credit card receivables portfolio less the interest expense on nonrecourse debt collateralized by credit card receivables. We analyze this measure of profit in light of the amount of capital we have invested in our credit card receivables. In addition, we measure the performance of our overall credit card receivables portfolio by calculating the dollar Spread to LIBOR at the portfolio level. This metric approximates overall financial performance of the entire credit card portfolio we manage by measuring the difference between EBIT earned on the portfolio and a hypothetical benchmark rate financing cost applied to the entire portfolio. The interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR.
U.S. Credit Card Segment profit for the three and nine months ended October 29, 2011 increased to $143 million and $508 million, respectively, from $130 million and $390 million for the three and nine months ended October 30, 2010, driven by a decline in bad debt expense, partially offset by lower total revenues. Segment revenues for the three months ended October 29, 2011 were $348 million, a decrease of $31 million, or 8.2 percent, from the same period in the prior year. For the nine months ended October 29, 2011, segment revenues were $1,048 million, a decrease of $172 million, or 14.1 percent, from the same period in the prior year. The decreases were primarily driven by lower average receivables resulting in reduced finance charge revenue. Segment expenses were $187 million and $485 million for the three and nine months ended October 29, 2011, a decrease of $42 million and $281 million, or 18.2 percent and 36.6 percent, respectively, from the comparable prior year periods driven by lower bad debt expense due to improved trends in key measures of risk. Interest expense on nonrecourse debt for the three and nine months ended October 29, 2011 declined by $2 million and $9 million, respectively, from last year, due to a decrease in nonrecourse debt securitized by credit card receivables.
Receivables Rollforward Analysis |
|
Three Months Ended |
|
Nine Months Ended | |||||||||||||
|
|
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
| ||||
(millions) |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
| ||||
Beginning gross credit card receivables |
|
|
$ |
6,202 |
|
|
$ |
6,988 |
|
|
$ |
6,843 |
|
|
$ |
7,982 |
|
Charges at Target |
|
|
1,205 |
|
|
811 |
|
|
3,348 |
|
|
2,295 |
| ||||
Charges at third parties |
|
|
1,283 |
|
|
1,409 |
|
|
3,886 |
|
|
4,357 |
| ||||
Payments |
|
|
(2,784 |
) |
|
(2,643 |
) |
|
(8,577 |
) |
|
(8,350 |
) | ||||
Other |
|
|
238 |
|
|
165 |
|
|
644 |
|
|
446 |
| ||||
Period-end gross credit card receivables |
|
|
$ |
6,144 |
|
|
$ |
6,730 |
|
|
$ |
6,144 |
|
|
$ |
6,730 |
|
Average gross credit card receivables |
|
|
$ |
6,181 |
|
|
$ |
6,859 |
|
|
$ |
6,287 |
|
|
$ |
7,166 |
|
Accounts with three or more payments (60+ days) past due as a percentage of period-end gross credit card receivables |
|
|
3.3 |
% |
|
4.9 |
% |
|
3.3 |
% |
|
4.9 |
% | ||||
Accounts with four or more payments (90+ days) past due as a percentage of period-end gross credit card receivables |
|
|
2.2 |
% |
|
3.5 |
% |
|
2.2 |
% |
|
3.5 |
% |
Allowance for Doubtful Accounts |
|
Three Months Ended |
|
Nine Months Ended | |||||||||||||
|
|
|
October 29, |
|
|
October 30, |
|
|
October 29, |
|
|
October 30, |
| ||||
(millions) |
|
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
| ||||
Allowance at beginning of period |
|
|
$ |
480 |
|
|
$ |
851 |
|
|
$ |
690 |
|
|
$ |
1,016 |
|
Bad debt expense |
|
|
40 |
|
|
110 |
|
|
67 |
|
|
445 |
| ||||
Write-offs(a) |
|
|
(122 |
) |
|
(226 |
) |
|
(448 |
) |
|
(799 |
) | ||||
Recoveries(a) |
|
|
33 |
|
|
40 |
|
|
122 |
|
|
113 |
| ||||
Allowance at end of period |
|
|
$ |
431 |
|
|
$ |
775 |
|
|
$ |
431 |
|
|
$ |
775 |
|
As a percentage of period-end gross credit card receivables |
|
|
7.0 |
% |
|
11.5 |
% |
|
7.0 |
% |
|
11.5 |
% | ||||
Net write-offs as a percentage of average gross credit card receivables (annualized) |
|
|
5.7 |
% |
|
10.9 |
% |
|
6.9 |
% |
|
12.8 |
% |
(a) Write-offs include the principal amount of losses (excluding accrued and unpaid finance charges), and recoveries include current period principal collections on previously written-off balances. These amounts combined represent net write-offs.
Our period-end gross credit card receivables at October 29, 2011 were $6,144 million compared with $6,730 million at October 30, 2010, a decrease of 8.7 percent. Average gross credit card receivables for the three and nine months ended October 29, 2011 decreased 9.9 percent and 12.3 percent, respectively, compared with the same period last year. In response to regulatory changes and credit card industry trends, we have undertaken risk management and underwriting initiatives that have reduced available credit lines for higher-risk cardholders. Additionally, we have experienced an increase in payment rates and a decrease in Target Visa Credit Card charge activity at third parties, partially offset by an increase in charges at Target.
Canadian Segment
During the three and nine months ended October 29, 2011, start-up costs totaled $18 million and $53 million, respectively, and primarily consisted of compensation, benefits and consulting expenses. These expenses are reported in SG&A expense within the consolidated statement of operations. Additionally, we recorded $17 million and $28 million in depreciation for the three and nine months ended October 29, 2011, respectively, related to capital lease assets and leasehold interests acquired in our Zellers asset purchase.
We have begun to invest capital to establish a Canadian headquarters, prepare for site renovation, establish supply chain capabilities and build supporting infrastructure. During the nine months ended October 29, 2011, we have recorded
approximately $140 million of property and equipment, primarily in construction-in-progress and land, related to these activities.
Other Performance Factors
Net Interest Expense
Net interest expense for the three and nine months ended October 29, 2011 was $200 million and $574 million, respectively, including $15 million and $25 million of interest on capitalized leases related to our Canadian market entry. For the three and nine months ended October 30, 2010, net interest expense was $194 million and $567 million.
Provision for Income Taxes
Our effective income tax rate for the three and nine months ended October 29, 2011 was 35.3 percent and 36.1 percent, respectively, up from 30.8 percent and 35.2 percent for the three and nine months ended October 30, 2010. These increases are primarily due to the favorable resolution of various state income tax matters in the comparable 2010 period.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
Our segment measure of profit is used by management to evaluate the return we are achieving on our investment and to make operating decisions. To provide additional transparency we have disclosed non-GAAP adjusted diluted earnings per share, which incorporates the diluted EPS impact of our 2013 Canadian market entry and favorable resolution of various state income tax matters. We believe this information is useful in providing period-to-period comparisons of the results of our U.S. operations.
|
|
Three Months Ended October 29, 2011 |
| ||||||||||||||||||||||||
(millions, except per share data) |
|
U.S. |
|
U.S. |
|
Total |
|
Canada |
|
Other |
|
Consolidated |
| ||||||||||||||
Segment profit |
|
$ |
931 |
|
$ |
143 |
|
$ |
1,074 |
|
$ |
(35 |
) |
$ |
|
|
$ |
1,039 |
| ||||||||
Other interest expense(a) |
|
|
|
|
|
167 |
|
15 |
|
|
|
182 |
| ||||||||||||||
Earnings before income taxes |
|
|
|
|
|
907 |
|
(50 |
) |
|
|
857 |
| ||||||||||||||
Provision for income taxes(b) |
|
|
|
|
|
317 |
|
(15 |
) |
|
|
302 |
| ||||||||||||||
Net earnings |
|
|
|
|
|
$ |
590 |
|
$ |
(35 |
) |
$ |
|
|
$ |
555 |
| ||||||||||
Diluted earnings per share(d) |
|
|
|
|
|
$ |
0.87 |
|
$ |
(0.05 |
) |
$ |
|
|
$ |
0.82 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
Three Months Ended October 30, 2010 | |||||||||||||||||||||||||
(millions, except per share data) |
|
U.S. |
|
U.S. |
|
Total |
|
Canada |
|
Other |
|
Consolidated |
| ||||||||||||||
Segment profit |
|
$ |
816 |
|
$ |
130 |
|
$ |
947 |
|
$ |
|
|
$ |
|
|
$ |
947 |
| ||||||||
Other interest expense(a) |
|
|
|
|
|
174 |
|
|
|
|
|
174 |
| ||||||||||||||
Earnings before income taxes |
|
|
|
|
|
773 |
|
|
|
|
|
773 |
| ||||||||||||||
Provision for income taxes(b) |
|
|
|
|
|
283 |
|
|
|
(45 |
) (c) |
238 |
| ||||||||||||||
Net earnings |
|
|
|
|
|
$ |
490 |
|
$ |
|
|
$ |
45 |
|
$ |
535 |
| ||||||||||
Diluted earnings per share(d) |
|
|
|
|
|
$ |
0.68 |
|
$ |
|
|
$ |
0.06 |
|
$ |
0.74 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
Nine Months Ended October 29, 2011 | ||||||||||||||||||||||||||
(millions, except per share data) |
|
U.S. |
|
U.S. |
|
Total |
|
Canada |
|
Other |
|
Consolidated |
| ||||||||||||||
Segment profit |
|
$ |
3,140 |
|
$ |
508 |
|
$ |
3,648 |
|
$ |
(81 |
) |
$ |
|
|
$ |
3,567 |
| ||||||||
Other interest expense(a) |
|
|
|
|
|
494 |
|
25 |
|
|
|
519 |
| ||||||||||||||
Earnings before income taxes |
|
|
|
|
|
3,154 |
|
(106 |
) |
|
|
3,048 |
| ||||||||||||||
Provision for income taxes(b) |
|
|
|
|
|
1,130 |
|
(30 |
) |
|
|
1,100 |
| ||||||||||||||
Net earnings |
|
|
|
|
|
$ |
2,024 |
|
$ |
(76 |
) |
$ |
|
|
$ |
1,948 |
| ||||||||||
Diluted earnings per share(d) |
|
|
|
|
|
$ |
2.95 |
|
$ |
(0.11 |
) |
$ |
|
|
$ |
2.84 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
Nine Months Ended October 30, 2010 | ||||||||||||||||||||||||||
(millions, except per share data) |
|
U.S. |
|
U.S. |
|
Total |
|
Canada |
|
Other |
|
Consolidated |
| ||||||||||||||
Segment profit |
|
$ |
3,021 |
|
$ |
390 |
|
$ |
3,411 |
|
$ |
|
|
$ |
|
|
$ |
3,411 |
| ||||||||
Other interest expense(a) |
|
|
|
|
|
503 |
|
|
|
|
|
503 |
| ||||||||||||||
Earnings before income taxes |
|
|
|
|
|
2,908 |
|
|
|
|
|
2,908 |
| ||||||||||||||
Provision for income taxes(b) |
|
|
|
|
|
1,068 |
|
|
|
(45 |
) (c) |
1,023 |
| ||||||||||||||
Net earnings |
|
|
|
|
|
$ |
1,840 |
|
$ |
|
|
$ |
45 |
|
$ |
1,885 |
| ||||||||||
Diluted earnings per share(d) |
|
|
|
|
|
$ |
2.51 |
|
$ |
|
|
$ |
0.06 |
|
$ |
2.57 |
| ||||||||||
(a) Represents interest expense not included in U.S. Credit Card segment profit. For the three and nine months ended October 29, 2011, U.S. Credit Card segment profit included $18 million and $55 million of interest expense on nonrecourse debt collateralized by credit card receivables, respectively, compared with $20 million and $64 million in the respective prior year periods. These amounts, along with other interest expense, equal consolidated GAAP interest expense.
(b) In 2011, taxes are allocated to our business segments based on estimated effective income tax rates for the period.
(c) Represents reductions to income tax expense due to favorable resolution of state income tax matters that in the aggregate were significant during the three and nine months ended October 30, 2010.
(d) For the three and nine months ended October 29, 2011, average diluted shares outstanding were 678.3 million and 686.9 million, respectively, and for the three and nine months ended October 30, 2010, average diluted shares outstanding were 721.0 million and 734.4 million, respectively.
Analysis of Financial Condition
Liquidity and Capital Resources
Our period-end cash and cash equivalents balance was $821 million compared with $936 million for the same period in 2010. Marketable securities of $66 million and $349 million were included in cash and cash equivalents at the end of third quarter 2011 and 2010, respectively. Our investment policy is designed to preserve principal and liquidity of our marketable securities. This policy allows investments in large money market funds or in highly rated direct short-term instruments that mature in 60 days or less. We also place certain limitations on the aggregate dollars invested and percentage of total fund value held when making short-term investment decisions.
Operations during the first nine months of 2011 were funded by both internally and externally generated funds. Cash flow provided by operations was $2,975 million for the nine months ended October 29, 2011 compared with $2,852 million for the same period in 2010. During 2011, Target issued $1 billion of unsecured debt that matures in July 2014 and issued commercial paper, of which, $1,211 million was outstanding as of October 29, 2011. This cash flow, combined with our prior year-end cash position, allowed us to fund seasonal increases in inventory and capital expenditures, pay dividends and continue purchases under our share repurchase program.
Our period-end gross credit card receivables were $6,144 million at October 29, 2011 compared with $6,730 million at October 30, 2010, a decrease of 8.7 percent. Average gross credit card receivables during the nine months ended October 29, 2011 decreased 12.3 percent compared with the nine months ended October 30, 2010. This change was driven by the factors indicated in the U.S. Credit Card Segment above. Due to declines in gross credit card receivables, TR LLC repaid JPMC $226 million and $530 million during the first nine months of 2011 and 2010, respectively. To the extent the receivables balance continues to decline, TR LLC expects to continue to pay JPMC a pro rata portion of principal collections such that the portion owned by JPMC would not exceed 47 percent.
Third quarter period-end inventory levels increased $340 million, or 3.6 percent from the same period in 2010. Inventory levels were higher to support traffic-driving strategic initiatives, such as our expanded food assortment and pharmacy offerings, in addition to comparatively higher retail square footage. Accounts payable increased by $292 million, or 3.8 percent over the same period.
During the three and nine months ended October 29, 2011, we repurchased 4.5 million shares and 34.1 million shares, respectively, of our common stock for $226 million ($50.45 per share) and $1,733 million ($50.76 per share), respectively, under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007. During the three and nine months ended October 30, 2010, we repurchased 15.2 million and 40.2 million shares, respectively, of our common stock for $793 million ($52.29 per share) and $2,093 million ($52.04 per share), respectively.
We paid dividends totaling $203 million and $549 million for the three and nine months ended October 29, 2011, and $181 million and $432 million during the three and nine months ended October 30, 2010, an increase of 12.2 percent and 27.1 percent, respectively. We declared dividends totaling $201 million ($0.30 per share) in third quarter 2011, an increase of 13.6 percent over the $177 million ($0.25 per share) of declared dividends during the third quarter of 2010. We have paid dividends every quarter since our first dividend was declared following our 1967 initial public offering, and it is our intent to continue to do so in the future.
Our financing strategy is to ensure liquidity and access to capital markets, to manage our net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities. Within these parameters, we seek to minimize our borrowing costs.
Our ability to access the long-term debt, commercial paper and securitized debt markets has provided ample sources of liquidity to Target. Our continued access to these markets depends on multiple factors including the condition of debt capital markets, our operating performance and maintaining strong debt ratings. The ratings assigned to our debt by the credit rating agencies affect both the pricing and terms of any new financing. As of October 29, 2011 our credit ratings were as follows:
Credit Ratings |
|
Moodys |
|
Standard and Poors |
|
Fitch |
|
Long-term debt |
|
A2 |
|
A+ |
|
A- |
|
Commercial paper |
|
P-1 |
|
A-1 |
|
F2 |
|
Securitized receivables(a) |
|
Aa2 |
|
n/a |
|
n/a |
|
(a) These rated securitized receivables exclude the interest in our credit card receivables sold to JPMC.
If our credit ratings were lowered, our ability to access the debt markets and our cost of funds for new debt issuances could be adversely impacted. Each of the credit rating agencies reviews its rating periodically and there is no guarantee our current credit rating will remain the same as described above.
As a measure of our financial condition we monitor our interest coverage ratio, representing the ratio of pretax earnings before fixed charges to fixed charges. Fixed charges include interest expense and the interest portion of rent expense. Our interest coverage ratio was 5.5x for the first nine months of 2011, and 5.4x for the first nine months of 2010.
We have liquidity available to us through a committed $2.25 billion unsecured revolving credit facility obtained through a group of banks in October 2011, which will expire in October 2016. This new unsecured revolving credit facility replaced a previously held $2 billion unsecured revolving credit facility that was scheduled to expire in April 2012. No balances were outstanding at any time during the first three quarters of 2011 or 2010 under either facility.
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, at October 29, 2011, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control; and (ii) our long-term debt ratings are either reduced and the resulting rating is non-investment grade, or our long-term debt ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade.
We believe our sources of liquidity will continue to be adequate to maintain operations and to finance anticipated expansion and strategic initiatives throughout 2011. We also continue to anticipate ample access to long-term financing. Further, in January 2011, we announced our plan to actively pursue the sale of our credit card receivables portfolio, which may provide additional funding. As of October 29, 2011 the gross balance of our credit card receivables portfolio was $6,144 million, of which $3,759 million was funded by third parties and $2,385 million was funded by Target.
We completed our real estate transaction with Zellers and became the lessee for 135 sites, of which we expect to open 125 to 135 Target locations. In turn, Zellers has agreed to leaseback selected sites where the monthly lease payments on these leases and Zellers subleases are equal. At our option, Zellers is required to vacate the properties between January 31, 2012 and March 31, 2013, generally following a 9-month notice period. This transaction resulted in a final net purchase price of $1,636 million. We plan to invest between $2 billion to $3 billion in Canada over the next three years to renovate acquired sites that we intend to convert into Target stores, establish supply chain capabilities, build information-technology infrastructure, and acquire and develop other sites unrelated to the Zellers transaction. The amount we ultimately invest will be largely dependent on the number of Target stores we elect to operate in Canada.
During the nine months ended October 29, 2011 the value of $1.00 ranged from C$0.94 to C$1.05 and averaged C$0.98. On October 29, 2011, $1.00 was equivalent to C$0.99.
Contractual Obligations and Commitments
A summary of future obligations under our various contractual obligations and commitments as of January 29, 2011 was disclosed in our 2010 10-K. As a result of our acquisition of leasehold interests in 135 sites from Zellers, we have additional future minimum capital lease payments of $1.3 billion. During the three months ended October 29, 2011, there were no other material changes outside the ordinary course of business. However, we continually evaluate opportunities to expand our operations, including internal development of new products, programs and technology applications and acquisitions.
New Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends the current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This guidance will be effective beginning in fiscal 2012. We do not expect the adoption to have a material impact on our consolidated net earnings, cash flows or financial position.
In June 2011, the FASB issued Accounting Standards Update 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which revises the current practice of including other comprehensive income within the equity
section of the statement of financial position and requires disclosure of other comprehensive income either in a single continuous statement of comprehensive income or in a separate statement. This guidance will be effective beginning in fiscal 2012. We do not expect the adoption to have an impact on our consolidated net earnings, cash flows or financial position, but the adoption will change the current presentation of other comprehensive income in our financial statements.
Outlook
We expect to achieve consolidated diluted earnings per share (EPS) of $1.43 to $1.53 in the fourth quarter 2011. This earnings outlook does not include any reduction in tax expense from the favorable resolution of various state income tax matters, currently estimated at approximately $50 million, or any impact of a potential credit card asset sale and potential early extinguishment of non-recourse debt collateralized by credit card receivables.
In the U.S. Retail Segment we generally expect recent trends and performance drivers to continue in the fourth quarter. We expect a fourth quarter comparable-store sales increase of 4 percent or slightly less. We expect the fourth quarter retail EBIT margin rate to be similar to last years fourth quarter, reflecting continued gross margin rate pressure offset by rate favorability on the SG&A and depreciation and amortization expense lines. In our U.S. Credit Card Segment, we expect continued strong performance in the fourth quarter. However, as we begin to compare against prior year periods in which our results benefited from credit card receivable allowance reductions, we are unlikely to continue to report increases in segment profit. We expect our direct costs (segment EBIT, interest expense on capital leases and related tax effects) associated with entry into Canada will result in a $0.07 to $0.09 unfavorable impact on fourth quarter 2011 EPS.
We expect 2011 capital expenditures related to our U.S. retail operations to be in the range of $2.6 billion to $2.7 billion, driven primarily by our store remodel program.
We expect to continue to execute against our share repurchase plan, and may repurchase up to $300 million during the fourth quarter of 2011. The timing and amount of share repurchase activity, if any, will be dependent on market conditions, the amount of future net earnings and cash flows.
Forward-Looking Statements
This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words expect, may, could, believe, would, might, anticipates, or words of similar import. The principal forward-looking statements in this report include: For our U.S. Retail Segment, our outlook for sales, comparable-store sales trends, including the impact of our store remodel and 5% REDcard Rewards programs, gross margin rates, and selling, general and administrative expense rates; for our U.S. Credit Card Segment, aggregate portfolio risks and the level of, the allowance for doubtful accounts, and the pursuit and timing of a portfolio sale; for our Canadian Segment, our performance, timing and amount of future capital investments in Canada, and expected future earnings per share impact of our direct costs associated with entry into Canada; on a consolidated basis, statements regarding anticipated earnings per share, the adequacy of and costs associated with our sources of liquidity, the continued execution of our share repurchase program, our expected capital expenditures, the expected compliance with debt covenants, the expected impact of new accounting pronouncements, our intentions regarding future dividends, contributions related to our pension and postretirement health care plans, the impact of future changes in foreign currency, the effects of macroeconomic conditions, the adequacy of our reserves for general liability, workers compensation, property loss, the expected outcome of claims and litigation, and the resolution of tax matters.
All such forward-looking statements are intended to enjoy the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors in Item 1A our Form 10-K for the fiscal year ended January 29, 2011, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
In addition to the GAAP results provided in this release, the company provides non-GAAP adjusted diluted earnings per share (non-GAAP adjusted EPS) for the three and nine months ended October 29, 2011 and October 30, 2010. This measure is not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The most comparable GAAP measure is diluted earnings per share. Management believes non-GAAP adjusted EPS is useful in providing period-to-period comparisons of the results of our U.S. operations. Non-GAAP adjusted EPS should not be considered in isolation or as a substitution for analysis of the companys results as reported under GAAP. Other companies may calculate non-GAAP adjusted EPS differently than the company does, limiting the usefulness of the measure for comparative purposes.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Form 10-K for the fiscal year ended January 29, 2011.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the Securities and Exchange Commission (SEC) under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Control Over Financial Reporting
We have expanded our implementation of enterprise resource planning (ERP) software from SAP AG. This expansion included introducing accounts payable, accounts receivable and treasury modules as well as enhancing financial reporting functionality to the system that was initially implemented during first quarter 2010. We evaluated the design of the internal control over financial reporting and will test these controls during the fourth quarter of 2011. There were no other changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a description of legal proceedings, see Note 6 of the Notes to Consolidated Financial Statements included in Item 1, Financial Statements.
There have been no material changes to the risk factors described in our annual report on Form 10-K for the fiscal year ended January 29, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases of Target common stock made during the three months ended October 29, 2011, by the Corporation or any affiliated purchaser of the Corporation, as defined in Rule 10b-18(a)(3) under the Exchange Act.
Since the inception of our share repurchase program, which began in the fourth quarter of 2007, we have repurchased 185.5 million common shares of our common stock, for a total cash investment of $9,560 million ($51.53 average price per share).
|
|
|
|
|
|
|
|
Approximate |
| ||
|
|
Total |
|
|
|
Total Number |
|
Dollar Value of |
| ||
|
|
Number |
|
Average |
|
of Shares Purchased |
|
Shares that May |
| ||
|
|
of Shares |
|
Price Paid |
|
as Part of Publicly |
|
Yet Be Purchased |
| ||
Period |
|
Purchased |
(a) |
per Share |
(a) |
Announced Program |
(a) |
Under the Program |
| ||
July 31, 2011 through August 27, 2011 |
|
|
|
$ |
|
|
181,056,712 |
|
$ |
665,342,246 |
|
August 28, 2011 through October 1, 2011 |
|
4,077,147 |
|
50.34 |
|
185,133,859 |
|
460,087,985 |
| ||
October 2, 2011 through October 29, 2011 |
|
396,884 |
|
51.51 |
|
185,530,743 |
|
439,644,565 |
| ||
|
|
4,474,031 |
|
$ |
50.45 |
|
185,530,743 |
|
$ |
439,644,565 |
|
(a) The table above includes shares reacquired upon settlement of prepaid forward contracts. For the three months ended October 29, 2011, 0.5 million shares were reacquired through these contracts. At October 29, 2011, we held asset positions in prepaid forward contracts for 1.3 million shares of our common stock, for a total cash investment of $55 million, or $43.78 per share.
Item 3. Defaults Upon Senior Securities
Not applicable.
Not applicable.
(2)A |
|
Amended and Restated Transaction Agreement dated September 12, 2011 among Zellers Inc., Hudsons Bay Company, Target Corporation and Target Canada Co. |
|
|
|
(3)A |
|
Amended and Restated Articles of Incorporation (as amended June 10, 2010)(1) |
|
|
|
(3)B |
|
By-laws (as amended through September 10, 2009)(2) |
|
|
|
(10)O |
|
Five-Year Credit Agreement dated as of October 14, 2011 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein |
|
|
|
(12) |
|
Statements of Computations of Ratios of Earnings to Fixed Charges |
|
|
|
(31)A |
|
Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(31)B |
|
Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(32)A |
|
Certification of the Chief Executive Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
(32)B |
|
Certification of the Chief Financial Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase |
Excludes the Disclosure Letter and Schedule A referred to in the agreement, which Target Corporation agrees to furnish supplementally to the Securities and Exchange Commission upon request.
(1) Incorporated by reference to Exhibit (3)A to the Registrants Form 8-K Report filed June 10, 2010
(2) Incorporated by reference to Exhibit (3)B to the Registrants Form 8-K Report filed September 10, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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TARGET CORPORATION |
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Dated: November 23, 2011 |
By: |
/s/ Douglas A. Scovanner | |
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Douglas A. Scovanner | |
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Executive Vice President, | |
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Chief Financial Officer | |
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and Chief Accounting Officer | |
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(Duly Authorized Officer and | |
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Principal Financial Officer) | |
Exhibit |
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Description |
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Manner of Filing |
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(2)A |
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Amended and Restated Transaction Agreement dated September 12, 2011 among Zellers Inc, Hudsons Bay Company, Target Corporation and Target Canada Co. |
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Filed Electronically |
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(3)A |
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Amended and Restated Articles of Incorporation (as amended June 10, 2010) |
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Incorporated by Reference |
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(3)B |
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By-Laws (as amended through September 10, 2009) |
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Incorporated by Reference |
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(10)O |
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Five-Year Credit Agreement dated as of October 14, 2011 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein |
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Filed Electronically |
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(12) |
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Statements of Computations of Ratios of Earnings to Fixed Charges |
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Filed Electronically |
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(31)A |
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Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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(31)B |
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Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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(32)A |
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Certification of the Chief Executive Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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(32)B |
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Certification of the Chief Financial Officer As Adopted Pursuant to 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Filed Electronically |
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101.INS |
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XBRL Instance Document |
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Filed Electronically |
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101.SCH |
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XBRL Taxonomy Extension Schema |
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Filed Electronically |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase |
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Filed Electronically |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase |
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Filed Electronically |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase |
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Filed Electronically |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase |
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Filed Electronically |
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Exhibit (2)A
EXECUTION VERSION
ZELLERS INC.,
HUDSONS BAY COMPANY,
TARGET CORPORATION,
and
TARGET CANADA CO.
AMENDED AND RESTATED
TRANSACTION AGREEMENT
September 12, 2011
TABLE OF CONTENTS
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Page |
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ARTICLE 1 INTERPRETATION |
1 | |
Section 1.1 |
Defined Terms |
1 |
Section 1.2 |
Gender and Number |
9 |
Section 1.3 |
Headings, etc. |
9 |
Section 1.4 |
Currency |
9 |
Section 1.5 |
Certain Phrases, etc. |
9 |
Section 1.6 |
Knowledge |
10 |
Section 1.7 |
Disclosure Letter |
10 |
Section 1.8 |
References to Persons and Agreements |
11 |
Section 1.9 |
Statutes |
11 |
Section 1.10 |
Non-Business Days |
11 |
Section 1.11 |
Time Periods |
11 |
Section 1.12 |
Designation of Target Canada |
11 |
Section 1.13 |
Leasehold Interests |
11 |
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ARTICLE 2 AGREEMENT OF PURCHASE AND SALE |
12 | |
Section 2.1 |
First Tranche Subject Leased Properties |
12 |
Section 2.2 |
Second Tranche Subject Leased Properties |
13 |
Section 2.3 |
Right to Terminate Leases |
14 |
Section 2.4 |
Vacancy Date |
14 |
Section 2.5 |
Ordinary Course Operations |
14 |
Section 2.6 |
Pharmacy Records |
15 |
Section 2.7 |
Target Canada Assignment of Rights |
16 |
Section 2.8 |
Access and Additional Information Relating to Leased Properties |
18 |
Section 2.9 |
Winnipeg Lease Option |
20 |
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ARTICLE 3 PURCHASE PRICE |
20 | |
Section 3.1 |
Purchase Price |
20 |
Section 3.2 |
Payment of the Purchase Price |
20 |
Section 3.3 |
Adjustments |
21 |
Section 3.4 |
Sales and Transfer Taxes |
23 |
Section 3.5 |
Goods and Services Tax and Harmonized Sales Tax |
23 |
Section 3.6 |
Self-Assessment of GST and HST on Real Property |
23 |
Section 3.7 |
Tax Refunds |
23 |
Section 3.8 |
Note Purchase Facility |
24 |
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ARTICLE 4 ASSUMED LIABILITIES |
26 | |
Section 4.1 |
Assumed Liabilities |
26 |
Section 4.2 |
Excluded Liabilities |
26 |
Section 4.3 |
As Is, Where Is |
27 |
TABLE OF CONTENTS
(continued)
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Page |
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ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF ZELLERS |
28 | |
Section 5.1 |
Representations and Warranties of Zellers |
28 |
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ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF TARGET CANADA AND TARGET |
32 | |
Section 6.1 |
Representations and Warranties of Target Canada and Target |
32 |
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ARTICLE 7 COVENANTS OF THE PARTIES |
34 | |
Section 7.1 |
Actions to Satisfy Closing Conditions |
34 |
Section 7.2 |
Request for Consents |
34 |
Section 7.3 |
Filings and Authorizations |
35 |
Section 7.4 |
Risk of Loss |
36 |
Section 7.5 |
Confidentiality |
37 |
Section 7.6 |
Lease Amendments, Renewals and Notices |
37 |
Section 7.7 |
Zellers Entity Cooperation |
38 |
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ARTICLE 8 CONDITIONS OF CLOSING |
41 | |
Section 8.1 |
Conditions for the Benefit of Target and Target Canada |
41 |
Section 8.2 |
Conditions for the Benefit of Zellers |
43 |
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ARTICLE 9 CLOSING |
43 | |
Section 9.1 |
Date, Time and Place of Closing |
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Section 9.2 |
Zellers Closing Deliveries |
44 |
Section 9.3 |
Target Canadas Closing Deliveries |
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Section 9.4 |
Closing Procedures |
46 |
Section 9.5 |
Closing Direction and Acknowledgement |
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ARTICLE 10 TERMINATION |
46 | |
Section 10.1 |
Termination Rights |
46 |
Section 10.2 |
Effect of Termination |
47 |
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ARTICLE 11 INDEMNIFICATION |
47 | |
Section 11.1 |
Liability for Representations and Warranties |
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Section 11.2 |
Indemnification in Favour of Target and Target Canada |
48 |
Section 11.3 |
Indemnification in Favour of Zellers |
48 |
Section 11.4 |
Bulk Sales and Retail Sales Tax Waiver |
49 |
Section 11.5 |
Limitations |
49 |
Section 11.6 |
Notification |
50 |
Section 11.7 |
Limitation Periods |
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Section 11.8 |
Procedure for Direct Claims |
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Section 11.9 |
Procedure for Third Party Claims |
51 |
Section 11.10 |
Remedies |
52 |
Section 11.11 |
One Recovery |
53 |
Section 11.12 |
Duty to Mitigate |
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Section 11.13 |
Adjustment to Purchase Price |
53 |
TABLE OF CONTENTS
(continued)
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Page |
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ARTICLE 12 OTHER COVENANTS |
54 | |
Section 12.1 |
Guarantee by HBC |
54 |
Section 12.2 |
Target Guarantee |
55 |
Section 12.3 |
Further Assurances |
55 |
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ARTICLE 13 MISCELLANEOUS |
56 | |
Section 13.1 |
Notices |
56 |
Section 13.2 |
Time of the Essence |
57 |
Section 13.3 |
Brokers |
57 |
Section 13.4 |
Announcements |
58 |
Section 13.5 |
Third Party Beneficiaries |
58 |
Section 13.6 |
Expenses |
58 |
Section 13.7 |
Amendments |
58 |
Section 13.8 |
Waiver |
58 |
Section 13.9 |
Non-Merger |
59 |
Section 13.10 |
Subdivision Laws |
59 |
Section 13.11 |
Entire Agreement |
59 |
Section 13.12 |
Successors and Assigns |
60 |
Section 13.13 |
Severability |
60 |
Section 13.14 |
Governing Law |
60 |
Section 13.15 |
Counterparts |
60 |
Section 13.16 |
Effect of Amendment and Restatement |
60 |
TRANSACTION AGREEMENT
Amended and Restated Transaction Agreement dated September 12, 2011 between Zellers Inc. (Zellers), Hudsons Bay Company (HBC), Target Corporation (Target), and Target Canada Co.
RECITALS:
A. Zellers operates a chain of retail department stores throughout Canada under the Zellers banner.
B. Target operates a chain of retail department stores throughout the United States.
C. Zellers wishes to assign certain of the leasehold interests that it currently uses in its operations subject to subleases back to it so as to allow it to continue to operate its business on such leased premises for varying periods of time.
D. Target wishes to obtain an assignment of the aforesaid leasehold interests from Zellers to use for itself or to allow it to assign certain of such leasehold interests to other parties on terms that it may negotiate, subject in each case to the aforesaid subleases to Zellers.
E. Zellers, HBC, Target, and Target Canada are parties to a transaction agreement dated January 12, 2011 (the Original Transaction Agreement) that, among other things, provides for the assignment by Zellers of certain leasehold interests to Target pursuant to the terms of the Original Transaction Agreement.
F. Zellers, HBC, Target, and Target Canada are parties to an amending agreement dated February 17, 2011 to the Original Transaction Agreement (the Amending Agreement) that amended certain terms concerning the payment of the Purchase Price.
G. The First Tranche Purchase Price has been paid by Target Canada pursuant to the Original Transaction Agreement and the other transactions contemplated by the Original Transaction Agreement to be completed on the First Tranche Closing Date have been so completed.
H. Zellers, HBC, Target, and Target Canada wish to further amend and restate the Original Transaction Agreement, as contemplated in this Agreement.
THEREFORE, the Parties agree as follows:
ARTICLE 1
INTERPRETATION
Section 1.1 Defined Terms.
As used in this Agreement, the following terms have the following meanings:
Accrued Interest has the meaning specified in Section 3.8(3).
Affiliate of any Person means, at the time such determination is being made, any other Person controlling, controlled by or under common control with such first Person, in each case, whether directly or indirectly, and control and any derivation of such term means the possession, directly or indirectly, of the power to direct the management and policies, business or affairs of a Person whether through the ownership of voting securities or otherwise.
Agreement means this amended and restated transaction agreement.
Amending Agreement means an amending agreement dated February 17, 2011 to the Original Transaction Agreement between Zellers, HBC, Target, and Target Canada.
Ancillary Agreements means the Lease Assignment and Assumption Agreements, the Subleases, the Designee Assignment and Assumption Agreements, and the Brand Waiver.
Assignee has the meaning specified in Section 12.2(1).
Assumed Liabilities has the meaning specified in Section 4.1.
Authorization means, with respect to any Person, any order, permit, approval, consent, waiver, license, no action letter or similar authorization of any Governmental Entity having jurisdiction over the Person.
Books and Records means all books, records, files, reports and documents (including all correspondence, real estate and engineering data, facilities reports, blueprints and other property records), in whatever format.
Brand Waiver has the meaning specified in Section 9.2(e).
Business Day means any day of the year, other than a Saturday, Sunday or any day on which major banks are closed for business in Toronto, Ontario or Minneapolis, Minnesota.
Closing Date means, as applicable, the First Tranche Closing Date or the Second Tranche Closing Date.
Commissioner of Competition means the Commissioner of Competition appointed pursuant to the Competition Act and includes Persons authorized by the Commissioner of Competition.
Competition Act means the Competition Act (Canada).
Competition Act Approval has the meaning specified in Section 7.3(4).
Competition Tribunal means the Competition Tribunal established under the Competition Act.
Cost Basis has the meaning specified in Section 3.8(2).
Damages means any losses, liabilities, damages, out of pocket expenses or costs (including reasonable legal fees and expenses), contingent or otherwise, whether liquidated or unliquidated, whether resulting from an action, suit, proceeding, arbitration, application, cause of action, claim or demand that is instituted or asserted by a third party, including a Governmental Entity, or a cause, matter, thing, act, omission or state of facts not involving a third party.
Default Notice means any written notice given by the Landlord under any Lease claiming or alleging that Zellers (or any Affiliate of Zellers) is or may be in default of its obligations under such Lease and which default or allegation of default remains uncured.
Delivery Date has the meaning specified in Section 2.1(4).
Designee has the meaning specified in Section 2.7(1).
Designee Assignment and Assumption Agreement has the meaning specified in Section 2.7(1)(a).
Direct Claim means any cause, matter, thing, act, omission or state of facts not involving a Third Party Claim which entitles an Indemnified Party to make a claim for indemnification under this Agreement.
Disclosure Letter means the disclosure letter dated the Execution Date and delivered by Zellers to Target with the Original Transaction Agreement.
Due Diligence File means the electronic files (other than those contained in the folder entitled Bay Lease Info) on a computer hard drive created by Zellers and provided to Target (as updated by the electronic files on a computer hard drive created by Target and provided to Zellers on January 11, 2011) consisting of documents and information related to the Leases (including copies of all leases, occupancy agreements and amendments thereto and all other documents and correspondence in the possession or control of Zellers which relate to the Leases and the Leased Properties) assembled and made available by Zellers to Target.
Effective Time means 12:01 a.m. (Toronto time) on the relevant Closing Date, Vacancy Date or Delivery Date, as the case may be.
Encumbrances means pledges, liens, charges, security interests, leases, title retention agreements, mortgages, hypothecs, restrictions, development or similar agreements, easements, rights-of-way, title defects, options or adverse claims or encumbrances of any kind or character whatsoever.
Excluded Liabilities has the meaning specified in Section 4.2.
Execution Date means January 12, 2011.
Failure to Operate means a reduction, change or cessation in Zellers operations at a Leased Property which, were it to continue, would give rise to a Landlord Recapture Right and which is not caused by a force majeure.
Final Adjustments has the meaning specified in Section 3.3.
First Four Fiscal Quarters means the four full Fiscal Quarters ending immediately following the Execution Date.
Fiscal Quarter means any of the quarterly accounting periods of Zellers, ending on or about April 30, July 31, October 31 and January 31 of each year.
First Tranche Closing Date means the date that is 10 Business Days following the later of (i) the last day of the First Tranche Selection Period or (ii) the date that Competition Act Approval is obtained, but in either case subject to the satisfaction or waiver by the applicable Party or Parties of all conditions at the Effective Time on the First Tranche Closing Date.
First Tranche Purchase Price has the meaning specified in Section 3.1(1)(a).
First Tranche Selection List has the meaning specified in Section 2.1(1).
First Tranche Selection Period means the 120-day period following the Execution Date.
First Tranche Subject Leases means the Leases pertaining to the First Tranche Subject Leased Properties, subject to Sections 2.1(4) and 7.2(3).
First Tranche Subject Leased Properties means the Leased Properties listed on the First Tranche Selection List, subject to Section 2.1(4).
Governmental Entity means (i) any international, multinational, national, federal, provincial, state, municipal, local or other governmental or public department, central bank, court, minister, governor-in-council, cabinet, commission, board, bureau, agency, commissioner, tribunal or instrumentality, domestic or foreign, (ii) any subdivision or authority of any of the above, (iii) any stock exchange, and (iv) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the above.
HBC means Hudsons Bay Company.
HST Declaration and Indemnity means the HST declaration and indemnity in the form attached as Section 9.3(g) to the Disclosure Letter.
Indemnified Party means a Party with indemnification rights or benefits under this Agreement, including pursuant to Article 11.
Indemnifying Party means a Party against which a claim may be made for indemnification under this Agreement, including pursuant to Article 11.
Intercreditor Agreement means that certain Intercreditor Agreement dated as of October 2, 2006 among U.S. Bank National Association, as Trustee for the benefit of the holders of Merrill Lynch Floating Trust Pass-Through Certificates, Series 2006-1, and the lenders under the Notes.
Investment Grade Designee means a Designee that, at the time of such Designees execution of a Designee Assignment and Assumption Agreement pursuant to Section 2.7(1)(a) or other assumption document pursuant to Section 2.7 with respect to the Subject Lease to be assigned and transferred to such Designee, has outstanding senior debt rated by at least two of the following rating agencies with minimum ratings as follows:
(i) at least BBB- as determined by Standard & Poors,
(ii) at least Baa3 as determined by Moodys, or
(iii) at least BBB low as determined by the Dominion Bond Rating Service;
and in each case such rating is not subject to a negative watch or other similar notice suggesting a possible downgrade to below such level, and in each case Target Canada has provided to Zellers evidence reasonably satisfactory to Zellers of such ratings.
Landlord means the Person from time to time holding the landlords interest under any Lease.
Landlord Recapture Right means the right of a Landlord (through the exercise of an express right under a Lease) to terminate a Lease by reason of Zellers Failure to Operate.
Laws means any and all applicable (i) laws, constitutions, treaties, statutes, codes, ordinances, orders, decrees, rules, regulations, and by-laws, (ii) judgments, orders, writs, injunctions, decisions, awards and directives of any Governmental Entity, and (iii) policies, guidelines, notices and protocols, to the extent that they have the force of law.
Lease Assignment and Assumption Agreement has the meaning specified in Section 9.2(a).
Lease Default means an event which with the passage of time or the giving of notice or both would constitute a default or event of default of the tenant under a Lease, in each case where the relevant Landlord has provided written notice of such default, provided that any default arising as a result of the failure to obtain the consent of the applicable Landlords under the Subject Leases to the transactions contemplated by this Agreement (inclusive of the Wind-Down Actions, the Subleases and the rights of Zellers therein) shall not constitute a Lease Default.
Leased Properties means the leasehold lands, premises, buildings, and leasehold improvements pertaining to the Leases, which premises are listed and described in Section 5.1(i)(i) of the Disclosure Letter by reference to their mall name or municipal address, as applicable, and Zellers store number.
Leases means all agreements of Zellers to lease or otherwise occupy the Leased Properties.
Material Lease Default means (i) a Lease Default which would result in an express termination of a Lease as a result of a Landlord having provided a termination notice on or prior to the relevant Closing Date; or (ii) a Lease Default which could reasonably be
expected to give rise to the termination of a Lease by the relevant Landlord or which could reasonably be expected to give rise to Zellers loss of possession under the Subject Lease by the Landlord; except in the case of (i) and (ii) a Lease Default where such breach or termination could be remedied by Target Canada or its Designee within 12 months after the relevant Closing Date with an expenditure of money not exceeding $50,000. For certainty, any default arising under the Leases as a result of the failure to obtain the consent of the applicable Landlords under the Leases to the transactions contemplated by this Agreement (inclusive of the Wind-Down Actions, the Subleases and the rights of Zellers therein) shall not constitute a Material Lease Default.
Monetary Lien means (1) any Encumbrance that secures the payment of borrowed money, (2) any registered construction or mechanics lien, any execution upon a judgment or any pre-fixture or fixture filing under personal property legislation and (3) any Encumbrance (other than an inchoate or statutory Encumbrance in favour of any Governmental Entity or public or private utility for amounts not then due) that secures the payment of any cost or amount which is Zellers responsibility to pay under this Agreement or under Laws and which is overdue or in default and, payment of which is not subject to the allocation provisions of this Agreement (unless in the case of (3) Zellers otherwise gives Target Canada credit therefor whether or not allocation thereof is contemplated by this Agreement).
Mortgages means any mortgage of Zellers leasehold interest in the Leased Properties.
Notes means interests in (a) that certain Mezzanine A Loan Agreement dated as of October 2, 2006, as amended, between LT Mezz A LLC, a Delaware limited liability company, and Wells Fargo Bank, National Association, as custodian for the Participation Holders (as defined therein), and (b) that certain Mezzanine B Loan Agreement dated as of October 2, 2006, as amended, between LT Mezz B LLC, a Delaware limited liability company and GSRE-BS II, Ltd., as lender.
Notice has the meaning specified in Section 13.1.
Notice Date means the date upon which Target, Target Canada or a Designee gives Notice to Zellers of the Vacancy Date for any Subleases as contemplated by Section 2.4(1).
Original Transaction Agreement means the transaction agreement dated January 12, 2011 between Zellers, HBC, Target, and Target Canada.
Outside Date means September 30, 2011, provided that if the Competition Act Approval is not obtained by August 15, 2011, Zellers or Target may elect to extend from time to time the Outside Date by specified periods of not less than 30 days to no later than December 31, 2011.
Participation Agreement means that certain Mezzanine Loan Participation Agreement dated as of December 12, 2006 among Wells Fargo Bank, National Association, as custodian, and the holders of the Notes associated with the Mezzanine A Loan Agreement.
Parties means Zellers, HBC, Target, Target Canada and any other Person who becomes a party to this Agreement.
Permitted Encumbrances means the Encumbrances identified in Section 5.1(i)(iv) of the Disclosure Letter.
Person means a natural person, partnership, limited partnership, limited liability partnership, corporation, limited liability company, unlimited liability company, joint stock company, trust, unincorporated association, joint venture or other entity or Governmental Entity, and pronouns have a similarly extended meaning.
Pharmacy Notice Date has the meaning specified in Section 2.6.
Pharmacy Records means all of the prescription files and prescription records, including patient profiles and refill histories, with respect to the pharmacies operated at the Subject Leased Properties.
Purchase Price means the aggregate of the First Tranche Purchase Price and the Second Tranche Purchase Price.
Second Tranche Closing Date means the date that is 10 Business Days following the last day of the Second Tranche Selection Period, but subject to the satisfaction or waiver by the applicable Party or Parties of all conditions at the Effective Time on the Second Tranche Closing Date.
Second Tranche Purchase Price has the meaning specified in Section 3.1(1)(a).
Second Tranche Selection List has the meaning specified in Section 2.2(1).
Second Tranche Selection Period means the 240-day period following the Execution Date.
Second Tranche Subject Leases means the Leases pertaining to the Second Tranche Subject Leased Properties, subject to Section 7.2(3).
Second Tranche Subject Leased Properties means the Leased Properties listed on the Second Tranche Selection List.
Subject Leases means the First Tranche Subject Leases and the Second Tranche Subject Leases, subject to Section 7.2(3).
Subject Leased Properties means the First Tranche Subject Leased Properties and the Second Tranche Subject Leased Properties.
Subleases means the subleases in respect of each of the Subject Leased Properties by and between Zellers and Target Canada or its Designee, pursuant to which Zellers shall sublet from Target Canada or its Designee the Subject Leased Properties for a term commencing on the applicable Closing Date and expiring on the earlier of (i) one day prior to the expiry or earlier termination of the term of the applicable Subject Leases, and (ii) the applicable Vacancy Date, and which subleases shall be in the form (and based on
the terms and conditions set forth therein) attached as Section 1.1 to the Disclosure Letter (or may be in the form of licenses, occupancy agreement, or other agreements providing substantially all of the benefits and burdens as said form of Sublease, provided such licenses, occupancy agreements or other agreements are satisfactory in form to Zellers and Target Canada, each acting reasonably).
Target means Target Corporation.
Target Canada means, collectively, Target Canada Co. and one or more other subsidiaries (within the meaning of the Business Corporations Act (Ontario)) of Target incorporated under the laws of Canada or a province of Canada, as may be designated by Target in accordance with Section 1.12 prior to the First Tranche Closing Date.
Target Canada Liabilities has the meaning specified in Section 12.2(1).
Target Entity has the meaning specified in Section 7.7(2).
Tax Act means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1.
Tax Refund has the meaning specified in Section 3.7.
Tax Returns means any and all returns, reports, declarations and elections (including any amendments, schedules and attachments to them), made or filed or required to be made or filed in respect of Taxes.
Taxes means (i) any and all taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever imposed by any Governmental Entity, and (ii) all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Entity on or in respect of amounts of the type described in clause (i) above or this clause (ii).
Third Party Claim means any action, suit, proceeding, arbitration, application, cause of action, claim or demand that is instituted or asserted by a third party, including a Governmental Entity, against an Indemnified Party which entitles the Indemnified Party to make a claim for indemnification under this Agreement.
Vacancy Date means, with respect to a particular Sublease, the date that is 270 days following the Notice Date with respect to such Sublease; provided, Target or Target Canada may designate up to 20 particular Subleases in each of the First Four Fiscal Quarters for which the Vacancy Date would mean the date that is 180 days following the Notice Date with respect to each such Sublease; and provided further that:
(i) no Vacancy Date shall be earlier than January 31, 2012; and
(ii) no Vacancy Date shall be later than March 31, 2013.
Wind-Down Actions means the (i) conduct of liquidation sales at a Subject Leased Property the period for which shall not exceed, in the aggregate, 12 weeks and (ii) winding-down and closure of Zellers business and operations (including any action reasonably taken in connection therewith) so as to satisfy the provisions of Section
2.4(2), the period for which shall not exceed, in the aggregate, two weeks; provided however, that if a Landlord refuses to allow the conduct of a liquidation sale pursuant to clause (i) above and Target Canada has provided Notice at least 120 days prior to the applicable Vacancy Date, then (a) with respect to up to 10 Subject Leased Properties designated by Target Canada in such Notice from time to time, Zellers shall complete such activities at such Subject Leased Properties within eight weeks and (b) with respect to up to an additional 10 Subject Leased Properties designated by Target Canada in such Notice from time to time, Zellers shall not be permitted to conduct any liquidation sales at such Subject Leased Properties.
Winnipeg Premises means the portion of the premises known municipally as 450 Portage Avenue, Winnipeg, Manitoba and more particularly described in Section 2.9 of the Disclosure Letter.
Zellers means Zellers Inc.
Zellers Entity has the meaning specified in Section 7.7(1).
Zellers Entity Location has the meaning specified in Section 7.7(1).
Zellers Liabilities has the meaning specified in Section 12.1(1).
Section 1.2 Gender and Number.
Any reference in this Agreement or any Ancillary Agreement to gender includes all genders. Words importing the singular number only include the plural and vice versa.
Section 1.3 Headings, etc.
The provision of a Table of Contents, the division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and do not affect the interpretation of this Agreement.
Section 1.4 Currency.
All references in this Agreement or any Ancillary Agreement to dollars, or to $ are expressed in Canadian currency unless otherwise specifically indicated.
Section 1.5 Certain Phrases, etc.
In this Agreement and any Ancillary Agreement (i) the words including, includes and include mean including (or includes or include) without limitation, and (ii) the phrase the aggregate of, the total of, the sum of, or a phrase of similar meaning means the aggregate (or total or sum), without duplication, of. Unless otherwise specified, the words Article and Section followed by a number mean and refer to the specified Article or Section of this Agreement.
Section 1.6 Knowledge.
Where any representation or warranty contained in this Agreement or any Ancillary Agreement is qualified by reference to the knowledge of:
(1) Zellers, it refers to the actual knowledge (without further inquiry) of Mark Foote, as Chief Executive Officer of Zellers, Michael Culhane, as Senior Vice-President and Chief Financial Officer of Zellers, David Mock, as Senior Vice-President, Merchandise Hardlines of Zellers, and Bruce Moore, as Senior Vice-President, Real Estate of HBC;
(2) Target, it refers to the actual knowledge (without further inquiry) of Douglas Scovanner, as Executive Vice-President and Chief Financial Officer of Target, and Timothy Baer, as Executive Vice-President and General Counsel of Target;
in each case, without personal liability on the part of any of them.
Section 1.7 Disclosure Letter.
(1) The Disclosure Letter forms an integral part of this Agreement for all purposes of it.
(2) The purpose of the Disclosure Letter is to set out the qualifications, exceptions and other information called for in this Agreement. The Parties acknowledge and agree that the Disclosure Letter and the information and disclosures contained in it do not constitute or imply, and will not be construed as:
(a) any representation, warranty, covenant or agreement which is not expressly set out in this Agreement;
(b) an admission of any liability or obligation of any Party;
(c) an admission that the information is material;
(d) a standard of materiality, a standard for what is or is not in the ordinary course of business, or any other standard contrary to the standards contained in the Agreement; or
(e) an expansion of the scope of effect of any of the representations, warranties and covenants set out in the Agreement.
(3) Disclosure of any information in the Disclosure Letter that is not strictly required under this Agreement has been made for informational purposes only and does not imply disclosure of all matters of a similar nature. Inclusion of an item in any section of the Disclosure Letter is deemed to be disclosure for all purposes for which disclosure is required under this Agreement to the extent that the relevance of such disclosure to such other purposes is reasonably apparent.
(4) The Disclosure Letter itself is confidential information and may not be disclosed unless (i) it is required to be disclosed pursuant to applicable Law, unless such Law permits the Parties to refrain from disclosing the information for confidentiality or other purposes or
(ii) a Party needs to disclose it in order to enforce or exercise its rights under this Agreement.
Section 1.8 References to Persons and Agreements.
Any reference in this Agreement to a Person includes its successors and permitted assigns. The term Agreement and any reference to this Agreement or any other agreement or document includes, and is a reference to, this Agreement or such other agreement or document as it may have been, or may from time to time be amended, restated, replaced, supplemented or novated and includes all schedules to it.
Section 1.9 Statutes.
Except as otherwise provided in this Agreement, any reference in this Agreement to a statute refers to such statute and all rules and regulations made under it, as it or they may have been or may from time to time be amended or re-enacted.
Section 1.10 Non-Business Days.
Whenever payments are to be made or an action is to be taken on a day which is not a Business Day, such payment shall be made or such action shall be taken on or not later than the next succeeding Business Day.
Section 1.11 Time Periods.
Unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day on which the period ends and by extending the period to the next Business Day following if the last day of the period is not a Business Day.
Section 1.12 Designation of Target Canada.
Target may, by Notice to Zellers given at least 10 Business Days prior to the First Tranche Closing Date, designate one or more other subsidiaries of Target as Target Canada and shall cause such subsidiaries to enter into and become bound by this Agreement as Target Canada on or prior to the First Tranche Closing Date. Upon such designation, such entities together with Target Canada Co. shall be deemed for purposes of this Agreement and all Ancillary Agreements to be Target Canada.
Section 1.13 Leasehold Interests.
Notwithstanding any provision of this Agreement or Ancillary Agreements to the contrary, for purposes of this Agreement and each Ancillary Agreement, (i) all references to Lease include any sublease or agreement to sublease by which Zellers (as subtenant) holds its interest in the related Leased Property, (ii) for the Leased Properties which are subject to a sublease or agreement to sublease (rather than a lease) in favour of Zellers, all references to Zellers leasehold interest in such Leased Property shall mean Zellers subleasehold interest (rather than a leasehold interest) in such Leased Property, any reference to Landlord shall mean the sublandlord under the applicable sublease or agreement to sublease pursuant to which Zellers (as subtenant) holds its interest in such Leased Property, and any reference to Sublease shall mean
a sub-sublease in such Leased Property in favour of Zellers, and (iii) all other similar references relating to the Leases and Leased Properties shall be interpreted and construed in a similar manner.
ARTICLE 2
AGREEMENT OF PURCHASE AND SALE
Section 2.1 First Tranche Subject Leased Properties.
(1) From time to time during the First Tranche Selection Period, Target or Target Canada shall deliver to Zellers a Notice designating up to 110 Leases that shall be assigned and transferred on the First Tranche Closing Date (such list, as updated from time to time, including in accordance with Section 2.1(4), the First Tranche Selection List).
(2) Subject to the terms and conditions of this Agreement, Zellers agrees to assign and transfer to Target Canada or at the direction of Target Canada to a Designee and Target Canada agrees to acquire and assume or cause to be acquired and assumed by a Designee on the First Tranche Closing Date in accordance with the terms of this Agreement, effective as of the Effective Time of the First Tranche Closing Date, the First Tranche Subject Leases, including all rights of Zellers relating thereto or arising thereunder (inclusive of any options of Zellers therein). On or before the First Tranche Closing Date:
(i) each of Zellers and Target Canada shall enter into a Lease Assignment and Assumption Agreement with respect to those First Tranche Subject Leases to be assigned to Target Canada; and
(ii) Zellers shall, and Target Canada shall cause its Designees to, enter into a Designee Assignment and Assumption Agreement with respect to those First Tranche Subject Leases to be assigned to a Designee;
in respect of each of the First Tranche Subject Leases to effect the aforesaid assignment, transfer and assumption thereof.
(3) Contemporaneous with the assignment and transfer of the First Tranche Subject Leases, each of Zellers and Target Canada shall enter into (or Target Canada shall cause its Designee to enter into) Subleases in respect of each of the First Tranche Subject Leased Properties the terms of which will commence as of the Effective Time of the First Tranche Closing Date.
(4) If at the end of the First Tranche Selection Period the First Tranche Selection List includes fewer than 110 Subject Leases, Target Canada shall have the right to continue to designate additional Leases as First Tranche Subject Leases (and the relevant Leased Properties shall be First Tranche Subject Leased Properties), provided that the number of Leases designated on the First Tranche Selection List plus the number of additional Leases designated as First Tranche Subject Leases pursuant to this Section 2.1(4) may not exceed 110. Target Canada shall have the right to take assignments of one or more First
Tranche Subject Leases on one or more dates (each, a Delivery Date) after the First Tranche Closing Date, provided (i) Zellers and Target Canada shall reasonably cooperate in executing, on the applicable Delivery Date, all documents and instruments contemplated under this Agreement to be delivered on a Closing Date, (ii) all such documents, when delivered, shall provide the Parties with all rights and obligations with respect to each Subject Leased Property that the Parties would have had if such documents and instruments had been delivered on the First Tranche Closing Date, (iii) such documents shall in all events be executed and delivered by the Parties on the earlier of (a) a date selected by Target Canada on at least 10 days advance written notice from Target Canada, and (b) the Second Tranche Closing Date, and (iv) no Delivery Date shall be within 10 Business Days of the Second Tranche Closing Date.
Section 2.2 Second Tranche Subject Leased Properties.
(1) From time to time during the Second Tranche Selection Period, Target or Target Canada shall deliver to Zellers a written notice designating additional Leases that shall be assigned and transferred on the Second Tranche Closing Date (such list, as updated from time to time, the Second Tranche Selection List), provided that the number of Leases designated on the Second Tranche Selection List when added to the number of Leases designated on the First Tranche Selection List shall not be more than 220.
(2) Subject to the terms and conditions of this Agreement, Zellers agrees to assign and transfer to Target Canada or at the direction of Target Canada to a Designee and Target Canada agrees to acquire and assume or cause to be acquired and assumed by a Designee on the Second Tranche Closing Date in accordance with the terms of this Agreement, effective as of the Effective Time of the Second Tranche Closing Date, the Second Tranche Subject Leases, including all rights of Zellers relating thereto or arising thereunder (inclusive of any options of Zellers therein). On or before the Second Tranche Closing Date:
(i) each of Zellers and Target Canada shall enter into a Lease Assignment and Assumption Agreement with respect to those Second Tranche Subject Leases to be assigned to Target Canada; and
(ii) Zellers shall, and Target Canada shall cause its Designees to, enter into a Designee Assignment and Assumption Agreement with respect to those Second Tranche Subject Leases to be assigned to a Designee;
in respect of each of the Second Tranche Subject Leases to effect the aforesaid assignment, transfer and assumption thereof.
(3) Contemporaneous with the assignment and transfer of the Second Tranche Subject Leases, each of Zellers and Target Canada shall enter into (or Target Canada shall cause its Designee to enter into) Subleases in respect of each of the Second Tranche Subject Leased Properties the terms of which will commence as of the Effective Time of the Second Tranche Closing Date.
Section 2.3 Right to Terminate Leases.
Instead of taking an assignment of any Subject Lease (or directing the assignment of such Subject Lease to a Designee) on the applicable Closing Date, Target Canada may negotiate with the applicable Landlord for the termination of such Subject Lease, provided that (i) no such termination shall be effective prior to the applicable Closing Date with respect to such Subject Lease; (ii) from and after the applicable Closing Date to and including the applicable Vacancy Date, Zellers shall have the same right to use and occupy the Subject Leased Property relating to such Subject Lease under a Sublease (or other agreement providing substantially similar rights) on all the same terms and conditions that would have applied had such Subject Lease been assigned to Target Canada (instead of terminated) and subleased to Zellers under a Sublease, except that all amounts that would have been paid as rent under such Sublease shall be paid to the Landlord, or as Target Canada may direct; (iii) such Subject Lease shall count as one of the Leases that Target Canada is entitled to designate under Section 2.1(1) or 2.2(1), notwithstanding Target Canadas election to arrange for the termination (rather than assignment) of such Subject Lease; and (iv) the Vacancy Date for such Subject Leased Property shall be established by Target Canada giving a Notice in accordance with Section 2.4.
Section 2.4 Vacancy Date.
(1) Target Canada, Target or a Designee may from time to time provide Notice to Zellers establishing the Vacancy Date for one or more Subleases.
(2) On each Vacancy Date, effective as of the applicable Effective Time, the Sublease(s) identified in the Notice shall be terminated and Target Canada or a Designee shall accept and take possession of the relevant Subject Leased Properties, which Subject Leased Properties shall be (i) empty of all inventory, trade fixtures (including all store shelving, racks, display cases and stockroom shelving systems), personal property and debris, and (ii) free from any subtenants, licensees or other Persons in possession of all or any portion of the relevant Subject Leased Properties. Notwithstanding the foregoing or any other provision of this Agreement, the Subject Leases or any Ancillary Agreement, Zellers shall have no obligation (a) to restore the Subject Leased Properties to a base building condition or standard, (b) to remove any leasehold improvements from the Subject Leased Properties, or (c) to repair, patch or replace any walls, ceilings or flooring damaged by the removal of trade fixtures, provided such removal is accomplished in a commercially reasonable manner.
Section 2.5 Ordinary Course Operations.
From the Execution Date until the expiration of the Second Tranche Selection Period, Zellers shall operate and cause to be operated the operations currently conducted by it and its Affiliates, and use commercially reasonable efforts to cause its licensees and subtenants to operate the operations currently operated by each of them, in and on the Leased Properties in the ordinary course of Zellers business and consistent with Zellers and Zellers Affiliates, licensees and subtenants past practices (including maintaining and updating all Pharmacy Records in accordance with customary practices of the applicable pharmacy operator or required by Laws), Laws and in accordance with and subject to the terms of the Leases (including, with respect to any Lease as to which there exists a dispute or default that is disclosed in Section 5.1(i)(iii), 5.1(i)(vii) or 5.1(i)(viii) of the Disclosure Letter, using commercially reasonable efforts to
resolve or cure such dispute or default), in each case in all material respects. As to the Subject Leases and the Subject Leased Properties only, from the expiration of the Second Tranche Selection Period until the applicable Vacancy Date, Zellers shall operate and cause to be operated the operations currently conducted by it and its Affiliates, and use commercially reasonable efforts to cause its pharmacy licensees and subtenants to operate the operations currently operated by each of them, in and on the Subject Leased Properties in the ordinary course of Zellers business and consistent with Zellers and Zellers Affiliates, pharmacy licensees and subtenants past practices (including maintaining and updating all Pharmacy Records in accordance with customary practices of the applicable pharmacy operator or required by Laws), Laws and in accordance with and subject to the terms of the Subleases, in each case in all material respects. Notwithstanding the foregoing, (i) nothing in this Section 2.5 will derogate from Zellers rights contained in the Subleases or in Section 2.4 during the applicable portion of the time period during the conduct of the Wind-Down Actions, nor shall the exercise of such rights constitute a breach of this Section 2.5, (ii) the Wind-Down Actions shall not constitute a breach of this Section 2.5, provided such actions are taken in accordance with the terms of the respective Sublease and all Laws, (iii) the period during which liquidation sales may be conducted (as established pursuant to the definition of Wind-Down Actions) shall not be limited as described in such definition with respect to any Subject Leased Property as to which the conduct of a liquidation sale for such extended period will not and does not (a) give rise to a Landlord Recapture Right, (b) give rise to a Lease Default; or (c) diminish or limit any right or privilege of the tenant under the applicable Subject Lease, and (iv) Zellers has the right to terminate any sublease, license, concession or other occupancy agreement relating to the Leased Property at any time following the applicable Closing Date, excluding any pharmacy sublease, license, concession or other occupancy agreement.
Section 2.6 Pharmacy Records.
At the option of Target Canada, which may be exercised by Notice given by Target Canada to Zellers from time to time no later than 90 days prior to the applicable Vacancy Date (the Pharmacy Notice Date), but subject to Laws, Zellers shall and shall cause its Affiliates and shall use commercially reasonable efforts to cause any third-party operator of the pharmacy in the applicable Subject Leased Property to transfer to or upon the direction of Target Canada all or any portion of the Pharmacy Records specified in such Notice (to the extent a pharmacy is operating in the applicable Subject Leased Property), including paper file backup and a backup tape for all prescriptions (to the extent such exist), without retaining any copies of such Pharmacy Records other than such copies as Zellers or applicable pharmacy operator is required to retain by Laws (and, in such case, only to the extent and for so long as required by Laws). No additional consideration shall be payable by Target or Target Canada in connection with such transfer of Pharmacy Records. Zellers shall, and shall cause its Affiliates to and use commercially reasonable efforts to cause the applicable pharmacy operator to, make such transfer in respect of each applicable Subject Leased Property (i) in a format reasonably requested by Target Canada, (ii) free and clear of all Encumbrances, (iii) on the applicable Vacancy Date (or such earlier date as is specified in such Notice, which date shall not be less than 30 days after the date such Notice is given) in respect of such Subject Leased Property provided Target Canada has provided appropriate notice by the applicable Pharmacy Notice Date, and (iv) if requested by Target Canada, pursuant to a mutually agreed upon file transfer agreement with terms consistent with those set forth in this Section 2.6. The Parties shall cooperate to effect any such transfers in accordance with Laws. Neither Zellers nor any of its
Affiliates will directly or indirectly solicit the transfer of any of the Pharmacy Records that may be transferred to or upon the direction of Target Canada pursuant to this Agreement to any stores or pharmacies operated by Zellers or any of its Affiliates or, subject to Laws, provide to any other Person any of the Pharmacy Records that are to be transferred to or upon the direction of Target Canada pursuant to this Agreement. Zellers shall use commercially reasonable efforts to enforce any contractual rights it may have with the third-party operator of a pharmacy in each applicable Subject Leased Property restricting the solicitation or transfer of any of the Pharmacy Records that are to be transferred to or upon the direction of Target Canada pursuant to this Agreement where Zellers has knowledge of any actual or threatened breach of such provisions. For purposes of this Section 2.6 only, knowledge of Zellers shall include the actual knowledge of the General Merchandise Manager, Pharmacy of Zellers.
Section 2.7 Target Canada Assignment of Rights.
(1) Target Canada may from time to time designate one or more Persons (each, a Designee) to be an immediate or subsequent assignee(s) of the Subject Leases, as follows:
(a) If Target Canada wishes to have one or more Subject Leases assigned directly by Zellers to one or more Designee(s), Target Canada may upon at least 10 Business Days written notice in advance of a Delivery Date or a Closing Date, as the case may be, identify the Designee(s) that is or are to be the assignee(s) of the Subject Leases to be assigned and transferred by Zellers on the applicable Closing Date or Delivery Date, in which case, on such date, with respect to the Subject Lease(s) so identified:
(i) the Designee(s) will execute and deliver an Assignment and Assumption of Lease Agreement in substantially the form specified in Section 2.7(1) of the Disclosure Letter (as such form may be modified in accordance with Section 2.7(5) of this Agreement, a Designee Assignment and Assumption Agreement) (and Zellers and Target Canada will not execute a Lease Assignment and Assumption Agreement) with respect to such Subject Leases(s), and
(ii) such Designee(s) (and not Target Canada) will execute and deliver the Sublease(s) in favour of Zellers with respect to the applicable Subject Leased Properties.
Zellers need not make any assignment directly to a Designee unless such Designee executes and delivers a Designee Assignment and Assumption Agreement on the applicable Closing Date or Delivery Date. If any Designee shall fail or refuse to execute and deliver a Designee Assignment and Assumption Agreement and Sublease with respect to any Subject Lease, Target Canada and Zellers shall, upon Target Canadas request, enter into a Lease Assignment and Assumption Agreement and a corresponding Sublease in respect of the applicable Subject Lease on the Closing Date or Delivery Date.
(b) If Target Canada wishes to assign to one or more Designee(s) one or more Subject Lease(s) previously assigned to Target Canada, Target Canada may at any time
and from time to time do so without limit or qualification of any kind, except that any such assignment by Target Canada shall be subject to the rights of Zellers under any applicable Sublease then in effect.
(2) In connection with the assignment of any Subject Lease(s) to any Designee(s) pursuant to Section 2.7(1), Target Canada and/or Target may by separate agreement with such Designee(s) provide representations and warranties in such form and content as Target Canada and/or Target may elect. Zellers shall have no direct liability or obligation to any Designee on account of any such representations or warranties. The assignment of a Subject Lease(s) to Designee(s) does not relieve Zellers of liability for a breach of any of the representations or warranties contained in Section 5.1 to the extent that such breach results in Damages to Target Canada or Target, subject, in all events, to the limitations contained in this Agreement, including Section 11.5.
(3) Upon assignment of a Subject Lease (whether by Zellers pursuant to Section 2.7(1)(a) or by Target Canada pursuant to Section 2.7(1)(b)) to an Investment Grade Designee at any time up to the second anniversary of the applicable Vacancy Date for such Subject Lease, Target Canada and Target shall be released from all Subject Lease Obligations relating to such Subject Lease, to the extent, and only to the extent, (i) assumed by such Investment Grade Designee and (ii) an indemnity has been provided by such Designee with respect to such Subject Lease Obligation assumed by such Designee, in each case, in writing. Such assumption and indemnity by an Investment Grade Designee may be accomplished:
(a) in the case of an assignment pursuant to Section 2.7(1)(a), pursuant to a Designee Assignment and Assumption Agreement, or pursuant to an assumption and indemnity agreement by the Investment Grade Designee in favour of Zellers in a form which is acceptable to Zellers, acting reasonably; or
(b) in the case of an assignment by Target Canada pursuant to Section 2.7(1)(b), pursuant to an assumption and indemnity agreement by the Investment Grade Designee in favour of Zellers in a form which is acceptable to Zellers, acting reasonably. If pursuant to an instrument of assignment between Target Canada and a Designee, such Designee (i) assumes some or all Subject Lease Obligations with respect to a Subject Lease, and (ii) confirms in writing with Zellers that such assumption and indemnity runs in favour of Zellers, then Zellers shall join in (by attached joinder or otherwise) such instrument in order to (x) accept such assumption and (y) confirm the release of Target and Target Canada to the extent of the Subject Lease Obligations so assumed and indemnified.
Any release provided for in this Section 2.7(a)(3) shall be effective upon the execution by the Investment Grade Designee and receipt by Zellers of the aforesaid Designee Assignment and Assumption Agreement or other assumption and indemnity agreement, and shall require no further act, deed or writing. Zellers agrees from time to time upon request of Target or Target Canada to confirm such releases, but the failure of Target or Target Canada to request any such confirmation, and the failure of Zellers to provide any such confirmation, shall not affect the automatic release provided in the preceding sentence. For purposes hereof, Subject Lease Obligations means all obligations arising under (i) a Subject Lease assigned to a Designee, (ii) the Lease Assignment and Assumption Agreement or Designee Assignment and Assumption Agreement, as
applicable, pursuant to which such Subject Lease was assigned, (iii) the Sublease entered into or to be entered into with respect to such Subject Lease, and (iv) Sections 11.3(d) and 11.3(e) with respect to such Subject Lease.
(4) No assignment of a Subject Lease to a Designee that is not an Investment Grade Designee at the time of assignment shall release Target Canada or Target from any Subject Lease Obligations.
(5) The form of Designee Assignment and Assumption Agreement may be varied and modified by Target Canada in its discretion from time to time so long as such variations and modifications do not (a) expand upon any representations, warranties, covenants, obligations, or liabilities of Zellers beyond those contained in the form of Designee Assignment and Assumption Agreement specified in Section 2.7(1) of the Disclosure Letter, or (b) alter in any material respect the provisions of Section 5 of the form of Designee Assignment and Assumption Agreement specified in Section 2.7(1) of the Disclosure Letter.
(6) Target and Target Canada shall remain responsible for and shall not, in any event, be released from any of their covenants and obligations under this Agreement in relation to the payment of the entire Purchase Price by reason of any assignments made pursuant to this Section 2.7.
Section 2.8 Access and Additional Information Relating to Leased Properties.
(1) Subject to Target Canada complying with Laws, prior to the final Vacancy Date, Zellers shall, upon reasonable prior Notice, permit Target Canada and its representatives and advisers reasonable access to the Leased Properties during the period commencing two hours prior to the Leased Property opening for business to the public and ending two hours after the close of business, subject to the rights of all subtenants, licensees and concessionaires in the Leased Property (excluding, however, such subtenants, licensees and concessionaires that are Affiliates of Zellers) in order to make such reasonable investigations as Target Canada shall reasonably determine are necessary or advisable. Target Canada shall perform such investigations in compliance with Laws. Subject to Laws, and at the sole cost and expense of Target Canada, Zellers shall give Target Canadas representatives and agents reasonable means necessary to effect such investigations and shall cause its agents, employees, officers and directors to aid such representatives and agents in such investigations. Zellers is not required to disclose any information to Target Canada where such disclosure is prohibited by Laws or by the terms of any agreement. Any investigations or tests which require drilling or other invasive actions shall be performed outside of the hours when the Leased Property is open for business to the public and shall be done only with the prior written consent of Zellers, acting reasonably, and all such inspections and tests contemplated by this Agreement shall not unduly interfere (and Target Canada and Target shall use their reasonable commercial efforts not to so interfere) with the use, access, operation and enjoyment by Zellers and its subtenants, licensees, concessionaries, customers and suppliers of the Leased Properties.
(2) Except as necessary to perform the investigations contemplated by this Section 2.8, Target Canada and Target shall not make contact with any store employees of Zellers
without the prior written consent of Zellers, such consent not to be unreasonably withheld.
(3) Prior to entry onto the Leased Properties, Target Canada or Target, as applicable, shall have in effect a policy of general liability insurance with a reputable national insurance company and with coverages in accordance with normal commercial practices in Toronto, Ontario; provided, however, that such insurance may be carried under a blanket policy or pursuant to Targets self-insurance program. At Zellers request, Target Canada or Target Canadas representatives and agents, as the case may be, shall provide evidence of such insurance or self-insurance prior to any entry onto any of the Leased Properties. Target Canada and Target each agree in favour of Zellers to repair forthwith any damage to the Leased Properties arising from such access or investigations (including by any Designee or potential Designee pursuant to Section 2.8(6)) at Target Canada and Targets expense and shall jointly and severally indemnify and hold Zellers harmless from and against any and all losses, Damages (including, for greater certainty, lost profits), claims, costs (including costs on a solicitor and client basis) or liabilities in respect of physical injury or property damage that may be directly or indirectly suffered or incurred by Zellers directly arising from or in respect of the access or investigations by Target Canada, Target and/or any Designee, potential Designee and each of their representatives and advisors.
(4) Zellers shall, within five days after receipt of a request from Target Canada or Target Canadas counsel, execute and deliver to Target Canada all consents reasonably necessary to permit Target Canada to have inspections made by and to have existing records released to Target Canada by the municipal building and zoning departments, fire departments, public works departments, environmental agencies, elevator inspections branch of the provincial or territorial departments of labour and other appropriate authorities as Target Canada may consider advisable, acting reasonably, between the Execution Date and the Vacancy Date, respectively, for each Subject Lease.
(5) From the Execution Date until the applicable Closing Date or Delivery Date, Zellers shall afford Target, Target Canada, and their respective representatives and advisers reasonable access to all Books and Records in Zellers possession or control relating to the Leased Properties or the Leases.
(6) Each Designee and each Person identified by Target Canada as a potential Designee shall have the same access and inspection rights afforded to Target Canada under this Section 2.8, on and subject to the terms, conditions and requirements of this Section 2.8, provided that such potential Designee executes and delivers in favour of Zellers an access, confidentiality and indemnification agreement in the form attached as Section 2.8(6) to the Disclosure Letter and that the covenants and indemnity of Target and Target Canada in favour of Zellers and set out in Section 2.8(3) shall equally apply in respect of the examinations, investigations and testing undertaken by any Designee or any Person designated as a potential Designee. For greater certainty, nothing in this Section will in any way limit the indemnification obligations of Target and Target Canada in favour of Zellers under Section 2.8(3).
Section 2.9 Winnipeg Lease Option.
Target Canada has the option to enter into an agreement with HBC to lease the Winnipeg Premises, which agreement will be based on the terms and conditions set forth in Section 2.9 to the Disclosure Letter. If Target Canada and HBC have not executed such lease by the Second Tranche Closing Date, the Purchase Price shall increase by $12,500,000, which additional $12,500,000 shall be payable on October 3, 2011.
ARTICLE 3
PURCHASE PRICE
Section 3.1 Purchase Price.
(1) The Purchase Price for the Subject Leases is $1,825,000,000, payable as follows:
(a) the consideration payable by Target Canada to Zellers for the First Tranche Subject Leases on the First Tranche Closing Date is $400,000,000 US dollars and $516,500,000 Canadian dollars (the First Tranche Purchase Price), subject to adjustment in accordance with Section 3.3; and
(b) the consideration payable on October 3, 2011 by Target Canada to Zellers for the Second Tranche Subject Leases is $912,500,000 (the Second Tranche Purchase Price), subject to adjustment pursuant to Section 2.9 and in accordance with Section 3.3.
(2) Zellers and Target Canada agree to allocate the entire amount of the Purchase Price to the leasehold interests. The Parties agree to (and agree to cause each of their Affiliates to) execute and file all Tax Returns and prepare all of their own financial statements and other instruments on the basis of this allocation.
Section 3.2 Payment of the Purchase Price.
(1) On the First Tranche Closing Date, the First Tranche Purchase Price will be paid and satisfied, subject to adjustment in accordance with Section 3.3, as follows:
(a) as to the Cost Basis of the Notes transferred and assigned to or on the direction of Zellers on the First Tranche Closing Date pursuant to Section 3.8(4), if any, plus any Accrued Interest on such Notes that has not been paid to Target Canada, by such transfer of such Notes; and
(b) as to the balance, by Target Canada paying to or to the order of Zellers such amount by wire transfer of immediately available funds in accordance with a direction delivered by Zellers to Target Canada prior to the First Tranche Closing Date.
(2) The Second Tranche Purchase Price will be paid on October 3, 2011, subject to adjustment in accordance with Section 3.3, as follows:
(a) as to the Cost Basis of the Notes transferred and assigned to or to the order of Zellers on October 3, 2011 pursuant to Section 3.8(5), if any, plus any Accrued
Interest on such Notes that has not been paid to Target Canada, by such transfer of such Notes; and
(b) as to the balance, by Target Canada paying or causing to be paid to or to the order of Zellers on October 3, 2011 such amount by wire transfer of immediately available funds in accordance with a direction delivered by Zellers to Target Canada prior to the Second Tranche Closing Date.
(3) For purposes of this Section 3.2, the conversion of the Cost Basis of any Note to be transferred and assigned, together with the Accrued Interest thereon, from United States dollars to Canadian dollars shall be determined by reference to the applicable exchange rate, as reported by Bloomberg as of noon (Eastern Time) on the Business Day immediately preceding the date on which such Note was acquired by Target or Target Canada.
Section 3.3 Adjustments.
(1) Except as otherwise provided in this Section 3.3 and subject to the rights and obligations of Zellers and Target Canada under the Subleases, all adjustments for basic rent, additional rents, damage/security deposits paid or payable to Landlords and interest thereon, if any, prepaid rents and interest thereon, if any, and operating expenses, utilities and realty taxes, payable or receivable under the Subject Leases, shall be made as of the relevant Vacancy Date (with all expenses, liabilities and revenues for the Vacancy Date being allocated to Zellers) and shall be paid on the relevant Vacancy Date pursuant to a statement of adjustments in respect of the relevant Leased Property to be prepared by Zellers and approved by Target Canada, each acting reasonably, at least 10 days prior to the relevant Vacancy Date (a Statement of Adjustments).
(2) If the final cost or amount of any item which is to be adjusted cannot be determined at the relevant Vacancy Date, then (unless otherwise provided in this Section 3.3) an initial adjustment for such item shall be made at the relevant Vacancy Date, such amount to be estimated by Zellers, acting reasonably, as of the relevant Vacancy Date on the basis of the best evidence available at such Vacancy Date as to what the final cost or amount of such item will be. Additional rents and operating cost adjustments to be determined by a Landlord following a fiscal or calendar year end shall not be adjusted until such determination. All amounts which have been estimated because they have not been finally determined by the relevant Vacancy Date shall be finally adjusted in accordance with this Section 3.3(2) (such final adjustments being the Post-Vacancy Adjustments). In each case when such cost or amount is determined, Zellers or Target Canada, as the case may be, shall within 30 days thereafter provide a complete statement of such final determination to the other and within 30 days after such 30-day period (or if there is a dispute over such amount, after the matter is determined by the Auditor pursuant to this Section) the necessary Post-Vacancy Adjustment shall be made. In the case of any dispute between the Parties with respect to any Post-Vacancy Adjustments, the final cost or amount of an item shall be determined by a national audit firm (the Auditor) appointed jointly by Zellers and Target Canada within 10 Business Days after the issue is referred by one of the Parties to the Auditor for such determination. The cost of such determination shall be shared equally between the relevant Parties. Zellers and Target Canada agree to execute and deliver on the relevant Vacancy Date an undertaking
to re-adjust and pay the amount of any Post-Vacancy Adjustments as may be owing pursuant to the provisions of this Agreement. Notwithstanding any other provision of this Section 3.3, save and except for those Post-Vacancy Adjustments being determined by the Auditor in the manner set out herein (the Audited Claim), all adjustments and Post-Vacancy Adjustments to be made pursuant to this Section 3.3 shall, in any event, be completed on or before the date which is no later than the second anniversary of the relevant Vacancy Date (the Final Adjustment Date) and no claim for any re-adjustment may be made by either party thereafter, unless and only to the extent such claim is an Audited Claim or is an adjustment pursuant to Section 3.3(3) or Section 3.5. Subject to the terms of the applicable Sublease, Zellers shall, without delay, be responsible to conclude all final reconciliations of all sums payable or receivable by the tenant under the Subject Leases in accordance with the terms of each Subject Lease and Target Canada shall provide such assistance as may be reasonably required. Subject to the terms of the applicable Sublease, Zellers and Target Canada agree that Target Canada shall not be responsible for any percentage rents attributable to Zellers sales, special service costs (such as additional janitorial services, additional HVAC supplied) and other costs for special services provided at the request of Zellers to a standard higher than the norm called for by the terms of the relevant Lease, or penalties and interest charged by the Landlord in respect of amounts owing which are attributable to the period prior to the Vacancy Date.
(3) Zellers shall be entitled after the Vacancy Date to any amounts payable to Zellers and responsible for any amounts owing by Zellers, pursuant to, or in respect of any agreements with Governmental Entities or any owners of property adjoining the Leased Properties or under or in respect of the Subject Leases or the Leased Properties whereby any other Person is required to pay, reimburse, refund or otherwise contribute any amount to Zellers in respect of any improvements, work, services or costs that have been supplied, constructed, installed, performed or paid by Zellers prior to the relevant Vacancy Date (in each case, a Prepaid Cost Refund) or whereby any other Person is entitled to be paid any such similar amount by Zellers. This obligation survives the relevant Vacancy Date and the Final Adjustment Date, notwithstanding any other provision of this Agreement or any Ancillary Agreement. To the extent Target Canada receives any Prepaid Cost Refund, Target Canada shall hold such Prepaid Cost Refund in trust for Zellers and shall endorse in favour of Zellers and deliver to Zellers the Prepaid Cost Refund forthwith upon receipt. Nothing in this Agreement, the Subject Leases or the Ancillary Agreements, shall preclude Zellers from commencing or maintaining an action against a third party from whom Zellers is entitled to receive a Prepaid Cost Refund. Any such amount payable by Zellers shall be paid within 10 days following a request for payment from Target Canada or the applicable recipient. Notwithstanding the foregoing, Zellers may, upon prior consultation with Target Canada, deal directly with a Landlord following the applicable Closing Date in connection with all claims and disputes (including reconciliation of all payments and charges thereunder) between the Landlord and Zellers with respect to the Leased Property arising prior to the applicable Closing Date; provided, however, such actions shall in no event adversely impact Target Canadas rights or obligations under the Subject Lease.
Section 3.4 Sales and Transfer Taxes.
Target Canada or the applicable Designee or Designees shall be liable for and pay all sales and transfer taxes (including land transfer taxes), registration charges and transfer fees payable (i) by the assignee in respect of the assignment of the Subject Leases from Zellers to Target Canada or a Designee or Designees and (ii) in connection with any transfer of Pharmacy Records. Zellers and Target Canada shall each be liable for and shall pay 50% of any sales and transfer taxes (including land transfer taxes), registration charges and transfer fees payable in connection with the registration of any of the Subject Leases and any transfer thereof occurring prior to the applicable Closing Date (to the extent that Target Canada or Target has requested such registration by reason of such registration being reasonably required in order for Target Canada or a Designee to register the assignment to Target Canada or such Designee or obtain title insurance or a title opinion reasonably satisfactory to Target Canada or such Designee). Zellers shall provide such assistance and execute such documents as Target Canada may reasonably require to complete such registrations.
Section 3.5 Goods and Services Tax and Harmonized Sales Tax.
Subject to Section 3.6, Target Canada shall be liable for and shall pay, or shall cause the applicable Designee or Designees to be liable for and pay, to Zellers an amount equal to any goods and services tax and harmonized sales tax payable by Target Canada and collectible by Zellers under the Excise Tax Act (Canada), plus an amount equal to any similar value added or multi-staged tax imposed (including, for greater certainty, any applicable Quebec Sales Tax) by any applicable provincial or territorial legislation, in respect of the assignment of the Subject Leases to Target Canada or the Designee or Designees. Any such taxes shall be paid to Zellers no later than three Business Days before such taxes, if any, are due to be remitted by Zellers.
Section 3.6 Self-Assessment of GST and HST on Real Property.
To the extent permitted under subsection 221(2) of the Excise Tax Act (Canada) and any equivalent or corresponding provision under any applicable provincial or territorial legislation and provided that Target Canada delivers or causes to be delivered by the applicable Designee or Designees on the Closing Date to Zellers the HST Declaration and Indemnity, Target Canada or the applicable Designee or Designees shall self-assess and remit, where applicable, directly to the appropriate Governmental Entity any goods and services tax and harmonized sales tax imposed under the Excise Tax Act (Canada) and any similar value added or multi-staged tax imposed by any applicable provincial or territorial legislation payable in connection with the assignment of the Subject Leases under this Agreement. Target Canada or the applicable Designee or Designees shall make and file any returns in accordance with the requirements of subsection 228(4) of the Excise Tax Act (Canada) and any equivalent or corresponding provision under any applicable provincial or territorial legislation.
Section 3.7 Tax Refunds.
In the event that there are any realty tax appeals in respect of any Subject Leased Property for any tax year prior to and including the year in which the applicable Vacancy Date for such Subject Leased Property occurs (but not any subsequent tax year), Zellers may, at its option, at no cost to Target Canada, and provided that it does not and will not materially and adversely affect future assessments, continue such appeals (or, at Zellers election, require Target Canada
to pursue such appeals in good faith at Zellers expense, and without Target Canada being required to incur any liabilities or obligations) and shall be entitled to receive any rebate, refund, credit, reassessment, readjustment, payment and/or the like from time to time (the full amounts of each being a Tax Refund) resulting therefrom to the extent relating to the period prior to the applicable Vacancy Date; provided that Zellers shall consult with Target Canada (or Target Canada with Zellers as the case may be) with respect to, and Target Canada (or Zellers as the case may be) acting reasonably shall have the right to approve, any final settlement or disposition of any such appeal (such approval shall be deemed to have been given by Target Canada (or Zellers as the case may be) if Target Canada (or Zellers as the case may be) has not responded within 15 Business Days of a request by Zellers (or Target Canada as the case may be) for such approval). Each of Target Canada and Zellers agrees to co-operate with the other with respect to all such appeals or reassessments and to provide the other with access to any necessary documents or materials required to continue any such appeals or reassessments. Target Canada shall cooperate with Zellers as to any tax appeals and shall, if requested to do so, execute such applications, authorizations or other documents as may be necessary for Zellers to undertake and pursue the appeal. To the extent Target Canada receives any Tax Refund in respect of the period prior to the applicable Vacancy Date, Target Canada shall hold such Tax Refund in trust for Zellers and shall endorse in favour of Zellers and deliver to Zellers the Tax Refund promptly upon receipt; provided that, in all cases, readjustments with the Landlords under the Subject Leases as the result of any Tax Refund may be effected by Target Canada prior to the payment of any Tax Refund to Zellers and the amount otherwise owing to Zellers in accordance with the foregoing shall be reduced by any amount payable to any Landlord as a result of any such adjustments (it being agreed that Target Canada shall provide Zellers with copies of any written communication with the Landlord in respect of the foregoing). Similarly, to the extent Zellers receives any Tax Refund for the period following the relevant Vacancy Date, Zellers shall hold such Tax Refund in trust for Target Canada and shall endorse in favour of Target Canada and deliver to Target Canada the Tax Refund forthwith upon receipt. If Target Canada sells or otherwise disposes of its interest in the Subject Lease to any Person (including to any Designee), it shall obtain a covenant from such Person in favour of Zellers in which such Person agrees to observe and be bound by the terms of this Section.
Section 3.8 Note Purchase Facility.
(1) Target shall, or shall cause Target Canada or one or more other Affiliates of Target to, acquire Notes for an acquisition cost of up to $200,000,000 subject to and in accordance with the terms set out in this Section 3.8 and procedures to be agreed upon by the Parties.
(2) The acquisition cost to Target, Target Canada or such Affiliate of any Notes (the Cost Basis of such Notes) shall not exceed the principal amount of such Notes plus any interest that has accrued and is unpaid on such Notes at the time of such acquisition.
(3) Any interest accruing on any Notes from the time of acquisition of such Notes pursuant to this Section 3.8 to the applicable Closing Date upon which such Notes are transferred in accordance with Section 3.2 (the Accrued Interest) shall accrue to the benefit of Target, Target Canada or the applicable Affiliates, as the case may be. Any interest that is paid to Target, Target Canada or any such Affiliate on the Notes shall be retained by them.
(4) Subject to the terms and conditions of this Agreement, on the First Tranche Closing Date Target Canada shall transfer and assign or cause to be transferred and assigned to or at the direction of Zellers all right, title and interest of Target, Target Canada and such Affiliates, as the case may be, in and to any and all Notes acquired pursuant to this Section 3.8 prior to such time.
(5) Subject to the terms and conditions of this Agreement, on October 3, 2011 Target Canada shall transfer and assign or cause to be transferred and assigned to or at the direction of Zellers all right, title and interest of Target, Target Canada and such Affiliates, as the case may be, in and to any and all Notes acquired pursuant to this Section 3.8 that have not been transferred and assigned pursuant to Section 3.8(4).
(6) All Notes transferred and assigned pursuant to Section 3.8(4) and Section 3.8(5) shall be free and clear of any Encumbrances other than any such Encumbrances that existed when such Notes were acquired by Target, Target Canada or such Affiliates, as the case may be.
(7) Target and Target Canada shall not be required to acquire any Notes pursuant to this Section 3.8 prior to the date that is 14 days after the conditions set forth in Section 3.8(8)(d) and (e) have been satisfied or after the date that is 14 days before the Second Tranche Closing Date.
(8) The obligations pursuant to this Section 3.8 shall be subject to the following:
(a) the availability of Notes for purchase in the market at prices and on other terms and conditions consistent with this Section 3.8;
(b) compliance by the Parties with Laws;
(c) each of the Parties being satisfied, in its own discretion, with respect to any proposed purchase of Notes contemplated by this Section 3.8:
(i) that such purchase is in the best interests of such Party in the context of the transactions contemplated by this Agreement;
(ii) that such Notes may be acquired and transferred as contemplated by this Section 3.8;
(iii) with the assets, liabilities, obligations, collateral, conditions, obligors and guarantors associated with such Notes and any acquisition or transfer of such Notes; and
(iv) with the tax treatment of the transactions contemplated by this Section 3.8;
(d) in connection with each purchase of Notes, Zellers has obtained and delivered to Target Canada a Rating Agency Confirmation (as defined in the Intercreditor Agreement and in the Participation Agreement) with respect to the transfer of such Notes to Target Canada; and
(e) in connection with each purchase of Notes, Zellers has obtained the consent of all of the holders of such Notes, and if required, the consent of the Senior Lender (as defined in the Intercreditor Agreement) and any other consents as may be required, to allow the transfer of such Notes from Target Canada to Zellers or its designee without any conditions (except as may be acceptable to each Party in its own discretion) and has caused to be amended all agreements that restrict the transfer of such Notes to Zellers or its designee (including the Intercreditor Agreement and Participation Agreement) to allow such transfer without any conditions (except as may be acceptable to each Party in its own discretion), and if required, has delivered a Rating Agency Confirmation with respect to such amendments; provided that Target Canada agrees to consent to elimination of any restrictions on transfer of the Notes to Zellers or its designee.
(9) If, for any reason, Target Canada is not able to transfer and assign any Notes acquired as contemplated by this Section 3.8 in satisfaction of a portion of the Purchase Price as contemplated by Section 3.2, HBC will indemnify and save Target, Target Canada and Targets other Affiliates harmless from and against, and shall reimburse them for, the amount, if any, by which the Cost Basis of such Notes and any Accrued Interest in respect of such Notes exceeds the amount realized by them upon disposition of such Notes.
ARTICLE 4
ASSUMED LIABILITIES
Section 4.1 Assumed Liabilities.
Target Canada agrees to discharge, perform and fulfil the following, except for the Excluded Liabilities (collectively, the Assumed Liabilities):
(a) all obligations and liabilities incurred or accruing after the Effective Time on the applicable Closing Date relating to or arising under the Subject Leases, except obligations and liabilities related to any Lease Default existing prior to the relevant Closing Date;
(b) any defaults, obligations or claims arising solely as a result of the failure to obtain the consent of the applicable Landlords under the Subject Leases to: (i) the transactions contemplated by this Agreement, (ii) the assignment of the Subject Leases as contemplated by this Agreement, (iii) the entering into the Subleases, and/or (iv) the Wind-Down Actions; and
(c) all obligations and liabilities for Taxes allocated to Target Canada under Sections 3.5, 3.6, and 3.7.
Section 4.2 Excluded Liabilities.
Target Canada shall not assume, and shall have no obligation to discharge, perform or fulfil, the following liabilities and obligations (the Excluded Liabilities):
(a) except as otherwise expressly provided in Section 4.1(b), liabilities incurred or accruing prior to the Effective Time on the applicable Closing Date relating to or arising under the Subject Leases, unless otherwise agreed to by the Parties;
(b) any Taxes, other than (i) Taxes incurred or accruing after the Effective Time on the applicable Closing Date relating to or arising under the Subject Leases, and (ii) Taxes allocated to Target Canada under Sections 3.5, 3.6, and 3.7; and
(c) any other obligation or liability which Target Canada has not expressly agreed to discharge, perform or fulfil under this Agreement.
For the avoidance of doubt:
(d) any liabilities and obligations of Zellers under the Subleases shall be deemed to be Excluded Liabilities; and
(e) Target Canada shall not assume, and shall have no obligation to discharge, perform or fulfil, any liabilities or obligations relating to:
(i) contracts or agreements entered into by Zellers or its Affiliates (other than the Subject Leases); or
(ii) employees of Zellers or its Affiliates or benefits relating to those employees.
Section 4.3 As Is, Where Is.
Except for the representations, warranties, covenants and certifications of Zellers and HBC expressly set out in (i) this Agreement, (ii) the Ancillary Agreements and (iii) any closing documents delivered by Zellers on any Closing Date or Delivery Date, Target Canada irrevocably acknowledges and agrees, without condition, reservation or qualification of any kind whatsoever, that:
(a) in entering into this Agreement and completing the purchase of the Subject Leases by Target Canada contemplated hereby, Target Canada and Target have relied and will continue to rely solely and exclusively upon their own inspections, investigations and due diligence with respect to the Subject Leases and the Subject Leased Properties;
(b) the Subject Leases are being purchased by Target Canada and the Subject Leased Properties are being delivered strictly on an as is, where is basis, at Target and Target Canadas sole risk and peril, without any express or implied agreement or representation and warranty or certification of any kind whatsoever or any liability or obligation by or on behalf of Zellers as to any matter concerning or relating to the Subject Leases or the Subject Leased Properties, including its or their physical or financial condition, suitability for development, fitness for a particular purpose, marketability, title, title liens and Encumbrances (registered or otherwise), physical condition or characteristics, profitability, use or zoning, environmental condition, existence of latent defects, quality, or any other
condition or characteristic thereof, or availability or non-availability of any Landlord consent required for any assignment of the Subject Leases unless such non-availability is due to a Lease Default; and
(c) as part of Target Canadas agreement to purchase the Subject Leases and accept the Subject Leases and the Leased Properties as-is, where-is, and not as a limitation on such agreement, Target Canada and Target hereby unconditionally and irrevocably waive any and all actual or potential rights or Damages Target Canada or Target might have against Zellers pursuant to any warranty, express or implied, of any kind or type, other than those representations, warranties, covenants and certifications expressly set forth in this Agreement, the Ancillary Agreements and any closing documents delivered by Zellers or HBC on any Closing Date or Delivery Date. Such waiver includes waiver of express warranties, implied warranties, warranties of fitness for a particular use, warranties of merchantability, warranties of occupancy, strict liability and claims of every kind and type, including claims regarding defects, whether or not discoverable, product liability claims, or similar claims, and to all other extent or later created or conceived of strict liability or strict liability type claims and rights.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF ZELLERS
Section 5.1 Representations and Warranties of Zellers.
Zellers represents and warrants as of the Execution Date as follows to Target and Target Canada and acknowledges that Target and Target Canada are relying upon the representations and warranties in connection with Target Canadas purchase of the Subject Leases and the assumption by Target Canada of the Assumed Liabilities:
Corporate Matters
(a) Incorporation and Qualification. Zellers is a corporation incorporated and existing under the Laws of its jurisdiction of incorporation and has the corporate power to own and operate its property, carry on its business and enter into and perform its obligations under this Agreement.
(b) Corporate Authorization. The execution and delivery of, and performance by Zellers of, this Agreement and the Ancillary Agreements have been authorized by all necessary corporate action on the part of Zellers.
(c) No Conflict. The execution and delivery of this Agreement and the Ancillary Agreements, and the performance by Zellers of the transactions contemplated by this Agreement and the Ancillary Agreements, do not constitute or result in a violation or breach of, or conflict with, or default under, or give rise to or create an Encumbrance (other than any Permitted Encumbrance) on any Lease under, or allow any Person to exercise any rights under, any of the terms or provisions of:
(i) its constating documents or by-laws, or
(ii) any Law applicable to Zellers.
(d) Required Authorizations. Except for the Competition Act Approval and as disclosed in Section 5.1(d) of the Disclosure Letter, no material filing with, notice to, or Authorization of, any Governmental Entity is required on the part of Zellers, as a condition to the lawful completion of the transactions contemplated by this Agreement, except with respect to any filing related to the transfer of the Pharmacy Records or except for filings or Authorizations required as a result of the status or identity of Target Canada.
(e) Execution and Binding Obligation. This Agreement has been duly executed and delivered by Zellers and constitutes legal, valid and binding agreements of it enforceable against it in accordance with its terms, subject to any limitation under applicable laws relating to (i) bankruptcy, winding-up, insolvency, arrangement, fraudulent preference and conveyance, assignment and preference and other similar Laws of general application affecting the enforcement of creditors rights, and (ii) the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.
(f) Residence of Zellers. Zellers is not a non-resident of Canada within the meaning of the Tax Act.
General Matters
(g) Compliance with Laws. Other than as disclosed in the Due Diligence File or Section 5.1(g) of the Disclosure Letter, Zellers is operating the stores on the Leased Properties in compliance with all Laws in all material respects; provided, nothing in this Section 5.1(g) shall expand the scope of any representation or warranty contained in Section 5.1(i).
(h) No Options, etc. to Purchase Assets. Except for Target Canadas right under this Agreement, and except as disclosed in the Due Diligence File and in Section 5.1(h) of the Disclosure Letter, no Person has any contractual right or privilege for the purchase or other acquisition from Zellers or any of its Affiliates of any of the Subject Leases or to Zellers knowledge, as of the Execution Date, any of the Pharmacy Records.
(i) Leases and Leased Properties
(i) Section 5.1(i)(i) of the Disclosure Letter sets forth a true, accurate and complete list of each Lease by reference to its municipal address or the name of the shopping centre at which the Leased Properties are located.
(ii) Except as disclosed in Section 5.1(i)(ii) of the Disclosure Letter, the Due Diligence File contains true, accurate and complete copies of the Leases and all Default Notices, in each case in all material respects. Except as disclosed in Section 5.1(i)(ii) of the Disclosure Letter or in the Due Diligence File, and except for any amendment or other instrument entered into after the Execution Date with Target Canadas consent pursuant to
Section 7.6, the Leases have not been altered or amended in any material respect.
(iii) Except as disclosed in Section 5.1(i)(iii) of the Disclosure Letter, each of the Leases creates a valid and binding leasehold interest which interest is in full force and effect, excluding any failure of title arising from non-compliance with the Planning Act (Ontario) or any similar Laws governing subdivision or severance of real property in other provinces.
(iv) Zellers is the sole legal and beneficial owner of the leasehold interest in the Leased Properties pursuant to the Leases and has leasehold title under each of the Leases subject only to the Permitted Encumbrances, excluding any failure of title arising from non-compliance with the Planning Act (Ontario) or any similar Laws governing subdivision or severance of real property in other provinces.
(v) Except as set forth in the Due Diligence File or Section 5.1(i)(v) of the Disclosure Letter, to Zellers knowledge as of the Execution Date, there are no prohibitions or material restrictions that have impaired the use of a Leased Property for a department store or junior department store including pharmacy and food sales operations, to the extent that such uses and operations exist on such Leased Property as of the Execution Date as currently operated by Zellers, but excluding operations which are not typically conducted in a Target store.
(vi) Zellers has not entered into any agreement to sell, transfer, mortgage, or otherwise dispose of the leasehold right, title and interest of Zellers in and to any Leased Property or the air or density rights relating to any Leased Property other than as set out in the Due Diligence File or in Section 5.1(i)(vi) of the Disclosure Letter.
(vii) To Zellers knowledge, all Material Lease Defaults are listed in Section 5.1(i)(vii) of the Disclosure Letter.
(viii) Except as disclosed in Section 5.1(i)(viii) of the Disclosure Letter or in the Due Diligence File:
(1) all payments owed by Zellers under each of the Leases are not overdue and will not be overdue as of the applicable Closing Date or will be adjusted in accordance with Section 3.3;
(2) there is no Material Lease Default under any Lease;
(3) except in respect of any Failure to Operate caused by force majeure (to Zellers knowledge no such force majeure exists as of the Execution Date), at each of the Leased Properties with respect to which the Landlord has a
Landlord Recapture Right under the applicable Lease, there is no Failure to Operate; and
(4) as of the Execution Date, Zellers has not given notice to the Landlord of a material default by the Landlord under any Lease.
(ix) Except as disclosed in the Due Diligence File or in Section 5.1(i)(ix) of the Disclosure Letter, Zellers has not exercised any option to terminate or right to terminate any Lease.
(x) Except as disclosed in Section 5.1(i)(x) of the Disclosure Letter neither Zellers nor any of Zellers Affiliates has any option to purchase, right of first refusal or other similar right to acquire any Leased Property, other than as set out in the Due Diligence File.
(xi) Except as disclosed in the Due Diligence File or Section 5.1(i)(xi) of the Disclosure Letter, Zellers has not expressly waived any material rights under any Lease (i) relating to the use of the Leased Property or (ii) impairing the visibility, signage, parking or access to the Leased Property in any material respect, which remain uncompleted as of the Execution Date.
(xii) Except as disclosed in the Due Diligence File or in Section 5.1(i)(xii) of the Disclosure Letter, to the knowledge of Zellers, no written order or directive (that has not been satisfied) has been received by Zellers from any Governmental Entity (a) prohibiting the operation of any Leased Property or (b) requiring the cure or rectification of any material defects in the construction of the building or improvements on or forming a part of any of the Leased Properties or relating to any work, in order to comply with any building codes, land use, zoning by-laws, fire codes, environmental protection registration or any other Laws which, if not cured or rectified, would have a material adverse effect on any of the Leased Properties.
(xiii) Except as disclosed in Section 5.1(i)(xiii) of the Disclosure Letter, no Person has any right to purchase, option to purchase, right of first offer, right of first refusal or other similar right to acquire the Leased Properties in favour of any Person which will prevent Target Canadas acquisition of Zellers leasehold interest of any Leased Property other than Target Canada pursuant to this Agreement, and subject to generally applicable statutory rights of a Governmental Entity, no Person other than Zellers and its subtenants, licensees and concessionaires whose occupancies will be terminated by Zellers by the applicable Vacancy Date is using or has any right to use, or is in possession or occupancy of, any part of such Leased Property.
(xiv) Except as disclosed in the Due Diligence File, there is not presently outstanding in respect of any Leased Property any judgment, decree,
injunction or order of any Governmental Entity or in favour of any Person which would have a material adverse effect on such Leased Property.
(xv) Except as disclosed in the Due Diligence File or in Section 5.1(i)(xv) of the Disclosure Letter, Zellers has no knowledge of any expropriation or condemnation or similar proceeding pending or threatened against any of the Leased Properties.
Other Matters
(j) Litigation. There are no actions, suits, appeals, claims, applications, investigations, orders, proceedings, grievances, arbitrations or alternative dispute resolution processes in progress, pending, or to Zellers knowledge, threatened against Zellers, which, to the extent outstanding or if determined adversely to Zellers, would prohibit a material portion of the transactions contemplated by this Agreement.
(k) Taxes. No failure, if any, of Zellers to duly and timely withhold, collect, report, remit or pay any Taxes as required by Laws will result in an Encumbrance of any nature on the Subject Leases or the Pharmacy Records. There are no proceedings, investigations, audits or claims now pending or threatened against Zellers in respect of any Taxes, and there are no matters under discussion, audit or appeal with any Governmental Entity relating to Taxes, that may result in an Encumbrance of any nature on the Subject Leases or the Pharmacy Records. Zellers is duly registered under Subdivision (d) of Division V of Part IX of the Excise Tax Act (Canada) with respect to the goods and services tax and harmonized sales tax and under Division I of Chapter VIII of Title I of An Act Respecting the Quebec Sales Tax with respect to the Quebec sales tax, and its registration numbers are: 12196 8549 RT0001 and 101049 4016 TQ1002, respectively.
(l) Brokers. No broker, agent or other intermediary is entitled to any fee, commission or other remuneration in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Zellers or any of its Affiliates.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF TARGET CANADA AND TARGET
Section 6.1 Representations and Warranties of Target Canada and Target.
Target Canada and Target represent and warrant as of the Execution Date as follows to Zellers and acknowledge and confirm that Zellers is relying on such representations and warranties in connection with the sale by Zellers of the Subject Leases and the Pharmacy Records:
(a) Incorporation and Corporate Power. Target is and Target Canada is or will be a corporation incorporated and existing under the laws of its jurisdiction of incorporation and it has or will have the corporate power to enter into and perform its obligations under this Agreement and the Ancillary Agreements.
(b) Corporate Authorization. The execution and delivery of and performance by Target and Target Canada of this Agreement and the Ancillary Agreements have been or will be at or prior to the First Tranche Closing Date authorized by all necessary corporate action on the part of Target and each Target Canada.
(c) No Conflict. The execution and delivery of this Agreement and the Ancillary Agreements, and the performance by Target and Target Canada of the transactions contemplated by this Agreement and the Ancillary Agreements, do not constitute or result in a violation or breach of, or conflict with, or default under, or allow any Person to exercise any rights under, any of the terms or provisions of:
(i) its constating documents or by-laws; or
(ii) any Laws applicable to Target or a Target Canada, as applicable.
(d) Required Authorizations. Except for the Competition Act Approval, no material filing with, notice to or Authorization of, any Governmental Entity is required on the part of Target or Target Canada as a condition to the lawful completion of the transactions contemplated by this Agreement, except with respect to any filing related to the transfer of the Pharmacy Records.
(e) Execution and Binding Obligation. This Agreement has been duly executed and delivered by Target and constitutes legal, valid and binding agreements of it, enforceable against it in accordance with its terms, subject to any limitation under applicable Laws relating to (i) bankruptcy, winding-up insolvency, arrangement, fraudulent preference and conveyance, assignment and preference and other similar Laws of general application affecting the enforcement of creditors rights, and (ii) the discretion that a court may exercise in the granting of equitable remedies including specific performance and injunction.
(f) Financing. Target has, and will have at the relevant Closing Date, sufficient funds on hand or available to fund the payment of the Purchase Price by Target Canada.
(g) Litigation. There are no actions, suits, appeals, claims, applications, investigations, orders, proceedings, grievances, arbitrations or alternative dispute resolution processes in progress, pending, or to Targets knowledge, threatened against Target or Target Canada, which, to the extent outstanding or if determined adversely to Target or Target Canada, would prohibit any of the transactions contemplated by this Agreement.
(h) Brokers. No broker, agent or other intermediary is entitled to any fee, commission or other remuneration in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Target or Target Canada.
(i) Due Diligence. Target and Target Canada have conducted to their satisfaction an independent investigation of the Subject Leases and Subject Leased Properties
(including all matters relating to the leasehold and underlying freehold title thereto), and, in making the determination to proceed with the transactions contemplated by the Agreement, has relied solely on the results of their own independent investigation, the representations and warranties of Zellers in this Agreement and the covenants of Zellers pursuant to this Agreement and the Ancillary Agreements; provided that nothing in this Section 6.1(i) shall be construed as limiting the scope of Zellers representations, warranties, and covenants pursuant to this Agreement and the Ancillary Agreements or the ability of Target or Target Canada to rely upon them.
ARTICLE 7
COVENANTS OF THE PARTIES
Section 7.1 Actions to Satisfy Closing Conditions.
Subject to this Article 7, Zellers will use its commercially reasonable efforts to ensure compliance with all of the conditions set forth in Section 8.1 (provided that, solely for purposes of this Section 7.1, the condition set forth in Section 8.1(a)(ii) shall be deemed to require the representations and warranties contained in Section 5.1(i) to be true and correct in all material respects as of the relevant Closing Date with respect to each of the First Tranche Subject Leases or the Second Tranche Subject Leases, as the case may be) and Target will use its commercially reasonable efforts to ensure compliance with all of the conditions set forth in Section 8.2.
Section 7.2 Request for Consents.
(1) From and after the Execution Date, Target and Target Canada shall request such consents, approvals, licenses and agreements (including amendments to Leases) from such Landlords and other Persons as Target may determine to be necessary or desirable. Subject to Section 7.2(4), Zellers agrees to reasonably cooperate with Target and Target Canada in such efforts, as Target may from time to time request.
(2) Target agrees that, if it elects to approach a Landlord with a request for a consent or approval, Target will include among its requests to such Landlord a request that Zellers be released from all Lease obligations accruing after the relevant Closing Date (provided that nothing in this Section 7.2(2) shall limit the obligations of Zellers as subtenant under the Subleases). Obtaining the agreement of any Landlord to any such request shall not be a condition to Closing and in no event will Target have any liability to Zellers if any request for such release is not granted.
(3) If Target or Target Canada has designated a Lease as a Subject Lease for assignment on a Closing Date but has not obtained all consents and approvals determined by Target or Target Canada to be necessary or desirable, Target shall have the option to exclude such Lease from the Subject Leases to be assigned at the Closing and such excluded Lease shall no longer be a Subject Lease, but there shall be no reduction in the Purchase Price on account of such exclusion.
(4) In no event shall Zellers or HBC be obligated to bear any expense or pay any fee or grant any concession in connection with Target or Target Canada seeking to obtain consents, authorizations or approvals to the assignment of Subject Leases. All fees, costs and
expenses payable to third parties in connection with obtaining consents, including increased rents, landlord administration and consent fees and landlord counsel fees shall be paid by Target Canada.
(5) If any Landlord fails or refuses to provide any consent requested by Target or Target Canada (or requested by Zellers, at the request of Target or Target Canada), Zellers shall assign to Target Canada with respect to Subject Leases that are assigned to Target Canada or its Designee any rights, claims or Damages that may be available by reason of such failure or refusal (including any right to commence and prosecute any legal action against such Landlord on account of such failure or refusal), and Zellers will cooperate with Target Canadas efforts in connection with any such action.
(6) Target and Target Canada acknowledge and agree as follows:
(a) Target Canada and Target shall be solely responsible for any costs, fees, Damages, Lease Defaults, any increase in any base rent, operating costs, additional rents, percentage rents, and other charges payable under any of the Subject Leases and any other consequences as a result of the failure to request or to obtain any consents, authorizations or approvals to the assignment of the Subject Leases to Target Canada or a Designee or Designees (whether on or any time after the relevant Closing Date) or to the Subleases or to the Wind-Down Actions of Zellers and furthermore that such failure to request or obtain said consents, authorizations or approvals does not in any way limit or otherwise impact the obligations of Target or Target Canada under this Agreement, including Target Canadas obligation to complete the transactions contemplated herein on the relevant Closing Date; and
(b) that it shall indemnify and hold harmless Zellers and HBC of and from any costs, fees and Damages resulting from the actions of Target or Target Canada or any Designee or those acting by or on behalf of Target or Target Canada or any Designees in seeking consents and approvals to assign the Subject Leases to Target Canada or its Designee or Designees (whether on or anytime after the relevant Closing Dates), the Subleases and the Wind-Down Actions (including under Section 7.2(6)(a) and Section 7.2(4)).
Section 7.3 Filings and Authorizations.
(1) Each of Zellers and Target Canada, as promptly as practicable after the Execution Date, will use its commercially reasonable efforts to make, or cause to be made, all filings with, give all notices to, and obtain all Authorizations from, Governmental Entities that are necessary and desirable for the lawful completion of the assignment of the Subject Leases to Target Canada or applicable Designee or Designees and where the failure to do so would have a material adverse effect on the business of Target Canada, after the First Tranche Closing Date, taken as a whole. Target Canada will pay all filing fees incurred in connection with any such required Authorization, including Competition Act Approval.
(2) Notwithstanding any other provision in this Agreement, Target will take and will cause Target Canada to take all actions necessary to obtain as expeditiously as possible (and in
any event so as to permit the First Tranche Closing Date to occur as soon as possible), at its own expense, all Authorizations (including Competition Act Approval) required in connection with the lawful assignment of the Subject Leases to Target Canada or applicable Designee or Designees, including negotiating and effecting by consent agreement or order, hold separate arrangement, undertakings or any form of behavioural remedy or commitment.
(3) The Parties will coordinate and cooperate in exchanging information and supplying assistance that is reasonably requested in connection with this Section 7.3(3) and Section 7.3(2) including providing each other with advance copies and reasonable opportunity to comment on all notices and information supplied to or filed with any Governmental Entity (including notices and information which Zellers or Target Canada, in each case acting reasonably, consider highly confidential and sensitive, which notices and information may be provided on a confidential and privileged basis to outside counsel of the other Party), and all notices and correspondences received from any Governmental Entity. Each of Zellers and Target Canada shall keep the other apprised of the status of any such communications with, and any such inquiries or requests for additional information from, any Governmental Entities, and each Party shall comply promptly with such inquiry or request. No Party shall independently participate in any meeting, negotiation or material discussion with any Governmental Entity in respect of any such filings, inquiries, or requests, without giving the other prior notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate.
(4) As used in this Agreement, Competition Act Approval means the earlier of:
(a) either (A) the issuance to Target Canada of an advance ruling certificate by the Commissioner of Competition under Subsection 102(1) of the Competition Act to the effect that the Commissioner of Competition is satisfied that she would not have sufficient grounds upon which to apply to the Competition Tribunal for an order under Section 92 of the Competition Act with respect to the transactions contemplated by this Agreement, or (B) Target Canada shall have been advised in writing by the Commissioner of Competition that she is of the view that grounds do not exist as of the date of the advice to initiate proceedings under the merger provisions of the Competition Act in respect of the transactions contemplated by this Agreement; and
(b) the waiting period, including any extension thereof, under Section 123 of the Competition Act shall have expired or been terminated or the obligation to provide a pre-merger notification in accordance with Part IX of the Competition Act shall have been waived in accordance with paragraph 113(c) of the Competition Act.
Section 7.4 Risk of Loss.
If, prior to the relevant Closing Date, all or any part of the Subject Leased Properties are destroyed or damaged by fire or any other casualty or are appropriated, expropriated or seized by any Governmental Entity, the representations and warranties of Zellers that are not true and correct in all material respects as of the relevant Closing Date solely as a result of such
destruction, damage, appropriation, expropriation or seizure will be deemed to be true and correct in all material respects as of the relevant Closing Date for all purposes of this Agreement, and Target Canada will complete the transactions contemplated by this Agreement without reduction of the Purchase Price, in which event all proceeds of any insurance (or which would have been available except for Zellers election of deductibles or self-insurance, which amounts Zellers shall be responsible to contribute) or compensation will be payable to Target Canada and all right and claim of Zellers to any such amounts not paid by the relevant Closing Date will be assigned to Target Canada.
Section 7.5 Confidentiality.
Target acknowledges having signed a confidentiality agreement between Target and Zellers. Subject to Section 7.2, Target Canada agrees that except as provided in this Agreement and the Ancillary Agreements, the confidentiality agreement continues to apply and Target Canada is bound by its terms. The confidentiality agreement will cease to apply with respect to each Subject Lease and Subject Leased Property upon the assignment of such Subject Lease in accordance with this Agreement, and following the Second Tranche Closing Date the confidentiality agreement will terminate except as to Leases that are not Subject Leases. Zellers acknowledges that Target will be filing a copy of this Agreement with the United States Securities and Exchange Commission in accordance with Laws.
Section 7.6 Lease Amendments, Renewals and Notices.
(1) From and after the Execution Date to and including the Second Tranche Closing Date Zellers will not amend, modify, consent to, grant any approval or take any action, or omit to take any action, under or with respect to any Lease (other than the enforcement of rights under or with respect to any Lease), without the prior written consent of Target Canada, provided (i) if the action taken with respect to the Lease in question is required to allow the continued operation of the Zellers store, then Target Canadas consent may not be unreasonably conditioned or withheld, and (ii) if the immediately preceding clause (i) does not apply, then Target Canada may provide, condition or withhold such consent in its sole and absolute discretion. For the purposes of each of the foregoing matters referred to in this Section 7.6(1) in respect of any Lease and/or any other matter relating to the operation and administration of any Leased Property prior to the Second Tranche Closing Date that require Target Canadas consent or approval (each a Consent Matter), Zellers, through Brian Pall or Bruce Moore (each an Authorized Zellers Representative), may make requests from time to time for Target Canadas consent or approval with respect to any Consent Matter directly to Joan Ahrens (the Authorized Target Representative). For the purposes of this Agreement, any consent or approval with respect to any Consent Matter given by the Authorized Target Representative to an Authorized Zellers Representative from time to time, by email or other form of written communication (which email or other communication shall clearly reference this Section 7.6), shall constitute written consent of Target Canada for all purposes with respect to such Consent Matter.
(2) Section 7.6(2) of the Disclosure Letter lists each Lease (if any) that requires Zellers to deliver notice or otherwise take steps in order to extend or renew the term of such Lease after the Execution Date and prior to December 31, 2011, and the last date (the Renewal Notice Expiration Date) by which such notice must be given or such steps taken.
Target Canada shall elect by Notice given to Zellers no later than 30 days (or 14 days, with respect to Leases with a Renewal Notice Expiration Date prior to February 28, 2011) prior to the Renewal Notice Expiration Date as to whether the Lease is a Subject Lease and if so, whether Target Canada wishes to have the term extended or renewed. Failing delivery of Target Canadas Notice as aforesaid, Zellers may elect whether or not to renew or extend such Lease in its discretion, and in no event will Zellers have any liability to Target or Target Canada if such Notice is not delivered.
(3) From and after the Execution Date, to and including the Second Tranche Closing Date, Zellers will use its commercially reasonable efforts to provide to Target Canada (a) a copy of each Default Notice relating to the Leased Properties within two Business Days of receipt by Zellers or any Affiliate of Zellers of such Default Notice, and (b) a copy of each notice of default or claimed default sent by Zellers to any Landlord within two Business Days of the date any such notice is sent.
(4) The terms of this Section 7.6 do not apply in respect of any Lease which Target Canada or Target notifies Zellers will not be a Subject Lease.
Section 7.7 Zellers Entity Cooperation.
(1) Zellers, HBC and their Affiliates (each, a Zellers Entity) currently own, lease, ground lease or hold other similar interests in one or more of the developments in which a Subject Leased Property was or is located (each, a Subject Development).
(2) Zellers and HBC, on behalf of each Zellers Entity, agree to fully cooperate, subject to the allocation of costs set out in Section 7.7(2)(h), in order to allow Target Canada, Target, any Designee permitted under Section 2.7 and any of their respective Affiliates (each, a Target Entity), to enter, operate, develop, remodel and/or redevelop each Subject Development for any uses which are consistent with a first class retail shopping centre in Canada, including a Target discount department store (which store may include, pharmacy, restaurant and food sales operations without restriction as to product types or size of areas devoted to such items) as is typically operated, from time to time, in the United States or Canada (the Permitted Use). Zellers and HBC will cause each Zellers Entity on its own behalf and on behalf of those claiming, by, through and under such Zellers Entity, with respect to a Subject Development only:
(a) to modify, waive, release and terminate all use restrictions and use exclusives benefiting or enforceable by the Zellers Entity that would limit or prohibit the operation of any Permitted Use by a Target Entity.
(b) to consent to the temporary reduction, cessation or reasonable modification of operations of the Target Entity at any Subject Leased Property so as to allow for the remodelling, development or redevelopment of such Subject Leased Property which consent shall be given without such Zellers Entity availing itself of any rights in connection with such consent, including a reduction of rent, right to cease operations, right of termination or any other similar provision, if such consent relates to any Subject Development;
(c) to grant all consents and approvals for the remodelling, developing or redeveloping the interior of any building (provided that any change to the location or size of such building shall be subject to the provisions of Section 7.7(2)(e)) located or to be located on or within a Subject Development;
(d) to grant all consents and approvals for the remodelling, developing or redeveloping the exterior elevations of any building (including building signage, branding, architectural details and closure of entrances to the Target Entitys building) located or to be located on or within a Subject Development (provided that any change to the location or size of such building shall be subject to the provisions of Section 7.7(2)(e)), as well as any appurtenances immediately adjacent to the Target Entitys building (e.g., sidewalks, landscaping and loading docks), but not other common areas;
(e) to grant all consents and approvals for remodelling, developing or redeveloping any Subject Development (including the relocation or any change in the size of any building) and any freestanding signage; provided however, that notwithstanding the foregoing, the Zellers Entities shall have no obligation under this Section 7.7(2)(e) to (i) incur any Damages, liability, costs or expenses from a third party claim (other than those contemplated to be incurred by a Zellers Entity pursuant to Section 7.7(2)(h)); (ii) take or to refrain from taking any action, or to consent, approve, support or withhold objection to any matter or thing, which would or could reasonably be expected to result in Damages, liability, costs or expenses to any Zellers Entity from a third party claim (other than those contemplated to be incurred by a Zellers Entity pursuant to Section 7.7(2)(h)), in connection with the breach of any Laws or any Encumbrances existing as of the Execution Date by or to which a Zellers Entity is a party or to which it is subject, or which affects a Subject Development; or (iii) take or to refrain from taking any action, or to consent, approve, support or withhold objection to any matter or thing which would, or could reasonably be expected to, materially adversely affect the use, operation, signage, parking rights in any primary parking field, access to common areas, full pedestrian and vehicular access to all existing internal and external roadways and walkways of any Bay store or the business conducted therein (clauses (i), (ii) and (iii) are collectively, the Approval Restrictions). If any Approval Restrictions do exist under item (ii) above, each Zellers Entity will use its commercially reasonable efforts (without payment of consideration or repayment of debt) to (a) obtain the consent from any Person benefiting from such Approval Restriction and/or (b) allow for the requested co-operation of the Zellers Entity to be given in accordance with this Section 7.7;
(f) to join in applications for all permits, variances, special uses, licenses or authorizations deemed necessary or desirable by the Target Entity in connection with remodelling, development or redevelopment of the Subject Leased Property for the foregoing purposes, and to the extent such request is in compliance with Section 7.7(2)(e), the balance of any Subject Development; provided however, that no Zellers Entity shall have any obligation to join in any of the foregoing to the extent that such item would expose such Zellers Entity to Damages, liability, costs or expenses except to the extent the foregoing relate to the Zellers Entitys
authority to issue such authorization or the Target Entity agrees to protect the Zellers Entity with respect to risks through an indemnity or other arrangement satisfactory to Zellers;
(g) not to seek, request or demand any charge or concession from any Target Entity or any other third party in connection with fulfilling its obligations under this Section 7.7, except as set forth in Section 7.7(2)(h); and
(h) for each of the first 10 locations selected by any Target Entity (on an aggregate basis for all Target Entities) for cooperation by any Zellers Entity under this Section 7.7, such Zellers Entity shall be responsible and pay for all of the out of pocket costs incurred by such Zellers Entity in connection with any requests for cooperation made by such Target Entity relating to the initial redevelopment of such location by the Target Entity. Thereafter, all requests for cooperation by any Target Entity relating to (i) each additional location, or (ii) to the extent unrelated to the initial redevelopment, each of the initial 10 locations, the related Zellers Entity and the Target Entity shall each be responsible for paying 50% of the out of pocket costs incurred by such Zellers Entity with respect to any such requests, and the Target Entity shall reimburse the Zellers Entity for its share of such costs in accordance with arrangements to be made between the related Target Entity and the Zellers Entity each acting reasonably.
(3) Target Canada acknowledges that five Subject Developments (which are the following: Devonshire Mall, Windsor; Square One, Mississauga; Centrepoint Mall, North York; Les Promenades, St Bruno; and downtown Winnipeg, Manitoba) held by Zellers Entity Affiliates are subject to an existing Mortgage in favour of GE Capital Canada Finance Inc. which may be breached by the actions contemplated under Sections 7.7(2)(a) through (d) above. The remaining Subject Developments are not subject to any other material restrictions relating to such actions under any Mortgage known to Zellers relating to the Subject Development as of the Execution Date. If the Zellers Entity reasonably determines that such a breach will occur, then the Zellers Entity will use its commercially reasonable efforts (without payment of consideration or repayment of debt) to (i) obtain the consent from the Mortgage holder benefiting from the Approval Restriction in Section 7.7(2)(e)(ii) and/or (ii) allow for the requested co-operation of the Zellers Entity to be given in accordance with this Section 7.7.
(4) So as to allow each Target Entity to confirm a Zellers Entitys compliance with the provisions of this Section 7.7 prior to commencing any of the above activities, each Zellers Entity will, upon a request of a Target Entity, enter into reasonable written documentation evidencing its agreement with respect to all approvals, consents and other requests of such Target Entity with respect to such contemplated location prior to the acquisition by such party.
(5) Zellers and HBC, on behalf of each Zellers Entity, each agree that no Zellers Entity will subordinate its interest (or further restrict its rights to comply with the provisions of this Section 7.7) in any Subject Development to any future encumbrance unless such Zellers Entity receives a written non-disturbance agreement from the holder of such encumbrance with respect to the provisions of this Section 7.7.
(6) The obligations of Zellers, HBC and each Zellers Entity pursuant to this Section 7.7 shall be binding upon the successors and assigns of each such Zellers Entity, including each successor owner of the Zellers Entitys interest in the Subject Development to which such obligations may now or in the future relate. Such obligations shall bind and benefit, as the case may require, the heirs, legal representatives, assigns and successors of the respective parties, and all covenants, conditions and agreements contained in this Section 7.7 shall be construed (to the extent permitted by Laws) as covenants running with the land with respect to each Subject Development. Without limiting the generality of the foregoing, each Zellers Entity shall, at its sole cost and expense (a) inform in writing each successor, assign and purchaser of each Subject Development of the provisions of this Section 7.7, and (b) cause each such successor, assign and purchaser to assume in writing the obligations of this Section 7.7.
(7) Zellers and HBC, on behalf of each Zellers Entity, each agree that upon the request of any Target Entity, it shall execute, or cause the relevant Zellers Entity to execute, to the extent permitted by Laws (with such recordation being at the sole cost of such Target Entity), a recordable memorandum evidencing (i) the agreements contained in this Section 7.7 which may (at the Target Entitys option and cost) be registered on title in the applicable real estate records and (ii) all actions taken by such Zellers Entity pursuant to this Section 7.7.
(8) Notwithstanding anything to the contrary in this Agreement, the obligations of each Zellers Entity and Target Entity under this Section 7.7 shall commence on the Execution Date and expire on that date that is 10 years after the Second Tranche Closing Date.
ARTICLE 8
CONDITIONS OF CLOSING
Section 8.1 Conditions for the Benefit of Target and Target Canada.
The assignment and transfer of the Subject Leases and the payment of the applicable portion of the Purchase Price are subject to the following conditions being satisfied on or prior to the relevant Closing Date, which conditions are for the exclusive benefit of Target Canada and Target and may be waived, in whole or in part, by Target in its sole discretion:
(a) Truth of Representations and Warranties.
(i) The representations and warranties of Zellers contained in this Agreement other than the representations and warranties contained in Sections 5.1(g), 5.1(h) and 5.1(i) must be true and correct in all material respects as of the relevant Closing Date with the same force and effect as if such representations and warranties were made on and as of such date. However, (A) any such representations or warranties relating to Subject Leases as of the First Tranche Closing Date need only be true and correct in all material respects as they relate to the First Tranche Subject Leases, (B) any such representations or warranties relating to Subject Leases as of the Second Tranche Closing Date need only be true and correct in all material respects as they relate to the Second Tranche Subject Leases, (C) if any such representation and warranty is qualified by materiality, it must
be true and correct in all respects after giving effect to such qualification and (D) if any such representation and warranty speaks only as of a specific date (excluding for this purpose the reference to the Execution Date appearing in the first sentence of Section 5.1) it only needs to be true and correct as of that date.
(ii) The failure of the representations and warranties of Zellers contained in Sections 5.1(g), 5.1(h) and 5.1(i) (without regard, in the case of the representations and warranties contained in Sections 5.1(i)(iii), 5.1(i)(vii), and 5.1(i)(viii), to any qualification to such representations and warranties made in the Disclosure Letter) to be true and correct in all material respects as of the relevant Closing Date shall not affect 100 or more Leases designated at any time on (even if later removed from) the First Tranche Selection List or the Second Tranche Selection List in the aggregate for all Closing Dates. However, (A) any such representations or warranties relating to Subject Leases as of the First Tranche Closing Date need only be true and correct in all material respects as they relate to the First Tranche Subject Leases, (B) any such representations or warranties relating to Subject Leases as of the Second Tranche Closing Date need only be true and correct in all material respects as they relate to the Second Tranche Subject Leases, (C) if any such representation and warranty is qualified by materiality, it must be true and correct in all respects after giving effect to such qualification, and (D) if any such representation and warranty speaks only as of a specific date (excluding for this purpose the reference to the Execution Date appearing in the first sentence of Section 5.1) it only needs to be true and correct as of that date.
(iii) Target Canada must receive a certificate of a senior officer of Zellers as to the matters in this Section 8.1(a).
(b) Performance of Covenants. Zellers must have fulfilled, or complied with, in all material respects, all covenants contained in this Agreement to be fulfilled or complied with by it at or prior to the relevant Closing Date (except for any such covenants requiring Zellers to use commercially reasonable or similar efforts), and Target Canada must receive a certificate of a senior officer of Zellers to that effect.
(c) Competition Act Approval. The Competition Act Approval must have been obtained.
(d) No Legal Action. No action, proceeding, order or notice will have been made, issued or delivered by any Governmental Entity prohibiting a material portion of the transactions contemplated by this Agreement.
(e) Release of Monetary Liens. Target shall have received evidence reasonably satisfactory to it of the release of any Monetary Liens on Zellers leasehold interest in any of the First Tranche Subject Leased Properties (as of the First Tranche Closing Date) or the Second Tranche Subject Leased Properties (as of the Second Tranche Closing Date), except that, with respect to any Monetary Lien
under clause (3) of the definition of Monetary Lien, Target shall have received evidence reasonably satisfactory to it of the payment of the obligation underlying such Monetary Lien or such underlying obligation shall be the subject of an adjustment under Section 3.3.
Section 8.2 Conditions for the Benefit of Zellers.
The assignment and transfer of the Subject Leases and the payment of the applicable portion of the Purchase Price are subject to the following conditions being satisfied on or prior to the relevant Closing Date, which conditions are for the exclusive benefit of Zellers and may be waived, in whole or in part, by Zellers in its sole discretion:
(a) Truth of Representations and Warranties. The representations and warranties of each of Target Canada and Target contained in this Agreement must be true and correct in all material respects as of the relevant Closing Date with the same force and effect as if such representations and warranties had been made on and as of such date. However, if a representation and warranty is qualified by materiality, it must be true and correct in all respects after giving effect to such qualification. Zellers must receive a certificate of a senior officer of each of Target Canada and Target to the matters in this paragraph.
(b) Performance of Covenants. Each of Target Canada and Target must have fulfilled or complied with all covenants contained in this Agreement to be fulfilled or complied with by it at or prior to the relevant Closing Date (except for any such covenants requiring Target or Target Canada to use commercially reasonable or similar efforts), and Zellers must receive a certificate of a senior officer of each of Target Canada and Target to that effect.
(c) Competition Act Approval. The Competition Act Approval must have been obtained.
(d) No Legal Action. No action, proceeding, order or notice will have been made, issued or delivered by any Governmental Entity prohibiting a material portion of the transactions contemplated by this Agreement.
(e) Tax Registration. Target Canada will be duly registered under subdivision (d) of Division V of Part IX of the Excise Tax Act (Canada) with respect to goods and service tax and harmonized sales tax and, where applicable, under Division I of Chapter VIII of Title I of An Act Respecting the Quebec Sales Tax, and its registration numbers will have been provided to Zellers prior to the First Tranche Closing Date.
ARTICLE 9
CLOSING
Section 9.1 Date, Time and Place of Closing.
The completion of the transaction of purchase and sale contemplated by this Agreement will take place at the offices of Stikeman Elliott LLP, Suite 5300, Commerce Court West, Toronto,
Ontario, at 10:00 a.m. (Toronto time) on each Closing Date or at such other place, on such other date and at such other time as Zellers and Target Canada may agree to in writing.
Section 9.2 Zellers Closing Deliveries.
On each Closing Date Zellers shall deliver or cause to be delivered to Target Canada the following documents (other than the Brand Waiver, which shall only be delivered on the First Tranche Closing Date), executed by Zellers or such other necessary Persons where applicable:
(a) (i) an assignment and assumption agreement with respect to each of the relevant Subject Leases which Target Canada has not identified for assignment to a Designee, substantially in the form attached as Section 9.2(a) of the Disclosure Letter (the Lease Assignment and Assumption Agreement), and (ii) a Designee Assignment and Assumption Agreement with respect to each of the relevant Subject Leases which Target Canada has identified for assignment to a Designee;
(b) the Subleases with respect to the relevant Subject Leased Properties;
(c) a certificate of a duly authorized officer of Zellers certifying: (i) the constating documents and by-laws of Zellers; (ii) resolutions of the directors of Zellers authorizing this Agreement and the consummation of the transactions contemplated by this Agreement; (iii) the incumbency and signatures of the officers of Zellers executing this Agreement; and (iv) the matters set forth in Section 8.1(a) and Section 8.1(b);
(d) a certificate of a duly authorized officer of HBC certifying: (i) the constating documents and by-laws of HBC; (ii) resolutions of the directors of HBC authorizing this Agreement and its obligations under this Agreement; (iii) the incumbency and signatures of the officers of HBC executing this Agreement;
(e) an agreement waiving exclusivity by Zellers and HBC, on their own behalf and on behalf of their Affiliates, with respect to brands licensed to or controlled by Zellers and agreeing not to enforce by any means any of their current trademarks against any trademarks used by, applied for, or registered to Target, in the form attached as Section 9.2(e) of the Disclosure Letter (the Brand Waiver);
(f) such documentation, including declarations and certificates, as may be customarily required by any title insurer (provided Zellers and any officer thereof shall not be required to provide any such documentation to the extent same expands the scope of any representation or covenant furnished to Target Canada in this Agreement or which creates personal liability to the title insurer) and shall execute the statements required of a vendor in s. 50(22) of the Planning Act (Ontario) and similar legislation in other provinces (to the extent Zellers does not have knowledge contrary to such statements);
(g) an undertaking by Zellers to re-adjust the Final Adjustments in accordance with Section 3.3;
(h) all Books and Records of Zellers and its Affiliates in their possession or control relating to the relevant Subject Leased Properties or the relevant Subject Leases; provided that, subject to Zellers execution of a confidentiality agreement in a form reasonably acceptable to Zellers and Target Canada with respect to such Books and Records, Zellers shall have the right to retain a copy of any Books and Records for use in compliance with Laws or in connection with investigations or litigation; and
(i) all other documents which Target Canada reasonably requests to give effect to the transactions contemplated by this Agreement.
Section 9.3 Target Canadas Closing Deliveries.
On each Closing Date Target Canada shall deliver or cause to be delivered to Zellers the following documents (other than the Brand Waiver, which shall only be delivered on the First Tranche Closing Date), executed by Target Canada or such other necessary Persons (other than Zellers or Affiliate of Zellers that is transferring Pharmacy Records hereunder) where applicable:
(a) a wire transfer in satisfaction of the First Tranche Purchase Price or the Second Tranche Purchase Price, as applicable, in accordance with Section 3.2;
(b) (i) a Lease Assignment and Assumption Agreement with respect to each of the relevant Subject Leases which Target Canada has not identified for assignment to a Designee, and (ii) a Designee Assignment and Assumption Agreement, duly executed by the applicable Designee (and not by Target Canada), with respect to each of the relevant Subject Leases which Target Canada has identified for assignment to a Designee;
(c) the Subleases with respect to the relevant Subject Leased Properties duly executed by Target Canada, or if applicable, its Designees;
(d) a certificate of a duly authorized officer of Target Canada certifying: (i) the constating documents and by-laws of Target Canada; (ii) resolutions of the directors of Target Canada authorizing this Agreement and the consummation of the transactions contemplated by Target Canada; (iii) the incumbency and signatures of the officers of Target Canada executing this Agreement; and (iv) the matters set forth in Section 8.2(a) and Section 8.2(b);
(e) a certificate of a duly authorized officer of Target certifying: (i) the constating documents and by-laws of Target; (ii) resolutions of the directors of Target authorizing this Agreement and its obligations under this Agreement; (iii) the incumbency and signatures of the officers of Target executing this Agreement; and (iv) the matters set forth in Section 8.2(a) and Section 8.2(b);
(f) an undertaking by Target Canada to re-adjust the Final Adjustments in accordance with Section 3.3;
(g) a Goods and Services Tax, Harmonized Sales Tax and Quebec Sales Tax Declaration and Indemnity in the form specified in Section 9.3(g) of the Disclosure Letter; and
(h) all other documents which Zellers reasonably requests to give effect to the transactions contemplated by this Agreement.
Section 9.4 Closing Procedures.
(1) Subject to satisfaction or waiver by the relevant Party of the conditions of closing, on each Closing Date, Zellers will deliver the instruments of conveyance described in Section 9.2 to Target Canada and upon such delivery Target Canada will pay or satisfy the Purchase Price in accordance with Section 3.2. The assignment of a Subject Lease will take effect at the Effective Time on the applicable Closing Date or Delivery Date.
(2) Zellers and Target Canada covenant and agree to enter into and to cause their respective solicitors to enter into a closing arrangement as is customary for each province providing for the delivery of closing documents, the electronic submission or physical submission of documents for registration, as applicable, and other details relating to closing and registration.
Section 9.5 Closing Direction and Acknowledgement
Upon the satisfaction or waiver by the relevant parties of the conditions to closing on the Second Tranche Closing Date, Target Canada will countersign the form of direction and acknowledgement attached hereto as Schedule A thereby acknowledging that all conditions of closing in Section 8.1 of this Agreement have been satisfied or waived. Target Canada hereby agrees that upon execution of the attached form of direction and acknowledgment it has an irrevocable unconditional obligation to wire the Second Tranche Purchase Price in its entirety on October 3, 2011 without any right of set-off (except as contemplated by Section 11.10(3), to the extent that Target Canada has asserted such right of set-off on or prior to the Second Tranche Closing Date) in accordance with the direction delivered by Zellers to Target Canada on or before the Second Tranche Closing Date. The parties confirm that upon execution and delivery of such direction and acknowledgement, the Second Tranche Closing shall be complete and the value of the consideration shall have been satisfied by the promise to pay the Second Tranche Purchase Price pursuant to this Agreement.
ARTICLE 10
TERMINATION
Section 10.1 Termination Rights.
This Agreement may, by notice in writing, be terminated on the Outside Date:
(a) by Target Canada if any of the conditions in Section 8.1 have not been satisfied in respect of the First Tranche Subject Leased Properties as of the Outside Date and Target Canada has not waived such conditions at or prior to the First Tranche Closing Date, provided that Target Canada may not terminate this Agreement under this Section 10.1(a) to the extent that such conditions have not been
satisfied as a result of the failure of Target or Target Canada to perform any one or more of its obligations or covenants under this Agreement to be performed at or prior to the First Tranche Closing Date; or
(b) by Zellers if any of the conditions in Section 8.2 have not been satisfied as in respect of the First Tranche Subject Leased Properties as of the Outside Date and Zellers has not waived such condition at or prior to the First Tranche Closing Date, provided that Zellers may not terminate this Agreement under this Section 10.1(b) to the extent that such conditions have not been satisfied as a result of a failure of Zellers or HBC to perform any one or more of its obligations or covenants under this Agreement to be performed at or prior to the First Tranche Closing Date.
Section 10.2 Effect of Termination.
If a Party waives compliance with any of the conditions, obligations or covenants contained in this Agreement, the waiver will be without prejudice to any of its rights in the event of non-fulfilment, non-observance or non-performance of any other representation, warranty, condition, obligation or covenant in whole or in part or to its rights to recover Damages for any incorrectness in or breach of any representation, warranty, condition, obligation or covenant in whole or in part.
ARTICLE 11
INDEMNIFICATION
Section 11.1 Liability for Representations and Warranties.
The representations and warranties contained in this Agreement and the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a) continue in full force and effect for a period of one year after the relevant Closing Date, except that:
(a) the representations and warranties set out in Section 5.1(a), Section 5.1(b), Section 5.1(e), Section 5.1(f), Section 6.1(a), Section 6.1(b), and Section 6.1(e) and the corresponding representations and warranties set out in the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a) survive and continue in full force and effect without limitation of time;
(b) the representations and warranties set out in Section 5.1(k) (and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 8.1(a)), will survive and continue in full force and effect until 6 months after the expiration of the period during which any tax assessment may be issued by a Governmental Entity in respect of any taxation year to which such representations and warranties extend. Such period will be determined without regard to any consent, waiver, agreement or other document, made or filed after the Closing Date that extends the period during which a Governmental Entity may issue a tax assessment. A tax assessment includes any assessment, reassessment or other form of recognized document assessing liability for Taxes under Laws;
(c) the representations and warranties set out in Section 5.1(h) and Section 5.1(i) (and the corresponding representations and warranties set out in the certificates to be delivered pursuant to Section 8.1(a)) as they relate to a Subject Lease will survive and continue in full force and effect until the date that is one year after the relevant Vacancy Date for such Subject Lease; and
(d) there is no limitation as to time for claims against a Party based on fraudulent misrepresentation by that Party.
Section 11.2 Indemnification in Favour of Target and Target Canada.
Subject to Section 11.5, Zellers will indemnify and save Target and Target Canada and their respective directors, officers, employees, agents and shareholders harmless from and against, and will pay for, all Damages suffered by, imposed upon or asserted against any of them as a result of, in respect of, connected with, or arising out of, under, or pursuant to:
(a) any failure of any representation or warranty in Article 5 to be true and correct as of the Execution Date or to be true and correct in all material respects as of the relevant Closing Date (or, with respect to any such representation or warranty that speaks only as of a specific date (excluding for this purpose the reference to the Execution Date appearing in the first sentence of Section 5.1), any failure of such representation or warranty to be true and correct as of such date), in each case for which a notice of claim under Section 11.6 has been provided to Zellers within the applicable time period specified in Section 11.1;
(b) any failure of Zellers to perform or fulfil any of its covenants or obligations under this Agreement;
(c) the use or occupancy of any Subject Leased Property on or prior to the applicable Closing Date;
(d) the ownership, management or control of the operations conducted on any Subject Leased Property on or prior to the relevant Closing Date by Zellers (or any of its Affiliates, subtenants or licensees) where such ownership, management or control results in the release of contaminants for which Target or Target Canada is found liable by a Governmental Entity; and
(e) any Excluded Liabilities.
Section 11.3 Indemnification in Favour of Zellers.
Subject to Section 11.5, Target Canada will indemnify and save Zellers and its directors, officers, employees, agents and shareholders harmless from and against, and will pay for, all Damages suffered by, imposed upon or asserted against any of them as a result of, in respect of, connected with, or arising out of, under, or pursuant to:
(a) any failure of any representation or warranty in Article 6 to be true and correct as of the Execution Date or to be true and correct in all material respects as of the relevant Closing Date (or, with respect to any such representation or warranty that
speaks only as of a specific date (excluding for this purpose the reference to the Execution Date appearing in the first sentence of Section 6.1), any failure of such representation or warranty to be true and correct as of such date), in each case for which a notice of claim under Section 11.6 has been provided to Target Canada within the applicable time period specified in Section 11.1;
(b) any failure of Target Canada to perform or fulfil any of its covenants or obligations under this Agreement;
(c) the Assumed Liabilities;
(d) the use or occupancy of any Subject Leased Property after the applicable Closing Date, subject to the obligations of Zellers under the applicable Sublease; and
(e) the ownership, management or control of the operations conducted on any of the Subject Leased Properties after the relevant Closing Date by Target Canada (or any of its Affiliates, subtenants or licensees) where such ownership, management or control results in the release of contaminants for which Zellers is found liable by a Governmental Entity, subject to the obligations of Zellers under the applicable Sublease.
Section 11.4 Bulk Sales and Retail Sales Tax Waiver.
In respect of the transactions contemplated by this Agreement, Target Canada and the applicable Designee or Designees shall not require Zellers to comply, or to assist Target Canada or the applicable Designee or Designees to comply, with the requirements of (a) the Bulk Sales Act (Ontario), if applicable, or (b) section 6 of the Retail Sales Tax Act (Ontario) or any equivalent or corresponding provisions under any other applicable legislation. Notwithstanding the foregoing, Zellers shall indemnify and save harmless Target, Target Canada and the applicable Designee or Designees and their respective directors, officers, employees, agents and shareholders, on an after-Tax basis, from and against, and will pay for, all Damages suffered by, imposed upon or asserted against any of them as a result of, in respect of, connected with, or arising out of, under or pursuant to such non-compliance.
Section 11.5 Limitations.
(1) A Party has no obligation or liability for indemnification or otherwise with respect to any representation or warranty made by such Party in this Agreement, or the certificates delivered pursuant to Section 8.1(a) and Section 8.2(a), after the end of the applicable time period specified in Section 11.1, except for claims relating to the representations and warranties that the Party has been notified of prior to the end of the applicable time period.
(2) A Party has no liability for, or obligation with respect to, any punitive or aggravated damages, except to the extent awarded to a third party in a Third Party Claim.
(3) A Party has no obligation to make any payment for Damages for indemnification or otherwise with respect to the matters described in Section 11.2 or Section 11.3, as applicable:
(a) until the total of all Damages with respect to such matters exceeds $18 million, after which such Party shall be liable to make payment for all such Damages including such $18 million; and
(b) to the extent such Damages exceed a maximum of $450 million;
provided that the forgoing limitations shall not apply to Damages with respect to any breach of covenant, Excluded Liabilities, Assumed Liabilities or any of the matters referred to in Section 11.1(a), Section 11.1(b), Section 11.1(d), Section 11.2(c), Section 11.2(d), Section 11.3(d) or Section 11.3(e).
(4) A Party has no obligation to make any payment for Damages for indemnification or otherwise to the extent such Damages exceed a maximum of $1,825,000,000.
Section 11.6 Notification.
(1) If a Third Party Claim is instituted or asserted against an Indemnified Party, the Indemnified Party will promptly notify the Indemnifying Party in writing of the Third Party Claim. The notice must specify in reasonable detail, the identity of the Person making the Third Party Claim and, to the extent known, the nature of the Damages and the estimated amount needed to investigate, defend, remedy or address the Third Party Claim.
(2) If an Indemnified Party becomes aware of a Direct Claim, the Indemnified Party will promptly notify the Indemnifying Party in writing of the Direct Claim.
(3) Notice to an Indemnifying Party under this Section 11.6 of a Direct Claim or a Third Party Claim is assertion of a claim for indemnification against the Indemnifying Party under this Agreement. Upon receipt of such notice, the provisions of Section 11.9 will apply to any Third Party Claim and the provisions of Section 11.8 will apply to any Direct Claim.
Section 11.7 Limitation Periods.
Notwithstanding the provisions of the Limitations Act, 2002 (Ontario) or any other statute, a proceeding in respect of a claim for indemnification or otherwise arising from any breach or inaccuracy of any representation or warranty in this Agreement may be commenced in accordance with this Agreement. Any applicable limitation period is extended or varied to the full extent permitted by law to give effect to this Section 11.7.
Section 11.8 Procedure for Direct Claims.
(1) Following receipt of notice of a Direct Claim, the Indemnifying Party has 60 days to investigate the Direct Claim and respond in writing. For purposes of the investigation, the Indemnified Party shall make available to the Indemnifying Party the information
relied upon by the Indemnified Party to substantiate the Direct Claim, together with such other information as the Indemnifying Party may reasonably request.
(2) If the Indemnifying Party disputes the validity or amount of the Direct Claim, the Indemnifying Party shall provide written notice of the dispute to the Indemnified Party within the 60-day period specified in Section 11.8(1). The dispute notice must describe in reasonable detail the nature of the Indemnifying Partys dispute. During the 30-day period immediately following receipt of a dispute notice by the Indemnified Party, the Indemnifying Party and the Indemnified Party shall attempt in good faith to resolve the dispute. If the Indemnifying Party and the Indemnified Party fail to resolve the dispute within that 30-day time period, the Indemnified Party is free to pursue all rights and remedies available to it, subject to this Agreement. If the Indemnifying Party fails to respond in writing to the Direct Claim within the 60-day period specified in Section 11.8(1), the Indemnifying Party is deemed to have rejected the Direct Claim, in which event the Indemnified Party is free to pursue all rights and remedies available to it, subject to this Agreement.
Section 11.9 Procedure for Third Party Claims.
(1) Upon receiving notice of a Third Party Claim, the Indemnifying Party may participate in the investigation and defence of the Third Party Claim and may also elect to assume the investigation and defence of the Third Party Claim.
(2) In order to assume the investigation and defence of a Third Party Claim, the Indemnifying Party must give the Indemnified Party written notice of its election within 30 days of Indemnifying Partys receipt of notice of the Third Party Claim and acknowledge that the Third Party Claim is within the scope of its obligation to indemnify the Indemnified Party in accordance with and subject to the terms of this Article 11.
(3) If the Indemnifying Party assumes the investigation and defence of a Third Party Claim:
(a) the Indemnifying Party will pay for all costs and expenses of the investigation and defence of the Third Party Claim except that the Indemnifying Party will not, so long as it diligently conducts such defence, be liable to the Indemnified Party for any fees of other counsel or any other expenses with respect to the defence of the Third Party Claim, incurred by the Indemnified Party after the date the Indemnifying Party validly exercised its right to assume the investigation and defence of the Third Party Claim; provided, however, that if the defendants named in the Third Party Claim include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have reasonably concluded that there are legal defences or rights available to it that are in actual or potential conflict with those available to the Indemnifying Party, then the Indemnified Party shall have the right to select one law firm to act, at the Indemnifying Partys expense, as separate counsel on behalf of the Indemnified Party; and
(b) the Indemnifying Party will reimburse the Indemnified Party for all costs and expenses incurred by the Indemnified Party in connection with the investigation and defence of the Third Party Claim prior to the date the Indemnifying Party
validly exercised its right to assume the investigation and defence of the Third Party Claim.
(4) If the Indemnified Party undertakes the defence of the Third Party Claim, the Indemnifying Party will not be bound by any compromise or settlement of the Third Party Claim effected without the consent of the Indemnifying Party (which consent may not be unreasonably withheld or delayed).
(5) The Indemnifying Party will not be permitted to compromise and settle or to cause a compromise and settlement of a Third Party Claim without the prior written consent of the Indemnified Party, which consent may not be unreasonably withheld or delayed, unless:
(a) the terms of the compromise and settlement require only the payment of money for which the Indemnified Party is entitled to full indemnification under this Agreement; and
(b) the Indemnified Party is not required to admit any wrongdoing, take or refrain from taking any action, acknowledge any rights of the Person making the Third Party Claim or waive any rights that the Indemnified Party may have against the Person making the Third Party Claim.
(6) The Indemnified Party and the Indemnifying Party agree to keep the other fully informed of the status of any Third Party Claim and any related proceedings. If the Indemnifying Party assumes the investigation and defence of a Third Party Claim, the Indemnified Party will, at the request and expense of the Indemnifying Party, use its reasonable efforts to make available to the Indemnifying Party, on a timely basis, those employees whose assistance, testimony or presence is necessary to assist the Indemnifying Party in investigating and defending the Third Party Claim. The Indemnified Party shall, at the request and expense of the Indemnifying Party, make available to the Indemnifying Party, or its representatives, on a timely basis all documents, records and other materials in the possession, control or power of the Indemnified Party, reasonably required by the Indemnifying Party for its use solely in defending any Third Party Claim which it has elected to assume the investigation and defence of. The Indemnified Party shall cooperate on a timely basis with the Indemnifying Party in the defence of any Third Party Claim.
Section 11.10 Remedies.
(1) Except as provided in this Section 11.10, the indemnities provided in this Agreement constitute the only remedy of a Party against another Party in the event of any breach of a representation, warranty, covenant or agreement of such Party contained in this Agreement.
(2) The Parties may exercise their rights of termination in Section 10.1 and their rights of indemnity in Section 13.3.
(3) Target and Target Canada may set off against any amounts payable by either or both of them to Zellers or HBC under this Agreement, any amounts owing to either or both of
them by Zellers, HBC or any of their Affiliates under this Agreement or any Ancillary Agreement, including any amounts so owing under any indemnification obligations, up to a maximum aggregate amount to be so set off of $90 million.
(4) The Parties acknowledge that the failure to comply with a covenant or obligation contained in this Agreement may give rise to irreparable injury to a Party inadequately compensable in damages. Accordingly, a Party may seek to enforce the performance of this Agreement by injunction or specific performance upon application to a court of competent jurisdiction without proof of actual damage (and without requirement of posting a bond or other security).
(5) Each of the Parties expressly waives and renounces any other remedies whatsoever, whether at law or in equity, which it would otherwise be entitled to as against any other Party.
Section 11.11 One Recovery.
An Indemnified Party is not entitled to double recovery for any claims even though they may have resulted from the breach, inaccuracy or failure to perform of more than one of the representations, warranties, covenants and obligations of the Indemnifying Party in this Agreement.
Section 11.12 Duty to Mitigate.
Nothing in this Agreement in any way restricts or limits the general obligation at Law of an Indemnified Party to mitigate any loss which it may suffer or incur by reason of the breach, inaccuracy or failure to perform of any representation, warranty, covenant or obligation of the Indemnifying Party under this Agreement. If any claim can be reduced by any recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by or against any other Person, the Indemnified Party shall take all appropriate steps to enforce such recovery, settlement or payment and the amount of any Damages of the Indemnified Party will be reduced by the amount of insurance proceeds actually recovered by the Indemnified Party, net of any out-of-pocket costs incurred in obtaining such recovery and net of the present value of any increase in insurance premiums reasonably attributable to such recovery.
Section 11.13 Adjustment to Purchase Price.
Any payment made by Zellers or HBC to Target Canada under this Article 11 shall be deemed to be a dollar-for-dollar decrease in the Purchase Price. A payment made by Target Canada or Target under this Article 11 shall be deemed to be a dollar-for-dollar increase in the Purchase Price.
ARTICLE 12
OTHER COVENANTS
Section 12.1 Guarantee by HBC.
(1) HBC hereby unconditionally, absolutely, continuingly and irrevocably guarantees to Target Canada and the Indemnified Parties listed in Section 11.2 the timely payment, if any, and performance by Zellers (and its permitted assignees) of its obligations and liabilities arising under or pursuant to this Agreement and the Ancillary Agreements whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due (collectively, the Zellers Liabilities).
(2) Target Canada shall not be required to prosecute collection or seek to enforce or resort to any remedies against Zellers or any other Person liable to Target Canada or any such Indemnified Parties on account of Zellers Liabilities or any guaranty thereof. HBCs liabilities shall in no way be impaired, affected, reduced or released by reason of (i) the failure or delay by Target Canada or any of such Indemnified Parties to do or take any of the actions or things described in this Agreement, (ii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of Zellers (or its permitted assignees) or the marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings or any other inability to pay or perform affecting, Zellers (or its permitted assignees) or any of its respective assets, or (iii) any allegation concerning, or contest of the legality or validity of, the indemnification obligations under this Agreement.
(3) HBC hereby expressly waives the right to interpose all substantive and procedural defences of the law of guaranty, indemnification and suretyship, except the defences of prior payment or prior performance.
(4) Without limiting the generality of Section 12.1(1), Section 12.1(2) or Section 12.1(3), the liability of HBC under this Section 12.1 shall not be deemed to have been waived, released, discharged, impaired or affected by (a) the granting of any indulgence or extension of time to Zellers as subtenant under any Sublease, (b) the assignment of any Sublease, or the subletting of the premises under any Sublease by Zellers as subtenant under any Sublease, with or without Target Canadas consent, (c) the expiration of the term of any Sublease, (d) if Zellers, as subtenant under any Sublease, holds over beyond the term of the Sublease, (e) the rejection, disaffirmance or disclaimer of any Sublease by any party in any action or proceeding, (f) any defect or invalidity of any Sublease, or (g) any amendment, supplement or replacement of any Sublease. The liability of HBC shall not be affected by any repossession, re-entry or re-letting of any Subject Leased Property by Target Canada as sublandlord under any Sublease.
(5) In addition to the guarantee specified in Section 12.1(1), HBC shall indemnify and save Target Canada and the Indemnified Parties listed in Section 11.2 harmless from and against all Damages it or they may suffer as a result or consequence of any inability by Target Canada or such Indemnified Parties to recover the ultimate balance due or
remaining due or remaining unpaid to Target Canada and such Indemnified Parties in respect of Zellers Liabilities.
Section 12.2 Target Guarantee.
(1) Target hereby unconditionally, absolutely, continuingly and irrevocably guarantees to Zellers, HBC, and the Indemnified Parties listed in Section 11.3 the timely payment, if any, and performance by Target Canada (and its permitted assignees, including any Designee pursuant to Section 2.7, but excluding each Investment Grade Designee who enters into a Designee Assignment and Assumption Agreement or other assumption document pursuant to Section 2.7 (the Assignees)), of its obligations and liabilities arising under or pursuant to this Agreement and the Ancillary Agreements, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due (collectively, the Target Canada Liabilities).
(2) Zellers shall not be required to prosecute collection or seek to enforce or resort to any remedies against Target Canada, any Assignee or any other Person liable to Zellers or any such Indemnified Parties on account of Target Canada Liabilities or any guaranty thereof. Targets liabilities shall in no way be impaired, affected, reduced or released by reason of (i) the failure or delay by Zellers or any of such Indemnified Parties to do or take any of the actions or things described in this Agreement, (ii) the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all the assets of Target Canada (or Assignees) or the marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings or any other inability to pay or perform affecting, Target Canada (or its Assignees) or any of its respective assets, or (iii) any allegation concerning, or contest of the legality or validity of, the indemnification obligations under this Agreement.
(3) Target hereby expressly waives the right to interpose all substantive and procedural defences of the law of guaranty, indemnification and suretyship, except the defences of prior payment or prior performance.
(4) In addition to the guarantee specified in Section 12.2(1), Target shall indemnify and save Zellers, HBC and the Indemnified Parties listed in Section 11.3 harmless from and against all Damages it or they may suffer as a result or consequence of any inability by Zellers, HBC or such Indemnified Parties to recover the ultimate balance due or remaining due or remaining unpaid to Zellers, HBC and such Indemnified Parties in respect of Target Canada Liabilities.
Section 12.3 Further Assurances.
From time to time before and after the relevant Closing Date, each Party will, at the request of any other Party, execute and deliver such additional conveyances, transfers, documents, instruments and other assurances as may be reasonably required to effectively consummate the transactions contemplated by this Agreement and carry out the intent of this Agreement.
ARTICLE 13
MISCELLANEOUS
Section 13.1 Notices.
Any notice, direction or other communication given regarding the matters contemplated by this Agreement or any Ancillary Agreement (each a Notice) must be in writing, sent by personal delivery, courier or facsimile (but not by electronic mail) and addressed:
(a) to Zellers and HBC at:
401 Bay Street | |
Suite 500 | |
Toronto, Ontario M5H 2Y4 | |
|
|
Attention: |
General Manager, Legal Services |
Telephone: |
(416) 861-6932 |
Facsimile: |
(416) 861-4200 |
|
|
with a copy (which shall not constitute notice) to: | |
| |
Hudsons Bay Trading Company, LP | |
3 Manhattanville Road, 2nd Floor | |
Purchase, New York 10577 | |
|
|
Attention: |
Vice President and Secretary |
Telephone: |
(914) 272-8067 |
Facsimile: |
(914) 272-8088 |
|
|
with a copy (which shall not constitute notice) to: | |
| |
Stikeman Elliott LLP | |
5300 Commerce Court West | |
199 Bay Street | |
Toronto, Ontario M5L 1B9 | |
|
|
Attention: |
Ian Putnam |
Telephone: |
(416) 869-5506 |
Facsimile: |
(416) 947-0866 |
|
|
(b) to Target Canada and Target at: | |
|
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Target Corporation | |
1000 Nicollet Mall, TPS-2670 | |
Minneapolis, MN 55403 | |
|
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Attention: |
Timothy R. Baer, Executive Vice-President, General Counsel, |
|
Sean D. Kelly, Senior Group Counsel, and |
|
Alexander G. Tselos, Senior Counsel, Real Estate |
Telephone: |
(612) 696-6908 |
Facsimile: |
(612) 696-6909 |
|
|
with a copy (which shall not constitute notice) to: | |
| |
Osler, Hoskin & Harcourt LLP | |
Box 50, Suite 6100 | |
1 First Canadian Place | |
Toronto, Ontario M5X 1B8 | |
|
|
Attention: |
Terry Burgoyne and Heather McKean |
Telephone: |
(416) 362-2111 |
Facsimile: |
(416) 862-6666 |
|
|
with a further copy (which shall not constitute notice) to: | |
| |
Faegre & Benson LLP | |
2200 Wells Fargo Center | |
90 South Seventh Street | |
Minneapolis, Minnesota 55402 | |
| |
Attention: Michael A. Stanchfield and John R. Wheaton | |
Telephone: (612) 766-7000 | |
Facsimile: (612) 766-1600 |
A Notice is deemed to be given and received (i) if sent by personal delivery or same-day courier, on the date of delivery if it is a Business Day and the delivery was made prior to 4:00 p.m. (local time in place of receipt) and otherwise on the next Business Day, (ii) if sent by overnight courier, on the next Business Day, or (iii) if sent by facsimile, on the Business Day following the date of confirmation of transmission by the originating facsimile. A Party may change its address for service from time to time by providing a Notice in accordance with the foregoing. Any subsequent Notice must be sent to the Party at its changed address. Any element of a Partys address that is not specifically changed in a Notice will be assumed not to be changed.
Section 13.2 Time of the Essence.
Time is of the essence in this Agreement.
Section 13.3 Brokers.
Zellers shall indemnify and save harmless Target Canada and Target from and against any and all Damages and Third Party Claims whatsoever for any fee, commission or other remuneration payable or alleged to be payable to any broker, agent or other intermediary who purports to act or have acted for Zellers or any of its Affiliates. Target Canada shall indemnify and save harmless Zellers and HBC from and against any and all Damages and Third Party Claims whatsoever for any fee, commission or other remuneration payable or alleged to be payable to any broker, agent or other intermediary who purports to act or have acted for Target Canada or any of its Affiliates. These indemnities are not subject to any of the limitations set out in Article 11.
Section 13.4 Announcements.
No press release, public statement or announcement or other public disclosure with respect to this Agreement or the transactions contemplated in this Agreement may be made except with the prior written consent and approval of Target, or except if required by Law or a Governmental Entity. Where the public disclosure is required by Law or a Governmental Entity, the Party required to make the public disclosure (if not Target) will use its commercially reasonable efforts to obtain the approval of Target as to the form, nature and extent of the disclosure. The initial announcements of the transactions contemplated by this Agreement will be made in the form of attached as Section 13.4 of the Disclosure Letter.
Section 13.5 Third Party Beneficiaries.
Except as provided in Section 7.7, Zellers, HBC, Target and Target Canada intend that this Agreement will not benefit or create any right or cause of action directly in favour of any Person, other than the Parties; provided however, that the foregoing shall not limit or prohibit (i) Target or Target Canada from pursuing any and all claims, damages, remedies and rights provided hereunder on behalf of itself or for the benefit of any Designee or other assignee of Target Canada or (ii) any Designee from directly pursuing any rights under any Ancillary Agreements to which such Designee is a party. Except for the Indemnified Parties, no Person, other than the Parties, shall be entitled to directly rely on the provisions of this Agreement in any action, suit, proceeding, hearing or other forum. To the extent required by law to give full effect to these direct rights, Target Canada agrees and acknowledges that it is acting as agent and/or as trustee of its Indemnified Parties. The Parties reserve their right, subject to unanimous agreement among the Parties, to vary or rescind the rights, granted by or under this Agreement to any Person who is not a Party, at any time and in any way whatsoever, without notice to or consent of that Person, including any Indemnified Party.
Section 13.6 Expenses.
Except as otherwise expressly provided in this Agreement, each Party will pay for its own costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement. The fees and expenses referred to in this Section are those which are incurred in connection with the negotiation, preparation, execution and performance of this Agreement and the Ancillary Agreements, and the transactions contemplated by this Agreement and the Ancillary Agreements, including the fees and expenses of legal counsel, investment advisers and accountants.
Section 13.7 Amendments.
This Agreement may only be amended, supplemented or otherwise modified by written agreement signed by Zellers and Target.
Section 13.8 Waiver.
No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision (whether or not similar). No waiver will be binding unless executed in writing by the Party to be bound by the waiver. A Partys failure or delay in exercising any right under this Agreement will not operate as a waiver of that right. A single or partial exercise of any right will
not preclude a Party from any other or further exercise of that right or the exercise of any other right.
Section 13.9 Non-Merger.
Except as otherwise expressly provided in this Agreement, the covenants, representations and warranties shall not merge on and shall survive each of the relevant Closing Dates.
Section 13.10 Subdivision Laws.
This Agreement shall only be effective to create an interest in the Subject Leased Properties if the subdivision control provisions of the Planning Act (Ontario) and similar Laws governing the subdivision or severance of real property in other provinces are complied with on or before the relevant Closing Date in respect of such Subject Leased Properties. If necessary at any time and from time to time, Zellers shall forthwith apply for and use reasonable commercial efforts to obtain all necessary consents under such Laws as required in order to carry out the transactions contemplated by this Agreement in respect of the Subject Leased Properties including, without limitation:
(i) any necessary consents that were or are required in respect of any Subject Lease and any transfer occurring prior to the Execution Date; and
(ii) any necessary consents that were or are required to allow Target Canada to obtain the benefit of the full term (including renewal rights) in excess of any reduced term that is deemed to be incorporated in the Subject Lease in the event a required consent was not obtained;
on or before the relevant Closing, and comply with any and all conditions imposed in respect of such consent, at its sole cost and expense. Nothing in this Section 13.10, including non-compliance with the Planning Act (Ontario) and similar Laws governing subdivision or severance of real property in other provinces, will in any way affect Target Canadas obligation to complete the transactions contemplated by this Agreement, including paying the entire Purchase Price as contemplated by Section 3.1 without deduction or abatement of any kind; provided, however, that if such a consent will not reasonably be obtained by the relevant Closing Date, Target or Target Canada may take such interest, subject to such consent being obtained by Target or Target Canada at its expense following the relevant Closing Date or select another Subject Lease by notice given to Zellers.
Section 13.11 Entire Agreement.
This Agreement, together with Ancillary Agreements, constitutes the entire agreement between the Parties with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement or the Ancillary Agreements. The Parties have not relied and are not relying on any other information, discussion or understanding in entering into and completing the transactions contemplated by this Agreement.
Section 13.12 Successors and Assigns.
(1) This Agreement becomes effective only when executed by Zellers, HBC and Target. After that time, it is binding on and enures to the benefit of Zellers, HBC and Target, and Target Canada upon compliance with Section 1.12, and their respective successors and permitted assigns.
(2) Other than as contemplated in Section 13.12 and Section 2.7, neither this Agreement nor any of the rights or obligations under this Agreement are assignable or transferable by any Party without the prior written consent of the other Parties.
Section 13.13 Severability.
If, in any jurisdiction, any provision of this Agreement or its application to any Party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions of this Agreement and without affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to other Parties or circumstances.
Section 13.14 Governing Law.
(1) This Agreement is governed by and interpreted and enforced in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.
(2) Each Party irrevocably attorns and submits to the exclusive jurisdiction of the Ontario courts situated in the City of Toronto and waives objection to the venue of any proceeding in such court or that such court provides an inconvenient forum.
Section 13.15 Counterparts.
This Agreement may be executed in any number of counterparts (including counterparts by facsimile) and all such counterparts taken together shall be deemed to constitute one and the same instrument.
Section 13.16 Effect of Amendment and Restatement.
This Agreement sets out the Original Transaction Agreement as amended and restated by the parties and supersedes the Original Transaction Agreement and the Amending Agreement from the date hereof. The Original Transaction Agreement has been restated as provided herein solely for the purposes of reflecting the amendments thereto, and all references to the Original Transaction Agreement in any other document shall be deemed to be referenced to this Agreement without further amendment thereto.
[Remainder of page intentionally left blank. Signature page follows.]
IN WITNESS WHEREOF the Parties have executed this Amended and Restated Transaction Agreement.
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ZELLERS INC. | |
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By: |
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Authorized Signing Officer |
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By: |
David Pickwoad |
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Authorized Signing Officer |
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Dated: |
9/12/2011 |
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HUDSONS BAY COMPANY | |
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By: |
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Authorized Signing Officer |
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By: |
David Pickwoad |
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Authorized Signing Officer |
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Dated: |
9/12/2011 |
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TARGET CORPORATION | |
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By: |
Douglas A. Scovanner |
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Authorized Signing Officer |
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Dated: |
9/12/2011 |
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TARGET CANADA CO. | |
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By: |
Patricia A. Johnson |
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Authorized Signing Officer |
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Dated: |
9/12/2011 |
Exhibit (10)O
EXECUTION VERSION
Published CUSIP Number: 87613JAC8
FIVE-YEAR CREDIT AGREEMENT
dated as of
October 14, 2011
among
TARGET CORPORATION,
THE BANKS LISTED HEREIN,
THE CO-DOCUMENTATION AGENTS LISTED HEREIN,
BANK OF AMERICA, N.A.,
AS ADMINISTRATIVE AGENT
CITIBANK, N.A.,
AS SYNDICATION AGENT
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CITIGROUP GLOBAL MARKETS INC.,
J. P. MORGAN SECURITIES LLC,
WELLS FARGO SECURITIES, LLC
and
U.S. BANK NATIONAL ASSOCIATION,
AS JOINT LEAD ARRANGERS AND JOINT BOOK MANAGERS
TABLE OF CONTENTS
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Page |
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ARTICLE 1. | ||
DEFINITIONS | ||
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Section 1.01 |
Definitions |
1 |
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Section 1.02 |
Accounting Terms and Determinations |
12 |
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ARTICLE 2. | ||
THE CREDITS | ||
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Section 2.01 |
Commitments to Lend |
13 |
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Section 2.02 |
Notice of Committed Borrowings |
13 |
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Section 2.03 |
Money Market Borrowings |
14 |
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Section 2.04 |
Notice to Banks; Funding of Loans |
17 |
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Section 2.05 |
Reserved |
18 |
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Section 2.06 |
Maturity of Loans |
18 |
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Section 2.07 |
Interest Rates |
18 |
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Section 2.08 |
Facility Fees |
22 |
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Section 2.09 |
Optional Termination or Reduction of Commitments |
23 |
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Section 2.10 |
Mandatory Termination of Commitments |
23 |
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Section 2.11 |
Optional Prepayments |
23 |
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Section 2.12 |
General Provisions as to Payments |
23 |
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Section 2.13 |
Funding Losses |
24 |
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Section 2.14 |
Computation of Interest and Fees |
24 |
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Section 2.15 |
Withholding Tax Exemption |
25 |
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Section 2.16 |
Change of Control |
25 |
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Section 2.17 |
Increase in Combined Commitments |
25 |
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Section 2.18 |
Extension of Termination Date |
27 |
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Section 2.19 |
Defaulting Banks |
29 |
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Section 2.20 |
Evidence of Debt |
30 |
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ARTICLE 3. | ||
CONDITIONS | ||
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Section 3.01 |
Effectiveness |
30 |
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Section 3.02 |
Borrowings |
31 |
TABLE OF CONTENTS
(continued)
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ARTICLE 4. | ||
REPRESENTATIONS AND WARRANTIES | ||
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Section 4.01 |
Corporate Existence and Power |
32 |
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Section 4.02 |
Corporate and Governmental Authorization; No Contravention |
32 |
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Section 4.03 |
Binding Effect |
32 |
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Section 4.04 |
Financial Information |
33 |
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Section 4.05 |
Litigation |
33 |
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Section 4.06 |
Compliance with ERISA |
33 |
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Section 4.07 |
Payment of Taxes |
33 |
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Section 4.08 |
Full Disclosure |
33 |
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ARTICLE 5. | ||
COVENANTS | ||
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Section 5.01 |
Information |
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Section 5.02 |
Maintenance of Property |
35 |
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Section 5.03 |
Conduct of Business and Maintenance of Existence |
35 |
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Section 5.04 |
Compliance with Laws |
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Section 5.05 |
Consolidations, Mergers and Sale of Assets |
36 |
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Section 5.06 |
Dividends |
36 |
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Section 5.07 |
Negative Pledge |
37 |
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Section 5.08 |
Leverage Ratio |
37 |
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Section 5.09 |
Use of Proceeds |
37 |
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ARTICLE 6. | ||
DEFAULTS | ||
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Section 6.01 |
Events of Default |
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Section 6.02 |
Notice of Default |
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ARTICLE 7. | ||
THE AGENT, THE CO-DOCUMENTATION AGENTS AND THE SYNDICATION AGENT | ||
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Section 7.01 |
Appointment and Authorization |
39 |
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Section 7.02 |
Agent and Affiliates |
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Section 7.03 |
Action by Agent |
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Section 7.04 |
Consultation with Experts |
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Section 7.05 |
Liability of Agent |
40 |
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Section 7.06 |
Indemnification |
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Section 7.07 |
Credit Decision |
40 |
TABLE OF CONTENTS
(continued)
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Section 7.08 |
Successor Agent |
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Section 7.09 |
Agents Fee |
41 |
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Section 7.10 |
Co-Documentation Agents, and Syndication Agent |
41 |
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Section 7.11 |
Defaults |
41 |
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ARTICLE 8. | ||
CHANGE IN CIRCUMSTANCES | ||
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Section 8.01 |
Basis for Determining Interest Rate Inadequate or Unfair |
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Section 8.02 |
Illegality |
42 |
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Section 8.03 |
Increased Cost and Reduced Return |
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Section 8.04 |
Base Rate Loans Substituted for Affected Fixed Rate Loans |
44 |
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ARTICLE 9. | ||
MISCELLANEOUS | ||
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Section 9.01 |
Notices |
45 |
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Section 9.02 |
No Waivers; Enforcement |
45 |
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Section 9.03 |
Expenses; Documentary Taxes; Indemnification |
46 |
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Section 9.04 |
Sharing of Set-Off |
46 |
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Section 9.05 |
Amendments and Waivers |
47 |
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Section 9.06 |
Successors and Assigns |
48 |
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Section 9.07 |
Collateral |
51 |
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Section 9.08 |
Replacement of Banks |
51 |
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Section 9.09 |
Governing Law; Submission to Jurisdiction |
52 |
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Section 9.10 |
Counterparts; Integration |
52 |
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Section 9.11 |
Confidentiality |
52 |
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Section 9.12 |
No Advisory or Fiduciary Responsibility |
53 |
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Section 9.13 |
USA PATRIOT Act Notice |
53 |
EXHIBIT A |
Note |
A-1 |
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EXHIBIT B |
Form of Money Market Quote Request |
B-1 |
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EXHIBIT C |
Form of Invitation for Money Market Quotes |
C-1 |
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EXHIBIT D |
Form of Money Market Quote |
D-1 |
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EXHIBIT E |
Form of Commitment Increase Agreement |
E-1 |
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EXHIBIT F |
Form of Added Bank Agreement |
F-1 |
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EXHIBIT G |
Opinion of Counsel for the Borrower |
G-1 |
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EXHIBIT H |
Opinion of McGuireWoods LLP, Special Counsel for the Agent |
H-1 |
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EXHIBIT I |
Assignment and Assumption Agreement |
I-1 |
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EXHIBIT J |
Form of Borrowing Notice |
J-1 |
FIVE-YEAR CREDIT AGREEMENT
THIS FIVE-YEAR CREDIT AGREEMENT, dated as of October 14, 2011, is among TARGET CORPORATION, a Minnesota corporation, the BANKS listed on the signature pages hereof, the CO-DOCUMENTATION AGENTS and SYNDICATION AGENT listed herein and BANK OF AMERICA, N.A., as Administrative Agent.
The Borrower has requested that the Banks provide a revolving credit facility, and the Banks are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE 1.
DEFINITIONS
Section 1.01 Definitions. The following terms, as used herein, have the following meanings:
Absolute Rate Auction means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.
Accounts Receivable means those amounts due to a Person that would be categorized as accounts receivable in accordance with generally accepted accounting principles.
Added Bank has the meaning set forth in Section 2.17(a).
Additional Commitment Bank has the meaning set forth in Section 2.18(d)
Adjusted CD Rate has the meaning set forth in Section 2.07(b).
Adjusted London Interbank Offered Rate has the meaning set forth in Section 2.07(c).
Administrative Questionnaire means, with respect to each Bank, an administrative questionnaire in the form prepared by the Agent and submitted to the Agent (with a copy to the Borrower) duly completed by such Bank.
Agent means Bank of America, N.A. in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity.
Agreement means this Five-Year Credit Agreement as the same may be amended or restated from time to time in accordance with the terms hereof.
Anniversary Date has the meaning set forth in Section 2.18(a).
Applicable Lending Office means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-
Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office.
Applicable Margin has the meaning set forth in Section 2.07(h).
Approved Fund means any Person (other than a natural Person) that (i) is or will be engaged in making, purchasing, holding or otherwise investing in commercial Loans and similar extensions of credit in the ordinary course of its business and (ii) is administered or managed by (x) a Bank, (y) an affiliate of a Bank or (z) an entity or an affiliate of an entity that administers or manages a Bank.
Arrangers means Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and U.S. Bank National Association, each in its capacity as a joint lead arranger hereunder, and their successors in such capacity.
Assessment Rate has the meaning set forth in Section 2.07(b).
Assignee has the meaning set forth in Section 9.06(c).
Assignment and Assumption Agreement has the meaning set forth in Section 9.06(c).
Bank means each bank or other financial institution listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors.
Bank of America means Bank of America, N.A. and its successors.
Base Rate means, for any day, a fluctuating rate per annum equal to the highest of (i) the Prime Rate for such day, (ii) the sum of ½ of 1% plus the Federal Funds Rate for such day, and (iii) the London Interbank Offered Rate for such day plus 1.00%. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective on the effective date of such change in the Prime Rate or Federal Funds Rate. As used in this definition, London Interbank Offered Rate means, on any date, the rate per annum equal to (a) the British Bankers Association LIBOR Rate (BBA LIBOR), as published by Reuters (or such other commercially available source providing quotations of BBA LIBOR as designated by the Agent from time to time) at approximately 11:00 a.m. (London time) determined two Euro-Dollar Business Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (b) if such published rate is not available at such time for any reason, the rate per annum determined by the Agent to be the rate at which deposits in Dollars for delivery on the date of determination in same day funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by Bank of Americas London Branch to major banks in the London interbank eurodollar market at their request at the date and time of determination.
Base Rate Loan means a Committed Loan to be made by a Bank as a Base Rate Loan in accordance with the applicable Notice of Committed Borrowing or pursuant to Article 8.
Benefited Bank has the meaning set forth in Section 9.04.
Borrower means Target Corporation, a Minnesota corporation, and its successors.
Borrowing means the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a Base Rate Borrowing is a Borrowing comprised of Base Rate Loans, a Euro-Dollar Borrowing is a Borrowing comprised of Euro-Dollar Loans, a CD Borrowing is a Borrowing comprised of CD Loans, and a Fixed Rate Borrowing is a Borrowing comprised of Fixed Rate Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a Committed Borrowing is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a Money Market Borrowing is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith).
Capital Lease means a lease which gives rise to Capital Lease Obligations.
Capital Lease Obligations means all obligations of a Person as lessee which are capitalized in accordance with generally accepted accounting principles.
CD Base Rate has the meaning set forth in Section 2.07(b).
CD Loan means a Committed Loan to be made by a Bank as a CD Loan in accordance with the applicable Notice of Committed Borrowing.
Co-Documentation Agents means the banks listed on the signature pages hereto, in their capacity as co-documentation agents of the credit facility hereunder.
Commitment means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof or pursuant to any Assignment and Assumption Agreement, as such amount may be reduced from time to time pursuant to Section 2.09 or 2.18, or may be increased at any time pursuant to Section 2.17, the aggregate amount of which at the Effective Date is $2,250,000,000.
Committed Loan means a loan made by a Bank pursuant to Section 2.01.
Consolidated Rental Expense means, for any period, the aggregate amount, determined on a consolidated basis, of rental expense of the Borrower and its Consolidated Subsidiaries accrued during such period, but excluding any unusual non-cash adjustments to rental expenses of the Borrower related to prior periods.
Consolidated Subsidiary means, at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date.
Consolidated Tangible Net Worth means, at any date, the consolidated stockholders equity of the Borrower and its Consolidated Subsidiaries less their consolidated Intangible
Assets, all determined as of such date. For purposes of this definition Intangible Assets means the amount (to the extent reflected in determining such consolidated stockholders equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to January 29, 2011 in the book value of any asset owned by the Borrower or a Consolidated Subsidiary, (ii) all Investments in unconsolidated Subsidiaries and all equity investments in Persons which are not Subsidiaries and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expenses and other intangible assets.
Convertible Preferred Stock means all preferred stock of the Borrower that is convertible into a fixed number of shares of common stock of the Borrower at the option of the holder.
Debt of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all Capital Lease Obligations of such Person, (v) any obligation of the types described in the foregoing clauses (i)-(iv) that is secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, and (vi) any obligation of the types described in the foregoing clauses (i)-(v) that is Guaranteed by such Person.
Debt Rating means a rating of the Borrowers long-term debt which is not secured or supported by a guarantee, letter of credit or other form of credit enhancement. If a Debt Rating by a Rating Agency is required to be at or above a specified level and such Rating Agency shall have changed its system of classifications after the date hereof, the requirement will be met if the Debt Rating by such Rating Agency is at or above the new rating which most closely corresponds to the specified level under the old rating system.
Default means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default.
Defaulting Bank means, subject to Section 2.19(b), any Bank that (i) has failed to fund any portion of the Loans required to be funded by it hereunder within two Domestic Business Days of the date required to be funded by it hereunder, unless such Bank notifies the Agent and the Borrower in writing that such failure is the result of such Banks determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, (ii) has otherwise failed to pay over to the Agent or any other Bank any other amount required to be paid by it hereunder within two Domestic Business Days of the date when due, unless the subject of a good faith dispute, (iii) has notified the Borrower, the Agent or any Bank in writing that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder (unless such notification or statement also states
that its intention not to comply with its funding obligations arises from its good faith belief that the conditions thereto have not been and will not be satisfied), (iv) has failed, within three Domestic Business Days after written request by the Agent, to confirm in writing to the Agent that it will comply with its prospective funding obligations hereunder (provided that such Bank shall cease to be a Defaulting Bank pursuant to this clause (iv) upon Agents receipt of written confirmation from such Bank that such Bank will comply with its prospective funding obligations hereunder), or (v) has, or has a direct or indirect parent company that has, (A) become the subject of a bankruptcy or insolvency proceeding, (B) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it, or (C) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment; provided that a Bank shall not be a Defaulting Bank solely by virtue of the ownership or acquisition of any equity interest in that Bank or any direct or indirect parent company thereof by a governmental authority so long as such ownership interest does not result in or provide such Bank with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Bank (or such governmental authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Bank. Any determination by the Agent that a Bank is a Defaulting Bank under clauses (i) through (v) above shall be conclusive and binding absent manifest error, and such Bank shall be deemed to be a Defaulting Bank (subject to Section 2.19(b)) upon delivery of written notice of such determination to the Borrower and each other Bank.
Dollar and $ mean lawful money of the United States.
Domestic Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.
Domestic Lending Office means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require.
Domestic Loans means CD Loans or Base Rate Loans or both.
Domestic Reserve Percentage has the meaning set forth in Section 2.07(b).
Effective Date means the date this Agreement becomes effective in accordance with Section 3.01.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor statute.
ERISA Affiliate means, with respect to the Borrower or any of its Subsidiaries, at any time, each trade or business (whether or not incorporated) that would, at the time, be treated
together with the Borrower or any of its Subsidiaries as a single employer under Section 4001 of ERISA or Section 414(b), (c), (f), (m) or (o) of the Internal Revenue Code.
Euro-Dollar Business Day means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London.
Euro-Dollar Lending Office means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Agent.
Euro-Dollar Loan means a Committed Loan to be made by a Bank as a Euro-Dollar Loan in accordance with the applicable Notice of Committed Borrowing.
Euro-Dollar Reserve Percentage has the meaning set forth in Section 2.07(c).
Event of Default has the meaning set forth in Section 6.01.
Exchange Act means, at any time, the Securities Exchange Act of 1934, as amended from time to time, and any successor statute, and the rules and regulations promulgated thereunder.
Existing Five-Year Agreement means the Five-Year Credit Agreement dated as of April 12, 2007, among the Borrower, the banks listed therein, the senior managing agents, managing agents, co-agents, co-documentation agents and syndication agent listed therein, and Bank of America, N.A., as administrative agent, as the same may be amended or restated from time to time.
Existing Termination Date has the meaning set forth in Section 2.18(a).
Extending Bank has the meaning set forth in Section 2.18(e).
Federal Funds Rate means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent.
Fixed Rate Loans means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing.
Group means the Borrower and its Subsidiaries, taken as a whole.
Guarantee by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay, or advance or supply funds for the purchase or payment of, such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning.
Income Taxes means, for any period, the consolidated provision for income taxes of the Borrower and its Consolidated Subsidiaries accrued for such period.
Increased Commitment Date has the meaning set forth in Section 2.17(b).
Increasing Bank has the meaning set forth in Section 2.17(a).
Intercompany Debt means Debt owed by the Borrower and/or one or more of its Subsidiaries or any trust the beneficiary of which is controlled by the Borrower to the Borrower and/or one or more of its Subsidiaries or any trust the beneficiary of which is controlled by the Borrower.
Interest Period means: (i) with respect to each Euro-Dollar Borrowing, the period commencing on the date of such Borrowing and ending one, two, three or six months thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period commencing prior to the Termination Date which would otherwise end after the Termination Date shall end on the Termination Date;
(ii) with respect to each CD Borrowing, the period commencing on the date of such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and
(b) any Interest Period commencing prior to the Termination Date which would otherwise end after the Termination Date shall end on the Termination Date;
(iii) with respect to each Base Rate Borrowing, the period commencing on the date of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period (other than an Interest Period determined pursuant to clause (b) below) which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and
(b) any Interest Period commencing prior to the Termination Date which would otherwise end after the Termination Date shall end on the Termination Date;
(iv) with respect to each Money Market LIBOR Borrowing, the period commencing on the date of such Borrowing and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) below, end on the last Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the Termination Date applicable to the Bank holding a related Money Market LIBOR Loan shall end on the respective Termination Date for such Bank; and
(v) with respect to each Money Market Absolute Rate Borrowing, the period commencing on the date of such Borrowing and ending such number of days thereafter (but not less than 14 days) as the Borrower may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day which is not a Domestic Business Day shall be extended to the next succeeding Domestic Business Day; and
(b) any Interest Period which would otherwise end after the Termination Date applicable to the Bank holding a related Money Market Absolute Rate Loan shall end on the respective Termination Date for such Bank.
Internal Revenue Code means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute.
Investment means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise.
Level I Status exists at any date if at such date, the Borrower is at Level I in the chart appearing in the definition of Applicable Margin as a result of its Debt Ratings as determined in accordance with such definition.
Level II Status exists at any date if at such date the Borrower is at Level II in the chart appearing in the definition of Applicable Margin as a result of its Debt Ratings as determined in accordance with such definition.
Level III Status exists at any date if at such date the Borrower is at Level III in the chart appearing in the definition of Applicable Margin as a result of its Debt Ratings as determined in accordance with such definition.
Level IV Status exists at any date if at such date the Borrower is at Level IV in the chart appearing in the definition of Applicable Margin as a result of its Debt Ratings as determined in accordance with such definition.
Level V Status exists at any date if, at such date the Borrower is at Level V in the chart appearing in the definition of Applicable Margin as a result of its Debt Ratings as determined in accordance with such definition.
LIBOR Auction means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor under any conditional sale agreement or other title retention agreement relating to such asset, but excluding any asset held under a bona fide consignment arrangement.
Loan means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and Loans means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing.
London Interbank Offered Rate has the meaning set forth in Section 2.07(c).
Material Debt means Debt (other than (i) Debt incurred hereunder and (ii) Intercompany Debt) of the Borrower and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal amount exceeding $100,000,000.
Money Market Absolute Rate has the meaning set forth in Section 2.03(d).
Money Market Absolute Rate Loan means a loan to be made by a Bank pursuant to an Absolute Rate Auction.
Money Market Lending Office means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Agent; provided that any Bank may from time to time by notice to the Borrower and the Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require.
Money Market LIBOR Loan means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)).
Money Market Loan means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan.
Money Market Margin has the meaning set forth in Section 2.03(d).
Money Market Quote means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03.
Moodys means Moodys Investors Service, Inc.
Non-Extending Bank has the meaning set forth in Section 2.18(b).
Notes means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans and Note means any one of such promissory notes issued hereunder.
Notice Date has the meaning set forth in Section 2.18(a).
Notice of Borrowing means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)).
Parent means, with respect to any Bank, any Person controlling such Bank.
Participant has the meaning set forth in Section 9.06(b).
Pension Act means the Pension Protection Act of 2006.
Pension Funding Rules means the rules of the Internal Revenue Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Internal Revenue Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Internal Revenue Code and Sections 302, 303, 304 and 305 of ERISA.
Person means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Plan means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and is either (i) maintained by the Borrower or any Subsidiary for employees of the Borrower and/or any Subsidiary or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower or any Subsidiary is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions.
Prime Rate means the rate of interest publicly announced from time to time by Bank of America, N.A. as its prime rate.
Rating Agency means S&P or Moodys.
Reference Banks means Bank of America, N.A., JPMorgan Chase Bank, N.A. and Citibank, N.A., or the successors thereof, and Reference Bank means any one of such Reference Banks.
Refunding Borrowing means a Committed Borrowing which, after application of the proceeds thereof, results in no net increase in the outstanding principal amount of Committed Loans made by any Bank.
Registered Public Accounting Firm has the meaning specified in the federal securities laws.
Regulation U means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time.
Request Period has the meaning set forth in Section 2.18(a).
Required Banks means at any time Banks having in the aggregate more than 50% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, Banks holding in the aggregate more than 50% of the aggregate unpaid principal amount of the Loans (excluding Money Market Loans); provided that the Commitment of, and the portion of
the aggregate unpaid principal amount of the Loans held by, any Defaulting Bank shall be excluded for purposes of making a determination of Required Banks.
Response Deadline has the meaning set forth in Section 2.18(b).
S&P means Standard & Poors Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto .
Significant Subsidiary means a Significant Subsidiary of the Borrower, as such term is defined in Regulation S-X promulgated by the Securities and Exchange Commission.
Status means, at any date, whichever of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists at such date.
Subsidiary means any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by the Borrower.
Syndication Agent means Citibank, N.A. in its capacity as syndication agent of the credit facility hereunder.
Termination Date means the later of (a) October 14, 2016 or (b) if the term of this Agreement is extended pursuant to Section 2.18, such extended termination date as determined pursuant to such Section; provided, however, that, in each case, if such date is not a Domestic Business Day, the next preceding Domestic Business Day; provided further that with respect to any Non-Extending Bank, the Termination Date of such Non-Extending Banks Commitment shall be the Existing Termination Date notwithstanding the extension of Commitments by any other Bank pursuant to Section 2.18.
Total Capitalization means, at any date, the sum (without duplication) of (i) the consolidated stockholders equity of the Borrower and its Consolidated Subsidiaries plus (ii) the net amount of Convertible Preferred Stock as reflected in the consolidated statements of financial position of the Borrower and its Consolidated Subsidiaries plus (iii) Total Finance Liabilities, all determined as of such date.
Total Finance Liabilities means, at any date, the sum of (i) all Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis as of such date, plus (ii) an amount equal to (a) the Consolidated Rental Expense for the period of four consecutive fiscal quarters of the Borrower ending on such date times (b) eight.
Voting Stock means capital stock of any class or classes (however designated) having voting power for the election of directors of the Borrower, other than stock having such power only by reason of the happening of a contingency.
Section 1.02 Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrowers independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks (provided that for the purpose of calculating covenant compliance under Article 5, the effect of FASB ASC Topic 815 shall not be applied); provided that, if the Borrower notifies the Agent that the Borrower wishes to amend any covenant in Article 5 to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Borrower that the Required Banks wish to amend Article 5 for such purpose), then the Borrowers compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect for purposes of this Agreement immediately before the relevant change in generally accepted accounting principles became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks.
ARTICLE 2.
THE CREDITS
Section 2.01 Commitments to Lend. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time after the Effective Date and prior to the Termination Date in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding shall not exceed the amount of its Commitment. Each Borrowing under this Section shall be in an aggregate principal amount of $25,000,000 or any larger multiple of $5,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(b)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section, repay, or to the extent permitted by Section 2.11, prepay Loans and reborrow at any time prior to the Termination Date under this Section.
Section 2.02 Notice of Committed Borrowings. The Borrower shall give the Agent notice (a Notice of Committed Borrowing) not later than 11:00 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying:
(a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing;
(b) the aggregate amount of such Borrowing;
(c) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans; and
(d) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period.
Section 2.03 Money Market Borrowings.
(a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks to make offers to make, prior to the Termination Date only, Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. No Money Market Loan shall be deemed to be a use or reduction of the Commitment of any Bank, including the Bank making such Money Market Loan. Notwithstanding the foregoing, while any Money Market Loan is outstanding, the availability of Committed Loans under this Agreement shall be reduced dollar-for-dollar by an amount equal to the outstanding principal amount of such Money Market Loan.
(b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Agent by facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 11:00 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction, or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction;
(ii) the aggregate amount of such Borrowing, which shall be $25,000,000 or a larger multiple of $5,000,000 and which shall not exceed the aggregate amount available in accordance with Section 3.02(b);
(iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period; and
(iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Agent may agree) of any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Agent shall send to the Banks by facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which
shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section.
(d) Submission and Contents of Money Market Quotes.
(i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Agent by facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 10:15 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) 1:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 10:00 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing;
(B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $l,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted;
(C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the Money Market Margin) offered for each such Money Market Loan, expressed as a
percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate;
(D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the Money Market Absolute Rate) offered for each such Money Market Loan; and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the Borrower of the terms (i) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (ii) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Agents notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 11:00 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction, or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to subsection (e). In the case of acceptance, such notice (a Notice of Money Market Borrowing) shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that:
(i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request;
(ii) the principal amount of each Money Market Borrowing must be $25,000,000 or a larger multiple of $5,000,000;
(iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be; and
(iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error.
Section 2.04 Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of the contents thereof and of such Banks share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 1:00 P.M. (New York City time) on the date of each Borrowing, each Bank participating therein shall (except as provided in subsection (c) of this Section 2.04) make available its share of such Borrowing, in Federal or other funds immediately available in San Francisco, California, to the Agent at its address referred to in Section 9.01. Unless the Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Agent will make the funds so received from the Banks available to the Borrower at the Agents aforesaid address.
(c) If any Bank makes a new Loan hereunder on a day on which the Borrower is to repay all or any part of an outstanding Loan from such Bank, such Bank shall apply the proceeds of its new Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall
be made available by such Bank to the Agent as provided in subsection (b), or remitted by the Borrower to the Agent as provided in Section 2.12, as the case may be.
(d) Unless the Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Agent such Banks share of such Borrowing, the Agent may assume that such Bank has made such share available to the Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Bank shall not have so made such share available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate or the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Banks Loan included in such Borrowing for purposes of this Agreement. The failure of any Bank to make available its share of any Borrowing shall not relieve any other Bank of its corresponding obligation to do so on the date when due, and no Bank shall be responsible for the failure of any other Bank to so make its share available.
Section 2.05 Reserved.
Section 2.06 Maturity of Loans. Each Loan included in any Borrowing shall mature, and the principal amount thereof shall be due and payable, on the last day of the Interest Period applicable to such Borrowing.
Section 2.07 Interest Rates.
(a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the sum of the Applicable Margin for such day plus the Base Rate for such day. Such interest shall be payable for each Interest Period on the last day thereof. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day.
(b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the Adjusted CD Rate for such Interest Period; provided that if any CD Loan shall, as a result of clause (ii)(b) of the definition of Interest Period, have an Interest Period of less than 30 days, such Loan shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Applicable Margin for such day plus the Adjusted CD Rate applicable to such Loan and (ii) the rate applicable to Base Rate Loans for such day.
The Adjusted CD Rate applicable to any Interest Period means a rate per annum determined pursuant to the following formula:
ACDR(1) = |
|
[CDBR] + AR | ||
|
|
[1.00-DRP] | ||
ACDR = |
|
Adjusted CD Rate |
|
|
CDBR = |
|
CD Base Rate |
|
|
DRP = |
|
Domestic Reserve Percentage |
|
|
AR = |
|
Assessment Rate |
|
|
The CD Base Rate applicable to any Interest Period is the rate of interest determined by the Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 11:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period.
Domestic Reserve Percentage means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage.
Assessment Rate means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup A (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. § 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporations (or such successors) insuring time deposits, at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate.
(1) Rounded upward, if necessary, to the next higher 1/100 of 1%.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of the Applicable Margin for such day plus the Adjusted London Interbank Offered Rate for such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof.
The Adjusted London Interbank Offered Rate applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage.
The London Interbank Offered Rate means, for such Interest Period, the rate per annum equal to the British Bankers Association LIBOR Rate (BBA LIBOR), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Agent from time to time) at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period. If such rate is not available at such time for any reason, then the London Interbank Offered Rate for such Interest Period shall be the rate per annum determined by the Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Euro-Dollar Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of Americas London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days prior to the commencement of such Interest Period.
Euro-Dollar Reserve Percentage means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Bank, under regulations issued from time to time by the Board of Governors of the Federal Reserve System for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as Eurocurrency liabilities). The applicable interest rate for each outstanding Euro-Dollar Loan shall be adjusted automatically as of the effective date of any change in the Euro-Dollar Reserve Percentage.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment, at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the Applicable Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Loan and (ii) the sum of the
Applicable Margin for such day plus the Adjusted London Interbank Offered Rate as of such day applicable to such Loan amount for a presumed one-month Interest Period (or if such amount due remains unpaid more than three Euro-Dollar Business Days, then for a presumed six-month Interest Period), or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day.
(e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day.
(f) The Agent shall determine each interest rate applicable to the Loans hereunder. The Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply.
(h) The Applicable Margin with respect to any Euro-Dollar Loan, CD Loan or Base Rate Loan at any date is the applicable percentage amount set forth below in the applicable column, which shall be (i) determined based upon the Debt Rating as specified below and (ii) applicable to all Euro-Dollar Loans, CD Loans and Base Rate Loans existing on and after the first date a specific Debt Rating is effective (the Debt Rating Date) and continuing until, but not including, the immediate next Debt Rating Date:
Level |
|
Debt Rating |
|
Applicable |
|
Applicable |
|
I |
|
Greater than or equal to AA- by S&P or Aa3 by Moodys |
|
0.610 |
% |
0.000 |
% |
II |
|
A+ by S&P or A1 by Moodys |
|
0.680 |
% |
0.000 |
% |
III |
|
A by S&P or A2 by Moodys |
|
0.800 |
% |
0.000 |
% |
IV |
|
A- by S&P or A3 by Moodys |
|
0.900 |
% |
0.000 |
% |
V |
|
Equal to or less than BBB+ by S&P or Baa1 by Moodys |
|
1.125 |
% |
0.125 |
% |
In the event that the Debt Ratings assigned by S&P and Moodys differ, the Applicable Margin and the Facility Fee Rate referred to in Section 2.08 shall be determined by reference to the rating level having the higher Debt Rating unless such ratings are more than one level apart, in which case the rating level that is one tier below the higher of the two ratings shall determine the Applicable Margin and the Facility Fee Rate. The final Debt Rating level by which the Applicable Margin and the Facility Fee Rate are determined is referred to herein as a Level.
In the event that either S&P or Moodys (but not both) shall not make a Debt Rating, the above calculations of the Applicable Margin and the Facility Fee Rate shall be made based on (i) the rating provided by S&P or Moodys, whichever shall then maintain a current Debt Rating, and (ii) the Debt Rating provided by a nationally recognized securities rating agency selected by the Borrower and approved by the Agent, which shall be substituted for either S&P or Moodys, as the case may be (the Alternative Rating Agency), and the Alternative Rating Agencys equivalent rating levels shall be substituted for the Debt Rating levels of either S&P or Moodys, whichever shall no longer then make the applicable Debt Rating.
Section 2.08 Facility Fees.
(a) The Borrower shall pay to the Agent for the account of the Banks ratably in proportion to their respective Commitments a facility fee at the Facility Fee Rate (as defined below). Such facility fee shall accrue from and including the date hereof to but excluding the Termination Date, on the daily aggregate amount of the Commitments (whether used or unused).
(b) Facility Fee Rate means, at any date, a rate per annum equal to (i) 0.065%, if Level I Status exists at such date, (ii) 0.070%, if Level II Status exists at such
date, (iii) 0.075%, if Level III Status exists at such date, (iv) 0.100%, if Level IV Status exists at such date, and (v) 0.125% if Level V Status exists at such date.
(c) Accrued fees under this Section shall be payable quarterly in arrears on each September 1, December 1, March 1 and June 1 and upon the respective Termination Date for each Bank (and, if later, the date the Loans shall be repaid in their entirety).
Section 2.09 Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days notice to the Agent, (a) terminate the Commitments at any time, if no Loans are outstanding at such time, or (b) ratably reduce from time to time by an aggregate amount of $25,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the aggregate outstanding principal amount of the Loans.
Section 2.10 Mandatory Termination of Commitments. The Commitments of each Bank shall terminate on its respective Termination Date, and any Loans then outstanding (together with accrued interest thereon) shall be due and payable on such date.
Section 2.11 Optional Prepayments.
(a) The Borrower may, upon at least one Domestic Business Days notice to the Agent, prepay any Base Rate Borrowing (or any Money Market Borrowing bearing interest at the Base Rate pursuant to Section 8.01(a)) in whole at any time, or from time to time in part in amounts aggregating $25,000,000 or any larger multiple of $5,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Borrowing.
(b) Except as provided in Sections 2.18 and 8.02, and subject to Section 2.13, the Borrower may not prepay all or any portion of the principal amount of any Fixed Rate Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to this Section, the Agent shall promptly notify each Bank of the contents thereof and of such Banks ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower.
Section 2.12 General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in San Francisco, California, without set-off, deduction, recoupment or counterclaim, to the Agent at its address referred to in Section 9.01. The Agent will promptly distribute to each Bank its ratable share of each such payment received by the Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day unless such Domestic Business Day occurs after the Termination Date, in which case the date for payment
thereof shall be the next preceding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month or occurs after the Termination Date, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month or occurs after the Termination Date, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, at the Federal Funds Rate.
Section 2.13 Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan (pursuant to Section 2.16, Article 6 or 8 or otherwise) on any day other than the last day of the Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), or if any Bank shall be required to assign to any other Bank any portion of a Committed Loan pursuant to Section 2.17(b), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment or failure to borrow, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error.
Section 2.14 Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day).
Section 2.15 Withholding Tax Exemption.
At least five Domestic Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Bank, each Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to each of the Borrower and the Agent two duly completed copies of United States Internal Revenue Service Form W-8 (including Form W-8BEN or W-8EC1), certifying in either case that such Bank is entitled to receive payments under this Agreement and its Note, if applicable, without deduction or withholding of any United States federal income taxes. Each Bank which so delivers a Form W-8BEN or W-8EC1 further undertakes to deliver to the Agent on behalf of the Borrower two additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, in each case certifying that such Bank is entitled to receive payments under this Agreement and its Notes, if applicable, without deduction or withholding of any United States federal income taxes, unless an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Borrower and the Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.
Section 2.16 Change of Control. If a Change of Control shall occur (a) the Borrower will, within ten days after the occurrence thereof, give each Bank notice thereof and shall describe in reasonable detail the facts and circumstances giving rise thereto and (b) each Bank may, by three Domestic Business Days notice to the Borrower and the Agent given not later than 60 days after receipt of such notice of Change of Control, terminate its Commitment, which shall thereupon be terminated, and declare all of the outstanding Committed Loans and the Money Market Loans made by it (together with accrued interest thereon) and any other amounts payable hereunder for its account to be, and such Loans and such other amounts (including, without limitation, amounts payable under Section 2.13) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. For the purpose of this Section, a Change of Control shall occur if (i) a majority of the directors of the Borrower shall be Persons other than Persons (x) for whose election proxies shall have been solicited by the Board of Directors of the Borrower or (y) who are then serving as directors appointed by the Board of Directors to fill vacancies on the Board of Directors caused by death or resignation (but not by removal) or to fill newly-created directorships or (ii) any person or group of persons (within the meaning of Section 13 or 14 of the Exchange Act) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act) of 50% or more in voting power of the outstanding Voting Stock.
Section 2.17 Increase in Combined Commitments.
(a) The Borrower shall have the right, without the consent of the Banks, subject to the terms of this Section 2.17, to effectuate from time to time, at any time prior to the then effective Termination Date, an increase in the combined Commitments under
this Agreement by adding to this Agreement one or more other banks or other financial institutions reasonably acceptable to the Agent and the Borrower and qualifying as an Assignee hereunder, who shall, upon completion of the requirements of this Section 2.17 constitute Banks hereunder (an Added Bank), or by allowing one or more Banks in their sole discretion to increase their respective Commitments hereunder (each an Increasing Bank), so that such added and increased Commitments shall equal the increase in Commitments effectuated pursuant to this Section 2.17; provided that (i) there shall not be any increased Commitment or any added Commitment, unless the aggregate increase or addition to be effected is at least $25,000,000, (ii) no increase in or added Commitments pursuant to this Section 2.17 shall result in combined Commitments exceeding $2,750,000,000, (iii) no Banks Commitment shall be increased under this Section 2.17 without the consent of such Bank, and (iv) there shall not exist any Default or Event of Default immediately prior to and immediately after giving effect to such increased or added Commitment. The Borrower shall deliver or pay, as applicable, to the Agent not later than ten Domestic Business Days prior to any such increase in Commitments each of the following items with respect to each Added Bank and Increasing Bank:
(i) a written notice of Borrowers intention to increase the combined Commitments pursuant to this Section 2.17, which shall specify each Added Bank and Increasing Bank, if any, the changes in amounts of Commitments that will result, and such other information as is reasonably requested by the Agent;
(ii) documents in the form of Exhibit E or Exhibit F, as may be required by the Agent, executed and delivered by each Added Bank and each Increasing Bank, pursuant to which it becomes a party hereto or increases its Commitment, as the case may be;
(iii) if requested by the applicable Bank, Notes or replacement Notes, as the case may be, executed and delivered by Borrower; and
(iv) a non-refundable processing fee of $3,500 with respect to each Added Bank or Increasing Bank for the sole account of the Agent.
(b) Upon receipt of any notice referred to in clause (a)(i) above, the Agent shall promptly notify each Bank thereof. Upon execution and delivery of such documents and the payment of such fee (the Increased Commitment Date), each such Added Bank shall constitute a Bank for all purposes under this Agreement and related documents without any acknowledgment by or the consent of the other Banks, with a Commitment as specified in such documents, or such Banks Commitment shall increase as specified in such documents, as the case may be. Immediately upon the effectiveness of the addition of such Added Bank or the increase in the Commitment of such Increasing Bank under this Section 2.17, (i) the respective pro rata shares of the Banks shall be deemed modified as appropriate to correspond to such changed combined Commitments, and (ii) if there are at such time outstanding any Committed Loans, each Bank whose pro rata share has been decreased as a result of the increase in the combined Commitments shall be deemed to have assigned, without recourse, to each Added Bank and Increasing
Bank such portion of such Banks Committed Loans as shall be necessary to effectuate such adjustment in pro rata shares. Each Increasing Bank and Added Bank (x) shall be deemed to have assumed such portion of such Committed Loans and (y) shall fund to each other Bank on the Increased Commitment Date the amount of Committed Loans assigned by it to such Bank. The Borrower agrees to pay to the Banks on demand any and all amounts to the extent payable pursuant to Section 2.13 as a result of any such prepayment of Committed Loans occasioned by the foregoing increase in Commitments and the reallocation of the pro rata shares.
(c) This section shall supercede any provisions in Section 9.06(b) to the contrary.
Section 2.18 Extension of Termination Date.
(a) Requests for Extension. The Borrower may, by notice to the Agent, given not earlier than 60 days prior to each of the first and second anniversaries of the Effective Date hereof (each such anniversary being referred to herein as an Anniversary Date and each such 60 day period prior to an Anniversary Date being referred to herein as a Request Period), request that each Bank extend its Commitment beyond such Banks Termination Date then in effect (the Existing Termination Date) for an additional one-year period from the Existing Termination Date; provided that no more than one such request may be made during each Request Period. The Agent shall promptly notify each Bank of the Borrowers request for such extension (the date such notice is given being referred to herein as the Notice Date).
(b) Bank Elections to Extend. Each Bank, acting in its sole discretion, shall, by notice to the Agent given not later than 30 days following the Notice Date, advise the Agent whether or not such Bank agrees to such extension (each such Bank that determines not to so extend its Commitment being referred to as a Non-Extending Bank)). Any Bank that does not so advise the Agent on or before the 30th day following the Notice Date (the Response Deadline) shall be deemed to be a Non-Extending Bank. The election of any Bank to agree to such extension of the Termination Date shall not obligate any other Bank to so agree.
(c) Notification by Agent. The Agent shall notify the Borrower of each Banks determination under this Section 2.18 no later than the 5th Domestic Business Day after the Response Deadline.
(d) Additional Commitment Banks. The Borrower shall have the right on or before the related Anniversary Date to replace each Non-Extending Bank with, and add as Banks under this Agreement in place thereof, one or more Assignees (each, an Additional Commitment Bank) as provided in Section 9.06, provided that each of such Additional Commitment Banks shall enter into an Assignment and Assumption Agreement pursuant to which such Additional Commitment Bank shall undertake a Commitment (and, if any such Additional Commitment Bank is already a Bank, its Commitment shall be in addition to such Banks Commitment hereunder on such date).
(e) Minimum Extension Requirement. If (and only if) the total of the Commitments of the Banks that have agreed to so extend the Termination Date (each, an Extending Bank) and the additional Commitments of the Additional Commitment Banks shall be more than 51% of the aggregate amount of the Commitments in effect immediately prior to the related Anniversary Date, then, effective as of the related Anniversary Date (but subject to the prior satisfaction of the conditions set forth in clause (f) below), the Termination Date of this Agreement and the Termination Date with respect to the Commitments of each Extending Bank and of each Additional Commitment Bank shall be extended to the date falling one year after the Existing Termination Date (except that, if such date is not a Domestic Business Day, such Termination Date as so extended shall be the next preceding Domestic Business Day) and each Additional Commitment Bank shall thereupon become a Bank for all purposes of this Agreement. Notwithstanding anything herein to the contrary, the Commitment of each Non-Extending Bank shall remain in full force and effect until and shall terminate on the Existing Termination Date for such Non-Extending Bank, unless such Non-Extending Bank is replaced prior to the related Anniversary Date by an Additional Commitment Bank as provided in clause (d) above.
(f) Conditions to Effectiveness of Extensions. Notwithstanding the foregoing, the extension of the Termination Date pursuant to this Section shall not be effective with respect to any Bank unless:
(i) no Default shall have occurred and be continuing on the date of such extension and after giving effect thereto;
(ii) the representations and warranties of the Borrower contained in this Agreement that are qualified by materiality are true and correct and the representations and warranties of the Borrower contained in the Agreement that are not qualified by materiality are true and correct in all material respects, in each case on and as of the date of such extension and after giving effect thereto, as though made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date);
(iii) at the time of such extension no material adverse change has occurred since January 29, 2011 in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries considered as a whole; and
(iv) the chief financial officer, treasurer or assistant treasurer of the Borrower shall have delivered to the Agent a certificate, dated the Anniversary Date with respect to such extension, as to the matters referred to in clauses (i) through (iii) above.
(g) Payment of Non-Extending Banks. On the effective date of any extension of the Termination Date hereunder, the Borrower shall prepay any Committed Loans outstanding on such date (and pay any additional amounts required pursuant to Section
2.08 or 2.13) to the extent necessary to keep outstanding Committed Loans ratable with any revised pro rata allocation of the Commitments of the respective Banks effective as of such date.
(h) Conflicting Provisions. This Section shall supersede any provisions in Section 9.06 to the contrary.
Section 2.19 Defaulting Banks.
(a) Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Bank becomes a Defaulting Bank, then, until such time as that Bank is no longer a Defaulting Bank, to the extent permitted by applicable Law:
(i) Waivers and Amendments. That Defaulting Banks right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in Section 9.05.
(ii) Reallocation of Payments. Any payment of principal, interest, fees or other amounts received by the Agent for the account of that Defaulting Bank (whether voluntary or mandatory, at maturity, pursuant to Article 6 or otherwise, and including any amounts made available to the Agent by that Defaulting Bank pursuant to Section 9.04, but excluding any amounts received from the Borrower under Section 2.04(d)), shall be applied at such time or times as may be determined by the Agent as follows: first, to the payment of any amounts owing by that Defaulting Bank to the Agent hereunder; second, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which that Defaulting Bank has failed to fund its portion thereof as required by this Agreement, as determined by the Agent; third, if so determined by the Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of that Defaulting Bank to fund Loans under this Agreement; fourth, to the payment of any amounts owing to the Banks as a result of any judgment of a court of competent jurisdiction obtained by any Bank against that Defaulting Bank as a result of that Defaulting Banks breach of its obligations under this Agreement; fifth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Bank as a result of that Defaulting Banks breach of its obligations under this Agreement; and sixth, to that Defaulting Bank or as otherwise directed by a court of competent jurisdiction; provided, however, notwithstanding the foregoing clauses first through sixth, if (x) such payment is a payment of the principal amount of any Loans in respect of which that Defaulting Bank has not fully funded its appropriate share and (y) such Loans were made at a time when the conditions set forth in Section 3.02 were satisfied or waived, such payment shall be applied solely to pay the Loans of all non-Defaulting Banks on a pro rata basis prior to being applied to the payment of any Loans of that Defaulting Bank. Any payments, prepayments or other amounts paid or payable to a Defaulting Bank that are applied (or held) to pay amounts owed by a
Defaulting Bank pursuant to this Section 2.19(a)(ii) shall be deemed paid to and redirected by that Defaulting Bank, and each Bank irrevocably consents hereto.
(iii) Certain Fees. That Defaulting Bank shall be entitled to receive any facility fee pursuant to Section 2.08 for any period during which that Bank is a Defaulting Bank only to extent allocable to the outstanding principal amount of Loans funded by it (and the Borrower shall not be required to pay the remaining amount of such fee that otherwise would have been required to have been paid to that Defaulting Bank).
(b) Defaulting Bank Cure. If the Borrower and the Agent agree in writing in their sole discretion that a Defaulting Bank should no longer be deemed to be a Defaulting Bank, the Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Bank will, to the extent applicable, purchase that portion of outstanding Loans of the other Banks or take such other actions as the Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Banks in proportion to their respective Commitments, whereupon that Bank will cease to be a Defaulting Bank; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Bank was a Defaulting Bank; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Bank to Bank will constitute a waiver or release of any claim of any party hereunder arising from that Banks having been a Defaulting Bank.
Section 2.20 Evidence of Debt. The Loans made by each Bank shall be evidenced by one or more accounts or records maintained by such Bank and by the Agent in the ordinary course of business. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to its obligations hereunder. In the event of any conflict between the accounts and records maintained by any Bank and the accounts and records of the Agent in respect of such matters, the accounts and records of the Agent shall control in the absence of manifest error.
ARTICLE 3.
CONDITIONS
Section 3.01 Effectiveness. This Agreement shall become effective on the date that each of the following conditions shall have been satisfied (or waived in accordance with Section 9.05):
(a) receipt by the Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex or other written confirmation from such party of execution of a counterpart hereof by such party);
(b) receipt by the Agent for the account of each Bank requesting such, of a duly executed Note dated on or before the Effective Date;
(c) receipt by the Agent of an opinion of Timothy R. Baer, Esq., General Counsel for the Borrower, substantially in the form of Exhibit G hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;
(d) receipt by the Agent of an opinion of McGuireWoods LLP, special counsel for the Agent, substantially in the form of Exhibit H hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request;
(e) receipt by the Agent of evidence satisfactory to it of (i) the payment of all principal of and interest on any loans outstanding under, and of all accrued fees under the Existing Five-Year Agreement, and (ii) the satisfaction of all obligations, termination of all commitments under, and cancellation or expiration of, the Existing Five-Year Agreement;
(f) receipt by the Agent of all documents it may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, if any, and any other matters relevant hereto, all in form and substance satisfactory to the Agent;
(g) receipt by the Agent of a certificate signed by the assistant treasurer of the Borrower certifying that since January 29, 2011 there shall not have occurred any material adverse change in the business, financial position or results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole.
Without limiting the generality of the provisions of Section 7.05, for purposes of determining compliance with the conditions specified in this Section 3.01, each Bank that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Bank unless the Agent shall have received notice from such Bank prior to the proposed Effective Date specifying its objection thereto.
Promptly after the Effective Date the Agent shall deliver to the Borrower for cancellation the promissory note of each lender under the Existing Five-Year Agreement, or, in lieu thereof, a lost note affidavit from any such lender which does not return its promissory note to the Agent. The Agent shall promptly notify the Borrower and each Bank of the effectiveness of this Agreement, and such notice shall be conclusive and binding on all parties hereto.
Section 3.02 Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing is subject to the satisfaction of the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately after such Borrowing, the aggregate outstanding principal amount of the Loans will not exceed the aggregate amount of the Commitments;
(c) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; and
(d) the fact that (i) the representations and warranties of the Borrower contained in this Agreement that are qualified by materiality are true and correct, and (ii) the representations and warranties of the Borrower contained in this Agreement that are not qualified by materiality are true and correct in all material respects, in each case on and as of the date of such Borrowing (except, in the case of a Refunding Borrowing, the representations and warranties set forth in Section 4.05 as to any matter which has theretofore been disclosed in writing by the Borrower to the Banks).
Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (b), (c) and, to the extent applicable, (d) of this Section.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 4.01 Corporate Existence and Power. Each of the Borrower and each of its Consolidated Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where, in light of the nature of the business transacted or the property owned by it, such qualification is necessary and the failure so to qualify might permanently impair title to property material to its operations or its right to enforce a material contract against others, or expose it to substantial liability in such jurisdiction.
Section 4.02 Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes, if any, are within the Borrowers corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or of any agreement or instrument evidencing or governing Debt of the Borrower or any other material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.
Section 4.03 Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and the Notes, if any, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of the Borrower in each case enforceable in accordance with their respective terms, except as (i) the enforceability thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability.
Section 4.04 Financial Information. The consolidated statements of financial position of the Borrower and its Consolidated Subsidiaries as of January 29, 2011 and the related consolidated statements of results of operations, cash flows and shareholders investment for the fiscal year then ended, reported on by Ernst & Young, LLP and set forth in the Borrowers Form 10-K for the fiscal year then ended, a copy of which has been delivered to each of the Banks, fairly present, in conformity with generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year.
Section 4.05 Litigation. There is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which might reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries or which in any manner draws into question the validity of this Agreement or any Note.
Section 4.06 Compliance with ERISA. The Borrower and each Subsidiary has fulfilled its obligations, if any, under the minimum funding standards of ERISA with respect to each Plan maintained by it and is otherwise in compliance in all material respects with the applicable provisions of ERISA.
Section 4.07 Payment of Taxes. United States Federal income tax returns of the Borrower and its Subsidiaries have been examined and closed through the fiscal year ended January 30, 2010. The Borrower and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which, to the best of the Borrowers knowledge, are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Borrower or any Subsidiary, except for any such taxes which are being contested in good faith by appropriate proceedings and against which the Borrower in its judgment has set aside adequate reserves in accordance with generally accepted accounting principles.
Section 4.08 Full Disclosure. All information heretofore furnished by the Borrower to the Agent or any Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to the Agent or any Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified.
ARTICLE 5.
COVENANTS
The Borrower agrees that, so long as any Bank has any Commitment hereunder or any Loan or other amounts hereunder shall remain unpaid:
Section 5.01 Information. The Borrower will deliver to each of the Banks:
(a) as soon as available and in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated statement of financial position of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the
related consolidated statements of results of operations, cash flows and shareholders investment for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission by Ernst & Young, LLP or other Registered Public Accounting Firm of recognized national standing selected by the Borrower (the Auditor) or other independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated statement of financial position of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of results of operations and cash flows for such quarter and for the portion of the Borrowers fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrowers previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Borrower;
(c) within 15 days after the delivery of each set of financial statements referred to in clauses (a) and (b)) above, a certificate of the chief financial officer or the chief accounting officer of the Borrower (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.07 to 5.08, inclusive, on the date of such financial statements and (ii) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;
(d) within 15 days after the delivery of each set of financial statements referred to in clause (a) above, a statement of the Auditor which reported on such statements whether anything has come to their attention to cause them to believe that any Default existed on the date of such statements with respect to Sections 5.07 and 5.08 hereof;
(e) within 15 days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto;
(f) within 15 days after the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed;
(g) within 15 days after the filing thereof copies of all reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Borrower shall have filed with the Securities and Exchange Commission or any governmental authority succeeding to any of its functions;
(h) written notice setting forth the facts and relevant information if and when the Borrower or any Subsidiary (i) fails to fulfill their obligations, if any, under the minimum funding standards of ERISA with respect to any Plan; (ii) engages in any material nonexempted prohibited transaction as defined in Sections 406 and 408 of ERISA and Section 4975 of the Internal Revenue Code; (iii) fails to comply with the Pension Funding Rules; (iv) terminates or permits the termination of any employee pension benefit plan, as defined in Section 3 of ERISA and covered by Title IV of ERISA or subject to the minimum funding standards of Section 412 of the Internal Revenue Code; or (v) engages in a withdrawal or partial withdrawal, as defined in Section 4203 or 4205 of ERISA from a multiemployer plan, as defined in Section 4001(a)(3) of ERISA;
(i) promptly following, and in any event within ten days of any change in a Debt Rating by any Rating Agency, notice thereof; and
(j) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request.
As to any information contained in materials furnished pursuant to Section 5.01(g), the Borrower shall not be separately required to furnish such information under clause (a) or (b) above. Notwithstanding the foregoing, the Borrower shall remain obligated to furnish the information and materials described in clauses (a) and (b) above at the times specified therein.
The Borrower hereby acknowledges that (a) the Agent and/or the Arrangers will make available to the Banks materials and/or information provided by or on behalf of the Borrower hereunder (collectively, Borrower Materials) by posting the Borrower Materials on IntraLinks, Syndtrak and/or another similar electronic system (the Platform) and (b) none of the Banks will be public-side Banks (i.e., Banks that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a Public Lender). The Borrower hereby agrees that (w) no Borrower Materials are to be made available to Public Lenders, (x) all Borrower Materials shall be treated as private and may contain material non-public information with respect to the Borrower or its securities for purposes of United States federal and state securities laws; and (y) the Agent and the Arrangers shall treat all Borrower Materials as being suitable only for posting on a portion of the Platform not designated Public Investor. Notwithstanding the foregoing, the Borrower shall be under no obligation to mark any Borrower Materials PUBLIC.
Section 5.02 Maintenance of Property. The Borrower will keep, and will cause each Subsidiary to keep, all material property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so would not reasonably be expected to have a material adverse effect on the business, financial position or results of operations of the Borrower and its Subsidiaries taken as a whole.
Section 5.03 Conduct of Business and Maintenance of Existence. Except as permitted by Section 5.05, the Borrower will continue, and will cause each Significant Subsidiary to continue, to engage in business of the same general type as now conducted by the Borrower and
its Significant Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Significant Subsidiary to preserve, renew and keep in full force and effect its respective corporate existence and its respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that, neither the Borrower nor any Significant Subsidiary shall be required to preserve any such right, privilege or franchise if the Borrower shall determine in good faith (a) that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or any Significant Subsidiary or (b) the loss thereof will not be disadvantageous in any material respect to the Borrower.
Section 5.04 Compliance with Laws. Except where the failure to do so would not reasonably be expected to have a material adverse effect on the business, financial position or results of operations of the Borrower and its Subsidiaries taken as a whole, the Borrower will comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders where material to the assets or operations of the Borrower or any such Subsidiary, such compliance to include, without limitation, paying before the same become delinquent all taxes, fees, assessments and other governmental charges imposed upon it or upon its property except to the extent any such taxes, fees, assessments or other governmental charges are being contested in good faith by appropriate proceedings and adequate reserves in the judgment of the Borrower therefor have been established on the books of such Person in accordance with generally accepted accounting principles.
Section 5.05 Consolidations, Mergers and Sale of Assets. The Borrower will not (a) dissolve or liquidate, (b) merge with or into, or consolidate with, any other Person, (c) dissolve or liquidate any Subsidiary or permit the merger or consolidation of any Subsidiary into or with any other Person unless the Borrower shall determine in good faith (i) that any such transaction is in the best interests of the Borrower or (ii) such transaction will not be disadvantageous in any material respect to the Borrower, or (d) sell, convey or transfer all or substantially all of its property and assets to any other Person; provided, however, that (x) any Person may be merged with or into, or consolidated with, the Borrower if the Borrower is the surviving corporation, and (y) the Borrower may merge with or into, or consolidate with, another corporation or sell, convey or transfer its properties and assets substantially as an entity to any Person if the corporation formed by such consolidation or into which the Borrower is merged, or the Person which acquires by sale, conveyance or transfer the properties and assets of the Borrower substantially as an entity, shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia, and shall expressly assume by a supplemental agreement hereto, executed and delivered to the Agent in form satisfactory to the Agent, the full and timely performance and observance of every covenant and agreement contained herein, including but not limited to the payment of the principal and interest provided herein, on the part of the Borrower to be performed or observed, in each case if immediately after giving effect to such merger, consolidation, sale, conveyance or transfer, no Default would occur and be continuing.
Section 5.06 Dividends. The Borrower will not, and will not permit any Subsidiary to, declare or pay any dividends, purchase or otherwise acquire for value any of its capital stock now or hereafter outstanding, or make any distribution of assets to its stockholders as such, or permit any of its Subsidiaries to purchase or otherwise acquire for value any of the capital stock of the Borrower, if any such action would result in a breach of a covenant or agreement
contained in, or default under, or constitute an event of default under, any other agreement then in effect between the Borrower and any Person relating to indebtedness for money borrowed.
Section 5.07 Negative Pledge. The Borrower will not permit, at the end of any fiscal quarter, the aggregate amount of Debt of the Borrower and its Consolidated Subsidiaries, determined on a consolidated basis, secured by Liens (other than (a) Liens on Accounts Receivable and (b) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring or constructing such asset, provided that such Lien attaches to such asset concurrently or within 120 days after the acquisition or completion of construction thereof) to exceed 20% of Consolidated Tangible Net Worth.
Section 5.08 Leverage Ratio. The Borrower will not, at the end of any fiscal quarter of the Borrower, permit the ratio of (a) Total Finance Liabilities to (b) Total Capitalization to be greater than or equal to 3.0:4.0.
Section 5.09 Use of Proceeds. The proceeds of the Loans made under this Agreement will be used, directly or indirectly, by the Borrower for its general corporate purposes and as a commercial paper backup facility. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock within the meaning of Regulation U.
ARTICLE 6.
DEFAULTS
Section 6.01 Events of Default. If one or more of the following events (Events of Default) shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay within five Domestic Business Days of the due date thereof any interest on any Loan, any fees or any other amount payable hereunder;
(b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.05 through 5.09, inclusive;
(c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after written notice thereof has been given to the Borrower by the Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made);
(e) the Borrower or any of its Subsidiaries shall fail to make any payment of principal or interest in respect of any Material Debt when due or within any applicable grace period;
(f) any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables the holder of such Material Debt or any Person acting on such holders behalf to accelerate the maturity thereof;
(g) the Borrower or any of its Significant Subsidiaries shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against the Borrower or any of its Significant Subsidiaries seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against the Borrower or any Significant Subsidiary under the federal bankruptcy laws as now or hereafter in effect;
(i) The Borrower or any Subsidiary shall (i) engage in any nonexempted prohibited transaction, as defined in Sections 406 and 408 of ERISA and Section 4975 of the Internal Revenue Code, (ii) fail to comply with the Pension Funding Rules, (iii) terminate or permit the termination of any employee pension benefit plan, as defined in Section 3 of ERISA, in a manner which shall result in the imposition of a Lien on the property of the Borrower or such Subsidiary pursuant to Section 4068 of ERISA or (iv) engage in a withdrawal or partial withdrawal, as defined in Section 4203 or 4205 of ERISA, from a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, provided that no occurrence described in this Section 6.01(i) shall constitute an Event of Default unless the aggregate outstanding liability of the Borrower and its Subsidiaries which has resulted from all such occurrences, plus the aggregate outstanding amount secured by all such Liens shall exceed $100,000,000 (or its equivalent in any other currency); or
(j) a judgment or order for the payment of money in excess of $100,000,000 shall be rendered against the Borrower or any of its Subsidiaries and such judgment or order shall continue unsatisfied and unstayed for a period of 10 days;
then, and in every such event, the Agent shall, if requested by the Required Banks, (i) by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) by notice to the Borrower declare the unpaid principal amount of all outstanding Loans (together with accrued interest thereon and all other fees pursuant to Section 2.08 or 2.13 owing or payable hereunder) to be, and the unpaid principal amount of all outstanding Loans shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower; provided that in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Agent or the Banks, the Commitments shall thereupon terminate and the unpaid principal amount of all outstanding Loans (together with accrued interest thereon and all other fees pursuant to Section 2.08 or 2.13 owing or payable hereunder) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
Section 6.02 Notice of Default. The Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7.
THE AGENT, THE CO-DOCUMENTATION AGENTS
AND THE SYNDICATION AGENT
Section 7.01 Appointment and Authorization. Each Bank irrevocably appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes, if any, as are delegated to the Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto.
Section 7.02 Agent and Affiliates. Except as provided in Section 2.03(d), Bank of America shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though it were not the Agent, and Bank of America and its affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if it were not the Agent hereunder. The Banks acknowledge that, pursuant to such activities, Bank of America or its affiliates may receive information regarding the Borrower or its affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower or such affiliate) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Bank and may exercise such rights and powers as though it were not the Agent, and the terms Bank and Banks include Bank of America in its individual capacity.
Section 7.03 Action by Agent. The obligations of the Agent hereunder are only those expressly set forth herein, and the Agent shall not be a trustee or fiduciary for any Bank; the term Agent is used solely as a matter of market custom to connote an administrative relationship among independent contracting parties. Without limiting the generality of the foregoing, the Agent shall not be required to take any action with respect to any Default, except as expressly provided in Article 6.
Section 7.04 Consultation with Experts. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts.
Section 7.05 Liability of Agent. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection herewith (a) with the consent or at the request of the Required Banks or all Banks, as the case may be, or (b) in the absence of its own gross negligence or willful misconduct and in no event shall any such Person be liable for special, consequential, punitive or indirect damages. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to the Agent; or (iv) the validity, enforceability, effectiveness, genuineness or sufficiency of this Agreement, the Notes, if any, or any other instrument or writing furnished in connection herewith. Neither the Agent nor any of its affiliates nor any of their respective directors, officers, agents or employees shall be required to initiate or conduct any litigation or collection proceedings under this Agreement or the Notes, if any. The Agent shall not incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex or similar writing) believed by it to be genuine or to be signed by the proper party or parties.
Section 7.06 Indemnification. Each Bank shall, ratably in accordance with its Commitment (determined at the time such indemnification is sought), indemnify the Agent, its affiliates and their respective directors, officers, agent and employees (to the extent not reimbursed by the Borrower) from and against all Indemnified Liabilities, as defined in Section 9.03(b) (except such as result from such indemnitees gross negligence or willful misconduct; provided, however, that no action taken in accordance with directions of the Required Banks or, in the case of an action expressly requiring the consent of all of the Banks, with the directions of all of the Banks, shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section), that such indemnitees may suffer or incur in connection with this Agreement or as a result of any action taken or omitted by such indemnitees hereunder. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share (determined at the time such reimbursement is sought) of any costs or out-of-pocket expenses (including reasonable fees and expenses of counsel, including the allocated costs of internal legal services) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Borrower. The undertaking in this Section shall survive termination of the Commitments, the repayment of all Loans and the resignation of the Agent.
Section 7.07 Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agent, any Co-Documentation Agent, the Syndication Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agent, any Co-Documentation Agent, the Syndication Agent or any other Bank, 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 any action under this Agreement.
Section 7.08 Successor Agent. The Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $50,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall thereafter be discharged from its duties and obligations hereunder. After any retiring Agents resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.
Section 7.09 Agents Fee. The Borrower shall pay to the Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and the Agent.
Section 7.10 Co-Documentation Agents and Syndication Agent. Nothing in this Agreement shall impose on any Co-Documentation Agent or Syndication Agent, in its capacity as such, any duties or obligations whatsoever, nor shall any Co-Documentation Agent or Syndication Agent, in its capacity as such be deemed to have any fiduciary relationship with any Bank.
Section 7.11 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless the Agent has received written notice from a Bank or the Borrower specifying such Default or Event of Default and stating that such notice is a Notice of Default. In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Banks. The Agent shall (subject to Section 7.05 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Banks.
ARTICLE 8.
CHANGE IN CIRCUMSTANCES
Section 8.01 Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing:
(a) the Agent is advised by the Reference Banks that deposits in dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or
(b) the Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the interest rate for Euro-Dollar Loans for such Interest Period; or
(c) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Agent that the Adjusted CD Rate or the Adjusted London Interbank Offered Rate, as the case may be, as determined by the Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period;
the Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, shall be suspended. Unless the Borrower notifies the Agent at least one Domestic Business Day before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day.
Section 8.02 Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such Bank shall determine that it may not lawfully continue to maintain and fund any of its outstanding Euro-Dollar Loans to maturity and shall so specify in such notice, the Borrower shall immediately prepay in full the then outstanding principal amount of each such Euro-Dollar Loan, together with accrued interest thereon. Concurrently with prepaying each such Euro-Dollar Loan, the Borrower shall, subject to Section 2.01, borrow a Base Rate Loan in an equal principal amount from such Bank (on which interest and principal shall be payable contemporaneously with the related Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate Loan.
Section 8.03 Increased Cost and Reduced Return.
(a) If on or after (x) the date hereof in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by any Bank (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency :
(i) shall subject any Bank (or its Applicable Lending Office) to any tax, duty or other charge with respect to its Fixed Rate Loans, its Note, if any, or its obligation to make Fixed Rate Loans, or shall change the basis of taxation of payments to any Bank (or its Applicable Lending Office) of the principal of or interest on its Fixed Rate Loans or any other amounts due under this Agreement in respect of its Fixed Rate Loans or its obligation to make Fixed Rate Loans (except for changes in the rate of tax on the overall net income of such Bank or its Applicable Lending Office imposed by the jurisdiction in which such Banks principal executive office or Applicable Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (A) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (B) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of deposits with or for the account of or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note, if any, or its obligation to make Fixed Rate Loans;
and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note, if any, with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that, after the date hereof the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Banks obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction.
(c) Notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a change in law contemplated by the foregoing clauses (a) and (b) of this Section 8.03, regardless of the date enacted, adopted or issued.
(d) Each Bank will promptly notify the Borrower and the Agent of any event of which it has knowledge, occurring after the date hereof which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount, such Bank may use any reasonable averaging and attribution methods.
Section 8.04 Base Rate Loans Substituted for Affected Fixed Rate Loans. If (a) the obligation of any Bank to make, maintain or convert to Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (b) any Bank has demanded compensation under Section 8.03 and the Borrower shall, by at least five Euro-Dollar Business Days prior notice to such Bank through the Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made, maintained or converted by such Bank as CD Loans or Euro-Dollar Loans, as the case may be, shall be made, maintained or converted instead as Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid or converted, all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead.
ARTICLE 9.
MISCELLANEOUS
Section 9.01 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (a) in the case of the Borrower or the Agent, at its address, facsimile number (if any) set forth on the signature pages hereof, (b) in the case of any Bank, at its address, facsimile number set forth in its Administrative Questionnaire or (c) in the case of any party, such other address, facsimile number as such party may hereafter specify for the purpose by notice to the Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by mail, upon receipt, (ii) if given by facsimile transmission, when such facsimile is transmitted to the facsimile number specified in this Section and receipt of such facsimile is confirmed, either orally or in writing by return facsimile to the transmitting party at the facsimile number specified in this Section, by the party receiving such transmission, or (iii) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Agent under Article 2 or Article 8 shall not be effective until received.
Notwithstanding any other provision of this Section 9.01, in the case of any communication required by Section 5.01, in addition to the methods of delivery described above, any such communication may be made by the posting of such financial statements, reports, officers certificates or other information to an Internet website established by the Agent with IntraLinks, Inc., Syndtrak and/or other similarly available electronic media (a Posting Website) or, in the case of information required under Sections 5.01(a), (b), (f) and (g) only, by the posting on the Posting Website of the universal resource locator (URL) where such information may be obtained. Upon the initial establishment of the Posting Website, the Agent shall give notice to each Bank of the URL for the Posting Website in writing by mail or facsimile transmission as described above. Each communication made by the Borrower pursuant to the second preceding sentence shall be deemed to have been delivered when the information contained therein is posted to the Posting Website.
Section 9.02 No Waivers; Enforcement. No failure or delay by the Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Notwithstanding anything to the contrary contained herein or in any other document, instrument or agreements evidencing, securing or relating to this Agreement (together with this Agreement, collectively, the Loan Documents), the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Borrower shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Agent in accordance with Section 6.02 for the benefit of all the Banks; provided, however, that the foregoing shall not prohibit (a) the Agent from exercising on
its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Agent) hereunder and under the other Loan Documents, (b) any Bank from exercising setoff rights in accordance with Section 9.04, or (c) any Bank from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a bankruptcy or insolvency proceeding relative to the Borrower.
Section 9.03 Expenses; Documentary Taxes; Indemnification.
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of the Agent, including reasonable fees and disbursements of special counsel for the Agent, in connection with the preparation of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses incurred by the Agent and each Bank, including reasonable fees and disbursements of counsel, in connection with such Event of Default and collection, bankruptcy, insolvency, and other enforcement proceedings resulting therefrom. The Borrower shall indemnify each Bank against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this Agreement or the Notes, if any.
(b) The Borrower agrees to indemnify the Agent and each Bank, their respective affiliates and the respective directors, officers, agents, attorneys and employees of the foregoing (each an Indemnitee) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder (the Indemnified Liabilities); provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitees own gross negligence or willful misconduct. No Indemnitee shall be liable for any damages arising from the use by others of information or other materials obtained through internet, Posting Website or other similarly available electronic media in connection with the electronic posting of financial statements, certificates, reports or other information to a Posting Website as provided for in Section 9.01 hereof unless such Indemnitee has engaged in gross negligence or willful misconduct.
Section 9.04 Sharing of Set-Off. Each Bank agrees that if it shall, by exercising any right of set-off, recoupment, counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest then due with respect to any Loans held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest then due with respect to any Loans held by such other Bank, the Bank receiving such proportionately greater payment (the Benefited Bank) shall purchase such participations in the Loans held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Loans held by the Banks shall be shared by the Banks pro rata; provided, however, that if all or any portion of such excess payment is thereafter recovered from such Benefited Bank or is repaid in whole or in part by such Benefited Bank in good faith settlement of a pending or threatened avoidance
claim, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery or settlement payment, but without interest; further provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness under this Agreement. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Loan, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. Notwithstanding the foregoing, in the event that any Defaulting Bank shall exercise any such right of setoff, recoupment, counterclaim or otherwise, (x) all amounts so set off shall be paid over immediately to the Agent for further application in accordance with the provisions of Section 2.19 and, pending such payment, shall be segregated by such Defaulting Bank from its other funds and deemed held in trust for the benefit of the Agent and the Banks, and (y) the Defaulting Bank shall provide promptly to the Agent a statement describing in reasonable detail the obligations under this Agreement owing to such Defaulting Bank as to which it exercised such right of setoff, recoupment, counterclaim or otherwise.
Section 9.05 Amendments and Waivers. Any provision of this Agreement or the Notes, if any, may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall: (a) increase, decrease or extend the Commitment of any Bank (except for (i) a ratable decrease in the Commitments of all Banks, (ii) any increase in Commitments made pursuant to, and in compliance with, Sections 2.17 and 2.18, as applicable, and (iii) any extension made pursuant to, and in compliance with, Section 2.18) or subject any Bank to any additional obligation, without the written consent of such Bank; (b) reduce the principal of or rate of interest on any Loan or any fees or margins hereunder (subject to the second proviso to this Section 9.05), without the written consent of each Bank directly affected thereby (provided, however, that only the consent of the Required Banks shall be necessary (i) to amend the rate payable as default interest hereunder or to waive any obligation of the Borrower to pay interest at such default rate, or (ii) to amend Section 5.07 or 5.08 (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or to reduce any fee payable hereunder); (c) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for the Termination Date (except pursuant to, and in compliance with Section 2.18 hereof), without the written consent of each Bank directly affected thereby; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement, without the written consent of each Bank; (e) consent to the assignment or transfer by the Borrower of any of its rights or obligations under this Agreement, without the written consent of each Bank; or (f) amend, modify or waive Section 9.04 or this Section 9.05 without the written consent of each Bank; provided further, however, that the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Bank shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Banks or each affected Bank may be effected with the consent
of the applicable Banks other than Defaulting Banks), except that (x) the Commitment of any Defaulting Bank may not be increased or extended without the consent of such Bank and (y) any waiver, amendment or modification requiring the consent of all Banks or each affected Bank that by its terms affects any Defaulting Bank disproportionately adversely relative to other affected Banks shall require the consent of such Defaulting Bank.
Section 9.06 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Agent and each Bank, and no Bank may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Assignee in accordance with the provisions of subsection (c) and (d) of this Section, (ii) by way of participation in accordance with the provisions of subsection (b) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (e) or (g) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (b) of this Section and, to the extent expressly contemplated hereby, the Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Bank may at any time grant to one or more banks, Approved Funds or other institutions (other than a Defaulting Bank or any of its Subsidiaries, or any Person who, upon becoming a Bank hereunder, would constitute a Defaulting Bank) (each a Participant) participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agent, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Banks rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (a), (b) or (c) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks, Approved Funds or other institutions (other a Defaulting Bank or any of its Subsidiaries, or any Person
who, upon becoming a Bank hereunder, would constitute a Defaulting Bank) (each an Assignee) all, or a proportionate part of all, of its rights and obligations under this Agreement and its Notes, if any, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit I hereto (an Assignment and Assumption Agreement) executed by such Assignee and such transferor Bank, with and subject to the subscribed consents of the Agent and (so long as an Event of Default has not occurred and is continuing) the Borrower, which consents shall not be unreasonably withheld or delayed; provided that (i) such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans and (ii) no interest may be assigned by a Bank pursuant to this subsection (c) in an amount less than $15,000,000 unless (A) such lesser amount constitutes all of such assigning Banks Commitment, or (B) the Agent and (so long as an Event of Default has not occurred and is continuing) the Borrower, in its sole discretion, otherwise consent to a lesser amount. Notwithstanding the foregoing, if an Assignee is an affiliate of a Bank or a Bank, (x) the subscribed consents of the Borrower and the Agent shall not be required and (y) the limitations set forth in clause (ii) above shall not be applicable. In all cases, any assignment to any Approved Fund requires the consent of the Borrower, which shall not be unreasonably withheld or delayed. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent (and, in the case of an assignment covering all of the assigning Banks rights and obligations under this Agreement, such Bank shall cease to be a party hereto) and no further consent or action by any party shall be required, but the transferor Bank shall continue to be entitled to the benefits of Article 8 with respect to facts and circumstances occurring prior to the effective date of such assignment. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. Except as otherwise provided herein, in connection with any such assignment, the transferor Bank shall pay to the Agent an administrative fee for processing such assignment in the amount of $3,500, unless waived by the Agent in its sole discretion. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 2.15.
The Agent, acting solely for this purpose as an Agent of the Borrower (and such agency being solely for tax purposes), shall maintain at the Agents principal office a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Banks, and the Commitments of, and principal amounts of the Loans owing to, each Bank pursuant to the terms hereof from time to time (the Register). The entries in the Register as to the identity of the Banks and their respective Commitments shall be conclusive absent manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Bank hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. In addition, the Agent
shall maintain on the Register information regarding the designation, and revocation of designation, of any Bank as a Defaulting Bank. The Register shall be available for inspection by the Borrower and any Bank, at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to this Agreement is pending, any Bank wishing to consult with other Banks in connection therewith may request and receive from the Agent a copy of the Register.
(d) In connection with any assignment of rights and obligations of any Defaulting Bank hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Bank, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Bank to the Agent or any Bank hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans in proportion to its Commitment. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Bank hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Bank for all purposes of this Agreement until such compliance occurs.
(e) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note, if any, to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder.
(f) No Assignee, Participant or other transferee of any Banks rights shall be entitled to receive any greater payment under Section 8.03 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrowers prior written consent or by reason of the provisions of Section 8.02 or 8.03 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist.
(g) Notwithstanding anything to the contrary contained herein, any Bank that is an Approved Fund may create a security interest in all or any portion of the Loans owing to it and the Note, if any, held by it to the trustee for the holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities, provided that unless and until such trustee actually becomes a Bank in compliance with the other provisions of Section 9.06(c), (i) no such pledge shall release the pledging Bank from any of its obligations under this Agreement and (ii) such trustee shall not be entitled to exercise any of the rights of a Bank under this Agreement, including but not limited to rights to approve amendments, waivers or other modifications of any provision of this Agreement, even though such trustee may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise.
(h) The words execution, signed, signature, and words of like import in any Assignment and Assumption Agreement shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 9.07 Collateral. Each of the Banks represents to the Agent and each of the other Banks that it in good faith is not relying upon any margin stock (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement.
Section 9.08 Replacement of Banks. (a) If any Bank requests compensation under Section 8.03, or if the obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02, or if any Bank is a Defaulting Bank, or if any Bank is a Non-Extending Bank for any extension of the Termination Date, then the Borrower may, at its sole expense and effort, upon notice to such Bank and the Agent, require such Bank to assign and delegate without unreasonable delay, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.06), all of its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Bank, if a Bank accepts such assignment), provided that:
(i) the Borrower shall have paid to the Agent the assignment fee specified in Section 9.06(c) (except as otherwise provided herein); provided that any Defaulting Bank shall pay to the Agent the assignment fee specified in Section 9.06(c);
(ii) such Bank shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder (including any amounts under Section 2.13) 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);
(iii) in the case of any such assignment resulting from a claim for compensation by a Bank under Section 8.03, such assignment will result in a reduction in such compensation or payments that would otherwise result thereafter; and
(iv) such assignment does not conflict with applicable laws.
A Bank shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Bank or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
(b) In the event any Bank fails to approve any amendment, waiver or consent requested by the Borrower pursuant to Section 9.05 that has received the written approval of not less than the Required Banks but also requires the approval of such Bank (any such
Bank, a Restricted Bank), so long as no Default or Event of Default shall have occurred and be continuing and the Borrower has obtained a commitment (in an amount not less than the entire amount of such Restricted Banks Commitment) from one or more Banks or Assignees to become a Bank for all purposes hereunder (such Bank or Banks referred to as the Replacement Bank), the Borrower may cause such Restricted Bank to be replaced by, and to assign all its rights and obligations under this Agreement (including its Commitment and its outstanding Loans) pursuant to Section 9.06 to, such Replacement Bank. Such Restricted Bank agrees to execute and to deliver to the Agent one or more Assignment and Assumption Agreements with such Replacement Bank as provided in Section 9.06 upon payment at par of all principal, accrued interest, accrued fees and other amounts accrued or owing under this Agreement to such Restricted Bank, and such Replacement Bank shall pay to the Agent the assignment fee specified in Section 9.06(c) in connection with such assignment. The Restricted Bank making such assignment will be entitled to compensation for any expenses or other amounts which would be owing to such Restricted Bank pursuant to any indemnification provision hereof (including, if applicable, Section 2.13) as if the Borrower had prepaid the Loans of such Bank (and terminated its Commitment, if applicable) rather than such Restricted Bank having assigned its interest hereunder.
(c) In each case of clause (a) and (b) above, the Agent shall distribute an amended schedule of Commitments, which shall be deemed incorporated into this Agreement, to reflect changes in the identities of the Banks and adjustments of their respective Commitments and/or shares thereof resulting from any such replacement.
(d) This section shall supersede any provision in Section 9.05 to the contrary.
Section 9.09 Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.
Section 9.10 Counterparts; Integration. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
Section 9.11 Confidentiality. Each Bank agrees to exercise all reasonable efforts to keep any Information delivered or made available by the Borrower to it which is clearly indicated to be confidential information, confidential from anyone other than Persons employed or retained by such Bank who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any Bank from
disclosing such Information (a) to any of its affiliates or any other Bank or affiliate thereof, (b) to its officers, directors, employees, agents, attorneys and accountants who have a need to know such Information in accordance with customary banking practices and who receive such Information having been made aware of the restrictions set forth in this Section, (c) upon the order of any court or administrative agency, (d) upon the request or demand of any regulatory agency or authority having jurisdiction over such Bank or its affiliates, (e) as required by any applicable law, rule or regulation, (f) to any other Person if reasonably necessary to the administration of the credit facility provided herein, (g) which has been publicly disclosed, (h) to the extent reasonably required in connection with any litigation to which the Agent, any Bank, the Borrower or their respective affiliates may be a party, (i) to the extent reasonably required in connection with the exercise of any remedy hereunder, (j) to such Banks legal counsel and independent auditors, (k) with the prior written consent of the Borrower, and (l) to any actual or proposed Participant or Assignee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section. For purposes of this Section, Information means all information received from the Borrower relating to the Borrower or any of its business, other than any such information that is available to the Agent or any Bank on a nonconfidential basis prior to disclosure by the Borrower, provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential.
Section 9.12 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees, and acknowledges its Affiliates understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Agent and the Arrangers are arms-length commercial transactions between the Borrower and its affiliates, on the one hand, and the Agent and the Arrangers, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Agent and the Arrangers is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower or any of its affiliates, or any other Person and (B) neither the Agent nor any Arranger has any obligation to the Borrower or any of its affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Agent, the Arrangers and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its affiliates, and neither the Agent nor any Arranger has any obligation to disclose any of such interests to the Borrower or any of its affiliates.
Section 9.13 USA PATRIOT Act Notice. Each Bank that is subject to the Act (as hereinafter defined) and the Agent (for itself and not on behalf of any Bank) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank or the Agent, as applicable, to identify the Borrower in accordance with the Act. The Borrower shall, promptly following a request by
the Agent or any Bank, provide all documentation and other information that the Agent or such Bank requests in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the Act.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Five-Year Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
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BORROWER: | |
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WITNESSES: |
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TARGET CORPORATION | |
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/s/ Lori Vogl |
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By: |
/s/ Sara Ross |
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Name: |
Sara J. Ross |
/s/ Marie Feely |
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Title: |
Assistant Treasurer |
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1000 Nicollet Mall | |
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Minneapolis, Minnesota 55403 | |
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Attention: Assistant Treasurer |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
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ADMINISTRATIVE AGENT: | |
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BANK OF AMERICA, N.A., as | |
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Administrative Agent | |
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By: |
/s/ Judy D. Payne |
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Name: |
Judy D. Payne |
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Title: |
Vice President |
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Agency Management Group | |
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335 Madison Avenue, 4th Floor | |
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Mail Code: NY1-503-04-03 | |
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New York, New York 10017 | |
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Attention: Vice President | |
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Telecopy Number: (212) 901-7842 | |
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CREDIT AGREEMENT
(Target Corporation)
Signature Page
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SYNDICATION AGENT: | |
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CITIBANK, N.A, as Syndication Agent | |
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By: |
/s/ Shannon A. Sweeney |
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Name: |
Shannon A. Sweeney |
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Title: |
Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
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CO-DOCUMENTATION AGENTS: | |
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JPMORGAN CHASE BANK, N.A., as Co-Documentation Agent | |
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By: |
/s/ Sarah L. Freedman |
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Name: |
Sarah L. Freedman |
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Title: |
Vice President |
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Co-Documentation Agent | |
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By: |
/s/ Peter Kiedrowski |
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Name: |
Peter Kiedrowski |
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Title: |
Director |
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U.S. BANK NATIONAL ASSOCIATION, as Co-Documentation Agent | |
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By: |
/s/ Ludmila Yakovlev |
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Name: |
Ludmila Yakovlev |
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Title: |
Assistant Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
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BANKS: | |
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$204,000,000.00 |
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BANK OF AMERICA, N.A. | |
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By: |
/s/ J. Casey Cosgrove |
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Name: |
J. Casey Cosgrove |
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Title: |
Director |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$204,000,000.00 |
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CITIBANK, N.A. | |
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By: |
/s/ Shannon A. Sweeney |
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Name: |
Shannon A. Sweeney |
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Title: |
Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$204,000,000.00 |
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JPMORGAN CHASE BANK, N.A. | |
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By: |
/s/ Sarah L. Freedman |
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Name: |
Sarah L. Freedman |
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Title: |
Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$204,000,000.00 |
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WELLS FARGO BANK, NATIONAL ASSOCIATION | |
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By: |
/s/ Peter Kiedrowski |
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Name: |
Peter Kiedrowski |
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Title: |
Director |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$204,000,000.00 |
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U.S. BANK NATIONAL ASSOCIATION | |
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By: |
/s/ Ludmila Yakovlev |
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Name: |
Ludmila Yakovlev |
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Title: |
Assistant Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$125,000,000.00 |
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THE BANK OF TOKYO-MITSUBISHI, LTD. | |
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By: |
/s/ Victor Pierzchalski |
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Name: |
Victor Pierzchalski |
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Title: |
Authorized Signatory |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$125,000,000.00 |
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BARCLAYS BANK PLC | |
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By: |
/s/ Nicole Conjares |
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Name: |
Nicole Conjares |
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Title: |
Assistant Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$125,000,000.00 |
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MIZUHO CORPORATE BANK, LTD. | |
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By: |
/s/ Robert Gallagher |
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Name: |
Robert Gallagher |
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Title: |
Authorized Signatory |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$125,000,000.00 |
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GOLDMAN SACHS BANK USA | |
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By: |
/s/ Mark Walton |
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Name: |
Mark Walton |
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Title: |
Authorized Signatory |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$125,000,000.00 |
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HSBC BANK USA, NATIONAL ASSOCIATION | |
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By: |
/s/ Alan Vitulich |
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Name: |
Alan Vitulich |
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Title: |
Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$125,000,000.00 |
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ROYAL BANK OF CANADA | |
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By: |
/s/ Gordon MacArthur |
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Name: |
Gordon MacArthur |
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Title: |
Authorized Signatory |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$100,000,000.00 |
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FIFTH THIRD BANK | |
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By: |
/s/ Gary Losey |
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Name: |
Gary S. Losey |
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Title: |
VP Corporate Banking |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$100,000,000.00 |
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TORONTO DOMINION (NEW YORK) LLC | |
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By: |
/s/ Debbi L. Brito |
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Name: |
Debbi L. Brito |
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Title: |
Authorized Signatory |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$100,000,000.00 |
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DEUTSCHE BANK AG NEW YORK BRANCH | |
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By: |
/s/ Heidi Sandquist |
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Name: |
Heidi Sandquist |
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Title: |
Vice President |
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By: |
/s/ Ming K. Chu |
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Name: |
Ming K. Chu |
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Title: |
Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$75,000,000.00 |
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STATE STREET BANK & TRUST COMPANY | |
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By: |
/s/ Andrei Bourdine |
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Name: |
Andrei Bourdine |
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Title: |
Authorized Signatory |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$50,000,000.00 |
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SUMITOMO MITSUI BANKING CORPORATION | |
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By: |
/s/ Shuji Yabe |
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Name: |
Shuji Yabe |
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Title: |
Managing Director |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$30,000,000.00 |
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THE BANK OF NEW YORK MELLON | |
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By: |
/s/ David B. Wirl |
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Name: |
David B. Wirl |
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Title: |
Managing Director |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
$25,000,000.00 |
FIRST HAWAIIAN BANK | |
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By: |
/s/ Dawn Hofmann |
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Name: |
Dawn Hofmann |
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Title: |
Vice President |
CREDIT AGREEMENT
(Target Corporation)
Signature Page
EXHIBIT A
NOTE
[ , ]
, 2011
For value received, Target Corporation, a Minnesota corporation (the Borrower), promises to pay to the order of (the Bank), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Bank of America, N.A., Mail Code: CA4-702-02-25 Building B, 2001 Clayton Road, Concord, California 94520-2405.
All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Five-Year Credit Agreement dated as of October 14, 2011 among the Borrower, the Banks party thereto, the Co-Documentation Agents and Syndication Agent listed therein and Bank of America, N.A., as Agent (as the same may be amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof.
[Signature page follows.]
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by its authorized officer as of the day and year first above written.
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TARGET CORPORATION | |
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By: |
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Name: |
Sara J. Ross |
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Title: |
Assistant Treasurer |
Note (Contd)
LOANS AND PAYMENTS OF PRINCIPAL
Date |
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Principal |
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Type of |
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Amount of |
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Maturity |
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Notation |
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EXHIBIT B
FORM OF MONEY MARKET QUOTE REQUEST
[Date]
To: Bank of America, N.A. (the Agent)
From: Target Corporation
Re: Five-Year Credit Agreement (the Credit Agreement) dated as of October 14, 2011 among the Borrower, the Banks party thereto, the Co-Documentation Agents and Syndication Agent listed therein and the Agent
We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s):
Date of Borrowing:
Principal Amount* |
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Interest Period** |
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$ |
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Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Terms used herein have the meanings assigned to them in the Credit Agreement.
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TARGET CORPORATION | |
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By |
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Name: |
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Title: |
* Amount must be $25,000,000 or a larger multiple of $5,000,000.
** Not less than one month (LIBOR Auction) or not less than 14 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period.
EXHIBIT C
FORM OF INVITATION FOR MONEY MARKET QUOTES
[Date]
To: [Name of Bank]
Re: Invitation for Money Market Quotes
to Target Corporation (the Borrower)
Pursuant to Section 2.03 of the Five-Year Credit Agreement dated as of October 14, 2011 among the Borrower, the Banks party thereto, the Co-Documentation Agents and Syndication Agent listed therein and the undersigned, as Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s):
Date of Borrowing:
Principal Amount |
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Interest Period |
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$ |
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Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [10:15 A.M.] (New York City time) on [date].
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BANK OF AMERICA, N.A., as Agent | |
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By |
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Authorized Officer |
EXHIBIT D
FORM OF MONEY MARKET QUOTE
BANK OF AMERICA, N.A.
Agency Services
Mail Code: CA4-702-02-25
Building B
2001 Clayton Road
Concord, California 94520-2405
Attention:
Re: Money Market Quote to
Target Corporation (the Borrower)
In response to your invitation on behalf of the Borrower dated , , we hereby make the following Money Market Quote on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. Date of Borrowing: *
4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates:
* As specified in the related Invitation.
Principal |
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Interest |
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Money Market |
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[Absolute |
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Amount** |
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Period*** |
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[Margin]**** |
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Rate]***** |
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$ |
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$ |
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[Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $ .]**
We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Five-Year Credit Agreement dated as of October 14, 2011 among the Borrower, the Banks party thereto, the Co-Documentation Agents and Syndication Agent listed therein and yourselves, as Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part.
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Very truly yours, | |
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[NAME OF BANK] | |
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Dated: |
By: |
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Authorized Officer |
** Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000.
*** Not less than one month or not less than 14 days, as specified in the related invitation. No more than five bids are permitted for each Interest Period.
**** Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether PLUS or MINUS.
***** Specify rate of interest per annum (to the nearest 1/10,000th of 1%).
EXHIBIT E
FORM OF COMMITMENT INCREASE AGREEMENT
Date:
Bank of America, N.A.,
as Agent
Mail Code: CA4-702-02-25
Building B
2001 Clayton Road
Concord, California 94520-2405
Target Corporation
1000 Nicollet Mall
Minneapolis, Minnesota 55403
Ladies and Gentlemen:
We refer to the Five-Year Credit Agreement dated as of October 14, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement) among Target Corporation, a Minnesota corporation (the Borrower), the Banks referred to therein, the Co-Documentation Agents and Syndication Agent referred to therein and Bank of America, N.A., as administrative agent (in such capacity, the Agent). Terms defined in the Credit Agreement are used herein as therein defined.
This Commitment Increase Agreement is made and delivered pursuant to Section 2.17 of the Credit Agreement.
Subject to the terms and conditions of Section 2.17 of the Credit Agreement, (Increasing Bank) will increase its Commitment to an amount equal to $ , on the Increased Commitment Date applicable to it. The Increasing Bank hereby confirms and agrees that with effect on and after such Increased Commitment Date, the Commitment of the Increasing Bank shall be increased to the amount set forth above, and the Increasing Bank shall have all of the rights and be obligated to perform all of the obligations of a Bank under the Credit Agreement with a Commitment in the amount set forth above.
Effective on the Increased Commitment Date applicable to it, the Increasing Bank (i) accepts and assumes from the assigning Banks, without recourse, such assignment of Committed Loans as shall be necessary to effectuate the adjustments in the pro rata shares of Banks contemplated by Section 2.17 of the Credit Agreement, and (ii) agrees to fund on such Increased Commitment Date such assumed amounts of Committed Loans to Agent for the account of the assigning Banks in accordance with the provisions of the Credit Agreement, in the amount notified to Increasing Bank by Agent.
THIS COMMITMENT INCREASE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, NOTWITHSTANDING ITS EXECUTION OUTSIDE SUCH STATE.
IN WITNESS WHEREOF, Increasing Bank has caused this Commitment Increase Agreement to be duly executed and delivered in , , by its proper and duly authorized officer as of the day and year first above written.
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By: |
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Title: |
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CONSENTED TO as of :
TARGET CORPORATION
By: |
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Title: |
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BANK OF AMERICA, N.A.,
as Agent
By: |
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Title: |
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EXHIBIT F
FORM OF ADDED BANK AGREEMENT
Date:
Bank of America, N.A.,
as Agent
Mail Code: CA4-702-02-25
Building B
2001 Clayton Road
Concord, California 94520-2405
Target Corporation
1000 Nicollet Mall
Minneapolis, Minnesota 55403
Ladies and Gentlemen:
We refer to the Five-Year Credit Agreement dated as of October 14, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement) among Target Corporation, a Minnesota corporation (the Borrower), the Banks referred to therein, the Co-Documentation Agents and Syndication Agent referred to therein and Bank of America, N.A., as administrative agent (in such capacity, the Agent). Terms defined in the Credit Agreement are used herein as therein defined.
This Added Bank Agreement is made and delivered pursuant to Section 2.17 of the Credit Agreement.
Subject to the terms and conditions of Section 2.17 of the Credit Agreement, (the Added Bank) will become a party to the Credit Agreement as a Bank, with a Commitment equal to $ , on the Increased Commitment Date applicable to it. The Added Bank hereby confirms and agrees that with effect on and after such Increased Commitment Date, the Added Bank shall be and become a party to the Credit Agreement as a Bank and have all of the rights and be obligated to perform all of the obligations of a Bank thereunder with a Commitment in the amount set forth above.
Effective on the Increased Commitment Date applicable to it, the Added Bank (i) accepts and assumes from the assigning Banks, without recourse, such assignment of Committed Loans as shall be necessary to effectuate the adjustments in the pro rata shares of the Banks contemplated by Section 2.17 of the Credit Agreement, and (ii) agrees to fund on such Increased Commitment Date such assumed amounts of Committed Loans to Agent for the account of the assigning Banks in accordance with the provisions of the Credit Agreement, in the amount notified to the Added Bank by the Agent.
The following administrative details apply to the Added Bank:
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THIS ADDED BANK AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, NOTWITHSTANDING ITS EXECUTION OUTSIDE SUCH STATE.
IN WITNESS WHEREOF, the Added Bank has caused this Added Bank Agreement to be duly executed and delivered in , , by its proper and duly authorized officer as of the day and year first above written.
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CONSENTED TO as of :
TARGET CORPORATION
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BANK OF AMERICA, N.A.,
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EXHIBIT G
OPINION OF
COUNSEL FOR THE BORROWER
October 14, 2011
To the Banks and the Agent
Referred to Below
c/o Bank of America, N.A., as Agent
100 N. Tryon Street
Charlotte, North Carolina 28255-0001
Dear Ladies and Gentlemen:
I am Executive Vice President and General Counsel of Target Corporation (the Borrower), and I have acted as counsel to the Borrower in connection with the Five-Year Credit Agreement (the Credit Agreement) dated as of October 14, 2011 among the Borrower, the banks listed on the signature pages thereof (the Banks), the Co-Documentation Agents (the Co-Documentation Agents) and Syndication Agent (the Syndication Agent) listed therein and Bank of America, N.A., as Agent (in such capacity, the Agent). As such counsel, I, or the attorneys over whom I exercise supervision, have examined (i) the Amended and Restated Articles of Incorporation of the Borrower, as amended to date; (ii) the By-laws of the Borrower, as amended to date; and (iii) the corporate proceedings of the Borrower relating to the Credit Agreement. I, or the attorneys over whom I exercise supervision, have also examined certificates of public officials and have made such other examinations as we have deemed necessary to enable me to give the opinions herein expressed.
In our examination, I, and the attorneys over whom I exercise supervision, have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to, and authenticity of the originals of, all documents submitted to us as certified, photostatic or conformed documents. In such examination we have relied on certificates of public officials as to the incorporation, good standing and valid existence of the Borrower, and, as to matters of fact, upon inquiry of officers of the Borrower and the representations and warranties of the Borrower contained in the Credit Agreement.
All terms used and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
Upon the basis of the foregoing, I am of the opinion that:
1. Each of the Borrower and its Consolidated Subsidiaries is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where, in light of the nature of the business transacted or the property owned by it, such qualification is necessary and the failure so to qualify might
permanently impair title to property material to its operations or its right to enforce a material contract against others, or expose it to substantial liability in such jurisdiction.
2. The Credit Agreement and the Notes have been duly executed and delivered by Borrower to the Agent. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrowers corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the articles of incorporation or by-laws of the Borrower or of any agreement or instrument evidencing or governing Debt of the Borrower or any other material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries.
3. There is no action, suit or proceeding pending against, or to the best of my knowledge threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official which might reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries or which in any manner draws into question the validity of the Credit Agreement or the Notes.
This opinion letter is delivered solely to the Banks, the Co-Documentation Agents, the Syndication Agent and the Agent, and may not be relied upon by any other Person other than the addressees hereof, any successor or assignee of any addressee (including successive assignees), McGuireWoods LLP (who may rely upon this opinion as to matters of Minnesota law as if this opinion were addressed to such firm) and any Person who shall acquire a participation interest of any Bank (collectively, the Reliance Parties). This opinion letter may be relied upon only in connection with matters related to the Credit Agreement and then only as if it were delivered to the Reliance Party on the date hereof. My opinions herein shall not be quoted or otherwise included, summarized or referred to in any publication or document, in whole or in part, for any purposes whatsoever, or furnished to any Person other than a Reliance Party (or a Person considering whether to become a Reliance Party), except as may be required of any Reliance Party by applicable law or regulation or in accordance with any auditing or oversight function or request of regulatory agencies to which a Reliance Party is subject.
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Very truly yours, |
EXHIBIT H
OPINION OF
MCGUIREWOODS LLP, SPECIAL COUNSEL
FOR THE AGENT
October 14, 2011
Each of the Lender Parties
referenced below
Target Corporation
Ladies and Gentlemen:
We have acted as special New York counsel to Bank of America, N.A., as administrative agent (in such capacity, the Administrative Agent), in connection with the transactions (collectively, the Transactions) to be consummated on the date hereof pursuant to the Five-Year Credit Agreement dated as of October 14, 2011 (the Credit Agreement), among Target Corporation, a Minnesota corporation (the Borrower), the various financial institutions signatory thereto as Banks as of the date hereof (collectively, the Banks), the various financial institutions signatory thereto as Co-Documentation Agents as of the date hereof (in such capacity, collectively, the Co-Documentation Agents), and the financial institution signatory thereto as Syndication Agent as of the date hereof (in such capacity, the Syndication Agent; and together with the Banks, the Co-Documentation Agents and the Administrative Agent, collectively, the Lender Parties and each, individually, a Lender Party). This opinion letter is furnished to you pursuant to Section 3.01(d) of the Credit Agreement. Unless otherwise defined herein, terms used herein have the meanings provided for in the Credit Agreement.
Documents Reviewed
In connection with this opinion letter, we have examined the Credit Agreement and the Notes executed and delivered by the Borrower to certain of the Banks on the date hereof (collectively, the Subject Documents and each, individually, a Subject Document). In addition, we have examined and relied upon originals, or copies identified to our satisfaction as being true copies, of such other records, documents and instruments as we have deemed necessary for the purposes of this opinion letter.
Assumptions Underlying Our Opinion
For all purposes of the opinion expressed herein, we have assumed, without independent investigation, the following.
(a) Factual Matters. To the extent that we have reviewed and relied upon (i) certificates of the Borrower or authorized representatives thereof, (ii) representations of the Borrower set forth in the Subject Documents and (iii) certificates and assurances from public officials, all of such certificates, representations and assurances are accurate with regard to factual matters and all official records (including filings with public authorities) are properly indexed and filed and are accurate and complete.
(b) Signatures. The signatures of individuals signing the Subject Documents are genuine and authorized.
(c) Authentic and Conforming Documents. All documents submitted to us as originals are authentic, complete and accurate, and all documents submitted to us as copies conform to authentic original documents.
(d) Organizational Status, Power and Authority and Legal Capacity of Parties. All parties to the Subject Documents are validly existing and in good standing in their respective jurisdictions of formation and have the capacity and full power and authority to execute, deliver and perform the Subject Documents and the documents required or permitted to be delivered and performed thereunder. All individuals signing the Subject Documents have the legal capacity to execute such Subject Documents.
(e) Authorization, Execution and Delivery of Subject Documents by Parties. All of the Subject Documents and the documents required or permitted to be delivered thereunder have been duly authorized by all necessary corporate, limited liability company, partnership or other action on the part of the parties thereto and have been duly executed and delivered by such parties.
(f) Subject Documents Binding on Certain Parties. All of the Subject Documents and the documents required or permitted to be delivered thereunder are valid and binding obligations enforceable against the parties thereto in accordance with their terms, except that no such assumption is made as to the Borrower.
(g) Noncontravention. Neither the execution and delivery of the Subject Documents by any party thereto nor the performance by such party of its obligations thereunder will conflict with or result in a breach of (i) the certificate or articles of incorporation, bylaws, certificate or articles of organization, operating agreement, certificate of limited partnership, partnership agreement, trust agreement or other similar organizational documents of any such party, (ii) any law or regulation of any jurisdiction applicable to any such party, or (iii) any order, writ, injunction or decree of any court or governmental instrumentality or agency applicable to any such party or any agreement or instrument to which any such party may be a party or by which its properties are subject or bound.
(h) Governmental Approvals. All consents, approvals and authorizations of, or filings with, all governmental authorities that are required as a condition to the execution and delivery of the Subject Documents by the parties thereto and to the consummation by such parties of the Transactions have been obtained or made.
(i) No Mutual Mistake, Amendments, etc. There has not been any mutual mistake of fact, fraud, duress or undue influence in connection with the Transactions. There are no oral or written statements or agreements that modify, amend or vary, or purport to modify, amend or vary, any of the terms of the Subject Documents.
Our Opinion
Based on and subject to the foregoing and the exclusions, qualifications, limitations and other assumptions set forth in this opinion letter, we are of the opinion that each Subject Document constitutes the valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.
Matters Excluded from Our Opinion
We express no opinion with respect to the following matters:
(a) Indemnification and Change of Control. The enforceability of any agreement of the Borrower in a Subject Document relating to (i) indemnification, contribution or exculpation from costs, expenses or other liabilities or (ii) changes in the organizational control or ownership of the Borrower, which agreement (in the case of clause (i) or clause (ii)) is contrary to public policy or applicable law.
(b) Jurisdiction, Venue, etc. The enforceability of any agreement of the Borrower in a Subject Document to submit to the jurisdiction of any specific federal or state court (other than the enforceability in a court of the State of New York of any such agreement to submit to the jurisdiction of a court of the State of New York), to waive any objection to the laying of the venue, to waive the defense of forum non conveniens in any action or proceeding referred to therein, to waive trial by jury, to effect service of process in any particular manner or to establish evidentiary standards, and any agreement of the Borrower regarding the choice of law governing a Subject Document (other than the enforceability in a court of the State of New York of any such agreement that the laws of the State of New York shall govern a Subject Document).
(c) Certain Laws. The following federal and state laws, and regulations promulgated thereunder, and the effect of such laws and regulations on the opinion expressed herein: securities (including the Investment Company Act of 1940, as amended, and Blue Sky laws), antifraud, derivatives or commodities law; banking laws; the USA PATRIOT Act of 2001 and other anti-terrorism laws; laws governing embargoed persons; anti-money laundering laws; truth-in-lending laws; equal credit opportunity laws; consumer protection laws; pension and employee benefit laws; environmental laws; tax laws; health and occupational safety laws; building codes and zoning, subdivision and other laws governing the development, use and occupancy of real property; the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other antitrust and unfair competition laws; the Assignment of Claims Act of 1940, as amended; and laws governing specially regulated industries (such as communications, energy, gaming, healthcare, insurance and utilities) or specially regulated products or substances (such as alcohol, drugs, food and radioactive materials).
(d) Local Ordinances. The ordinances, statutes, administrative decisions, orders, rules and regulations of any municipality, county, special district or other political subdivision of a state.
(e) Trust Relationship. The creation of any trust relationship by the Borrower on behalf of any Lender Party.
(f) Certain Agreements of Borrower Parties. The enforceability of any agreement of the Borrower in a Subject Document providing:
(i) for specific performance of the Borrowers obligations;
(ii) for the right of any purchaser of a participation interest from any Lender to set off or apply any deposit, property or indebtedness with respect to any such participation interest;
(iii) for establishment of a contractual rate of interest payable after judgment;
(iv) for adjustments of payments among Lenders or rights of set off;
(v) for the granting of any power of attorney;
(vi) for survival of liabilities and obligations of any party under any of the Subject Documents arising after the effective date of termination of the Credit Agreement;
(vii) for obligations to make an agreement in the future;
(viii) that any act done in contravention thereof is void or voidable;
(ix) for the survival of any claim beyond any applicable statute of limitation;
(x) for the confession of or consent to any judgment; or
(xi) for the severability of provisions in any Subject Document.
(g) Remedies. The enforceability of any provision in any Subject Document to the effect that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to any other right or remedy, that the election of some particular remedy does not preclude recourse to one or more others or that failure to exercise or delay in exercising rights or remedies will not operate as a waiver of any such right or remedy.
Qualifications and Limitations Applicable to Our Opinion
The opinion set forth above is subject to the following qualifications and limitations:
(a) Applicable Law. Our opinion is limited to the laws of the State of New York and applicable federal laws of the United States of America, and we do not express any opinion concerning any other law.
(b) Bankruptcy. Our opinion is subject to the effect of any applicable bankruptcy, insolvency (including, without limitation, laws relating to preferences, fraudulent transfers and equitable subordination), reorganization, moratorium and other similar laws affecting creditors rights generally.
(c) Equitable Principles. Our opinion is subject to the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. In applying such principles, a court, among other things, might limit the availability of specific equitable remedies (such as injunctive relief and the remedy of specific performance), might not allow a creditor to accelerate maturity of debt or exercise other remedies upon the occurrence of a default deemed immaterial or for non-credit reasons or might decline to order a debtor to perform covenants in a Subject Document.
(d) Unenforceability of Certain Provisions. Certain of the provisions contained in the Subject Documents may be unenforceable or ineffective, in whole or in part. Such provisions include, without limitation, those which: require waivers or amendments to be made only in writing; authorize self-help or authorize any of the Lender Parties to act on behalf of, or exercise the rights of, the Borrower; violate applicable public policy; waive or do not require notice in connection with the exercise of remedies; authorize a standard for decision other than commercial reasonableness; purport to validate otherwise invalid provisions of other documents incorporated or referred to in any Subject Document; or subrogate any of the Lender Parties or any other party to the rights of others. The inclusion of such provisions, however, does not render any Subject Document invalid as a whole, and each of the Subject Documents contains, in our opinion, adequate remedial provisions for the ultimate practical realization of the principal benefits purported to be afforded by such Subject Document, subject to the other qualifications contained in this opinion letter. We note, however, that the unenforceability of such provisions may result in delays in enforcement of the rights and remedies of the Lender Parties under the Subject Documents, and we express no opinion as to the economic consequences, if any, of such delays.
(e) Choice of New York Law and Forum. To the extent that any opinion relates to the enforceability of the choice of New York law and choice of New York forum provisions of any Subject Document, our opinion is rendered in reliance upon N.Y. Gen. Oblig. Law §§ 5-1401 and 5-1402 (McKinney 2011) and N.Y. CPLR 327(b) (McKinney 2011) and is subject to the qualification that such enforceability may be limited by principles of public policy, comity and constitutionality. We express no opinion as to whether a United States federal court
would have subject-matter or personal jurisdiction over a controversy arising under the Subject Documents.
(f) Material Changes to Terms. Provisions in the Subject Documents which provide that any obligations of the Borrower thereunder will not be affected by the action or failure to act on the part of any Lender Party or by an amendment or waiver of the provisions contained in the other Subject Documents might not be enforceable under circumstances in which such action, failure to act, amendment or waiver so materially changes the essential terms of the obligations that, in effect, a new contract has arisen between the Lender Parties and the Borrower.
(g) Incorporated Documents. The foregoing opinion does not relate to (and we have not reviewed) any documents or instruments other than the Subject Documents, and we express no opinion as to (i) such other documents or instruments (including, without limitation, any documents or instruments referenced or incorporated in any of the Subject Documents), (ii) the interplay between the Subject Documents and any such other documents and instruments, or (iii) any schedule, exhibit, appendix or like supplemental document referred to as attached to any Subject Document if so attached or in any manner altered after our review of such document.
(h) Mathematical Calculations. We have made no independent verification of any of the numbers, schedules, formulae or calculations in the Subject Documents, and we render no opinion with regard to the accuracy, validity or enforceability of any of them.
Miscellaneous
The foregoing opinion is being furnished only to the Lender Parties and only for the purpose referred to in the first paragraph of this opinion letter, and this opinion letter is not to be furnished to any other person or entity or used or relied upon by any other person or for any other purpose without our prior written consent. At your request, we hereby consent to (a) reliance hereon by any future assignee of any Banks interest in the loans under the Credit Agreement pursuant to an assignment that is made and consented to in accordance with the express provisions of Section 9.06(c) of the Credit Agreement, on the condition and understanding that (i) this letter speaks only as of the date hereof, (ii) we have no responsibility or obligation to update this letter, to consider its applicability or correctness to any person other than its addressee(s), or to take into account changes in law, facts or any other developments of which we may later become aware, and (iii) any such reliance by a future assignee must be actual and reasonable under the circumstances existing at the time of assignment, including any changes in law, facts or any other developments known to or reasonably knowable by the assignee at such time; and (b) the furnishing of this opinion letter to (but not reliance upon this opinion letter by) any regulatory agency to which any Lender Party (or any successor or assignee permitted by the Credit Agreement) is subject, in accordance with any auditing or oversight function or other request of such regulatory agency, or as otherwise required by applicable law.
The opinion set forth herein is made as of the date hereof, and we assume no obligation to supplement this opinion letter if any applicable laws change after the date hereof or if we become aware after the date hereof of any facts that might change the opinion expressed herein. Headings in this opinion letter are intended for convenience of reference only and shall not affect its interpretation.
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Very truly yours, |
EXHIBIT I
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of , among [ASSIGNOR] (the Assignor), [and] [ASSIGNEE] (the Assignee), [and TARGET CORPORATION (the Borrower)].
WITNESSETH
WHEREAS, this Assignment and Assumption Agreement (the Agreement) relates to the Five-Year Credit Agreement dated as of October 14, 2011 among the Borrower, the Assignor and the other Banks party thereto, as Banks, the Co-Documentation Agents and Syndication Agent listed therein, and Bank of America, N.A., as Agent (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement);
WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower for an aggregate principal amount at any time outstanding not to exceed $ ;
WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $ are outstanding at the date hereof;
WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $ (the Assigned Amount), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee without recourse, representation or warranty of any kind except as expressly stated below all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor[, and] the Assignee[ and the Borrower], [consent to and] acknowledgment hereof by the Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (a) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (b) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from
its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.* It is understood that facility fees accrued to the date hereof with respect to the Assigned Amount are for the account of the Assignor and such fees accruing from and including the date hereof are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other partys interest therein and shall promptly pay the same to such other party.
[SECTION 4. Consent of the Agent [and the Borrower]. This Agreement is conditioned upon the consent of the Agent [and the Borrower] pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Agent [and the Borrower] is evidence of this consent. [Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.]]
SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
* Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generically or by formula rather than as a fixed sum.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.
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[TARGET CORPORATION | |
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[Consented to and] Acknowledged by:
BANK OF AMERICA, N.A., as Agent
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EXHIBIT J
FORM OF BORROWING NOTICE
To: Bank of America, N.A., as Agent
Mail Code: CA4-702-02-25
Building B
2001 Clayton Road
Concord, California 94520-2405
Attention: Agency Services
Reference is hereby made to the Five-Year Credit Agreement dated as of October 14, 2011 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement) among Target Corporation, a Minnesota corporation (the Borrower), the Banks referred to therein, the Co-Documentation Agents and Syndication Agent referred to therein and Bank of America, N.A., as administrative agent (in such capacity, the Agent). Terms defined in the Credit Agreement are used herein as therein defined.
The Borrower through its authorized representative hereby gives notice to the Agent that Loans of the type and amount set forth below be made on the date indicated:
Type of Loan |
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Interest Period(1) |
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Aggregate Amount(2) |
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Date of Loan(3) |
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Base Rate Loan |
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Euro-Dollar Loan |
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CD Loan |
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(1) For any Euro-Dollar Loan, one, two, three or six months, and for any CD Loan, 30, 60, 90 or 180 days.
(2) Must be $25,000,000 or if greater an integral multiple of $5,000,000.
(3) At least three (3) Euro-Dollar Business Days later if a Euro-Dollar Loan, and at least two (2) Domestic Business Days later if a CD Loan.
The Borrower hereby requests that the proceeds of Loans described in this Borrowing Notice be made available to the Borrower as follows: [insert transmittal instructions].
The undersigned hereby certifies that all conditions contained in the Credit Agreement to the making of any Loan requested hereby, including those conditions required under Section 3.02, have been met or satisfied in full.
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By: |
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Date: |
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Exhibit (12)
TARGET CORPORATION
Computations of Ratios of Earnings to Fixed Charges for the
Nine Months Ended October 29, 2011 and October 30, 2010
and for the Most Recent Five Fiscal Years
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Nine Months Ended |
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Fiscal Year Ended |
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Oct. 29, |
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Oct. 30, |
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Jan. 29, |
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Jan. 30, |
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Jan. 31, |
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Feb. 2, |
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Feb. 3, |
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(millions) |
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2011 |
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2010 |
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2011 |
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2010 |
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2009 |
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2008 |
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2007 |
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Ratio of Earnings to Fixed Charges |
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Earnings from continuing operations before income taxes |
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$ |
3,048 |
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$ |
2,908 |
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$ |
4,495 |
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$ |
3,872 |
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$ |
3,536 |
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$ |
4,625 |
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$ |
4,497 |
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Capitalized interest, net |
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4 |
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1 |
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2 |
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(9 |
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(48 |
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(66 |
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(47 |
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Adjusted earnings from continuing operations before income taxes |
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3,052 |
|
2,909 |
|
|
4,497 |
|
3,863 |
|
3,488 |
|
4,559 |
|
4,450 |
| |||||||
Fixed charges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest expense(a) |
|
587 |
|
580 |
|
|
776 |
|
830 |
|
956 |
|
747 |
|
646 |
| |||||||
Interest portion of rental expense |
|
85 |
|
82 |
|
|
110 |
|
105 |
|
103 |
|
94 |
|
88 |
| |||||||
Total fixed charges |
|
672 |
|
662 |
|
|
886 |
|
935 |
|
1,059 |
|
841 |
|
734 |
| |||||||
Earnings from continuing operations before income taxes and fixed charges |
|
$ |
3,724 |
|
$ |
3,571 |
|
|
$ |
5,383 |
|
$ |
4,798 |
|
$ |
4,547 |
|
$ |
5,400 |
|
$ |
5,184 |
|
Ratio of earnings to fixed charges |
|
5.54 |
|
5.40 |
|
|
6.08 |
|
5.13 |
|
4.29 |
|
6.42 |
|
7.06 |
|
(a) Includes interest on debt and capital leases (including capitalized interest) and amortization of debt issuance costs. Excludes interest income and interest associated with unrecognized tax benefit liabilities, which is recorded within income tax expense.
Exhibit (31)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, Gregg W. Steinhafel, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Target Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 23, 2011 |
|
|
|
/s/ Gregg W. Steinhafel |
|
Gregg W. Steinhafel |
|
Chairman, President and Chief Executive Officer |
|
Exhibit (31)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Certifications
I, Douglas A. Scovanner, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Target Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 23, 2011 |
|
|
|
/s/ Douglas A. Scovanner |
|
Douglas A. Scovanner |
|
Executive Vice President and Chief Financial Officer |
|
Exhibit (32)A
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AS ADOPTED PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Target Corporation, a Minnesota corporation (the Company), for the quarter ended October 29, 2011, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1. |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: November 23, 2011 |
|
|
|
/s/ Gregg W. Steinhafel |
|
Gregg W. Steinhafel |
|
Chairman, President and Chief Executive Officer |
|
Exhibit (32)B
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
AS ADOPTED PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Target Corporation, a Minnesota corporation (the Company), for the quarter ended October 29, 2011, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned officer of the Company certifies pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1. |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
|
2. |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: November 23, 2011 |
|
|
|
/s/ Douglas A. Scovanner |
|
Douglas A. Scovanner |
|
Executive Vice President and Chief Financial Officer |
|
Derivative Financial Instruments (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | 1 Months Ended | |||
---|---|---|---|---|---|---|
Oct. 29, 2011 | Oct. 30, 2010 | Oct. 29, 2011 | Oct. 30, 2010 | Jan. 29, 2011 | Jul. 30, 2011
Interest rate swaps | |
Derivative Financial Instruments | ||||||
Net gains amortized into net interest expense for terminated and de-designated swaps | $ 10 | $ 11 | $ 31 | $ 34 | ||
Unamortized hedged debt valuation gains from terminated and de-designated interest rate swaps | 122 | 164 | 122 | 164 | 152 | |
Derivative Contracts - Effect on Results of Operations | ||||||
Gain of derivative instrument not designated as hedging instrument | 10 | 12 | 32 | 40 | ||
Fixed rate debt issuance | 350 | |||||
Notional amount of interest rate swap | $ 350 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Oct. 29, 2011 | Nov. 18, 2011 | |
Document and Entity Information | ||
Entity Registrant Name | TARGET CORP | |
Entity Central Index Key | 0000027419 | |
Document Type | 10-Q | |
Document Period End Date | Oct. 29, 2011 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --01-28 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 671,596,926 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 |
Pension, Postretirement Health Care and Other Benefits (Tables) | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 29, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension, Postretirement Health Care and Other Benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Pension and Postretirement Health Care Benefits Expense |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Forward Contracts on Target Common Stock |
|
Pension, Postretirement Health Care and Other Benefits (Details) (USD $) In Millions | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Oct. 29, 2011 | Oct. 30, 2010 | Oct. 29, 2011 | Oct. 30, 2010 | |
Pension Benefits | ||||
Net Pension and Postretirement Health Care Benefits Expense | ||||
Service cost | $ 29 | $ 29 | $ 87 | $ 87 |
Interest cost | 34 | 32 | 103 | 96 |
Expected return on assets | (51) | (48) | (153) | (144) |
Recognized losses | 16 | 11 | 50 | 33 |
Recognized prior service cost | (2) | (1) | ||
Total Net Pension and Postretirement Health Care Benefits Expense | 28 | 24 | 85 | 71 |
Postretirement Health Care Benefits | ||||
Net Pension and Postretirement Health Care Benefits Expense | ||||
Service cost | 3 | 2 | 7 | 7 |
Interest cost | 1 | 1 | 3 | 3 |
Recognized losses | 1 | 1 | 3 | 3 |
Recognized prior service cost | (3) | (2) | (7) | (7) |
Total Net Pension and Postretirement Health Care Benefits Expense | $ 2 | $ 2 | $ 6 | $ 6 |
Commitments and Contingencies (Details) (USD $) In Billions | Oct. 29, 2011 |
---|---|
Commitments and Contingencies | |
Additional future minimum lease payments | $ 3.5 |
Net present value of additional future minimum capital lease payments | $ 1.3 |
Canadian Leasehold Acquisition | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 29, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Canadian Leasehold Acquisition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Canadian Leasehold Acquisition |
|