-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SrM+4aM3h736dSjeO0IJPjGz4P7rfCwdfUjQH9dpjLVB5w3O1eYm9p1Kr3LsqZpM /AwZ3CfZGrC3DufGqUEO0A== 0000927016-99-000696.txt : 19990219 0000927016-99-000696.hdr.sgml : 19990219 ACCESSION NUMBER: 0000927016-99-000696 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRADLEES INC CENTRAL INDEX KEY: 0000887356 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 043156108 STATE OF INCORPORATION: MA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-66953 FILM NUMBER: 99544878 BUSINESS ADDRESS: STREET 1: 1 BRADLESS CIRCLE STREET 2: P O BOX 9051 CITY: BRAINTREE STATE: MA ZIP: 02184 BUSINESS PHONE: 7813803000 MAIL ADDRESS: STREET 1: ONE BRADLEES CIRCLE STREET 2: P O BOX 9051 CITY: BRAINTREE STATE: MA ZIP: 02184 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRADLEES STORES INC CENTRAL INDEX KEY: 0001073116 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043220855 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-66953-01 FILM NUMBER: 99544879 BUSINESS ADDRESS: STREET 1: ONE BRADLEES CIRCLE CITY: BRAINTREE STATE: MA ZIP: 02184 BUSINESS PHONE: 7813803000 MAIL ADDRESS: STREET 1: ONE BRADLEES CIRCLE CITY: BRAINTREE STATE: MA ZIP: 02184 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW HORIZONS OF YONKERS INC CENTRAL INDEX KEY: 0001078951 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-66953-02 FILM NUMBER: 99544880 BUSINESS ADDRESS: STREET 1: ONE BRADLEE CIRCLE CITY: BRAINTREE STATE: MA ZIP: 02184 BUSINESS PHONE: 7813803000 MAIL ADDRESS: STREET 1: ONE BRADLEE CIRCLE CITY: BRAINTREE STATE: MA ZIP: 02184 POS AM 1 POST-EFECTIVE AMENDMENT #1 As filed with the Securities and Exchange Commission on February 16, 1999 Registration Statement No. 333-66953 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- POST-EFFECTIVE AMENDMENT NO. 1 To FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------- BRADLEES, INC. BRADLEES STORES, INC. and NEW HORIZONS OF YONKERS, INC. (Exact name of Registrant as specified in its charter)
Bradlees, Inc.-- Massachusetts 5311 Bradlees, Inc.--04-3156108 Bradlees Stores, Inc.-- Massachusetts (Primary Standard Industrial Bradlees Stores, Inc.--04-3220855 New Horizons of Yonkers, Inc.--Delaware Classification Code Number) New Horizons of Yonkers, Inc.--04-3172952 (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization)
One Bradlees Circle Braintree, Massachusetts 02184 (781) 380-3000 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive office) PETER THORNER Chairman of the Board and Chief Executive Officer & DAVID L. SCHMITT Senior Vice President, General Counsel Secretary and Clerk (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copy to: RAYMOND C. ZEMLIN, P.C. Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 (617) 570-1000 --------------- Approximate date of commencement of proposed sale to the public: From time to time after this Registration Statement becomes effective, which time is to be determined by the Selling Securityholders. All of the Securities offered hereby are offered for the account of the Selling Securityholders. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act Registration Statement number of the earlier effective Registration Statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. ================================================================================ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this Prospectus is not complete and may be changed. The + +Selling Securityholders may not sell these securities until the Registration + +Statement filed with the Securities and Exchange Commission is effective. + +This Prospectus is not an offer to sell these securities and it is not + +soliciting an offer to buy these securities in any State where the offer or + +sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 16, 1999 PROSPECTUS BRADLEES, INC. 7,267,424 Shares of Common Stock BRADLEES STORES, INC. $36,000,000 of 9% Convertible Notes Bradlees, Inc. and its subsidiary companies operate discount department stores in the Northeast through Bradlees, Inc.'s subsidiary, Bradlees Stores, Inc. The Securities being offered by this Prospectus were issued by us under the terms of our bankruptcy reorganization. This Prospectus relates to: . 7,267,424 shares of Common Stock of Bradlees, Inc.; . $36,000,000 of 9% Convertible Notes issued by Bradlees Stores, Inc. and the Common Stock issuable upon conversion of the Convertible Notes; and . The guarantee by Bradlees, Inc. and New Horizons of Yonkers, Inc. of the 9% Convertible Notes. We are registering these securities on behalf of the Selling Securityholders. The Selling Securityholders received these securities, directly or indirectly, pursuant to our Plan of Reorganization in exchange for the cancellation of various indebtedness owed by us to them. We are not selling any of these securities and we will not receive any proceeds from the sale of these securities. The Selling Securityholders may offer these securities through public or private transactions, on the Nasdaq National Market, at prevailing prices or at privately negotiated prices. The registration of these securities does not necessarily mean that any Selling Securityholder will actually sell such securities. The Common Stock offered by this Prospectus is listed on the Nasdaq National Market on a "when issued" basis under the symbol "BRADV." On February 12, 1999, the last reported sale price of our Common Stock was $5.50 per share. Our principal executive offices are located at One Bradlees Circle, Braintree, Massachusetts 02184. Our telephone number is (781) 380-3000. ----------- Investing in these securities involves certain risks. See "Risk Factors" beginning on page 6. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------- The date of this Prospectus is February , 1999 TABLE OF CONTENTS
Page ---- PROSPECTUS SUMMARY........................................................ 2 The Company.............................................................. 2 The Offering............................................................. 3 Summary Financial Data................................................... 5 RISK FACTORS.............................................................. 6 Economic and Industry Risks.............................................. 6 Competition............................................................. 6 Concentration in the Northeast.......................................... 6 Merchandising Strategy Must Successfully Evolve......................... 6 Labor Negotiations...................................................... 6 Financial Risks.......................................................... 7 High Leverage........................................................... 7 History of Losses....................................................... 7 Restrictions Imposed by the Terms of the BankBoston Facility............ 7 Risk to Continuing Operations if Covenants Not Met...................... 8 Limitations on Future Growth............................................ 8 Liquidity............................................................... 8 Assets Pledged as Collateral under the BankBoston Facility.............. 8 Post-Bankruptcy Risks.................................................... 9 Recent Emergence from Chapter 11 Proceedings............................ 9 Fresh Start Reporting May Make Future Financial Statements Difficult to Compare................................................................ 9 Determination of Equity Value........................................... 9 Tax Consequences of the Plan of Reorganization; Potential Loss of Certain Tax Attributes................................................. 9 Risks Related to the Securities.......................................... 10 Limited Market for Common Stock and Notes............................... 10 Restrictions on Common Stock Dividends.................................. 10 Future Stock Issuances Can Dilute Current Owners........................ 10 Guarantor Does not Have Significant Separate Assets..................... 11 Fraudulent Conveyance Matters........................................... 11 Miscellaneous Business Risks............................................. 11 Dependence on key personnel............................................. 11 Potential Year 2000 Liability........................................... 11 Change of Control not Restricted........................................ 12 Board of Directors May Change........................................... 12 THE COMPANY............................................................... 13 General.................................................................. 13 Background to Our Bankruptcy Reorganization.............................. 13 The Plan of Reorganization............................................... 13 USE OF PROCEEDS........................................................... 18 DIVIDEND POLICY........................................................... 18 CAPITALIZATION............................................................ 19 SELECTED FINANCIAL DATA................................................... 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................... 30 Results of Operations.................................................... 30 1997 Compared to 1996.................................................... 30 1996 Compared to 1995.................................................... 32 Year-to-Date 1998 Compared to Year-to-Date 1997.......................... 33 Liquidity and Capital Resources.......................................... 34 Year 2000 Readiness Disclosure........................................... 35
(i) BUSINESS.................................................................... 37 Company Overview........................................................... 37 Employees and Collective Bargaining Arrangements........................... 38 Competition................................................................ 38 Patents, Trademarks and Licenses........................................... 39 Seasonality................................................................ 39 Credit Facility............................................................ 39 Further Information........................................................ 39 Facilities................................................................. 40 Legal Proceedings.......................................................... 40 MANAGEMENT.................................................................. 41 Directors and Executive Officers........................................... 41 Board of Directors of Bradlees, Inc. and Its Committees.................... 43 Board of Directors of Bradlees Stores, Inc................................. 44 Board of Directors of New Horizons of Yonkers, Inc. ....................... 44 Summary Compensation Table................................................. 45 Corporate Bonus Plan....................................................... 46 Enterprise Appreciation Incentive Plan..................................... 46 Management Emergence Bonus Plan............................................ 46 Severance Program.......................................................... 47 Stock Option Plan for Key Employees........................................ 47 Retirement Plans........................................................... 47 Compensation of Directors.................................................. 48 Employment Agreement with Peter Thorner.................................... 48 Compensation Committee Interlocks and Insider Participation................ 49 PRINCIPAL STOCKHOLDERS...................................................... 50 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 51 Other Transactions......................................................... 51 Company Policy............................................................. 51 SELLING SECURITY HOLDERS.................................................... 51 PLAN OF DISTRIBUTION ....................................................... 52 Type of Transactions....................................................... 52 Price of Transaction; Fees................................................. 52 SHARES ELIGIBLE FOR FUTURE SALE............................................. 53 TERMS OF OUTSTANDING INDEBTEDNESS........................................... 53 Credit Agreement........................................................... 53 CAP Notes.................................................................. 54 Cure Notes................................................................. 55 Tax Notes.................................................................. 55 Vendor Lien................................................................ 55 DESCRIPTION OF THE 9% CONVERTIBLE NOTES..................................... 55 General.................................................................... 55 Ranking.................................................................... 56 Redemption................................................................. 56 Limitations on Mergers and Consolidation................................... 57 Guarantee.................................................................. 57 Events of Default, Notice and Waiver....................................... 57 Modification of the Indenture.............................................. 59 Collateral................................................................. 59 Conversion................................................................. 60 Governing Law.............................................................. 61 The Trustee................................................................ 61
(ii) Authentication............................................................. 61 DESCRIPTION OF CAPITAL STOCK................................................ 62 General.................................................................... 62 Authorized and Outstanding Capital Stock................................... 62 Certain Provisions of the Articles and By-laws of Bradlees, Inc............ 62 Massachusetts Anti-takeover Laws........................................... 64 Certain Provisions of the Articles and By-laws of Bradless Stores, Inc. ... 64 Transfer Agent and Registrar............................................... 65 Listing.................................................................... 65 LEGAL MATTERS............................................................... 65 EXPERTS..................................................................... 65 ADDITIONAL INFORMATION...................................................... 65 INDEX TO FINANCIAL STATEMENTS............................................... F-1
(iii) FORWARD-LOOKING STATEMENTS Certain statements incorporated by reference or made in this prospectus under the captions "Prospectus Summary," "Risk Factors" and "The Company," and elsewhere in this Prospectus are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. When we use the words "anticipate," "assume," "believe," "estimate," "expect," "intend," and other similar expressions in this Prospectus, they are generally intended to identify forward-looking statements. In connection with such forward-looking statements, you should consider that they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Factors that could cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the following: . international, national, regional and local economic and political conditions; . demographic changes; . competition; . unfavorable changes in interest rates; . unfavorable weather conditions; . loss of significant vendors; . liability and other claims asserted against us; . fluctuations in operating results; . increased costs of key resources; . continued acceptance of merchandising and marketing initiatives; . changes in consumer spending and shopping habits; . availability of new store sites; . changes in import duties, tariffs and quotas; . changes in business strategy; and . the ability to attract and retain qualified personnel. We disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of these forward-looking statements contained herein to reflect subsequent events or developments. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this Prospectus. It is not complete and may not contain all of the information that you should consider before investing in the Securities. You should read the entire Prospectus carefully, including the "Risk Factors" section and the financial statements and the notes to those statements. The Company Background Bradlees, Inc. and its subsidiary companies operate discount department stores in the Northeast through Bradlees, Inc.'s subsidiary, Bradlees Stores, Inc. (collectively, the "Company"), primarily in the Boston to Philadelphia corridor. We have been active in the discount department store business for 40 years. On June 23, 1995, we filed a petition for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11"). On February 2, 1999, we completed our reorganization and emerged from bankruptcy. In connection with our reorganization, we took significant steps to improve our operations, including: . Recruiting an experienced management team; . Reintroducing basic convenience and commodity products that our customers expect us to carry; . Revising our pricing policies to increase customer traffic; . Revising our marketing strategy to reduce costly and inefficient advertising and promotional events; and . Reducing costs by improving operating efficiencies. Business Strategy We are focusing on three key merchandise categories: 1. Moderately-priced basic and casual apparel; 2. Basic and fashion items for the home; and 3. Frequently purchased convenience and commodity products. We believe we can strategically leverage our traditional strengths in the fashion and quality of our apparel and decorative home product offerings while driving customer traffic with selected hardlines merchandise. The Reorganization We were compelled to seek the protection of the Bankruptcy Court on June 23, 1995. While in Chapter 11, we continued to manage our affairs as a debtor-in- possession. On October 5, 1998, the first Amended Disclosure Statement relating to our plan of reorganization was approved by the Bankruptcy Court (the "Plan of Reorganization"). The Plan of Reorganization, as subsequently modified, was confirmed by the Bankruptcy Court on January 27, 1999 and became effective on February 2, 1999 (the "Effective Date"). In connection with our reorganization in bankruptcy and our related operational restructuring, all of the equity interests in Bradlees, Inc. that existed immediately prior to the Effective Date were canceled. In addition, we canceled certain indebtedness that existed prior to our entering bankruptcy. Our Plan of Reorganization provided that certain holders of this canceled indebtedness receive an equity interest in the reorganized company and/or 9% Convertible Notes issued by Bradlees Stores, Inc. which pay interest at the rate of 9% per annum and are convertible into our common stock after one year. In connection with the issuance of these securities, we are registering the resale of the securities received by certain of our creditors under the Plan of Reorganization. This Prospectus is part of the Registration Statement we agreed to file. See "The Company--The Plan of Reorganization." 2 The Offering The principal terms of the Common Stock and 9% Convertible Notes (collectively, the "Securities") are summarized below. For a more complete description, see "Description of Capital Stock" and "Description of the 9% Convertible Notes." The Selling Securityholders will receive all of the proceeds from the sale of the Securities offered hereby. We will not receive any proceeds from this Offering. Common Stock: Issuer........................ Bradlees, Inc. Securities Offered (1)........ 7,267,424 shares of Common Stock. Common Stock outstanding (2).. 10,225,711 shares of Common Stock. Voting Rights................. Each share of Common Stock has one vote. Listing....................... We have listed the common stock offered by this Prospectus on the Nasdaq National Market. Trading Symbol................ BRAD
- -------- (1) Under the terms of the Plan of Reorganization, the number of shares issued to the Selling Stockholders varies with the amount of general unsecured claims allowed. The Securities Offered and Common Stock Outstanding assumes that the amount of the general unsecured claims allowed are not less than $225 million and the number of shares issued to the Selling Securityholders is not more than 7,267,424. Excludes an indeterminate number of shares issuable upon conversion of the 9% Convertible Notes. Since the number of shares of Common Stock issuable upon conversion of the 9% Convertible Notes varies as the market price of the Common Stock changes, it is impossible at this time to determine how many shares may be issued upon conversion of the 9% Convertible Notes. (2) Excluding 1,000,000 shares of Common Stock reserved for issuance upon exercise of outstanding warrants as of February 2, 1999 (the "Warrants") and 750,000 shares of Common Stock issuable upon exercise of employee options which we have agreed to issue under the Plan of Reorganization. Also excludes all shares of Common Stock issuable upon conversion of the 9% Convertible Notes. 9% Convertible Notes: Issuer...................... Bradlees Stores, Inc. Securities Offered.......... We agreed to issue not more than $40,000,000 aggregate principal amount of 9% Convertible Notes, of which $36,000,000 was originally registered pursuant to the Registration Statement of which this prospectus is a part. On the Effective Date, we made a pre-payment of $11.0 million on the 9% Convertible Notes and issued $28,995,000 of 9% Convertible Notes. The Registration Statement of which this prospectus forms a part relates to $24,022,000 aggregate principal amount of the 9% Convertible Notes issued on the Effective Date after taking into account the pre-payment. Interest Rate............... The 9% Convertible Notes bear interest at a rate of 9% per annum. Interest has been accruing from the date we issued the Notes and is payable semi- annually in arrears on each January 1 and July 1, commencing July 1, 1999. Guarantors............. The 9% Convertible Notes will be guaranteed by Bradlees, Inc., which owns all of the outstanding capital stock of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc., a wholly-owned subsidiary of Bradlees Stores, Inc. If Bradlees Stores, Inc. cannot make payments on the 9% Convertible Notes when they are due, 3 Bradlees, Inc. and New Horizons of Yonkers, Inc. must make them instead. The guarantee by Bradlees, Inc. is subordinated to the guarantee by Bradlees, Inc. of our credit facility and the guarantee by New Horizons of Yonkers, Inc. is subordinated to the guarantee by New Horizons of Yonkers, Inc. of our credit facility. Liens....................... The 9% Convertible Notes will be secured by (i) a first priority lien on our leasehold interest in our Yonkers, New York store, which we are seeking to sell (and the net proceeds we receive upon its disposition), (ii) under certain circumstances and subject to certain limitations, first priority liens on our leasehold interests in our Danbury, Connecticut, Norwalk, Connecticut and Saddle Brook, New Jersey stores, (as well as the net proceeds we receive upon their disposition(s), none of which we are currently seeking to sell), and (iii) a first priority pledge of all of the outstanding capital stock of New Horizons of Yonkers, Inc. We have agreed with the holders of the 9% Convertible Notes that if we have not disposed of our leasehold interest in our Yonkers, New York store by July 31, 1999, the Trustee may market and sell such leasehold interest and the Trustee may take title to all of the outstanding capital stock of New Horizons of Yonkers, Inc. In either such event, it is expected that the Trustee or its representative will continue to actively seek to sell such leasehold interest. The net proceeds realized upon a sale (by us, the Trustee or its representative) of the Yonkers, New York leasehold interest will be paid to the holders of the 9% Convertible Notes as a prepayment. The disposition of our leasehold interest in the Yonkers, New York store is subject to Bankruptcy Court approval. In addition, pursuant to the Plan of Reorganization we have modified the termination date and certain other provisions of our lease for our Union Square, New York store in exchange for a payment upon the Effective Date of $11.0 million by the landlord. This payment was applied as a pre-payment to the 9% Convertible Notes. Conversion.................. The 9% Convertible Notes will be convertible any time after the first anniversary of the Effective Date into shares of our Common Stock. The conversion price will initially be the average closing price of our Common Stock during the twenty business days preceding the first anniversary of the Effective Date. Listing..................... We do not intend to apply for listing of the 9% Convertible Notes on any securities exchange or authorization for quotation on the NASDAQ system. We do not expect that an active trading market will develop for the 9% Convertible Notes. 4 Summary Financial Data (In thousands, except per share data) The summary financial data set forth below presents historical and pro forma financial information of the Company. The financial information for the thirty- nine weeks ended October 31, 1998 and November 1, 1997 was derived from the unaudited condensed consolidated financial statements of the Company which, in the opinion of management, include all adjustments, consisting only of normal adjustments necessary for a fair presentation of the results for the periods. The results for the thirty-nine weeks ended October 31, 1998 are not necessarily indicative of the results to be expected for the full year. Fiscal year 1997 refers to the 52 weeks ended January 31, 1998, fiscal year 1996 refers to the 52 weeks ended February 1, 1997 and fiscal year 1995 refers to the 53 weeks ended February 3, 1996. The summary information should be read in conjunction with the financial statements and related notes thereto appearing elsewhere in this Prospectus, "Unaudited Pro Forma Condensed Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Fiscal Year 39 Weeks Ended ---------------------------------------------- -------------------------------- 1997 October 31, 1998 ---------------------- ------------------- Pro Pro November 1, Historical Forma(a) 1996 1995 Historical Forma(a) 1997 ---------- ---------- ---------- ---------- ---------- -------- ----------- (in thousands, except ratio and per share amounts) Statement of Operations Data: Net Sales............... $1,344,444 $1,294,748 $1,561,718 $1,780,768 $906,385 $903,074 $895,220 Gross margin............ 396,357 384,457 434,067 491,691 271,002 270,163 269,699 Operating expenses(b)... 401,578 373,281 530,757 612,102 296,180 282,768 308,666 Operating income (loss)................. (5,221) 11,176 (96,690) (120,411) (25,178) (12,605) (38,967) Loss before income taxes.................. (22,557) (18,525) (218,759) (311,946) (34,583) (33,794) (48,480) Income tax benefit...... - - - 104,533 - - - Net loss................ $ (22,557) $ (18,525) $ (218,759) $ (207,413) $(34,583) $(33,794) $(48,480) Loss per share: Basic and diluted...... $ (1.98) $ (1.81) $ (19.17) $ (18.17) $ (3.06) $ (3.30) $ (4.26) Shares used for computation: Basic and diluted...... 11,365 10,226 11,412 11,416 11,311 10,226 11,382 Ratio of earnings to fixed charges(c)....... - - - - - - -
October 31, 1998 -------------------- January 31, Pro 1998 Historical Forma(a) ----------- ---------- -------- Balance Sheet Data: Working capital(d)........................ $ 46,151 $ 10,836 $(17,509) Total assets.............................. 595,166 661,410 596,002 Long-term debt, less current maturities(d)............................ 27,073 26,211 60,562 Total stockholders equity (deficiency).... $(285,950) $(320,532) $ 85,000(e)
- -------- (a) Pro forma information gives effect to the consummation of the Plan, including adjustments for fresh-start reporting. Pro forma condensed consolidated statement of operations data for fiscal year 1997 and the thirty-nine week period ended October 31, 1998 is presented as if the Plan was consummated on February 1, 1997, and the balance sheet data at October 31, 1998 is presented as if the Plan was consummated on such date. See "Unaudited Pro Forma Condensed Consolidated Financial Information." These amounts are presented for informational purposes only and do not purport to represent what the Company's financial position or results of operations would have been if consummation of the Plan had actually occurred on such dates. (b) Net of other income. (c) For the periods presented above, earnings were insufficient to cover fixed charges by the amount of the respective loss before income taxes. As used herein, "earnings" consists of income (loss) before taxes plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt issuance costs, capitalized interest and a portion of rent expense which is deemed to be representative of an interest factor. (d) Excluding liabilities subject to settlement under the reorganization case. (e) See "Risk Factors--Post Bankruptcy Risks--Determination of Equity Value." 5 RISK FACTORS You should carefully consider the following factors and other information in this Prospectus before deciding to invest in any of the Securities being offered by the Selling Securityholders. Economic and Industry Risks Competition The discount retail business is highly competitive, and many of our competitors have greater resources than we do. We compete against national companies, such as Wal-Mart Stores, Inc., Target Stores and K-Mart Corp. and regional companies, such as Caldor Corp. and Ames Department Stores. Caldor Corp., which has been in bankruptcy since 1995, announced on January 22, 1999 that it intends to close all of its stores and liquidate its assets. Caldor Corp. is currently conducting going-out-of-business sales in certain markets in which we operate stores. In the near term it is likely that these sales will create pressure on the sales of Bradlees' stores in these markets. In addition, as Caldor Corp. liquidates its assets, new competitors may purchase the Caldor stores. It is uncertain at this time what competitive impact may result from Caldor's liquidation of assets. Consumers choose among these companies based upon a number of factors, including price, location, product quality, merchandise selection, advertising and service. Other factors in the competition for consumers are generally beyond our control. These factors include: . consumer preferences; . changes in style; and . population trends. If we fail to compete successfully, customer traffic could be reduced, which would negatively impact sales and profits. In addition, while we believe that we are pursuing the proper merchandising and marketing strategies that will allow us to compete effectively in our operating areas, we can not make assurances that these strategies will further improve our performance, or that such strategies will remain valid in the future. Concentration in the Northeast Our stores are located exclusively in the Northeast. This makes us more susceptible to local and regional economic downturns than some of our competitors who are nationally diversified. As with our other competitors, we are also subject to a national economic downturn. Any economic downturn affecting us might cause consumers to reduce their spending, impacting our sales. In addition, our business is seasonal in nature, with a significant portion of our sales occurring in the fourth quarter, which includes the pivotal holiday selling season. If sales for the holiday selling season decline because of a regional or national economic downturn, or for any other reason, our sales and profits will be negatively impacted. In addition, the Northeast is generally a more expensive area of the country in which to own and operate stores. Since we are concentrated in the Northeast, we face higher average costs of operating stores than our national competitors. Merchandising Strategy Must Successfully Evolve Our profitability is dependent upon the success of our merchandising strategy which is to focus on three key merchandise categories: moderately- priced basic and casual apparel; basic and fashion items for the home; and frequently purchased convenience and commodity products. We believe we can strategically leverage our traditional strengths in the fashion and quality of our apparel and decorative home product offerings while driving customer traffic with selected hardlines merchandise. There can be no assurance that this strategy will be successful and, in the future, we must anticipate, gauge and appropriately revise this strategy to meet changing consumer demands. 6 Labor Negotiations Unlike many of our competitors, the majority of our work force is unionized. We cannot predict the effect, if any, that any future collective bargaining agreements with these unions will have on our operations or financial performance. Financial Risks High Leverage After giving effect to the reduction in our outstanding debt pursuant to the Plan of Reorganization, we have a reduced, but nevertheless substantial, amount of debt. Our pro forma consolidated ratio of total debt to total capitalization as of October 31, 1998 was approximately 0.72:1. See "Capitalization." We have a $270 million financing facility with BankBoston, N.A. as Administrative Agent and Issuing Bank (the "BankBoston Facility") under which we are allowed to borrow for general corporate purposes, working capital and inventory purchases. If we are unable to generate sufficient cash flow from operations in the future, or if we fail to satisfy the financial covenants contained in the BankBoston Facility, we could face default on the BankBoston Facility and other financing agreements. The leveraged nature of our capital structure will have several important effects on our operations, including the following: (i) we continue to have significant cash requirements for debt service; (ii) because our indebtedness under the BankBoston Facility bears interest at a floating rate, to the extent we have not hedged our interest rate exposure, we are sensitive to any increase in prevailing interest rates; (iii) funds available for capital expenditures will be limited; and (iv) our ability to meet our debt service obligations (and to satisfy the financial covenants contained therein) may be impaired. Our ability to meet such obligations in the future will be dependent upon our future performance which, in turn, will be subject to general economic conditions and to financial, business and other factors affecting our operations, including factors beyond our control. See "Business-Credit Facility." Our ability to repay such indebtedness at maturity or otherwise may depend upon our ability either to refinance or extend such indebtedness, to repay such indebtedness with proceeds of other capital transactions, such as the issuance of additional equity, or to sell assets. There can be no assurance that such refinancing or extension will be available on reasonable terms or at all, that additional equity will be issued, or that a sale of assets will occur. The inability to repay such indebtedness could have a material adverse effect on us. History of Losses We experienced significant losses from operations in fiscal years 1996 and 1995. In the long term, our ability to continue operations is dependent upon our ability to achieve profitable results of operations and positive cash flows. Although improvements have been made each year since fiscal year 1996, we have continued to incur net losses. For the 39 weeks ended October 31, 1998, we reported a net loss of $34.5 million as compared to a net loss of $48.5 million for the 39 weeks ended November 1, 1997. Additionally, our November, 1998 and December, 1998 sales performance was below plan. For fiscal year 1997, we reported a net loss of $22.6 million, for fiscal year 1996 we reported a net loss of $218.8 million and for fiscal year 1995 we reported a net loss of $207.4 million. There can be no assurance that we will achieve or maintain profitability in any future period. See "Management Discussion and Analysis of Financial Condition and Results of Operations." Restrictions Imposed by the Terms of the BankBoston Facility The BankBoston Facility is a $270 million financing facility which includes a $20 million junior secured "last in-last out" subfacility under which we are allowed to borrow for general corporate purposes, working capital and inventory purchases. The BankBoston Facility is a revolving credit facility which has affirmative and negative covenants which substantially restrict many aspects of our operations and finances. 7 The BankBoston Facility is a revolving credit facility that took effect upon the Effective Date. This facility is for a term of up to three years and may not exceed the maximum principal amount of $270 million. Under the terms of the BankBoston Facility, we have agreed to certain financial covenants, including: . maintaining a minimum level of earnings before interest, taxes, depreciation and amortization; . capping our capital expenditures at $20 million annually, subject to certain exceptions; and . agreeing not to let certain financial ratios which measure our debt coverage and accounts payable to inventory ratios drop below specified levels. See also "Terms of Outstanding Indebtedness-Credit Agreement." Risk to Continuing Operations if Covenants Not Met The covenants under the BankBoston Facility will limit our operational and financial flexibility and our ability to respond to changing retail conditions and take advantage of attractive business opportunities. Should we be unable to meet any of these covenants when required, it will be necessary to request waivers and/or amendments of the facility from BankBoston. There can be no assurance that the necessary waivers and/or amendments will be granted or that, if granted, they will be on terms acceptable or favorable to us. Failure to obtain such waivers and/or amendments could result in our obligations under the BankBoston Facility being declared immediately due and payable, in which case BankBoston could foreclose on the collateral securing the BankBoston Facility. See "Terms of Outstanding Indebtedness-Credit Agreement." Limitations on Future Growth Our growth is subject to (i) our ability to maintain or further increase revenues at existing stores, (ii) the availability of capital and new store sites and (iii) the restrictions on capital expenditures set forth in the BankBoston Facility, which prohibits annual capital expenditures in excess of $20 million unless our earnings, as calculated before interest, taxes, depreciation and amortization, are above $40 million annually and we do not default under the BankBoston Facility. There can be no assurance that we will be able to maintain or further increase revenues at current stores or that sufficient capital will be available to us or, if available, that it will be available on terms that we consider reasonable. Our inability or failure to maintain or further increase such revenues or obtain such sufficient capital on favorable terms could have a material adverse effect on our operations, business or financial condition. Our current plans are expected to require annual capital expenditures of approximately $20 million, which are within the restrictions contained in the BankBoston Facility. We are continually evaluating store locations and operations to determine whether to close stores that do not meet our performance objectives. Additionally, we may expand, downsize, relocate, or remodel existing stores. Further, numerous stores and our two distribution centers are in older facilities. The foregoing limitations on capital expenditures could prevent us from modernizing our distribution centers or remodeling our aging stores. Liquidity Although we have entered into the $270 million BankBoston Facility, we can make no assurances that our cash and cash equivalents on hand and our cash availability will be sufficient to meet our anticipated working capital needs and capital expenditures in the future. To finance future expenditures, we may need to issue additional securities and incur additional debt. We may not be able to obtain additional required capital on satisfactory terms, if at all. The failure to raise the funds necessary to finance future cash requirements could materially and adversely affect our operating results in future periods. We plan to sell our leasehold interest in our Yonkers, New York store. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 8 Assets Pledged as Collateral under the BankBoston Facility and Vendor Lien Agreement Obligations under the BankBoston Facility are secured by liens on substantially all of our non-real estate assets. If, after default, BankBoston were to foreclose on the collateral securing the BankBoston Facility or if such assets were liquidated, the proceeds of such assets would be applied to satisfy our obligations under the BankBoston Facility. If this were to happen, it is unlikely that the remaining unencumbered assets would be sufficient to allow our equity holders to recover any significant amount. In addition, Bradlees Stores, Inc. has entered into an agreement for the benefit of its trade vendors which grants such trade vendors a subordinated security interest in Bradlees Stores, Inc.'s inventory. Post-Bankruptcy Risks Recent Emergence from Chapter 11 Proceedings We emerged from Chapter 11 proceedings on February 2, 1999. Our experience in and recent emergence from Chapter 11 may affect our ability to negotiate favorable trade terms with certain manufacturers and other vendors. The failure to obtain such favorable terms could have a material adverse effect on our operations, business or financial condition. Fresh Start Reporting May Make Future Financial Statements Difficult to Compare For accounting purposes, we plan to use the end of our fiscal year ended January 30, 1999 as our emergence date. In accordance with AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7"), we will adopt "Fresh-Start Reporting" and will reflect the effects of such adoption on our Consolidated Balance Sheet as of January 30, 1999. Accordingly, our Consolidated Balance Sheets after January 30, 1999 and our Consolidated Statements of Operations for periods after January 30, 1999 will not be comparable in certain material respects to the Consolidated Financial Statements for prior periods included elsewhere herein. For example, the Consolidated Statement of Operations for fiscal 1998 will include a gain relating to the debt discharged in the Chapter 11 proceedings. Since our financial statements will not be comparable to our previous financial statements in certain material respects, or the financial statements of our competitors who have not adopted Fresh-Start Reporting, it may be more difficult for third parties to accurately gauge our performance. This might cause the price of our securities to fluctuate more than the prices of the securities of our competitors. Determination of Equity Value The determination of equity value included in the unaudited pro forma condensed consolidated financial statements and elsewhere in this Prospectus was derived from an estimated enterprise value of the reorganized Bradlees and reduced by estimated embedded debt levels. The enterprise value was developed by an independent financial advisor for purposes of the filing of our Disclosure Statement in the United States Bankruptcy Court for the Southern District of New York in October 1998 (the "Disclosure Statement"). In developing the determination of equity value, our financial advisor used various assumptions and estimates, including projected embedded debt of approximately $90 million which represents the ongoing revolver facility that is estimated to remain after the seasonal cleanup of the facility. As a result, the equity value was assumed to be in the range of $75 to $90 million. For purposes of the Disclosure Statement and this Prospectus, we have determined that an equity value of $85 million represents a reasonable estimate of distributable equity value to the creditors. Subsequent to the filing of the Disclosure Statement, a number of events have occurred which will impact the determination of equity value, including but not limited to, the initial trading prices of our stock (on a "when issued" basis), information regarding our fourth quarter performance, a settlement with a landlord regarding the disposition of a leasehold interest and the current liquidation of Caldor, a major competitor. The weighted average price per share of our "when issued" shares from the Effective Date through February 12, 1999 indicates an equity value of approximately $52 million (based on 10,225,711 shares outstanding), although there has been only limited trading during this period. 9 In finalizing our fresh start reporting requirements, we are required to perform a final appraisal of the book value of our equity which will take into account the above matters and other pertinent events, and will result in a change to the determination of equity value reflected in the unaudited pro forma financial information. Accordingly, this equity value does not purport to be an estimate of current or future trading prices of securities and actual market prices of such securities after issuance will depend on various factors not possible to predict with certainty. Tax Consequences of the Plan of Reorganization; Potential Loss of Certain Tax Attributes As a result of the implementation of the Plan of Reorganization, we will (i) undergo an "ownership change" (generally, a greater than 50 percentage point change in ownership) for purposes of section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) realize cancellation of indebtedness income ("COI") from the cancellation of certain indebtedness in exchange for Common Stock, 9% Convertible Notes and warrants to purchase shares of Common Stock. Because such ownership change and cancellation of indebtedness arose in a bankruptcy proceeding under Chapter 11, we avoided some of the adverse Federal income tax consequences generally associated with such changes (e.g. the COI realized will not be included in income). Nevertheless, we expect that our ability to offset future taxable income with net operating loss carryforwards ("NOLs"), as well as certain built-in losses and tax credits, will be limited and that certain of our tax attributes, including NOLs, will be reduced (but not eliminated). In addition, the sale of the Common Stock by the Selling Securityholders under this Prospectus, as well as the exercise of the warrants, may cause us to undergo another "ownership change" under Section 382 of the Code and, accordingly, may further limit our NOLs and certain built-in losses and tax credits to income. Risks Related to the Securities Limited Market for Common Stock and Notes Prior to our emergence from bankruptcy, the stock of the pre-reorganization company ("Old Bradlees") traded on the New York Stock Exchange. In October of 1997, the New York Stock Exchange delisted the stock of Old Bradlees. The Common Stock being offered hereby is listed on The Nasdaq National Market. The Notes being offered hereby are not listed on any securities exchange. There can be no assurance that a market will develop for the Securities, or that if a market does develop, that the market will have sufficient liquidity so as not to impact the price of the Securities. In addition, pursuant to our Plan of Reorganization, Shares of Common Stock and Warrants to purchase Common Stock will be issued to certain of our creditors. Some of these creditors may prefer to sell their Common Stock and/or Warrants, rather than to hold them on a long-term basis. The Shares, Notes and Warrants issued in the reorganization to creditors other than the Selling Securityholders will generally be freely tradeable as a result of an exemption from registration provided by the Bankruptcy Code. Accordingly, it is anticipated that the market for our Common Stock, to the extent one exists, will be volatile and the availability for unrestricted sale of such a large number of shares of Common Stock may have the effect of depressing the market price of the Common Stock. Restrictions on Common Stock Dividends Old Bradlees did not declare or pay cash dividends on its common stock ("Old Common Stock") or any other equity security while in Chapter 11, and we do not anticipate paying cash dividends on the Common Stock offered hereby or any other equity security in the foreseeable future. The BankBoston Facility specifically prohibits the payment of any type of dividends on the Common Stock. See "Terms of Outstanding Indebtedness-Credit Agreement." 10 Future Stock Issuances Can Dilute Current Owners As part of the Plan of Reorganization, we have issued Warrants to purchase 1,000,000 shares of Common Stock at $7.00 per share. Pursuant to the Plan of Reorganization, we have also agreed to issue options to purchase 750,000 shares of our Common Stock at an exercise price per share which is the lowest 10-day rolling average of the closing prices of our Common Stock within the period between 60 and 90 days after the Effective Date (April 3, 1999 to May 3, 1999). These options will be issued when their exercise price is determined. Further, we can also issue additional securities (including under our stock option plan) in the future. When we sell a new security, the purchaser of that security is entitled to a proportionate share of the aggregate rights of the holders of that class of security. Thus, it is possible that the value we receive on the sale of a new security will be less than the proportionate value attributable to the existing holders of that security. Since all holders of the same security share proportionately the rights of the security, the pre-existing security holders will receive less value after the new security is issued than if we had not issued the new security. The Guarantors Do Not Have Significant Separate Assets Bradlees, Inc., which owns all of the outstanding capital stock of Bradlees Stores, Inc., will fully and unconditionally guarantee the 9% Convertible Notes. Substantially all of the assets of the Companies, on a consolidated basis, are held by Bradlees Stores, Inc. New Horizons of Yonkers, Inc. will also guarantee the 9% Convertible Notes. New Horizons of Yonkers, Inc. holds the leasehold interest in our Yonkers, New York store. New Horizons of Yonkers, Inc. is still in Chapter 11. The guarantee by Bradlees, Inc. is expressly subordinated to the guarantee by Bradlees, Inc. of the BankBoston Facility, and the guarantee by New Horizons of Yonkers, Inc. is expressly subordinated to the guarantee by New Horizons of Yonkers, Inc. of the BankBoston Facility. Fraudulent Conveyance Matters--Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor under certain circumstances. In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor. Miscellaneous Business Risks Dependence on Key Personnel Our future success is largely dependent on the talents and efforts of Peter Thorner, our Chief Executive Officer and Chairman of the Board, and other members of senior management. We entered into an employment agreement with Mr. Thorner in 1995, but do not maintain a key person life insurance policy on the life of Mr. Thorner. The loss of Mr. Thorner or other members of our senior management could have a material adverse effect on our operations, business and financial condition. See "Management--Employment Agreement with Peter Thorner." Potential Year 2000 Liability We have determined that we must modify portions of our software so that our computer systems will properly recognize and use dates beyond December 31, 1999. We believe we can mitigate the impact of the Year 2000 disruption by upgrading or modifying existing software and, in certain instances, converting to new software. However, if the Year 2000 upgrades, modifications and conversions are not made, or are not made in a timely manner, the Year 2000 issue could have a material impact on our operations. We are using both internal and external resources to remediate, replace and test software for Year 2000 compliance. We have entered into a contract with a major outside consulting firm to provide the majority of the 11 resources necessary to identify, and then replace or remediate, our affected systems. We intend to complete our Year 2000 project no later than the beginning of the fourth quarter of fiscal 1999, but currently expect to substantially complete the conversion by the second quarter of fiscal 1999. At this time, we expect the cost of the Year 2000 project to be approximately $3 to $4 million, the majority of which is being incurred in 1998 and included in SG&A expenses. Through October 31, 1998, we have incurred $1.9 million for such expense. The remaining major systems to be remediated or replaced are the Company's merchandise planning system (approximately 50% remediated) and store host systems (approximately 30% remediated) expected to be completed by the end of the first quarter of 1999, and the warehouse management system that is scheduled to be replaced by the end of the second quarter of 1999. A test of all systems, including store support and facility systems, for proper Year 2000 compliance is planned for the end of the second quarter of 1999. We are in the process of developing contingency plans in the event that such replacement or remediation is not fully completed in a timely manner. We have calculated the costs of the Year 2000 project and predicted the dates on which we plan to complete the Year 2000 modifications using our best estimates, which required using a number of assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, we can not guarantee that we will achieve the predicted estimates and our actual results could differ materially from those plans. We are also attempting to obtain representations and assurances from our third party providers of services and goods, including vendors of software products, that their software is or will be Year 2000 compliant on a timely basis. However, because certain of our processes may be interrelated with, or dependent upon, systems outside our control, we can give no assurances that the implementation of our Year 2000 project will be successful. Change of Control not Restricted Our Plan of Reorganization prohibits us from having anti-takeover measures in our Articles of Organization and By-Laws. Numerous studies have shown that the presence of such anti-takeover provisions in a corporation's organizational documents has the result of increasing shareholder value in any attempted take- over. If we do not subsequently amend these documents to include such provisions, it is possible that our Board of Directors will be limited in its ability to respond to any potential takeover, thus reducing the ability of the Board to obtain maximum value for shareholders in a takeover. Board of Directors May Change Our current Board of Directors consists of 3 representatives chosen by us and 6 representatives chosen by creditors in our Chapter 11 proceeding. It is likely that the composition of our Board will change in the future as current members resign, decline to stand for re-election, or are not re-elected. This turnover in our directors may be more likely than it is for other companies because it is likely that one or more of our creditor constituencies (which some of our directors represent) will dispose of their ownership interests. The changing composition of our Board might result in changing corporate policies. 12 THE COMPANY General Bradlees, Inc. ("Bradlees") and its subsidiary companies operate 103 discount department stores as of February 1, 1999, in seven states in the Northeast, through Bradlees, Inc.'s subsidiary, Bradlees Stores, Inc. (collectively, the "Company") primarily in the heavily populated corridor running from the Boston to the Philadelphia metropolitan areas. One store is planned to be closed in March, 1999 and two other stores are expected to begin closing in fiscal 1999. Headquartered in Braintree, Massachusetts, the Company and its predecessor have been active in the discount department store business for 40 years. Background to Our Bankruptcy Reorganization Events Leading to the Chapter 11 Filing. During the early 1990's, Old Bradlees' business strategy relied heavily on opening new stores, remodeling existing locations and competing on the basis of price. From 1992 to January, 1995, we opened 15 new stores (10 in 1994) and remodeled 41 stores at a total capital cost of $182 million. The new stores were generally larger stores with rents that substantially exceeded the chain average rent per square foot. Some of the new stores were also multilevel facilities which further increased their operating costs when compared with other prototypical Bradlees stores. The store expansion and remodeling program marginally increased sales while gross margins declined and operating expenses increased. Old Bradlees' declining operating performance, coupled with the aggressive expansion program, began to erode our liquidity. Old Bradlees' liquidity further eroded in May and June, 1995 because of the unwillingness of factors and vendors to continue to extend trade credit. Old Bradlees, unable to obtain sufficient financing to satisfy factor and vendor concerns, was compelled to seek Bankruptcy Court protection on June 23, 1995. The Chapter 11 Filing. Old Bradlees, and each of its subsidiaries filed petitions for relief under Chapter 11 of the United States Bankruptcy Code on June 23, 1995. Once in bankruptcy, we filed an initial plan of reorganization and related disclosure statement with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") on April 13, 1998 and filed an Amended Plan of Reorganization and related disclosure statement with the Bankruptcy Court on October 2, 1998. Our Plan of Reorganization was originally confirmed by the Bankruptcy Court on November 18, 1998. The United States District Court for the Southern District of New York reversed this confirmation on December 23, 1998. We modified the Plan of Reorganization, and the modified Plan of Reorganization was confirmed by the Bankruptcy Court on January 27, 1999. The modified Plan of Reorganization became effective on February 2, 1999 (the "Plan of Reorganization"). The Chapter 11 reorganization process and our Plan of Reorganization are discussed below. The Plan of Reorganization The following chart shows the organization of Old Bradlees and the organization of the Company following its reorganization. 13 CORPORATE STRUCTURE PRIOR TO THE REORGANIZATION CHART APPEARS HERE CORPORATE STRUCTURE AFTER THE REORGANIZATION CHART APPEARS HERE 14 The following discussion provides general background information regarding the Chapter 11 process, but is not intended to be an exhaustive summary. Chapter 11 Reorganization under the Bankruptcy Code. After we entered Chapter 11, Section 362 of the Bankruptcy Code did not allow our creditors and other parties in interest to take certain actions without Bankruptcy Court approval. Among other things, they were not allowed to: . Commence or continue a judicial, administrative or other proceeding against us a) which was or could have been commenced prior to commencement of the Chapter 11 proceeding, or b) to recover a claim that arose prior to commencement of the case; . Enforce any judgments against us that existed prior to our entry into bankruptcy; . Take any action to obtain possession of our property or to exercise control over our property or our estates; . Create, perfect or enforce any lien against our property; . Collect, assess or recover claims against us that arose before the commencement of the case; or . Offset any debt owing to us that arose prior to the commencement of the case against a claim of such creditor or party-in-interest against us that arose before the commencement of the case. Although we were authorized to operate our business as a debtor-in- possession, we were not permitted to engage in transactions outside the ordinary course of business without first complying with the notice and hearing provisions of the Bankruptcy Code, and if necessary, obtaining Bankruptcy Court approval. An official unsecured creditors' committee was formed by the United States Trustee. This committee and various other parties in interest, including creditors holding claims, such as the pre-petition bank group, had the right to appear and be heard by the Bankruptcy Court on our applications relating to certain business transactions. We were required to pay certain expenses of the committee, including legal and accounting fees, to the extent allowed by the Bankruptcy Court. In addition, upon the approval of the Bankruptcy Court, we made monthly adequate protection payments of $300,000 to those creditors in the pre-petition bank group, for an aggregate total payment of $13,300,000 as of the Effective Date. Plan of Reorganization - Procedures. A debtor-in-possession has the exclusive right to propose and file with the Bankruptcy Court a plan of reorganization for a period of time which can be extended by the Bankruptcy Court. Given the seasonality and magnitude of our operations, our change in business strategies, and the number of interested parties possessing claims that had to be resolved in this Chapter 11 case, the plan formulation process was complex. Accordingly, we obtained additional extensions of the exclusivity period to August 3, 1998. The Bankruptcy Court approved the disclosure statement on October 5, 1998 and confirmed the modified Plan of Reorganization on January 27, 1999. Our Plan of Reorganization contained distributable value (as of the Effective Date) to creditors of approximately $163 million, which consists of: . Approximately $16 million of administrative claim payments; . $14 million in cash to the bank group and the unsecured creditors; . A $40 million note primarily payable to our pre-Chapter 11 bank group, which is anticipated to be primarily paid down through proceeds of sale of our leasehold interest in our Yonkers, New York store and the modification of the lease terms of our Union Square, New York store; 15 . New Bradlees' Common Stock with an estimated value as of the Effective Date of $85 million. The Old Bradlees Common Stock was canceled; and . Certain notes totalling $6.2 million and other distributions totalling $1.4 million. The Plan of Reorganization became effective February 2, 1999 (the "Effective Date"). Pursuant to the Plan of Reorganization, after giving effect to various elections made by various creditors, the following occurred on the Effective Date: . Although creditors can dispute the disallowance of claims after the Effective Date, the claims of creditors are estimated to be allowed in the aggregate amount of approximately $265 million. The holders of these claims are expected to receive: . $30.6 million in cash; . 9% Convertible Notes in an original aggregate principal amount equal to $40.0 million; . 10,225,711 shares of our Common Stock; . warrants to purchase 1,000,000 shares of our Common Stock at a price of $7.00 per share (which warrants expire on February 2, 2004); . 9% CAP Notes in an original aggregate principal amount of $547,094; . 9% Cure Notes in an original aggregate principal amount of $3.3 million; and . 9% Tax Notes in an original aggregate principal amount of $2.4 million. . The interests of all stockholders holding stock in Old Bradlees were terminated, and the stock of Old Bradlees was canceled. . All outstanding bonds, notes, indentures and like instruments were canceled. . Approximately $250 million in debtor-in-possession financing was paid in full. . We entered into the BankBoston Facility, which provides for a secured revolving line of credit of $270 million with a maximum term of up to 3 years. See "Business -- Credit Facility." . One of our subsidiaries, New Horizons of Yonkers, Inc., remained in Chapter 11. All of the operations of the Yonkers store remained with Bradlees Stores, Inc. . We merged Bradlees Administrative Co., Inc. into Bradlees, Inc. We also merged all of the subsidiaries of Bradlees Stores, Inc., with the exception of New Horizons of Yonkers, Inc., into Bradlees Stores, Inc. . The tenure of the Board of Directors of Bradlees, Inc. terminated on the Effective Date. The following became new members of the Board of Bradlees, Inc. as of the Effective Date: . We selected three members (Messrs. Thorner, Lynn, and Friedman); . The Bank Group selected two members (Messrs. Altschuler and Lieberman); . The Unofficial Committee selected one member (Mr. MacDonald); . The Creditors Committee selected one member (Mr. Clingman); and . The Bank Group, the Unofficial Committee and the Creditors Committee, acting together, selected two members (Messrs. Blauner and Roth). See "Management--Board of Directors of Bradlees, Inc. and Its Committees." . We paid an aggregate emergence bonus of $1,000,000 and entered into an agreement to pay additional bonuses of $2,000,000 if certain conditions are met. We also paid deferred bonuses of $1,000,000 to certain executives. See "Executive Compensation -- Management Emergence Bonus Plan, Corporate Bonus Plan, and Enterprise Appreciation Incentive Plan." 16 . We determined to grant, on or about May 3, 1999, options to purchase an aggregate of 750,000 shares of Common Stock to certain members of our management. See "Management--Stock Option Plan for Key Employees." . We registered the resale of the Common Stock, the 9% Convertible Notes, the Common Stock issuable upon the Conversion of the Notes and the Common Stock issuable upon exercise of the Warrants, each as received by certain parties, directly or indirectly as a result of their ownership of participation interests in claims resulting in the issuance of such securities with the Securities and Exchange Commission under the Securities Act of 1933. . The Plan of Reorganization also provided for many other matters, including satisfaction of numerous other claims, satisfaction of certain other claims in accordance with negotiated settlement agreements and an agreement to keep in place certain retirement and employment agreements. The foregoing is a summary of the material terms of the Plan of Reorganization. A complete copy of the Plan of Reorganization has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. 17 USE OF PROCEEDS We will not receive any proceeds from the sale of Securities by the Selling Stockholders. DIVIDEND POLICY We do not anticipate paying cash dividends in the foreseeable future. We expect that we will retain all available earnings generated by our operations for the development and growth of our business. Any future determination as to the payment of dividends will be made at the discretion of the Board of Directors and will depend upon our operating results, financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. Certain financing agreements, including the BankBoston Facility, restrict our ability to pay cash dividends on the Common Stock and make certain other restricted payments (as defined therein). Specifically, under the terms of the BankBoston Facility, we have agreed not to pay dividends of any kind. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." 18 CAPITALIZATION The following table sets forth the unaudited capitalization of the Company at October 31, 1998, and as adjusted to give pro forma effect to the consummation of the Plan of Reorganization at that date. The presentation does not purport to represent what the Company's actual capitalization would have been had such transactions in fact been consummated on such date. The table should be read in conjunction with the Company's financial statements and the related notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Unaudited Pro Forma Condensed Consolidated Financial Information" included elsewhere in this Prospectus.
October 31, 1998 -------------------- Pro Historical Forma ---------- -------- (in thousands) Long-term debt, including current maturities: Liabilities subject to settlement under the reorganization case................................... $ 548,788 $ - (1) DIP facility/BankBoston Facility....................... 157,392 161,511 Notes payable.......................................... - 35,239 (2) Capital lease obligations.............................. 27,249 26,928 --------- -------- Total long-term debt, including current maturities.... 733,429 223,678 Stockholders' equity (deficiency)(3): Common stock........................................... 115 102 (2) Additional paid in capital............................. 137,821 84,898 (2) Accumulated deficit.................................... (457,665) - Treasury stock, at cost................................ (803) - --------- -------- Total stockholders' equity (deficiency)................. (320,532) 85,000 (4) --------- -------- Total capitalization.................................... $ 412,897 $308,678 ========= ========
- -------- (1) Reflects cancellation of liabilities at the Effective Date. (2) Reflects issuance of $40 million of 9% Convertible Notes less $11 million repayment from the Union Square proceeds, and certain other long-term debt and estimated equity value of the new Common Stock and Warrants issued in connection with settlement of claims. (3) Excludes 1,000,000 shares of Common Stock reserved for issuance upon exercise of the Warrants and 750,000 shares of Common Stock reserved for issuance upon exercise of options we have agreed to grant. The Warrants will be valued along with the Common Stock after the Effective Date and the total equity value may be modified as a result. (4) See "Risk Factors--Post Bankruptcy Risks--Determination of Equity Value." 19 SELECTED FINANCIAL DATA The selected data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended January 31, 1998, are derived from the consolidated financial statements of the Company, which consolidated financial statements have been audited by Arthur Andersen LLP (fiscal year 1997) or Deloitte & Touche LLP (pre-fiscal year 1997), independent certified public accountants. The consolidated financial statements as of January 31, 1998 and February 1, 1997, and for each of the years in the three-year period ended January 31, 1998, and the independent auditors' reports thereon, are included elsewhere in this Prospectus. Fiscal year 1994 refers to the 52 weeks ended January 28, 1995 and fiscal year 1993 refers to the 52 weeks ended January 29, 1994. Certain reclassifications have been made to the operating expenses and operating income of fiscal years 1994 and 1993 to conform to the current presentation. The selected data should be read in conjunction with the consolidated financial statements for the three-year period ended January 31, 1998, the related notes and the independent auditors' reports, which contain explanatory paragraphs for fiscal years 1995-1997 relating to the Company's filing for reorganization under Chapter 11 and raise substantial doubt about its ability to continue as a going concern, appearing elsewhere in this Prospectus. The consolidated financial statements and the selected data do not include any adjustments that might result from the outcome of these uncertainties. As a result of the Company filing a voluntary petition to reorganize under Chapter 11 on June 23, 1995 and operating as a debtor-in-possession thereafter, the selected financial data for periods prior to June 23, 1995 are not comparable in certain material respects to periods subsequent to such date. The selected data presented below for the thirty-nine week periods ended October 31, 1998 and November 1, 1997 and as of October 31, 1998 and November 1, 1997 are derived from the unaudited condensed consolidated financial statements of the Company included elsewhere in this Prospectus.
Unaudited 39 Weeks Ended Fiscal Year ----------------------- ---------------------------------------------------------- October 31, November 1, 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- ---------- ---------- (in thousands, except per share amounts and ratios) Statement of Operations Data: Net sales............... $ 906,385 $ 895,220 $1,344,444 $1,561,718 $1,780,768 $1,916,555 $1,880,511 Gross margin........... 271,002 269,699 396,357 434,067 491,691 591,160 603,504 Operating expenses(a)... 296,180 308,666 401,578 530,757 612,102 549,154 544,386 Operating income (loss)................. (25,178) (38,967) (5,221) (96,690) (120,411) 42,006 59,118 Income (loss) before income taxes and extraordinary items.... (34,583) (48,480) (22,557) (218,759) (311,946) 10,011 26,069 Income tax benefit (expense).............. - - - - 104,533 (4,205) (12,619) Income (loss) before extraordinary items and cumulative effect of accounting changes..... (34,583) (48,480) (22,557) (218,759) (207,413) 5,806 13,450 Extraordinary items(b).. - - - - - - (5,200) Cumulative effect of ac- counting changes(c).... - - - - - (485) (1,475) Net income (loss)....... $ (34,583) $ (48,480) $ (22,557) $ (218,759) $ (207,413) $ 5,321 $ 6,775 Income (loss) per share: Basic and diluted...... $ (3.06) $ (4.26) $ (1.98) $ (19.17) $ (18.17) $ .47 $ .60 Shares used for computation............ 11,311 11,382 11,365 11,412 11,416 11,353 11,273 Ratio of earnings to fixed charges(d)....... - - - - - 1.31 1.81 Balance Sheet Data: Working capital(e)...... $ 10,836 $ 19,530 $ 46,151 $ 68,649 $ 200,195 $ 32,874 $ 88,623 Total assets............ 661,410 700,007 595,166 604,200 798,662 884,814 785,845 Long-term debt, less current maturities(e).. 26,211 32,738 27,073 33,296 53,396 289,643 269,798 Total stockholders' eq- uity (deficiency)...... $(320,532) $(311,705) $ (285,950) $ (263,293) $ (45,010) $ 163,432 $ 163,680
- -------- (a) Net of other income. (b) The extraordinary item in fiscal year 1993 resulted from the refinancing of a credit agreement and the associated write-off of unamortized deferred financing costs. 20 (c) The fiscal year 1994 charge for the cumulative effect of accounting changes resulted from the adoption of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," and the fiscal year 1993 charge resulted from a change in the method of discounting accrued workers' compensation and general liability claims. (d) For the periods presented since fiscal year 1994, earnings were insufficient to cover fixed charges by the amounts of the respective loss before income taxes. For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes and extraordinary items plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense, including amortization of debt issuance cost, capitalized interest and a portion of rent expense which is deemed to be representative of an interest factor. (e) Excludes liabilities subject to settlement under the reorganization case after the Chapter 11 filing. 21 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statements of operations are based on the statements of Bradlees included elsewhere in this Prospectus as adjusted to give effect to the consummation of the Plan of Reorganization. The unaudited pro forma condensed consolidated statements of operations have been prepared as if the Effective Date of the Plan of Reorganization had occurred on February 1, 1997. The unaudited pro forma condensed consolidated balance sheet has been prepared assuming the Effective Date of the Plan of Reorganization had occurred on October 31, 1998. The unaudited pro forma condensed consolidated financial information and accompanying notes should be read in conjunction with the Company's financial statements and the notes thereto appearing elsewhere in this Prospectus. The Unaudited Pro Forma Condensed Consolidated Financial Information is presented for informational purposes only and does not purport to represent what the Company's financial position or results of operations would actually have been if the Effective Date of the Plan of Reorganization had occurred on such date or at the beginning of the period indicated, or to project the Company's financial position or results of operations at any future date or for any future period. 22 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
Pro Forma Adjustments Pro Forma Oct. 31, 1998 Debits Credits Oct. 31, 1998 ------------- ---------- ----------- ------------- ASSETS Current assets: Unrestricted cash and cash equivalents...... $ 10,959 $ 11,000(2) $ 11,005(2) $ 10,954 Restricted cash and cash equivalents...... 25,129 - 25,129(2) - -------- ---------- ----------- -------- Total cash and cash equivalents.......... 36,088 11,000 36,134 10,954 -------- ---------- ----------- -------- Accounts receivable.... 11,925 - - 11,925 Inventories............ 318,883 - 1,000(3h) 317,883 Prepaid expenses....... 11,031 - - 11,031 -------- ---------- ----------- -------- Total current assets.. 377,927 11,000 37,134 351,793 -------- ---------- ----------- -------- Property, plant and equipment, net: Property excluding capital leases, net... 123,892 - 9,900(2) 111,792 2,200(3j) Property under capital leases, net........... 17,732 9,196(3b) 5,406(3j) 21,522 -------- ---------- ----------- -------- Total property, plant and equipment, net... 141,624 9,196 17,506 133,314 -------- ---------- ----------- -------- Other assets: Lease interests at fair value, net............ 137,350 - 59,530(3j) 77,820 Assets held for sale... - 3,400(2) - 14,000 10,600(3d) Other, net............. 4,509 2,575(2) 1,222(3g) 4,598 1,264(3i) Reorganization value in excess of revalued assets................ - 14,477(3k) - 14,477 -------- ---------- ----------- -------- Total other assets.... 141,859 31,052 62,016 110,895 -------- ---------- ----------- -------- Total assets.......... $661,410 $ 51,248 $ 116,656 $596,002 ======== ========== =========== ========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 23 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
Pro Forma Adjustments Pro Forma Oct. 31, 1998 Debits Credits Oct. 31, 1998 ------------- ---------- ----------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable....... $ 179,413 $ - $ - $179,413 Accrued expenses....... 23,221 2,000(2) 2,000(1) 20,746 2,475(3c) Self-insurance reserves.............. 6,027 - - 6,027 Short-term debt........ 157,392 - 4,119(2) 161,511 Current portion of notes and capital lease obligations..... 1,038 - 567(2) 1,605 --------- ---------- ---------- -------- Total current liabilities.......... 367,091 4,475 6,686 369,302 --------- ---------- ---------- -------- Long-term liabilities: Obligations under capital leases........ 26,211 321(3b) - 25,890 Convertible notes payable............... - 11,005(2) 40,000(2) 28,995 Deferred income taxes.. 8,581 8,581(3h) - - Self-insurance reserves.............. 12,237 - - 12,237 Unfavorable lease liability............. - - 45,573(3j) 45,573 Other long-term liabilities........... 19,034 - 2,000(1) 29,005 5,677(2) 2,294(3f) --------- ---------- ---------- -------- Total long-term liabilities.......... 66,063 19,907 95,544 141,700 --------- ---------- ---------- -------- Liabilities subject to settlement under the reorganization case.... 548,788 548,788(2) - - Stockholders' equity (deficiency): Common stock Par value............. 115 115(3a) 102(2) 102 Additional paid-in- capital.............. 137,821 137,821(3a) 84,898(2) 84,898 Accumulated deficit.... (457,665) 4,000(1) 393,463(2) - 68,202(3) Treasury stock, at cost.................. (803) - 803(3a) - --------- ---------- ---------- -------- Total stockholders' equity (deficiency).. (320,532) 141,936 547,468 85,000 --------- ---------- ---------- -------- Total liabilities and stockholders' equity (deficiency)......... $ 661,410 $ 715,106 $ 649,698 $596,002 ========= ========== ========== ========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 24 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands except per share amounts)
Pro Forma 39 Weeks 39 Weeks Ended Pro Forma Adjustments Ended Oct. 31, 1998 Debits Credits Oct. 31, 1998 ------------- ---------- ----------- ------------- Total sales............. $939,203 3,381(1) - $935,822 Leased department sales.................. 32,818 70(1) - 32,748 -------- -------- Net sales............... 906,385 903,074 Cost of goods sold...... 635,383 - 2,472(1) 632,911 -------- -------- Gross margin............ 271,002 270,163 Leased department and other operating in- come................... 8,757 25(1) - 8,732 -------- -------- 279,759 278,895 Selling, store operating, administrative and distribution expenses.. 280,326 2,967(3) 631(1) 278,498 1,021(6) 5,773(7) 724(10) 136(11) Depreciation and amorti- zation expense......... 24,370 - 3(1) 12,761 5,103(3) 2,253(5) 469(6) 3,781(9) Loss on disposition of properties............. 241 241 Interest and debt ex- pense.................. 11,960 869(4) 1,215(4) 21,189 9,575(8) Reorganization items.... (2,555) 2,555(2) - - -------- -------- Net loss................ $(34,583) $(33,794) ======== ======== Comprehensive loss...... $(34,583) $(33,794) ======== ======== Net loss per share - ba- sic and diluted........ $ (3.06) $ (3.30)(12) ======== ======== Weighted average shares outstanding (in thousands) - basis and diluted................ 11,311 10,226 ======== ========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 25 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands except per share amounts)
Pro Forma 52 Weeks 52 Weeks Ended Pro Forma Adjustments Ended Jan. 31, 1998 Debits Credits Jan. 31, 1998 ------------- ----------- ----------- ------------- Total sales............. $1,392,250 $ 51,267(1) - $1,340,983 Leased sales............ 47,806 1,571(1) - 46,235 ---------- ---------- Net sales............... 1,344,444 1,294,748 Cost of goods sold...... 948,087 - 35,343(1) 910,291 2,453(2) ---------- ---------- Gross margin............ 396,357 384,457 Leased department and other operating income................. 12,151 389(1) - 11,762 ---------- ---------- 408,508 396,219 Selling, store operating, administrative and distribution expenses.. 382,910 3,957(4) 14,617(1) 370,556 1,361(7) 7,697(8) 4,879(11) 237(12) Depreciation and amortization expense... 36,244 187(1) 19,912 7,464(4) 3,004(6) 636(7) 5,041(10) Gain on disposition of properties............. (5,425) (5,425) Interest and debt expense................ 16,584 15,510(9) 3,751(5) 29,701 1,358(5) Reorganization items.... 752 - 752(3) - ---------- ---------- Loss before income taxes.................. (22,557) (18,525) Income taxes............ - - ---------- ---------- Net loss................ $ (22,557) $ (18,525) ========== ========== Net loss per share - basic and diluted..... $ (1.98) $ (1.81)(13) ========== ========== Weighted average shares outstanding (in thousands) - basic and diluted................ 11,365 10,226 ========== ==========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. 26 BRADLEES, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following notes set forth the explanations and assumptions used and adjustments made in preparing the unaudited pro forma condensed consolidated balance sheet as of October 31, 1998, and the unaudited pro forma condensed consolidated statements of operations for the 52 weeks ended January 31, 1998 and for the 39 weeks ended October 31, 1998. The unaudited pro forma condensed consolidated financial statements reflect the adjustments described under "Pro Forma Adjustments" below, which are based on the assumptions and preliminary estimates described therein, which are subject to change. These statements do not purport to be indicative of the financial position and results of operations of Bradlees as of such dates or for such periods, nor are they indicative of future results. Furthermore, these unaudited pro forma condensed consolidated financial statements do not reflect anticipated changes which may occur as the result of activities before and after the Effective Date of the Plan of Reorganization and other matters. (For the purposes of the unaudited pro forma condensed consolidated financial statements, the "Effective Date" is assumed to be October 31, 1998 for the unaudited pro forma condensed consolidated balance sheet, and February 1, 1997 for the unaudited pro forma condensed consolidated statements of operations.) The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included elsewhere in this Prospectus. Pro Forma Adjustments The unaudited pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statements of operations reflect the following pro forma adjustments based on the assumptions described below: October 31, 1998 Balance Sheet Pro Forma Adjustments 1. Reserves established prior to emergence for emergence-related and performance bonuses payable on the Effective Date or subsequent to the Effective Date. 2. Plan consummation distributions that include, among other things, an estimated equity value of $85.0 million, $14.0 million in cash distributions, and 9% Convertible Notes totaling $40.0 million. In connection with the consummation of the Plan, we will receive $11 million in cash for the modification to the Union Square lease and immediately pay down the 9% Convertible Notes. The reduction of $9.9 million in property, plant and equipment, net, includes a write-off of $6.5 million for the Union Square store and a reclassification of $3.4 million to assets held for sale for one store lease that is expected to be sold to help fund the further paydown of the 9% Convertible Notes. The payment of $25.1 million out of restricted funds and $4.1 million out of revolver borrowings is for certain settlements due under the POR and for financing costs of $2.6 million associated with the post-emergence revolver. The total payment, including approximately $4.5 million to be paid for professional fees subsequent to emergence, is expected to be $33.7 million in order to fund all administrative and convenience claims, including the bonuses due at consummation and the exit financing costs. 3. Fresh-start accounting adjustments that reflect the estimated adjustments necessary to adopt fresh-start reporting in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". Fresh-start reporting requires that the reorganization value of Bradlees be allocated to Bradlees' assets in conformity with APB Opinion 16, "Business Combinations", for transactions reported on the basis of the purchase method. Any portion of the assigned reorganization value exceeding the revalued net assets is recorded as a long-term asset, while any portion of the assigned reorganization value that falls below the revalued net assets, which may occur when fresh-start reporting is adopted as of 27 January 30, 1999, will be assigned to reduce long-term assets on a pro rata basis. The calculation of the preliminary and estimated new equity value is discussed in detail in Section Three (Subsection XIII) of the Disclosure Statement filed as an exhibit to this Registration Statement. See also "Risk Factors--Post Bankruptcy Risks-- Determination of Equity Value." The fresh-start accounting adjustments are summarized as follows: a. Cancellation of the old common stock pursuant to the Plan and close-out to retained earnings. b. A revaluation of all capital lease obligations and related capital lease assets using our estimated October 31, 1998 borrowing rate (12%) for similar financings. c. Revaluation of the straight-line rent reserve ($2.5 million). Straight-line rent is recalculated on a going-forward basis by the reorganized Bradlees. d. Revaluation of the store lease held for sale to an estimated total net realizable value of $14 million. e. Restatement of LIFO merchandise inventories to estimated fair value approximates FIFO cost. Inventories valued at FIFO cost then become the base year layer for LIFO inventories in the post-consummation financial reporting period. No LIFO adjustment is expected. f. Recording of additional pension plan liability (primarily from the reduction of the discount rate) of $4.3 million (excluding the impact from the fourth quarter non-union pension freeze-- Note 8 to the October 31, 1998 Form 10-Q) and additional Supplemental Executive Retirement Plan (the "SERP") liability of $1.4 million, reduced by the write-off of the unrecognized FAS No. 106 prior service costs of $3.4 million. g. Revaluation of the intangible SERP asset ($1.2 million) to its estimated net realizable value. h. Write-off ($8.6 million) of deferred income taxes (due to a change in the status of timing differences) and a $1.0 million reduction to reflect inventory at its estimated net realizable value. i. Write-off of the unamortized deferred financing charges ($1.3 million) associated with the terminated Debtor-in-Possession (DIP) bank facility which will be amortized prior to emergence. j. Revaluation of fixed assets and leasehold interests based upon the estimated fair market value of properties and leases while considering the current markets in which Bradlees has locations. This revaluation resulted in, among other things, the recording of a write-down of $59.5 million in favorable lease interests and an unfavorable lease liability of $45.6 million for certain locations. The remaining favorable lease interests and the unfavorable lease liability will both be amortized to rent expense. k. Recording of the reorganization value in excess of the revalued assets at October 31, 1998. The Company expects to incur charges of approximately $5.7 million as of January 30, 1999 for an estimated going-out-of-business inventory impairment of $0.5 million for one store in the process of closing and other store closing costs of $5.2 million, including two other store closings anticipated to begin by the end of fiscal year 1999. At the same time, the Company expects to recognize a gain of approximately $4.5 million from the modification of the Union Square lease terms. Pro Forma Adjustments - Statement of Operations for the Thirty-nine Weeks Ended October 31, 1998 1. To eliminate the sales and expense amounts associated with five stores closed in February, 1998. 2. To eliminate reorganization items. 3. Adjustment in amortization of lease interests revalued under fresh- start reporting. 28 4. To record amortization of post-emergence deferred financing costs and reverse the historical year to date amortization of deferred financing costs. 5. Reduction in depreciation expense due to certain reclassifications to assets held for sale and fixed asset write-offs resulting from fresh-start reporting. 6. To adjust lease rent expense and amortization expense for revised straight-line rent calculations. 7. To adjust lease rent expense for amortization of the unfavorable lease liability. 8. To adjust interest expense for amortization of the discount on the unfavorable lease liability and for increased interest expense resulting from a slightly higher average revolver borrowing level, the 9% Convertible Notes and other issued notes. 9. To record reduction in depreciation and amortization expense resulting from the allocation of the estimated excess of revalued assets over the reorganization value at February 1, 1997. 10. To record additional FAS No. 106 expense as a result of fresh-start reporting. 11. To reduce pension expense as a result of fresh-start reporting. 12. Pro forma earnings per share were computed based on the estimated weighted average number of common shares outstanding during the applicable period assuming that the Plan was effective on February 1, 1997. Pro Forma Adjustments - Statement of Operations for the Fiscal Year Ended January 31, 1998 1. To eliminate the sales and expense amounts associated with six stores closed since February 1, 1997, excluding one store that was assumed to be closed and sold in the ordinary course of business in January, 1998. 2. To eliminate the provision for inventory impairment for the stores closed in 1998. 3. To eliminate reorganization items, which include charges associated with closing the six stores. 4. Adjustment in amortization of lease interests revalued under fresh- start reporting. 5. To record amortization of post-emergence deferred financing costs and reverse the historical fiscal year 1997 amortization of deferred financing costs. 6. Reduction in depreciation expense due to certain reclassifications to assets held for sale and fixed asset write-offs resulting from fresh-start reporting. 7. To adjust lease rent expense and amortization expense for revised straight-line rent calculations. 8. To adjust lease rent expense for amortization of the unfavorable lease liability. 9. To adjust interest expense for amortization of the discount on the unfavorable lease liability and for increased interest expense resulting from a higher average revolver borrowing level and the 9% Convertible Notes and other issued notes. 10. To record reduction in depreciation and amortization expense resulting from the allocation of the estimated excess of revalued assets over the reorganization value at February 1, 1997. 11. To record additional FAS No. 106 expense and eliminate the fiscal year 1997 curtailment gain as a result of the effect of fresh-start reporting and the associated write-off of unamortized prior service costs. 12. To reduce pension and SERP expense as a result of the effect of fresh-start reporting. 13. Pro forma earnings per share were computed based on the estimated weighted average number of common shares outstanding during the applicable period assuming that the Plan was effective on February 1, 1997. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following discussion and analysis is based on our results of operations detailed below for the 52 weeks ended January 31, 1998 ("1997"), the 52 weeks ended February 1, 1997 ("1996") and the 53 weeks ended February 3, 1996 ("1995"). The financial information discussed below should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The following table sets forth information concerning the number of our stores.
Fiscal Year Ended January 31, 1998 February 1, 1997 February 3, 1996 ---------------- ---------------- ---------------- Stores, beginning of period.................... 110 134 136 New stores................. - 3 - Closed stores.............. (1)(a) (27) (2) --- --- --- Stores, end of period...... 109 110 134 === === ===
- -------- (a) Excludes six stores closed in February, 1998. The following table sets forth the amounts (in millions) and the percentages of net sales for the items reflected in our Statements of Operations for the periods indicated.
1997 1996 1995 ---------------- ---------------- --------------- Net sales............... $ 1,344.4 100.0 % $ 1,561.7 100.0 % $1,780.8 100.0 % Cost of goods sold...... 948.0 70.5 % 1,127.6 72.2 % 1,289.1 72.4 % --------- ----- --------- ----- -------- ----- Gross margin............ 396.4 29.5 % 434.1 27.8 % 491.7 27.6 % Leased department and other operating income................. 12.1 0.9 % 13.7 0.9 % 15.1 0.8 % --------- ----- --------- ----- -------- ----- 408.5 30.4 447.8 28.7 % 506.8 28.5 % Selling, store operating, administrative and distribution expenses.. 382.9 28.5 % 504.0 32.3 % 572.8 32.2 % Depreciation and amortization expense... 36.2 2.7 % 42.2 2.7 % 54.4 3.1 % --------- ----- --------- ----- -------- ----- Operating loss.......... (10.6) (0.8)% (98.4) (6.3)% (120.4) (6.8)% Gain on disposition of properties............. (5.4) (0.4)% (1.7) (0.1)% - - Interest and debt expense................ 16.6 1.2 % 11.5 0.7 % 27.2 1.5 % Impairment of long-lived assets................. - - 40.8 2.6 % 99.4 5.6 % Reorganization items.... 0.8 0.1 % 69.8 4.5 % 65.0 3.6 % Income tax benefit...... - - - - (104.6) (5.9)% --------- ----- --------- ----- -------- ----- Net loss................ $ (22.6) (1.7)% $ (218.8) (14.0)% $ (207.4) (11.6)% ========= ===== ========= ===== ======== =====
Our business is seasonal in nature, with a significant portion of our net sales occurring in the fourth quarter, which includes the holiday selling season. Comparable store sales, which include leased shoe department sales, for each year are discussed below and represent percentage increases/decreases over the prior year for stores that were open and operated by Bradlees for at least the prior full fiscal year. The rate of inflation did not have a significant effect on sales during these years. 1997 Compared to 1996 Net sales for 1997 declined $217.3 million or 13.9% from 1996 due primarily to the closing of 27 stores during 1996 and a 5.0% decrease in comparable store sales. The major cause for the decline in comparable 30 store sales was our significant reduction in the number of promotional activities in 1997, which had historically poor profit productivity. We are focusing on three key merchandise categories: moderately priced basic and casual apparel, basic and fashion items for the home, and frequently purchased convenience and commodity products. We believe that we can strategically leverage our strength in the quality and fashion content of our product offerings while driving traffic with selected hardlines merchandise. Management is continuing efforts to improve sales, including the expansion of both the "Wow!" (opportunistic and unadvertised purchases) and "Certified Value" (everyday low prices on selected highly recognizable products) programs that have been particularly successful to-date. Comparable store sales stabilized during the fourth quarter of 1997 (unchanged from 1996). Gross margin declined $37.7 million but increased 1.7% as a percentage of net sales in 1997 compared to 1996. The decline in gross margin dollars was due to the store closings and lower comparable store sales, partially offset by the increase in the gross margin rate. The increase in the rate was primarily due to a lower markdown rate resulting from fewer promotions, improved inventory control and a decrease of $3.7 million in 1997 compared to 1996 in going-out- of-business markdown provisions for closed stores included in cost of goods sold, partially offset by a slightly lower overall initial markup. Leased department income and other operating income declined $1.6 million but was unchanged as a percentage of net sales in 1997 compared to 1996. The decline was primarily due to lower leased shoe department sales partially offset by the benefit of layaway income (classified as other operating income) from the layaway program that was reimplemented in the second half of 1997. Selling, store operating, administrative and distribution ("SG&A") expenses declined $121.1 million and 3.8% as a percentage of net sales in 1997 compared to 1996. The decline in SG&A expenses was due to the closed stores and numerous expense reduction initiatives, including substantial reductions in overhead and advertising costs, designed to begin bringing our SG&A rate to a more competitive level. Included in the 1997 SG&A expense reductions were a $4.5 million expense credit resulting from the elimination of automatic beginning of year vacation vesting for certain pay groups and a $3.9 million curtailment gain associated with a reduction in retiree medical benefits. Depreciation and amortization expense declined $6.0 million in 1997 compared to 1996, primarily as a result of the closed stores and the 1996 year-end write-downs of certain long-lived assets in accordance with SFAS No. 121. However as a percentage of net sales, depreciation and amortization remained unchanged. We sold an owned store in January, 1998 for approximately $8.0 million and recognized a gain of $5.4 million. This store was closed as a result of the sale of the property and the sale was not directly associated with the Chapter 11 proceedings; therefore, the gain was not classified as a reorganization item. The net proceeds from this sale were placed into restricted funds. Interest and debt expense increased $5.1 million or .5% as a percentage of net sales in 1997 compared to 1996 due primarily to higher average borrowings under the debtor-in-possession credit facilities in 1997 and a $1.1 million write-off in 1997 of deferred financing costs associated with the replacement of the prior DIP facility. Interest expense in 1996 includes a credit of $.8 million resulting from a change in the interest rate used to discount self- insurance reserves. Reorganization items resulted in net charges of $.8 and $69.8 million, or .1% and 4.5% of net sales, in 1997 and 1996, respectively. These net charges related directly to the Chapter 11 proceedings and associated restructuring of our operations. We did not incur any income tax expense or benefit in 1997 and 1996. 31 1996 Compared to 1995 Net sales for 1996 declined $219.1 million or 12.3% from 1995 due primarily to the closing of 27 stores in 1996 and a 5.4% decrease in comparable store sales. The major causes for the decline in comparable store sales were our relatively rapid introduction of higher-priced merchandise at the expense of many lower opening price-point merchandise categories, elimination of layaway, significant reduction in the number of basic convenience and commodity items that are generally sold in discount stores, and changes in our advertising strategy that included a reduction in the number of merchandise offerings in our weekly circular. Although we improved the quality and fashion of our merchandise in 1996, the changes that were implemented assumed rapid customer acceptance of the new merchandise mix and significant sales from increased promotional activities. Gross margin declined $57.6 million but increased .2% as a percentage of net sales in 1996 compared to 1995. The decline in gross margin dollars was due to the lower sales, partially offset by the slight increase in the gross margin rate. The increase in the rate was due to a higher overall initial markup and lower inventory shrink, partially offset by a higher markdown rate associated primarily with increased promotional activities and the negative impact of a $6.7 million going-out-of-business markdown provision included in cost of goods sold in 1996. Leased department income and other operating income declined $1.4 million but increased .1% as a percentage of net sales in 1996 compared to 1995. The decline was due to lower leased shoe department sales and the absence of any layaway income since the discontinuance of the layaway program in August, 1995. SG&A expenses declined $68.8 million but increased .1% as a percentage of net sales in 1996 compared to 1995. The decline in SG&A expenses was due to the closed stores and reductions in logistics and certain home office expenses, partially offset by an increase in advertising expenses. The increase in SG&A expenses as a percentage of net sales was due to the sales decline in 1996. Depreciation and amortization expense declined $12.2 million or .4% as a percentage of net sales in 1996 compared to 1995, primarily as a result of the closed stores and the 1995 year-end write-down of certain long-lived assets in accordance with the adoption of SFAS No. 121. We recognized a gain of $1.7 million in 1996 for forfeited deposits received on the unconsummated sale of an owned undeveloped property. Interest and debt expense declined $15.7 million or .8% as a percentage of net sales in 1996 compared to 1995 due primarily to the discontinuance of accruing interest on substantially all pre-petition debt subsequent to our filing for bankruptcy on June 23, 1995. Interest expense includes a credit of $.8 million in 1996 and a $2.9 million charge in 1995 resulting from changes in the interest rate used to discount self-insurance reserves. We incurred charges of $40.8 and $99.4 million, or 2.6% and 5.6% of net sales, in 1996 and 1995, respectively, due to the impairment of certain long- lived assets in accordance with SFAS No. 121. Reorganization items resulted in net charges of $69.8 and $65.0 million, or 4.5% and 3.6% of net sales, in 1996 and 1995, respectively. These net charges related directly to the Chapter 11 proceedings and associated restructuring of our operations. We did not incur any income tax expense or benefit in 1996 compared to an income tax benefit of $104.5 million in 1995. A portion of our 1995 loss before income taxes was utilized in April, 1996 to recover $24.5 million of income taxes previously paid, of which $6.0 million was restricted in April, 1996 pending further order of the Bankruptcy Court. 32 Year-to-Date 1998 Compared to Year-to-Date 1997
39 weeks ended October 31, 1998 November 1, 1997 ---------------- ---------------- Stores, beginning of period................. 109 110 New stores.................................. - - Closed stores............................... (6) (1) ------ ------ Stores, end of period....................... 103 109 ====== ====== Results of operations, summarized in millions of dollars and expressed as a percentage of net sales were as follows for the 39 weeks ended October 31, 1998 ("Year-to-Date 1998") and for the 39 weeks ended November 1, 1997 ("Year-to- Date 1997"): Year to Date Year to Date 1998 1997 ---------------- ---------------- (Dollars in millions except per share amounts) Total sales................................. $939.2 $930.7 Leased dept. sales.......................... 32.8 35.5 ------ ------ Net sales................................... 906.4 895.2 Cost of goods sold.......................... 635.4 625.5 ------ ------ Gross margin................................ 271.0 269.7 Leased dept. and other operating income..... 8.7 8.7 ------ ------ 279.7 278.4 Selling, store operating, administrative and distribution expenses...................... 280.3 289.8 Depreciation and amortization expense....... 24.4 27.5 Loss on disposition of properties........... 0.2 - Interest and debt expense................... 12.0 11.7 Reorganization items........................ (2.6) (2.1) ------ ------ Net loss.................................. $(34.6) $(48.5) ====== ====== Net loss per share........................ $(3.06) $(4.26) ====== ====== Total sales increase (decrease): All stores................................ 0.9% (19.5)% Comparable stores......................... 4.7% (7.6)%
39 Weeks Ended October 31, 1998 November 1, 1997 ---------------- ---------------- As a percentage of net sales, results were as follows: Net sales................................... 100.0 % 100.0 % Cost of goods sold.......................... 70.1 69.9 ----- ----- Gross margin................................ 29.9 30.1 Leased dept. and other operating income..... 0.9 1.0 ----- ----- 30.8 31.1 Selling, store operating, administrative and distribution expenses...................... 30.9 32.3 Depreciation and amortization expense....... 2.7 3.1 Loss on disposition of properties........... - - Interest and debt expense................... 1.3 1.3 Reorganization items........................ (0.3) (0.2) ----- ----- Net loss.................................... (3.8)% (5.4)% ===== =====
33 Year-to-Date 1998 total sales increased $8.5 million or 0.9% from Year-to- Date 1997 due to an increase of 4.7% in comparable store sales, partially offset by the impact from closing six stores in February, 1998. The increase in Year-to-Date 1998 comparable store sales was due primarily to various merchandising and marketing initiatives started in 1997, including the reintroduction of layaway, lower opening price points in certain departments, more item-intensive and price-point oriented circular ad offerings, the addition of certain convenience and commodity products to drive traffic, and the implementation of two key programs: "Certified Value" (highlights certain key recognizable items at competitive everyday prices) and "WOW!" (integrates targeted and unadvertised opportunistic purchases). Gross margin for Year-to-Date 1998 increased $1.3 million, primarily as a result of the strong comparable store sales and decreased 0.2% as a percentage of net sales due primarily to a lower initial markup. Leased department and other operating income was unchanged in Year-to-Date 1998 compared to Year-to- Date 1997, as layaway fee income more than offset the impact from the store closings and unfavorable leased shoe department sales. Year-to-Date 1998 SG&A expenses declined $9.5 million or 1.4% as a percentage of net sales compared to Year-to-Date 1997. The improved SG&A expense performance was due primarily to advertising, home office and benefits expense reductions, partially offset by last year's third quarter reduction of $3.6 million in self-insurance reserves. Depreciation and amortization expense declined $3.1 million or 0.4% as a percentage of net sales in Year-to-Date 1998 compared to Year-to-Date 1997. The decline was primarily due to the closing of six stores in February 1998. Interest and debt expense increased $0.3 million and remained the same as a percentage of net sales in Year-to-Date 1998 from Year-to-Date 1997. Peak and average revolver borrowings were $162 and $116 million, respectively, in Year- to-Date 1998 compared to $144 and $85 million, respectively, in Year-to-Date 1997, and the weighted average revolver interest rate was 7.93% during Year-to- Date 1998 compared to 7.51% in the prior-year period. The unfavorable impact on Year-to-Date 1998 interest expense from these factors was mostly offset by lower bank fees, lower capital lease interest expense and lower amortization of deferred financing costs. Reorganization credits of $2.6 and $2.1 million for Year-to-Date 1998 and Year-to-Date 1997, respectively, were associated with the Chapter 11 proceedings and related restructuring and are discussed in Note 6. We did not record an income tax provision in Year-to-Date 1998 due to the current expectation of no income tax expense or benefit in 1998. There was no income tax expense or benefit recorded in Year-to-Date 1997. Liquidity and Capital Resources We had outstanding borrowings of $157.4 million at October 31, 1998, exclusive of the issuance of letters of credit, under our $250 million DIP Facility (Note 4). As of November 1, 1997, we had outstanding borrowings of $131.5 million, exclusive of the issuance of letters of credit, under the prior DIP facility (Note 4). The increase in borrowings since the end of the third quarter of 1997 relates primarily to the net loss incurred in Year-to-Date 1998, along with payments for Chapter 11 professional fees and other reorganization expenses. We currently expect our borrowings, exclusive of the issuance of letters of credit, for the fourth quarter of 1998 to peak at approximately $167 million in November, 1998 and average approximately $120 million. The revolver amount available to borrow in the fourth quarter of 1998, after deducting expected letters of credit outstanding, is currently expected to peak at approximately $225 million in November, 1998 and average approximately $185 million. 34 Other than payments made to certain pre-petition creditors approved by the Bankruptcy Court (Notes 2 and 4), principal and interest payments on indebtedness, exclusive of certain capital lease obligations, incurred prior to Chapter 11 have not been made and will not be made without Bankruptcy Court approval or until the Plan of Reorganization has been consummated. Virtually all pre-petition indebtedness of Bradlees is subject to settlement under the reorganization case. In Year-to-Date 1998, cash used by operations before reorganization items was $48.8 million, compared to $50.8 million of cash used by operations before reorganization items in Year-to-Date 1997. Net cash used by reorganization items in Year-to-Date 1998 of $10.3 million was comprised of professional fee payments of $7.8 million and store closing and severance costs of $3.2 million, partially offset by interest income on restricted funds of $0.7 million. Inventories at October 31, 1998 decreased $16.5 million from November 1, 1997, due primarily to the closing of six stores in February 1998 (inventories decreased approximately $1.1 million, excluding the impact of the closed stores). Accounts payable at October 31, 1998 decreased $16.9 million from November 1, 1997, mostly due to the decrease in inventories. The increases in inventories and accounts payable from January 31, 1998 were primarily the result of normal seasonal build-ups. Accrued expenses at October 31, 1998 were $7.3 million lower than at January 31, 1998, due primarily to payments made against certain reserves established in or prior to 1997 for performance bonuses, employee severance and termination benefits and store closing costs. Accrued expenses were $11.4 million lower than at November 1, 1997, due primarily to reductions in severance reserves, vacation pay liabilities and store closing costs. We incurred capital expenditures of $10.4 million in Year-to-Date 1998 (compared to $14.7 million in Year-to-Date 1997), primarily for management information systems, store remodels and store maintenance projects. The larger Year-to-Date 1997 total was principally a result of the 1997 expenditures associated with a new merchandise management system. For all of 1998, we expect total capital expenditures to total approximately $18 to $20 million, primarily for management information systems (including the initial expenditures for a warehouse management system expected to be completed in 1999 and enhancements to the new merchandise management system), the remodeling of nine stores, and other store improvements and maintenance. We currently expect to finance these expenditures through internally-generated funds. We believe our business strategies and the availability of our DIP Facility and BankBoston Facility, together with our available cash and expected cash flows from 1998 operations and beyond, will enable us to fund our expected needs for working capital, capital expenditures and debt service requirements. Achievement of expected cash flows from operations will be dependent upon our attainment of sales, gross profit, expense and trade support levels that are reasonably consistent with our financial plans. Such operating performance will be subject to financial, economic and other factors affecting the industry and our operations, including factors beyond our control. Year 2000 Readiness Disclosure We have determined that we must modify portions of our software so that our computer systems will properly recognize and use dates beyond December 31, 1999. We believe we can mitigate the impact of the Year 2000 disruption by upgrading or modifying existing software and, in certain instances, converting to new software. However, if the Year 2000 upgrades, modifications and conversions are not made, or are not made in a timely manner, the Year 2000 issue could have a material impact on our operations. We intend to use both internal and external resources to remediate, replace and test software for Year 2000 compliance. We have entered into a contract with a major outside consulting firm to provide the majority of the resources necessary to identify, and then replace or remediate, our affected systems. We intend to complete our Year 2000 project no later than the beginning of the fourth quarter of fiscal 1999, but currently 35 expect to substantially complete the conversion by the second quarter of fiscal 1999. At this time, we expect the cost of the Year 2000 project to be approximately $3 to $4 million, the majority of which is being incurred in 1998 and included in SG&A expenses. Through October 31, 1998, we have incurred $1.9 million for such expense. The remaining major systems to be remediated or replaced are the Company's merchandise planning system (approximately 50% remediated) and store host systems (approximately 30% remediated) expected to be completed by the end of the first quarter of 1999, and the warehouse management system that is scheduled to be replaced by the end of the second quarter of 1999. A test of all systems, including store support and facility systems, for proper Year 2000 compliance is planned for the end of the second quarter of 1999. We are in the process of developing contingency plans in the event that such replacement or remediation is not fully completed in a timely manner. We have calculated the costs of the Year 2000 project and predicted the dates on which we plan to complete the Year 2000 modifications using our best estimates, which required using a number of assumptions of future events, including the continued availability of certain resources, third party modification plans and other factors. However, we can not guarantee that we will achieve the predicted estimates and our actual results could differ materially from those plans. We are also attempting to obtain representations and assurances from our third party providers of services and goods, including vendors of software products, that their software is or will be Year 2000 compliant on a timely basis. However, because certain of our processes may be interrelated with, or dependent upon, systems outside our control, we can give no assurances that the implementation of our Year 2000 project will be successful. 36 BUSINESS Company Overview We operate 103 discount department stores as of February 1, 1999, in seven states in the Northeast, primarily in the heavily populated corridor running from the Boston to the Philadelphia metropolitan areas. One store is planned to be closed in March, 1999 and two others are expected to begin closing in fiscal 1999. Headquartered in Braintree, Massachusetts, the Company and its predecessor have been active in the discount department store business for 40 years. Business Strategy. In 1995, we began to implement a strategy to position ourselves between traditional discount stores and department stores. Some of the initiatives associated with this strategy, especially the relatively rapid introduction of higher-price points, an aggressive clearance markdown policy, costly promotions of the Bradlees' credit card and associated elimination of layaway, significant reduction in the number of basic convenience and commodity items that are generally sold in discount stores, along with costly changes in our advertising strategy, resulted in significant sales and margin declines and operating losses. In late December, 1996, our Board of Directors appointed Peter Thorner as Chairman, CEO and President. Prior to joining Bradlees, Mr. Thorner led the successful turnaround of Ames Department Stores, Inc. In April, 1997, Mr. Thorner hired Robert Lynn as President and Chief Merchandising Officer. We made the following key modifications to our business strategy during 1997 to enhance profitability and improve customer service: . Reintroduced lower opening price points in a comprehensive variety of merchandise categories to enhance value and increase customer traffic; . Reduced costly promotional events and thereby reduced the likelihood of substandard profit margins; . Reintroduced certain basic convenience and commodity products that are typical of assortments carried by discount retailers; . Reinstituted a layaway program while controlling promotions of the Bradlees' credit card; . Installed new in-store directional and departmental signage; . Revised our markdown policy based on product rate of sale; . Modified weekly ad circulars to achieve more item-intensive and price- point oriented ad offerings; . Introduced both a "Certified Value" program that highlights certain key recognizable items at competitive everyday prices and a "Wow!" program which integrates targeted and unadvertised opportunistic purchases; and . Significantly reduced overhead while improving operating efficiencies. We are focusing on three key merchandise categories: moderately-priced basic and casual apparel; basic and fashion items for the home; and frequently purchased convenience and commodity products. We believe we can strategically leverage our strength in the fashion and quality content of our apparel and decorative home product offerings while driving traffic with selected hardlines merchandise. Management has continued its efforts to improve sales and profitability in 1998, including the expansion of both the "Wow!" and "Certified Value" programs that have been particularly successful to-date. Merchandise Mix. We provide a broad spectrum of basic and fashion apparel (including private-label brands), basic and fashion home furnishings, convenience hard goods and extensive seasonal offerings. Our 37 average merchandise mix in fiscal year 1997 was comprised of approximately 53% softlines and soft home furnishings and 47% hardlines, versus an estimated industry average of 42% softlines and soft home furnishings and 58% hardlines. Softline products generally have higher gross margins than hardline products. Advertising and Promotional Programs. Our marketing strategy is designed to appeal to our value-oriented customers. Sales are driven from competitive pricing and promotions, primarily in weekly circulars, that feature a large number of special values for the customer throughout the store. Approximately 45% of our sales were derived from our weekly circulars in 1997. Approximately 5.6 million circulars are distributed each week. Although circulars are our major promotional vehicle, we also use newspaper advertising, periodic television broadcasts, Bradlees credit-card statement inserts and in-store promotions. Point-of-purchase advertising, layaway, employee discounts and senior citizen discounts are also used as marketing vehicles. Operations. Several programs have been or are being implemented to improve store organization, thereby focusing us more intently on customer service while at the same time reducing expenses. These improvements included reducing the number of store regions from two to one and the number of store districts from nine to eight. In addition, store managers are using automated staff scheduling programs in 1998 to improve operating efficiency and provide better service to the customer. Management has improved productivity and controls and reduced expenses in other areas. For example, a new merchandising management system was implemented during 1997 and 1998 that facilitates, among other things, tracking merchandise more accurately and efficiently from vendors through distribution centers and to stores. In addition, we have begun developing a warehouse management system that is planned to be completed in 1999. We also installed a new mainframe computer and point-of-sale controllers and modified our point-of-sale equipment and software to allow for additional promotional capabilities, enhanced controls and improved customer service. Store Profitability. We closed six stores in February, 1998. We currently plan to sell our leasehold interest in our Yonkers, New York store. We are also in the process of closing our Danvers, Massachusetts store. We continue to closely monitor the profitability of each store and will close, sell or relocate those stores whose performance is inadequate and not responsive to remedial actions. Employees and Collective Bargaining Arrangements As of December 1, 1998, we employed approximately 10,000 people, of which approximately 66% are covered by collective bargaining agreements. Agreements affecting approximately 14% of the labor force will expire within one year and are expected to be renegotiated. We believe our relations with our employees are good. Competition We compete in most of our markets with a variety of national, regional and local discount and other department and specialty stores, which vary by market. Some of these competitors have substantially greater resources than we do. We compete on the basis of product quality and value, merchandise selection, advertising and price. In addition, store location, appearance and customer service are important competitive factors. Our principal discount department store competitors are Caldor, Kmart and Wal-Mart, and in certain locations, Target and Ames. Caldor Corp., which has been in bankruptcy since 1995, announced on January 22, 1999 that it intends to close all of its stores and liquidate its assets. Caldor Corp. is currently conducting going-out-of- business sales in certain markets in which we operate stores. Our principal department store competitors are Sears and J.C. Penney. Target and Kohl's, a department store chain, are opening stores in some areas in which Bradlees operates. Management believes that it is pursuing the proper merchandising and marketing strategies and operating focus that should allow it to compete effectively in its operating areas. However, no assurances can be given that these strategies will further improve performance or that our business and financial performance will not be adversely affected by future competitive pressures. 38 Patents, Trademarks and Licenses The trademark "Bradlees" is registered with the United States Patent and Trademark Office. We have a significant number of other trademarks, trade names, and service marks. We do not consider any of these other trademarks, tradenames or services marks to individually have a material impact on our business. Seasonality Our business is seasonal in nature, with a significant portion of net sales occurring in the fourth quarter, which includes the pivotal holiday selling season. Credit Facility The BankBoston Facility provides us with a $250 million senior secured revolving credit facility (of which $125 million is available for issuance of letters of credit) and a $20 million junior secured "last in-last out" subfacility for a period until December 23, 2001. We can use the BankBoston Facility for working capital, general business needs and to pay off our DIP Facility. The senior secured tranche has an advance rate equal to 80% of the Loan Value of Eligible Receivables, plus generally 72% of the Loan Value of Eligible Inventory, subject to certain adjustments. The Company may also borrow up to an additional $20 million under the junior secured facility provided that the total inventory borrowings do not exceed 93% of the Loan to Value Ratio. The BankBoston Facility permits us to borrow funds under the senior secured tranche at an interest rate per annum equal to (a) the higher of (i) the annual rate of interest as announced by BankBoston as its "Base Rate" and (ii) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System plus 1/2 of 1% per annum; or (b) 2.25% per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a percentage equal to 100% minus the percentage established by the Board of Governors of the Federal Reserve System as the maximum rate for all reserves applicable to any member bank of the Federal Reserve System in respect of Eurocurrency Liabilities. Each of these rates is subject to a 0.50% increase in the event of overadvances. The junior secured subfacility permits us to borrow funds at the "Base Rate" plus 7.00% per annum. In connection with the BankBoston Facility, we have entered into a Security Agreement and a Pledge Agreement with BankBoston. The Security Agreement and the Pledge Agreement cover substantially all of our non-real estate assets. Under the terms of the BankBoston Facility, we have agreed to certain financial covenants including: . maintaining a minimum level of earnings before interest, taxes, depreciation and amortization; . capping our capital expenditures at $20 million annually, subject to certain exceptions; . agreeing not to let certain financial ratios which measure our debt coverage and accounts payable to inventory ratios drop below specified goals. See "Terms of Outstanding Indebtedness-Credit Agreement." Further Information Bradlees, Inc. files annual, quarterly and special reports, proxy statements and other information with the SEC. We have requested an exemption from these filing requirements for Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. since information concerning these entities is included in the filings made by Bradlees, Inc. You may read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's Website at "http://www.sec.gov." 39 Facilities The following chart shows the geographic distribution of our stores as of February 1, 1999: Maine................................................................. 1 New Hampshire......................................................... 8 Massachusetts......................................................... 36 Connecticut........................................................... 17 New York.............................................................. 6 New Jersey............................................................ 29 Pennsylvania.......................................................... 6 --- Total................................................................. 103 ===
We operate stores in a variety of sizes, with the current average store being 75,924 total square feet. Our distribution facilities are located in Edison, New Jersey and Braintree, Massachusetts. The 584,000 square foot Edison facility generally serves as the soft goods processing center for nearly all apparel and softlines merchandise and as the hardlines merchandise distribution facility for the New York, New Jersey and Pennsylvania stores. The 470,000 square foot Braintree facility generally services all stores with basic merchandise items and distributes hardlines merchandise to the New England stores. As of February 1, 1999, our stores, including the one store which is in the process of closing and two stores which are expected to begin closing by the end of fiscal year 1999, occupied a total of approximately 7,820,151 square feet of selling area. We lease all of our stores, two distribution centers and central office under long-term leases. Pursuant to the Plan of Reorganization, in exchange for a payment of $11.0 million by the landlord, we have revised certain terms of the lease for our Union Square, New York store, including amending the expiration date of such lease to be March 15, 2000 and eliminating lease terms which allowed for extensions of the lease. In addition, we have agreed to a $1.1 million annual payment over the remaining term of the lease. Legal Proceedings On June 23, 1995, we filed a voluntary petition in the United States Bankruptcy Court for the Southern District of New York to reorganize under Chapter 11 of the United States Bankruptcy Code. Our modified plan of reorganization was confirmed on January 27, 1999, and became effective on the Effective Date. After the Effective Date, the Bankruptcy Court will retain jurisdiction over us for limited purposes. New Horizons of Yonkers, Inc. will remain in Chapter 11 after the Effective Date until it sells the leasehold interest it holds. Thus, it will continue to be subject to the jurisdiction of the Bankruptcy Court. From time to time, we are party to litigation arising in the ordinary course of business. We believe that no pending legal proceeding will have a material adverse effect on our business, financial condition or results of operations. 40 MANAGEMENT Directors and Executive Officers The names, ages, and current positions of all of the executive officers and directors of Bradlees, Inc. as of February 2, 1999 are listed below along with their business experience during the past five years. The Directors of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. are Messrs. Thorner, Moses and Schmitt. The executive officers of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. are the same as those of Bradlees, Inc.
Name Age Position - ---- --- -------- Robert A. Alt- schuler....... 42 Director Robert W. Benenati...... 50 Senior Vice President, Logistics Stephen J. Blauner....... 45 Director W. Edward Clingman, Jr. .......... 45 Director Bruce Conforto..... 46 Senior Vice President, Chief Information Officer Gregory K. Dieffenbach.. 49 Senior Vice President, Human Resources Judith D. Dun- ning......... 48 Senior Vice President, Planning and Allocation John M. Fried- man, Jr. .... 54 Director Mark E. James........ 49 Senior Vice President, Marketing Lawrence Lie- berman....... 50 Director Robert G. Lynn......... 48 Director, President and Chief Operating Officer Charles K. MacDonald.... 40 Director Cornelius F. Moses III(1)....... 40 Senior Vice President, Chief Financial Officer Ronald T. Ray- mond......... 55 Senior Vice President, Asset Protection William H. Roth......... 46 Director David L. Schmitt(1)... 48 Senior Vice President, General Counsel, Secretary and Clerk Sandra L. Smith........ 41 Senior Vice President, General Merchandise Manager, Hardlines Thomas N. Smith........ 42 Senior Vice President, Stores James C. Sparks....... 52 Senior Vice President, General Merchandise Manager, Softlines Peter Thorn- er(1)........ 55 Chairman and Chief Executive Officer
- -------- (1) Director of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. Mr. Altschuler became a Director of the Company in February 1999. He has served as Vice President and Director of Leasing for Marx Realty & Improvement Co. Inc. since 1987. Mr. Benenati became Senior Vice President, Logistics of the Company in October 1997. He was Senior Vice President, Operations, from February 1997 to October 1997. He was Senior Vice President, Distribution of the Company from June 1995 to February 1997. Prior to joining the Company, he was Senior Vice President, Distribution of QVC, Inc. from August 1994 to June 1995. He was Vice President, Operations and Administration for Simon and Schuster Publishing Co. from prior to 1993 to August 1994. Mr. Blauner became a Director of the Company in February 1999. He has served as a consultant on bankruptcy and distressed investing for a small group of clients since January 1998. In addition, since 1998 Mr. Blauner has served in an Of Counsel position to the law firm of Milbank, Tweed, Hadley & McCloy for the purposes of representing the Loan Syndications and Trading Association, Inc. as its outside general counsel. From prior to 1993 to December 1997, he served as a partner and head of the bankruptcy department at Milbank, Tweed, Hadley & McCloy. Mr. Clingman became a Director of the Company in February 1999. He has served as President and Chief Executive Officer of Best Products Co., Inc. ("Best Products") from January 1997 to the present (during Best Products' liquidation and related wind-down). Prior to serving as President and Chief Executive Officer, Mr. Clingman served as Senior Vice President, General Counsel and Secretary from May 1996 to December 1996. He served as Vice President, General Counsel and Secretary from March 1993 to May 1996. Mr. Clingman serves as a director of Best Products. 41 Mr. Conforto became Senior Vice President, Chief Information Officer of the Company in April 1998. Prior to joining the Company, he was Vice President, Corporate Information Technology of HFS Incorporated from August 1996 to April 1997. He was Vice President of Information Services for Rickel Home Centers, Inc. from prior to 1993 to August 1996. Mr. Dieffenbach became Senior Vice President, Human Resources of the Company in July 1997. Prior to joining the Company, he was Vice President, Human Resources for Uptons Department Stores, Inc. from prior to 1993 to May 1997. Ms. Dunning became Senior Vice President, Planning and Allocation of the Company in February 1997. Ms. Dunning served as Vice President, Strategic Planning of the Company from January 1996 to February 1997. Prior to joining the Company, she was Vice President, Merchandise Planning of Rich's/Lazarus/Goldsmith's, a division of Federated Department Stores, Inc., from February 1995 to January 1996 and Vice President, Merchandise Planning of Lazarus Department Stores, Inc., a division of Federated Department Stores, Inc., from prior to 1993 to February 1995. Mr. Friedman became a Director of the Company in May 1996. Mr. Friedman was a partner at Dewey Ballantine from prior to 1993 to when he retired in April 1996. Mr. James became Senior Vice President, Marketing of the Company in May 1997. Prior to joining the Company, he was Senior Vice President, Marketing and Advertising for Best Products from prior to 1993 to December 1996. Mr. Lieberman became a Director of the Company in February 1999. He has served as Vice President, Merchandising for ABC Home Furnishings Inc. since December 1990. Mr. Lynn became President and Chief Operating Officer of the Company in April 1998. He served as President and Chief Merchandising Officer of the Company from April 1997 to April 1998. Mr. Lynn was elected a Director of the Company in April 1997. Prior to joining the Company, he was a consultant to various retail and manufacturing clients from January 1996 to April 1997. He was Vice Chairman and Chief Operating Officer of American Eagle Outfitters, Inc. from January 1995 to December 1995 and a Director from April 1994 to December 1995. Mr. Lynn was a retail consultant to the creditors' committee in the McCrory bankruptcy from December 1993 to January 1995. Mr. Lynn served as President and Chief Executive Officer of the United States division of F.W. Woolworth from January 1989 to September 1993. Mr. MacDonald became a Director of the Company in February 1999. He has served as President of Morgandane Management Corp., an investment advisory firm, from 1997 to the present. From prior to 1993 to 1995, he was a portfolio manager for Stonington Management Corp. Mr. MacDonald also serves as a director of Atlantic Gulf Communities Corp. Mr. Moses became Senior Vice President, Chief Financial Officer of the Company in July 1996. Mr. Moses served as Senior Vice President, Finance of the Company from July 1995 to July 1996. Mr. Moses was Vice President, Finance of the Company from April 1995 to July 1995. Prior to joining the Company, Mr. Moses was Senior Vice President, Finance of Ames Department Stores, Inc. ("Ames") from prior to 1993 to April 1995. Mr. Raymond became Senior Vice President, Asset Protection of the Company in July 1995. Prior to joining the Company, he was Senior Vice President, Asset Protection for Ames from prior to 1993 to July 1995. Mr. Roth became a Director of the Company in February 1999. He has served as a partner at the law firm of Kelly & Roth since 1987. 42 Mr. Schmitt has served as Senior Vice President, General Counsel, Secretary and Clerk of the Company since November 1995. He was Vice President, General Counsel, Secretary and Clerk of the Company from July 1995 to November 1995. Prior to joining the Company he was Vice President, Business Development for Wheelabrator Clean Water Systems, Inc. from 1994 to June 1995. He was President of CP Consulting from prior to 1993 to June 1994. Ms. Smith became Senior Vice President, General Merchandise Manager, Hardlines of the Company in July 1995. Ms. Smith served as Vice President, General Merchandise Manager, Hardlines of the Company from February 1994 to July 1995 and Divisional Merchandise Manager, Home Fashions of the Company from prior to 1993 to February 1994. Mr. Smith became Senior Vice President, Stores of the Company in December 1997. Prior to joining the Company, he was Director of Operations and Merchandising for Fry's Electronics from April 1995 to December 1997. He was Division Director for The Home Depot/Crossroads from June 1993 to April 1995. He was Regional Vice President for Wal-Mart from prior to 1993 to April 1993. Mr. Sparks became Senior Vice President, General Merchandise Manager, Softlines of the Company in July 1995. He was Vice President, General Merchandise Manager, Softlines of the Company from October 1994 to July 1995. Prior to joining the Company, Mr. Sparks was Vice President, General Merchandise Manager of Belk Lindsey from prior to 1993 to October 1994. Mr. Thorner has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since April 1997. He served as Chairman of the Board of Directors, President and Chief Executive Officer of the Company from December 1996 to April 1997. He served as President and Chief Operating Officer of the Company from June 1995 to December 1996 and he was elected a Director of the Company in July 1995. He was Vice Chairman of the Company from March 1995 to June 1995. Prior to joining the Company, he was President, Chief Operating Officer and Acting Chief Executive Officer and a member of the Board of Directors of Ames from prior to 1993 to 1994. On September 24, 1996, while Mr. James was Senior Vice President, Marketing and Advertising of Best Products, and Mr. Clingman was Senior Vice President, General Counsel and Secretary of Best Products, Best Products filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Best Products was subsequently liquidated. Mr. Conforto was Vice President of Information Services for Rickel Home Centers, Inc. when they filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. Rickel Home Centers, Inc. was subsequently liquidated. Board of Directors of Bradlees, Inc. and Its Committees The business of Bradlees, Inc. is managed under the direction of the Board of Directors. As of the Effective Date, there are nine members of the Board of Directors of Bradlees, Inc. These directors were selected pursuant to the Plan and assumed their positions immediately prior to the Effective Date. The Amended and Restated Articles of Organization of Bradlees, Inc. provide that the members of the Board of Directors shall serve initial terms which will expire upon the election and qualification of directors at each annual meeting of stockholders. At each annual meeting of stockholders, the successors of the directors will be elected by a plurality of the votes cast at such meeting. Bradlees, Inc. intends to hold its first annual meeting after the Effective Date in the Spring of 2000. The Board of Bradlees, Inc. has established an audit committee (the "Audit Committee"), a compensation committee (the "Compensation Committee") and a nominating committee (the "Nominating Committee"). The Audit Committee, which consists solely of outside directors, recommends to the Board of Directors the firm to be appointed as independent accountants to audit financial statements and to perform 43 services related to the audit. The Audit Committee also reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants the Company's year-end operating results, considers the adequacy of the internal accounting procedures and considers the effect of such procedures on the accountants' independence. The Compensation Committee, which consists solely of outside directors, reviews and recommends to the Board of Directors the compensation arrangements for all directors and officers, approves such arrangements for other senior level employees and administers and takes such other action as may be required in connection with certain compensation and incentive plans of the Company. The Compensation Committee also determines the number of options to be granted or shares of Common Stock to be issued to eligible persons under our Bradlees, Inc. 1999 Stock Option Plan (the "Stock Plan"). In addition, the Compensation Committee establishes, amends and revokes rules and regulations for administration of the Stock Plan. The Nominating Committee consists of the Chairman of the Board and two other non-employee directors nominated by the Chairman of the Board and approved by a majority of the Board. The purpose of the Nominating Committee is to facilitate the nomination of directors to fill vacancies on the Board. Board of Directors of Bradlees Stores, Inc. The business of Bradlees Stores, Inc. is managed by its Board of Directors. As of the Effective Date, there were three members of its Board of Directors. The Amended and Restated Articles of Organization of Bradlees Stores, Inc. provide that the members of the Board of Directors shall serve initial terms which will expire upon the election and qualification of directors at each annual meeting of stockholders. Board of Directors of New Horizons of Yonkers, Inc. The business of New Horizons of Yonkers, Inc. is managed by its Board of Directors. As of the Effective Date, there were three members of its Board of Directors. The By-laws of New Horizons of Yonkers, Inc. provide for the creation of committees to exercise the powers of the Board. No such committees currently exist. 44 SUMMARY COMPENSATION TABLE The following table sets forth the earned compensation for the Chief Executive Officer of the Company and our four highest-paid executive officers in 1997 other than the Chief Executive Officer (the "Named Officers") for fiscal years 1997, 1996 and 1995. Summary Compensation Table
Long Term Compensation --------------------------------- Awards ------------------------ Payouts -------- Annual Compensation ------------------------------------ Restricted Securities Name and Other Annual Stock Underlying LTIP All Other Principal Position Year Salary Bonus Compensation Awards Option/SARs Payouts Compensation - ------------------ ---- -------- -------- ------------ ---------- ----------- -------- ------------ Peter Thorner........... 1997 $741,827 $299,063(l) (2) - - $150,000(3) $9,318(4) Chairman and Chief l996 $589,166 - $ 12,961 - - $150,000(3) $9,293 Executive Officer 1995 $440,391 $406,252(5) $ 97,257 $231,250(6) 100,000 $150,000(3) $4,490 Robert G. Lynn.......... 1997 $401,827(7) $196,875(1) $ 29,109(8) - - - $ 840(4) Director, President, and Chief Operating Officer Robert W. Benenati...... 1997 $292,729 $ 90,011(l) (2) - - - $1,113(4) Senior Vice 1996 $205,036 - $ 62,762 - - - $ 850 President, Logistics l995 $141,948 $190,075(5) $ 18,793 - - - $ 596 Cornelius F. l997 $279,175 $ 84,012(l) (2) - - - $1,054(4) Moses, III.............. Senior Vice President 1996 $228,682 - (2) - - - $ 944 and Chief Financial 1995 $162,322 $ 79,453(5) $162,087 - - - $ 216 Officer David L. Schmitt ....... 1997 $243,751 $ 73,500(l) (2) - - - $ 912(4) Senior Vice 1996 $180,024 - (2) - - - $ 748 President, General 1995 $103,860 $ 69,556(5) (2) - - - $ 312 Counsel, Secretary and Clerk
- -------- (1) Includes an earned bonus paid in April, 1998 pursuant to our Corporate Bonus Plan (see below), but excludes the following deferred payments which were paid, with interest, at the Effective Date: Mr. Thorner - $99,688; Mr. Lynn - $65,625; Mr. Benenati - $30,004; Mr. Moses - $28,004; and Mr. Schmitt - $24,500. (2) Perquisites and other personal benefits for the indicated periods did not exceed the lesser of $50,000 or 10% of reported salary and bonus. (3) See Enterprise Appreciation Incentive Plan below. (4) Premiums paid with respect to term life insurance for the calendar year ended December 31, 1997. (5) Includes an earned bonus paid in April, 1996 pursuant to our Retention Bonus Plan, but excludes the following deferred payments which were paid, with interest, at the Effective Date: Mr. Thorner - $68,751; Mr. Benenati - $16,915; Mr. Moses - $18,151; and Mr. Schmitt - $14,852. (6) Based on a fair market value of $9.250, the closing price of the Company's Common Stock on May 11, 1995, the date of grant. The restrictions on these shares lapse at the rate of 20% a year, on or after the third business day following the announcement of annual earnings for the years 1995 through 1999. On January 30, 1998, the last trading day of fiscal 1997, 15,000 shares with a value of $1,875 were still subject to restrictions. The aggregate market value is based on a fair market value of $.125, the closing price of the Company's Common Stock on January 30, 1998. The Common Stock was canceled at the Effective Date. (7) Represents a partial year beginning when Mr. Lynn joined the Company in April, 1997. (8) Includes $27,216 for relocation expenses related to Mr. Lynn's employment as President and Chief Merchandising Officer of the Company and reimbursement for tax liabilities related to such relocation expenses. 45 Corporate Bonus Plan In February 1997 we adopted, and in April 1997 the Bankruptcy Court approved, the Corporate Bonus Plan (the "Corporate Bonus Plan"). The Corporate Bonus Plan provides incentives and rewards for (i) performance of key employees that meets or exceeds expectations and (ii) attainment of threshold performance measurements tied directly to our annual business plan. The amount of the award increases if our performance exceeds the business plan. In addition, a discretionary fund in the amount of $500,000 has been established to provide bonuses to (a) non-bonus eligible employees based upon performance regardless of whether we achieve our target performance level and (b) bonus eligible employees based on performance if we do not achieve our target performance level. Under the Corporate Bonus Plan, we had to obtain a minimum EBITDA (as defined) of $28.1 million for fiscal 1997, net of the anticipated costs of the Corporate Bonus Plan, in order for any employee to be eligible for 100% of an award (except for the discretionary fund mentioned above). For each $5 million of EBITDA improvement over the amount projected, the award increases by 25% of the base award up to a maximum increase of 100% of the award. We achieved an EBITDA of $28.5 million (net of the provision for the bonuses and excluding gains on disposition of properties) for fiscal 1997 and paid total bonuses of $3.9 million to approximately 286 employees under the Corporate Bonus Plan in April 1998. With respect to the Named Officers and certain other members of our senior management, one-quarter of the amount of any bonus payable before such time as we consummated our Chapter 11 plan of reorganization was paid, with interest, on the Effective Date. The remaining three-quarters of the bonuses were previously paid. See "Summary Compensation Table." For fiscal 1998, our Board of Directors adopted threshold performance measurements tied directly to our 1998 business plan. We must obtain a minimum EBITDA of $32 million, net of the anticipated costs of the Corporate Bonus Plan, in order for any employee to be eligible for 100% of an award (except for the discretionary fund mentioned above). Partial awards will be made if we achieve certain levels of EBITDA below $32 million. For each $5 million of EBITDA improvement over $32 million, the award increases by 25% of the base award up to a maximum increase of 100% of the award. In addition, any award may be increased or decreased by 25% based upon an employee's performance. Enterprise Appreciation Incentive Plan In August 1995 we adopted, and in November 1995 the Bankruptcy Court approved, the Enterprise Appreciation Incentive Plan (the "Incentive Plan"). The Incentive Plan was terminated on the Effective Date. The Incentive Plan was intended to provide an incentive to those key executives whose management and individual performance will have a direct impact on increasing the long-term value of the Company. No further payments are expected to be paid under the Incentive Plan, other than the payment of $400,000 with respect to amounts due Mr. Thorner for the remaining term of the Incentive Plan (see Employment Agreement with Peter Thorner below) because the Incentive Plan was canceled. Management Emergence Bonus Plan On the Effective Date, certain executives were selected to participate in our Management Emergence Bonus Plan (the "Emergence Bonus Plan"). The aggregate amount payable to these employees under the Emergence Bonus Plan is $3 million. One million dollars of this was paid on the Effective Date. The remaining $2 million will be paid on the later of (a) the one-year anniversary of the Effective Date and (b) the date upon which the 9% Convertible Notes are fully paid or converted into equity. No payments will be made under the Emergence Bonus Plan if there exists any continuing default under the BankBoston Facility or its successor (as such terms are defined under the Emergence Bonus Plan). If an employee leaves us for any reason, other than an involuntary termination without Cause or a voluntary termination for Good Reason, within one year of receiving a payment under the Emergence Bonus Plan, the payment shall be subject to partial or total 46 recoupment. If an employee is involuntarily terminated without Cause, voluntarily leaves for Good Reason, or leaves due to death or disability, then the employee does not have to return any payments under the Emergence Bonus Plan and is entitled to receive any portion of the payments to be made under the Emergence Bonus Plan within 30 days after the date of termination of employment. Severance Program In August 1995 we adopted, and in November 1995 the Bankruptcy Court approved, a severance program (the "Severance Program") that covers all officers, Vice President and above, and certain other employees of the Company, but not including Mr. Thorner who has a separate employment agreement (see Employment Agreement with Peter Thorner below). If the employment of any participant in the Severance Program is terminated other than for cause, death, disability or by the employee, then salary is guaranteed, subject to mitigation by other employment, for up to eighteen months for the President, Executive Vice Presidents and Senior Vice Presidents and twelve months for Vice Presidents, and a lump-sum payment equal to six months of salary is paid to certain other employees. Certain participants would also receive a lump-sum payment equal to the amount of any incentive payment for the fiscal year in which the termination occurred (the "Severance Lump Sum"). If the employment of any participant is terminated other than for Cause, death, disability or retirement, or is terminated under certain other circumstances, within one year following a change of control of the Company, the employee will receive a lump-sum payment. The payment is the Severance Lump Sum amount plus one and one-half times the annual salary in effect immediately prior to the change of control (the "Annual Salary") for the President and Senior Vice Presidents, one times the Annual Salary for Vice Presidents and one-half times the Annual Salary for certain other employees. For purposes of the Severance Program, a change of control includes but is not limited to the acquisition by any person of beneficial ownership of 50% or more of the Company's outstanding voting securities, or the failure of the individuals who constituted the Board of Directors in August 1995 to continue to constitute a majority of the Board unless the election of the new directors has been approved by the incumbent directors. Consummation of our Plan of Reorganization did not constitute a change of control under the Severance Program. Stock Option Plan for Key Employees There were no options for Old Bradlees' common stock granted or exercised by Named Officers in fiscal 1998. Pursuant to the Plan of Reorganization, all options outstanding immediately prior to the Effective Date were canceled as of the Effective Date. On the Effective Date, the Bradlees, Inc. 1999 Stock Option Plan (the "Stock Plan") became effective. Pursuant to the Plan of Reorganization, we have agreed to grant options to purchase 750,000 shares of our Common Stock to our management. The options will be granted when their exercise price is determined. The exercise price of these options will be the lowest ten-day rolling average of the closing price of our Common Stock within the period between sixty and ninety days after the Effective Date. Retirement Plans We maintain a qualified retirement plan (the "Retirement Plan") for our eligible employees. The retirement benefits under the Retirement Plan are determined pursuant to a benefit formula that takes into account the employee's Final Average Compensation (as defined in the Retirement Plan), and/or years of service, up to 30 years. Effective December 31, 1998, the Retirement Plan for our non-union employees was frozen for credited service and salary adjustments. All benefits under the Retirement Plan, except the minimum benefits, are subject to an integration offset based upon the employee's Covered Compensation (as defined in the Retirement Plan) or Final Average Compensation, if less. We also maintain a non-qualified Supplemental Executive Retirement Plan (the "Supplemental Plan") which, as of December 1, 1995, replaced the Excess Pension Plan which was terminated. Under the Supplemental Plan an eligible employee, upon normal retirement at age 65, may receive supplemental retirement benefits equal to 50% of his Final Average Compensation, minus the sum of his Social Security benefits and the annual benefit payable from the 47 Retirement Plan. The benefits from the Supplemental Plan are payable in the form of a single lump sum amount. The following table shows the estimated annual retirement benefits which will be payable to participating employees from the Retirement Plan and the Supplemental Plan in the form of a straight life annuity upon normal retirement at age 65 after selected periods of service. These benefits presented below do not reflect the Social Security offset described above and do not take into account any reduction for joint and survivor payments. Pension Plan Table Estimated Annual Retirement Benefits
10 Years Final Average of 15 or More Compensation* Service Years of Service - ------------- -------- ---------------- $ 200,000 $ 66,666 $100,000 $ 250,000 $ 83,333 $125,000 $ 300,000 $100,000 $150,000 $ 400,000 $133,333 $200,000 $ 500,000 $166,666 $250,000 $ 600,000 $200,000 $300,000 $ 700,000 $233,333 $350,000 $ 800,000 $266,666 $400,000 $ 900,000 $300,000 $450,000 $1,000,000 $333,333 $500,000 $1,100,000 $366,666 $550,000 $1,200,000 $400,000 $600,000 $1,300,000 $433,333 $650,000
- -------- * Federal law limits the amount of compensation that may be taken into account in calendar year 1998 in calculating benefits under the Retirement Plan to $160,000 and limits the annual benefits that may be payable in calendar year 1998 to $125,000. These tax limits do not apply to benefits payable from the Supplemental Plan. Compensation recognized under the Retirement Plan is the participant's annualized rate of base salary. Compensation under the Supplemental Retirement Plan is the participant's base salary and bonus. The calculation of retirement benefits under both plans is generally based upon the participant's highest annual compensation averaged over three years. As of December 31, 1998, the years of credited service for the Retirement Plan for Messrs. Thorner, Lynn, Benenati, Moses, and Schmitt were 4, 2, 4, 4, and 4, respectively. As of December 31, 1998, the years of credited service for the Supplemental Plan for Messrs. Thorner, Lynn, Benenati, Moses, and Schmitt were 9, 2, 4, 4 and 4, respectively. Compensation of Directors Each director who is not an employee of the Company receives an annual retainer of $30,000. Directors who are also employees of the Company do not receive any remuneration for serving as directors. Employment Agreement with Peter Thorner We have entered into a three-year employment agreement with Mr. Thorner, commencing as of October 26, 1995 and amended as of November 7, 1997. This employment agreement is automatically extended for one additional year each year unless either party gives the other party written notice of its election not to extend the contract. Effective December 24, 1996, concurrent with his then appointment as Chairman, President and Chief Executive Officer, Mr. Thorner received a minimum annual base salary of $725,000 and an annual incentive award of 55% of his base salary. In March 1998, our Board of Directors approved an increase in Mr. Thorner's 48 annual base salary to $850,000 effective February 1, 1998. While in Chapter 11, the annual incentive award was payable pursuant to the Corporate Bonus Plan. The annual incentive award could be increased to 110% of Mr. Thorner's base salary if certain maximum performance goals are met under the Corporate Bonus Plan. Under the employment agreement, one-quarter of the amount of any annual incentive bonus payable before the consummation of the Plan of Reorganization was deferred, and paid with interest on the Effective Date. In addition, the employment agreement provides for the payment by us of an equity incentive bonus (payable in cash, debt and equity securities) pursuant to the Incentive Plan determined by reference to the increase in value of the Company from the date of the bankruptcy filing to the fifth anniversary of the employment agreement, subject generally to vesting over five years. Under the employment agreement, Mr. Thorner is entitled to receive an annual nonrefundable advance of $150,000 towards his benefits under the Incentive Plan while he remains employed by us. The employment agreement also provides that Mr. Thorner's equity incentive bonus under the Incentive Plan would be at least $1,000,000 but would not exceed the lesser of $4,615,385 or 3% of the appreciation in value of the Company. No payments were paid under the Incentive Plan to Mr. Thorner, other than the annual nonrefundable advances and a payment of $400,000 with respect to amounts due Mr. Thorner for the remaining term of the Incentive Plan, which was paid on the Effective Date. The agreement also provides for certain retirement benefits, for reimbursement of certain legal, annual financial counseling and relocation expenses and participation in our employee benefit plans. The employment agreement also provides that in the event of Mr. Thorner's termination of employment by us (including following a change in control of the Company) without Cause or Good Reason (as defined in the Employment Agreement), Mr. Thorner would generally be entitled to all payments and benefits called for under the agreement for the remainder of its term. Compensation Committee Interlocks and Insider Participation All executive officer compensation decisions will be made by the Compensation Committee. The Compensation Committee will review and make recommendations regarding the compensation for our management and key employees, including salaries and bonuses. 49 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of our Common Stock as of February 2, 1999, by (i) each person known by us to beneficially own five percent or more of the outstanding shares of the Common Stock, (ii) each director and certain executive officers, and (iii) all directors, nominees for director and executive officers as a group. Except as otherwise indicated, we believe that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. All of the Common Stock of Bradlees Stores, Inc. is owned by Bradlees, Inc.
Directors, Executives Officers, and 5% Beneficial Shares Beneficially Owned Owners(1)(2) Prior to the Offering(2) Percentage(3) --------------------- ------------------------- ------------- Ariel Fund Limited..................... 2,853,981 27.9% Gabriel Capital, L.P................... 1,934,578 18.9% Elliott Associates, L.P.(4)............ 461,120 4.6% Westgate International, L.P.(4)........ 977,619 9.6% Robert A. Altschuler................... 0 * Robert W. Benenati..................... 0 * Stephen J. Blauner..................... 0 * W. Edward Clingman, Jr................. 0 * Bruce Conforto......................... 0 * Gregory Dieffenbach.................... 0 * Judith Dunning......................... 0 * John M. Friedman, Jr. ................. 0 * Mark James............................. 0 * Lawrence Lieberman..................... 0 * Robert Lynn............................ 0 * Charles K. MacDonald................... 0 * Cornelius F. Moses, III................ 0 * Ronald T. Raymond...................... 0 * William H. Roth........................ 0 * David L. Schmitt....................... 0 * Sandra Smith........................... 0 * Thomas N. Smith........................ 0 * James C. Sparks........................ 0 * Peter Thorner.......................... 0 * All directors and executive officers as a group (consisting of 20 people).. 0 *
- -------- * Represents less than 1.0% of the issued and outstanding shares of Common Stock. (1) Unless otherwise indicated, the mailing address for each stockholder and director is c/o the Company, One Bradlees Circle, Braintree, Massachusetts 02184. For Ariel Fund Limited, the mailing address is c/o Maples & Calder, P.O. Box 309, Grand Cayman, Cayman Islands, BWI. For Gabriel Capital, L.P., the mailing address is 450 Park Avenue, New York, New York 10627. For Elliott Associates, L.P. the mailing address is 712 Fifth Avenue, 36th Floor, New York, New York 10019. For Westgate International, L.P. the mailing address is c/o Midland Bank Trust Corporation (Cayman) Limited, P.O. Box 1109, Mary Street, Grand Cayman, Cayman Islands, BWI. (2) As used in this table, "beneficial ownership" means the sole or shared power to vote or direct the voting of a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose, or direct the disposition of, a security). In computing the number of shares of Common Stock beneficially owned by a person, shares of Common Stock subject to options held by that person that are currently exercisable or exercisable within 60 days of this Prospectus are deemed outstanding, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The number of shares beneficially owned does not include any warrants that may be owned by such person. We have agreed to issue warrants to purchase 1,000,000 shares of our common stock, but until resolution of all outstanding claims, the recipients of such warrants are not determinable. (3) Percentage ownership prior to this Offering is based upon 10,225,711 shares of Common Stock issued and outstanding as of February 2, 1999. (4) Elliott Associates, L.P. and Westgate International, L.P. are investment partnerships under common management. 50 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other Transactions In February 1998, we made a loan in the amount of $100,000 to Thomas N. Smith, Senior Vice President, Stores, in connection with his relocation. This loan was interest-free and payable on January 30, 1999. The due date has been extended until April 15, 1999, with interest at 10% per annum during the extension period. Any bonus payments payable to Mr. Smith prior to April 15, 1999 shall be used to repay any outstanding balance of the loan. As of February 16, 1999, the amount remaining outstanding under this loan was $75,267. In September 1998, we made a loan in the amount of $100,000 to Bruce Conforto, Senior Vice President and Chief Information Officer, in connection with his relocation. This loan is interest-free and payable on or prior to March 31, 1999. Any bonus payments payable to Mr. Conforto prior to March 31, 1999 shall be used to repay any outstanding balance of this loan. As of February 16, 1999, the amount remaining outstanding under this loan was $88,750. Company Policy We have a policy that any transactions with directors, officers, employees or affiliates be approved in advance by a majority of our Board of Directors, including a majority of the disinterested members of the Board, and be on terms no less favorable to us than we could obtain from non-affiliated parties. SELLING SECURITYHOLDERS The Selling Securityholders are Ariel Fund Limited, Gabriel Capital, L.P., Elliott Associates, L.P. and Westgate International, L.P. The following table sets forth the name of each Selling Securityholder, and the amount of the Securities owned by each such Selling Securityholder as of February 2, 1999 which are subject to being offered hereby. This Prospectus relates to the offers and sales of the Securities by the Selling Securityholders, including the shares of Common Stock issuable upon conversion of the 9% Convertible Notes. The Securities subject to offering and sale by the Selling Securityholders pursuant hereto constitute all of the holdings of such securities by such Selling Securityholders. For the respective percentages of the Company's securities beneficially owned by each Selling Securityholder (including such ownership as may be attributed to such securityholders) prior to the offering. See "Principal Stockholders." The following table does not include any Common Stock issuable upon exercise of outstanding options or warrants. Each Selling Stockholder may offer and sell all of the Securities registered hereby. If such Selling Stockholder sells all of the Securities registered hereby, such Selling Stockholder will not beneficially own any of our securities. Inclusion on this list does not imply that any person or entity will actually offer or sell any of the shares registered on his, her or its behalf.
Shares of Principal Amount Common Stock(1) of Notes(2) --------------- ---------------- Ariel Fund Limited(3)......................... 2,853,981 $17,421,221 Gabriel Capital, L.P.(3)...................... 1,934,578 $11,809,016 Elliott Associates, L.P.(4)................... 461,120 $ 540,000 Westgate International, L.P.(4)............... 977,619 $ 4,532,875 --------- ----------- TOTAL....................................... 6,227,298(5) $34,303,112(5)
- -------- (1) Excludes an indeterminate number of shares issuable upon conversion of the 9% Convertible Notes. Since the number of shares of Common Stock issuable upon conversion of the 9% Convertible Notes varies as the market price of the Common Stock changes, it is impossible at this time to determine how many shares may be issued upon conversion of the 9% Convertible Notes. (2) The principal amount of Notes shown includes such holders' pro rata portion of the $11.0 million pre-payment of the Notes made on the Effective Date. The aggregate principal amount outstanding after accounting for the pre- payment and the issuance of Notes in $1,000 denominations is: $12,201,000 for Ariel; $8,271,000 for Gabriel; $3,172,000 for Westgate; and $378,000 for Elliott. (3) J. Ezra Merkin ("Merkin") is the sole general partner of Gabriel Capital, L.P. Gabriel Capital Corp. is the investment advisor for Ariel, and Merkin is the sole shareholder, sole director and president of Gabriel Capital Corp. (4) Elliott Associates, L.P. and Westgate International L.P. are investment partnerships under common management. (5) Additional securities have been registered hereby on behalf of parties which may receive such securities in connection with the Companies' emergence from Chapter 11 and which parties have not yet been identified. Once identified, such parties will be listed above pursuant to a post- effective amendment of the Registration Statement of which this Prospectus forms a part. 51 PLAN OF DISTRIBUTION Type of Transactions. The Selling Securityholders (and donees, pledgees, transferees or other successors in interest receiving Securities from a Selling Securityholder after the date of this Prospectus) may offer and sell all or a portion of their Securities at various times in one or more of the following types of transactions: . In the over-the-counter market; . In private transactions and in transactions other than the over-the- counter market; . In connection with short sales of the Securities; . By pledge to secure debts or other obligations; . In connection with the writing of non-traded and exchange traded call options, swaps or derivatives (exchange-listed or otherwise) and in settlement of other transactions in standardized or over-the-counter options; . cross or block trades; . "at the market" to or through market makers, into an existing market; . direct sales to purchasers, sales effected through agents; . hedging transactions with broker-dealers (who may short the Common Stock); or . In a combination of any of the above transactions. Price of Transaction; Fees. These transactions may be at market price, at prices related to the market price, at negotiated prices or at fixed prices that may be changed. If the Selling Securityholders use the services of an underwriter, broker, dealer or agent to assist with the sale of Securities, the party providing services may be paid for their efforts. The compensation can be paid by either the buyer or the seller of the Securities and can be in the form of a discount, commission or concession. The buyer and the seller will determine how much compensation will be paid and the form in which it will be paid. It is possible that the agent providing these services, or the Selling Securityholders, might be considered to be underwriters under the Securities Act, and any profits received or compensation paid could be considered an underwriting discount or commission under the Securities Act. At the time a particular offer of Securities is made, a prospectus supplement, to the extent required, will be distributed which will set forth the aggregate amount and type of Securities being offered, the names of the Selling Securityholders, the purchase price, the amount of expenses of the offering and the terms of the offering, including the name or names of any underwriters, brokers, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Under the Exchange Act and applicable rules and regulations promulgated thereunder, any person engaged in a distribution of any of the Securities may not simultaneously engage in market making activities with respect to the Securities for a period of 5 days prior to the commencement of the distribution, subject to certain exemptions. In addition and without limiting the foregoing, the Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations promulgated thereunder, including without limitation Regulation M, which provisions may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders. Under the securities laws of certain states, the Securities may be sold in such states only through registered or licensed brokers or dealers. In addition, in certain states the Securities may not be sold unless the Securities have been registered or qualify for sale in such state or an exemption from registration or qualification is available and is complied with. 52 SHARES ELIGIBLE FOR FUTURE SALE At the Effective Date, we have 10,225,711 shares of Common Stock outstanding. Under the terms of our Plan of Reorganization, the number of shares we issue to our former creditors varies with the amount of general unsecured claims allowed. The number of shares outstanding is based upon an assumption that the amount of general unsecured claims allowed are not less than $225 million and the number of shares issued to the Selling Securityholder's not more than 7,267,424. The number of shares outstanding does not include an indeterminate number of shares of Common Stock which may be issued upon conversion of the 9% Convertible Notes. In addition, we have an aggregate of 1,000,000 shares of Common Stock reserved for issuance upon the exercise of outstanding Warrants and 750,000 shares of Common Stock reserved for issuance upon exercise of Options which we agreed to grant pursuant to the Plan of Reorganization. The offer and sale of 7,267,424 of such shares of Common Stock, plus an indeterminate number of shares issuable upon conversion of the 9% Convertible Notes, are registered under the Securities Act pursuant to the Registration Statement of which this Prospectus is a part. All of the outstanding shares of Common Stock, all of the shares of Common Stock issuable upon exercise of the warrants and options, and all of the shares of Common Stock issuable upon conversion of the 9% Convertible Notes, are freely tradeable without restriction or further registration under the Securities Act, either because such shares were issued or are issuable pursuant to the exemption provided by Section 1145 of the Bankruptcy Code and such shares are not "restricted securities" as defined in Rule 144 under the Securities Act or because the offer and resale of such shares is registered pursuant to the Registration Statement of which this Prospectus forms a part or pursuant to a registration statement on Form S-8 as described below. As of February 2, 1999, a total of 1,000,000 shares of Common Stock were reserved for issuance under the Stock Plan, of which 750,000 shares will be the subject of options we agreed to grant pursuant to the Plan of Reorganization. These options will be granted in May, 1999. In addition, 1,000,000 shares of Common Stock were reserved for issuance under Warrants outstanding as of February 2, 1999. The Warrants will expire on February 2, 2004. We currently intend to file a registration statement on Form S-8 under the Securities Act to register all shares of Common Stock currently issuable pursuant to the Stock Plan. To the extent shares of Common Stock are owned or purchased by our "affiliates" as such term is defined in Rule 144 and are not registered pursuant to this Registration Statement of which this Prospectus forms a part, such restricted shares may generally be sold in compliance with Rule 144. In general under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including persons deemed to be affiliates, whose restricted securities have been fully paid for and held for at least one year from the later of the date of acquisition from us or any of our affiliates, may sell such securities in brokers' transactions or directly to market makers, provided the number of shares sold in any three-month period does not exceed the greater of 1% of the then outstanding shares of the Common Stock or the average weekly trading volume in the public market during the four calendar weeks immediately preceding the filing of the seller's Form 144. Sales under Rule 144 are also subject to certain notice requirements and availability of current public information concerning us. Pursuant to Rule 144(k), after two years have elapsed from the later of the acquisition of the restricted securities from us or any of our affiliates, such shares may be sold without limitation by persons who have not been our affiliates for at least three months. TERMS OF OUTSTANDING INDEBTEDNESS Credit Agreement As of the Effective Date, we entered into a $270 million financing facility with BankBoston, N.A. as Administrative Agent and Issuing Bank. The facility is composed of a $250 million senior secured revolving credit facility and a $20 million "last-in last-out" secured subfacility. This facility is for a period expiring on December 23, 2001 and may not exceed a maximum principal amount of $270 million. The initial advances 53 under this BankBoston Facility were used to pay in full all of our obligations under the DIP Facility and the remainder can be used for general corporate purposes, working capital and inventory purchases. No more than $125 million of the advances under the BankBoston Facility are permitted to be in the form of letters of credit. Borrowings under the BankBoston Facility are secured by a first-priority security interest in all of our assets, properties and rights, except for our interest in any owned or leased real property. The security interest of the junior secured facility, though a first-priority interest, ranks behind the security for the senior secured facility. The BankBoston Facility permits us to borrow funds under the senior secured facility at an interest rate per annum equal to (a) the higher of (i) the annual rate of interest as announced by BankBoston as its "Base Rate" and (ii) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System plus 1/2 of 1% per annum; or (b) 2.25% per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a percentage equal to 100% minus the percentage established by the Board of Governors of the Federal Reserve System as the maximum rate for all reserves applicable to any member bank of the Federal Reserve System in respect of Eurocurrency Liabilities. Each of these rates is subject to a 0.50% increase in the event of overadvances. The junior secured subfacility permits us to borrow funds at the "Base Rate" plus 7.00% per annum. We are also required to pay a fee of 1.50% per annum of the average daily balance of the maximum amount that is available at any time for drawing or payment under any outstanding letters of credit. The BankBoston Facility contains a number of significant covenants preventing us from taking certain actions including: . Undergoing a merger or entering into a stock or asset acquisition (subject to certain exceptions); . Making capital expenditures in any fiscal year in excess of $20 million, which limit is subject to increase after twelve months provided we meet certain earnings goals; . Permitting our earnings before interest, taxes, depreciation and amortization ("EBITDA") from dropping below specified levels; . Permitting the ratio of (a) our amount of accounts payable to (b) the value of our inventory to be less than specified percentages (which percentages change on a monthly basis, but are between 37.0% and 42.5%); . Allowing the ratio of (a) our EBITDA less certain capital expenditures to (b) our cash interest expense plus principal payments to be less than 1.00:1; and . Purchasing or guaranteeing any other party's indebtedness, paying dividends, entering into certain transactions with our affiliates and making any investments other than those permitted. If we fail to meet these and other obligations under the BankBoston Facility, the lenders under the BankBoston Facility would have recourse to a number of remedies, including an acceleration of amounts owed and foreclosure on the collateral securing the borrowings. CAP Notes Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued CAP Notes in the aggregate principal amount of $547,094. The CAP Notes bear interest at a rate equal to nine percent (9%) per annum. Principal and accrued interest are payable in twelve equal quarterly installments, commencing three months after the Effective Date. Bradlees Stores, Inc. can prepay these notes, in whole or in part, at any time or from time to time, without premium or penalty. The CAP Notes are secured by a first lien on the property on which the CAP Note holder holds a valid first priority security interest. 54 Cure Notes Pursuant to the Plan of Reorganization, Bradlees Stores, Inc. has issued Cure Notes in the aggregate principal amount of $3.4 million. The Cure Notes are not secured and bear interest at a rate equal to nine percent (9%) per annum. Principal and accrued interest are payable in twelve equal quarterly installments, commencing three months after the Effective Date. Bradlees Stores, Inc. can prepay these notes, in whole or in part, at any time or from time to time, without premium or penalty. Tax Notes Pursuant to the Plan of Reorganization and Section 1129(a)(9)(C) of the Bankruptcy Code, Bradlees Stores, Inc. has agreed to make deferred cash payments in the aggregate principal amount of $3.4 million on account of allowed tax claims. Payments will be made in equal annual installments of principal, plus simple interest accruing from the Effective Date at a rate equal to eight percent (8%) per annum on the unpaid portion of such claims. The first payment is due on the latest of: (i) 30 days after the Effective Date, (ii) 30 days after the date on which an order allowing any such claim becomes a final order, and (iii) such other date as is agreed to by Bradlees Stores, Inc. and by the holder of such claim. Bradlees Stores, Inc. has the right to pay any such claim, or the remaining balance of any such claim, in full, at any time, on or after the Effective Date, without premium or penalty. Vendor Lien Bradlees Stores, Inc. has entered into an agreement for the benefit of its trade vendors which grants such trade vendors a subordinated security interest in Bradlees Stores, Inc.'s inventory. DESCRIPTION OF THE 9% CONVERTIBLE NOTES The 9% Convertible Notes (as used in this section, the "Notes") were issued under an Indenture dated February 2, 1999 (the "Indenture") among Bradlees, Inc., Bradlees Stores, Inc., New Horizons of Yonkers, Inc. and IBJ Whitehall Bank & Trust Company, as trustee (the "Trustee"). The material provisions of the Notes and the Indenture are summarized below. The statements under this caption relating to the Notes and the Indenture are summaries only, however, and do not purport to be complete. Such summaries make use of terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture, which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Notes will be issued by Bradlees Stores, Inc. The Indenture will be subject to and governed by the Trust Indenture Act of 1939, as amended (the "TIA"). General Each Note will mature on February 3, 2004, and will bear interest at the rate of 9% per annum from the date of issuance, payable semi-annually in arrears on January 1 and July 1 of each year, commencing July 1, 1999, to the person in whose name the Note is registered at the close of business on the record date next preceding such interest payment date. Bradlees Stores, Inc. will pay interest on overdue principal and will pay interest on overdue interest. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Bradlees Stores, Inc. will pay the principal on the Notes only to each Holder who presents and surrenders such Notes to a Paying Agent on or after February 3, 2004. Bradlees Stores, Inc. will pay principal and interest in U.S. legal tender by Federal funds bank wire transfer or by check to the persons who are registered Holders at the close of business on the Record Date next preceding the applicable interest payment date. The aggregate principal amount of the Notes that may be issued under the Indenture will be limited to $28,995,000 (which excludes the $11.0 million aggregate principal amount that was pre-paid on the Effective Date). 55 The Notes will be transferable and exchangeable at the office of the Security Registrar and will be issued in fully registered form, without coupons, in denominations of $1,000 and any whole multiple thereof. Bradlees Stores, Inc. may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection with certain transfers and exchanges and any other expenses connected therewith. Ranking The indebtedness represented by the Notes will rank equally with other non- subordinated indebtedness of Bradlees Stores, Inc. Each Note will rank on parity with each other Note. Except as described under "Merger, Consolidation or Sale of Assets," or "Limitations on Indebtedness" the Notes do not contain any provisions that would limit the ability of Bradlees Stores, Inc. to incur indebtedness or that would afford holders of Notes protection in the event of (i) a highly leveraged or similar transaction involving Bradlees Stores, Inc., the management of Bradlees Stores, Inc., or any affiliate of any such party, (ii) a change of control, or (iii) a reorganization, restructuring, merger or similar transaction involving Bradlees Stores, Inc. that may adversely affect the holders of the Notes. In addition, subject to the limitations set forth under "Merger, Consolidation or Sale of Assets," Bradlees Stores, Inc. may, in the future, enter into certain transactions, such as the sale of all or substantially all of its assets or the merger or consolidation of the Bradlees Stores, Inc., that would increase the amount of Bradlees Stores, Inc.'s indebtedness or substantially reduce or eliminate Bradlees Stores, Inc.'s assets, which may have an adverse effect on Bradlees Stores, Inc.'s ability to service its indebtedness, including the Notes. Redemption Any Notes outstanding shall be redeemed, along with any accrued and unpaid interest on such Notes, with the net proceeds received upon the disposition of our leasehold interest in our Yonkers, New York store or the net proceeds (up to a maximum amount of $6.5 million plus accrued and unpaid interest and expenses) received upon the disposition of the Additional Collateral (as defined below). Additionally, the net proceeds of any offering of common stock by Bradlees, Inc., except offerings to employees pursuant to the Plan of Reorganization or pursuant to any benefit plan, shall be used to repay, pro rata, any outstanding Notes plus accrued and unpaid interest. We also have the right to redeem the Notes at any time, in whole or in part, by paying the holder the unpaid principal plus accrued and unpaid interest. In addition, pursuant to the Plan of Reorganization, we have modified the termination date and certain other provisions of our lease for our Union Square, New York store in exchange for a payment upon the Effective Date of $11.0 million by the landlord. This payment was applied as a pre-payment to the Notes, leaving $28,995,000 aggregate principal amount of Notes outstanding. Notice of any redemption shall be given to the holder of the Notes to be redeemed not less than 10 days prior to the scheduled redemption date. Limitations on Mergers and Consolidation The Indenture provides that neither Bradlees, Inc. nor Bradlees Stores, Inc. may consolidate or merge with, or sell, assign, transfer, lease or convey all or substantially all of its assets to, any other entity unless (i) either Bradlees, Inc. or Bradlees Stores, Inc., as the case may be, shall be the continuing entity, or the successor entity formed by or resulting from any such consolidation or merger or which shall have received the transfer of such assets, shall be a person organized and existing under the laws of any jurisdiction of the United States, and shall expressly assume by supplemental indenture (A) in the case of a transaction involving Bradlees Stores, Inc., Bradlees Stores, Inc.'s obligations to pay principal of and interest on all of the Notes, as well as every covenant and obligation of Bradlees Stores, Inc. under the Indenture and the Security Documents or (B) in the case of a transaction involving Bradlees, Inc., the guarantee obligations and other obligations of Bradlees, Inc. under the Indenture (ii) before and immediately after giving effect to such transaction, no event 56 of default under the Indenture, and no event which, after notice or the lapse of time, or both, would become such an event of default, shall have occurred or be continuing and (iii) Bradlees, Inc., Bradlees Stores, Inc. or the successor entity, shall deliver to the Trustee a certificate and an opinion of counsel that such actions comply with the applicable provisions of the Indenture. Limitations on Indebtedness The Indenture provides that neither Bradlees Stores, Inc. nor any of its subsidiaries will incur any Indebtedness (which as defined in the Indenture includes obligations for borrowed money, the defined purchase price of certain assets and guarantees of the foregoing) other than (i) Indebtedness incurred under or permitted by the BankBoston Facility (or any amendment, restatement, modification, renewal, refunding, replacement or refinancing thereof in whole or in part from time to time provided that the Indebtedness does not exceed $270 million plus any guarantees thereof); (ii) Indebtedness represented by the Notes, the guarantee of the Notes described below and other Indebtedness incurred pursuant to the Plan of Reorganization (or any amendment, restatement, modification, renewal, refunding, replacement or refinancing thereof in whole or in part from time to time); (iii) Indebtedness, which may be in addition to Indebtedness incurred pursuant to clause (i), incurred in connection with the acquisition (by purchase, lease or otherwise) of additional store sites or to finance the fixtures, equipment, inventory and other costs and expenses associated with such store sites; (iv) Indebtedness incurred to finance or refinance capital expenditures; and (v) Indebtedness incurred in the ordinary course of our business as of February 2, 1999 in accordance with past practices. The Indenture further provides that Bradlees, Inc. will not incur Indebtedness other than as described in clauses (i) through (iii) above; provided that any indebtedness incurred by Bradlees, Inc. pursuant to clause (iii) above shall rank pari passu with Bradlees, Inc.'s guarantee of the Notes. Guarantees Bradlees, Inc. and New Horizons of Yonkers, Inc. will severally, fully and unconditionally guarantee the payment obligations of Bradlees Stores, Inc. under the 9% Notes, the Indenture and the Security Documents. The obligations of Bradlees, Inc. under its guarantee will be unsecured obligations of Bradlees, Inc. and New Horizons of Yonkers, Inc. and will be limited as necessary to prevent the guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent Conveyance Matters." The guarantee by each guarantor ranks equally with all other non-subordinated indebtedness of such guarantor except the guarantee by Bradlees, Inc. is expressly subordinated to the guarantee by Bradlees, Inc. of the BankBoston Facility and the guarantee by New Horizons of Yonkers, Inc. is expressly subordinated to the guarantee by New Horizons of Yonkers, Inc. of the BankBoston Facility. A guarantor may not make payments on the Notes if such guarantor's guarantee of the BankBoston Facility is not paid when due or discharged in full, unless the representative under the BankBoston Facility consents. Upon any distribution to creditors following a liquidation, dissolution, bankruptcy, reorganization or similar proceeding relating to a guarantor, holders of such guarantor's guarantee of the BankBoston Facility are entitled to payment in full (including interest after commencement of any such proceedings) before holders of Notes may be paid under the guarantee. Prior to making any distributions pursuant to these guarantees, the Trustee or paying agent must inquire of the representative of the BankBoston Facility as to whether such distribution is permitted under the subordination provisions of the Indenture. If no response is received within 24 hours of such inquiry, distributions may be made. Events of Default, Notice and Waiver The following events are "Events of Default" with respect to the Notes: (i) default for 15 days in the payment of any installment of interest on any Note when it becomes due and payable; (ii) default in the payment of principal of any Note when it becomes due and payable, at maturity, acceleration, redemption or otherwise; (iii) default in the performance or breach of any other obligation of Bradlees Stores, Inc., Bradlees, Inc. or New Horizons of Yonkers, Inc. contained in the Indenture or related security agreement that continues 57 for 30 days after written notice from holders of at least 25% of the aggregate principal amount of outstanding Notes thereof given to Bradlees, Inc., Bradlees Stores, Inc. or New Horizons of Yonkers, Inc. as provided in the Indenture; (iv) certain events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of Bradlees, Inc., Bradlees Stores, Inc. or New Horizons of Yonkers, Inc.; (v) any one or more judgments or orders as to liability or debt for payment in excess of five million dollars in the aggregate shall be rendered against us and either (a) enforcement proceedings shall have been commenced and shall be continuing by any creditor upon such judgment or order or (b) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal, payment or otherwise, shall not be in effect; (vi) Bradlees, Inc. fails to deliver Common Stock within three trading days upon conversion of the Notes; (vii) the guarantee of Bradlees, Inc. ceases to be in effect for a period of ten days after notice is provided; (viii) any liens created by the security agreement shall cease to be enforceable and Bradlees Stores, Inc. does not cure the cessation within 30 days; and (ix) the collateral agent under the BankBoston Facility has commenced the exercise of its remedies with respect to amounts outstanding thereunder or the related collateral. If an Event of Default under the Indenture occurs and is continuing and has not been waived, then in every such case the holders of at least 25% in principal amount of outstanding Notes have the right to declare the principal amount of all the Notes to be due and payable immediately by written notice thereof to Bradlees Stores, Inc. and the Trustee. However, at any time after such a declaration of acceleration with respect to the Notes has been made, the holders of a majority in principal amount of outstanding Notes may, on behalf of the holders of all of the Notes, rescind and cancel such declaration and its consequences if (i) the recission would not conflict with any judgement or decree; (ii) all existing events of default, with respect to the Notes have been cured or waived, except nonpayment of principal or interest that has become due solely because of acceleration; (iii) to the extent payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid; and (iv) Bradlees Stores, Inc. has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advancements. The Indenture also provides that the holders of not less than a majority in principal amount of the outstanding Notes may waive any past default and its consequences, except a default (i) in the payment of the principal of (or premium, if any) or interest on any Note; or (ii) with respect to an obligation contained in the Indenture that cannot be modified or amended without the consent of the holder of each outstanding Note affected thereby. The TIA requires the Trustee to give notice to the holders of the Notes within 90 days of the occurrence of an Event of Default of which it is aware under the Indenture unless such default shall have been cured or waived; provided, however, that such Trustee may withhold notice to the holders of Notes if specified responsible officers, as set forth in the TIA, of such Trustee consider such withholding to be in the interest of such holders. The Indenture provides that no holders of Notes may institute any proceedings, judicial or otherwise, upon or with respect to the Indenture or for any remedy thereunder, except in the case of failure of the Trustee to act within 10 days after it has received satisfactory indemnity and a written request to institute proceedings relating to an Event of Default from the holders of not less than 25% aggregate principal amount of the outstanding Notes. This provision will not prevent, however, any holder of Notes from instituting suit for the enforcement of payment of the principal and interest on such Notes at the respective due dates thereof. The holders of a majority in principal amount of the outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or of exercising any trust or power conferred upon such Trustee. The Trustee may refuse to follow any direction which is in conflict with any law or the Indenture, which may involve the Trustee in personal liability or which may be unduly prejudicial to the holders of Notes not joining therein, it being understood that the Trustee shall have no duty to ascertain the potential prejudice of any actions. Within 120 days after the close of each fiscal year, Bradlees Stores, Inc. is required to deliver to the Trustee a certificate, signed by one of several specified officers of Bradlees Stores, Inc., stating whether or not 58 such officer has knowledge of any failure by Bradlees Stores, Inc. to comply with any of its obligations under the Indenture. Modification of the Indenture Modifications and amendments of the Indenture, any security documents or the Notes are permitted to be made only with the consent of the holders of a majority in principal amount of all outstanding Notes issued under the Indenture affected by such modification or amendment; provided, however, that no such modification or amendment may, without the consent of the holder of each such Note affected thereby, (i) reduce the principal or change or have the effect of changing the stated maturity of any Notes, or change the date on which any Notes may be subject to redemption, or reduce the redemption price; (ii) reduce the rate of interest, or change or have the effect of changing the stated maturity for payment of interest on the Notes, (iii) change the place of payment or currency for payment of principal or interest on any such Notes; (iv) impair the right to institute suit for the enforcement of any payment on or with respect to any such Notes or permitting the holders of a majority in principal amount of Notes to waive events of default; (v) reduce the above- stated percentage of any outstanding Notes necessary to modify or amend the Indenture with respect to such Notes or to waive compliance with certain provisions thereof or certain Events of Default and consequences thereunder; (vi) change any material provision of any security document; (vii) adversely affect the right of holders of the Notes to convert them into common stock; (viii) waive a default in payment of principal or interest; (ix) release Bradlees, Inc. from its guarantee obligations or release collateral other than as permitted by the Indenture; or (x) modify any of the foregoing provisions. In addition, if any Indebtedness is outstanding under the BankBoston Facility, provisions of the Indenture relating to the BankBoston Facility guarantees and the subordination of the guarantees of the Notes shall not be amended without the consent of the agent of the BankBoston Facility. Any amendment to release the collateral securing the Notes must be unanimously approved by all holders of Notes. Modifications and amendments of the Indenture, any security documents or the Notes will be permitted to be made by Bradlees, Inc, Bradlees Stores, Inc. and the Trustee thereunder without the consent of any holder of the Notes for any of the following purposes: (i) to evidence the succession of another person to Bradlees Stores, Inc. as obligor under the Indenture to the extent permitted under the Indenture; (ii) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trust under the Indenture by more than one Trustee; (iii) to cure any ambiguity, defect or inconsistency in such documents, provided that in the opinion of the Trustee, such action shall not adversely affect the interests of holders of Notes issued under the Indenture; (iv) to provide for uncertificated Notes; (v) to maintain compliance with the requirements of the SEC or to remain qualified under the TIA; (vi) to give effect to the release of any collateral or any lien in accordance with the terms of any security document; (vii) to make any change that does not adversely affect the rights of any Note holders or (viii) to make any change that provides an additional benefit to the holders of the Notes. Collateral The Notes are secured by (i) a first priority lien on our leasehold interest in our Yonkers, New York store which we are seeking to sell (and the net proceeds we receive upon its disposition), (ii) under certain circumstances and subject to certain limitations described below, first priority liens on our leasehold interests in our Danbury, Connecticut, Norwalk, Connecticut and Saddle Brook, New Jersey stores (the "Additional Collateral"), as well as the net proceeds we receive upon their disposition(s) (none of which we are currently seeking to sell), and (iii) a first priority pledge of all of the outstanding capital stock of New Horizons of Yonkers, Inc. We have agreed with the holders of the Notes that if we have not disposed of our leasehold interest in our Yonkers, New York store by July 31, 1999, the Trustee may market and sell such leasehold interest and the Trustee may take title to all of the outstanding capital stock of New Horizons of Yonkers, Inc. In either such event, it is expected that the Trustee or its representative will continue to actively seek to sell such leasehold interest. The net proceeds realized upon a sale (by us, the Trustee or its representative) of the 59 Yonkers, New York leasehold interest will be paid to the holders of the Notes as a pre-payment. The disposition of our leasehold interest in the Yonkers, New York store is subject to Bankruptcy Court approval. In addition, pursuant to the Plan of Reorganization we have modified the termination date and certain other provisions of our lease for our Union Square, New York store in exchange for a payment upon the Effective Date of $11.0 million by the landlord. This payment was applied as a pre-payment to the Notes, leaving $28,995,000 outstanding principal amount of Notes. We are currently seeking to sell our leasehold interest in our Yonkers, New York store. We have filed motions with the Bankruptcy Court seeking authorization to auction such interest. Those motions require a minimum bid of $15 million. In addition, we have agreed with the holders of the Notes that if we receive a bona fide cash offer of $15 million or higher (excluding customary prorations and transaction costs), we will accept such bid. No assurances can be given that we will receive any bids at or in excess of $15 million and we reserve the right to accept bids of less than $15 million. The lien on the Additional Collateral shall only secure indebtedness under the Notes equal to the sum of $6.5 million plus an amount from time to time equal to the amount of interest (plus interest on interest) that would accrue on $6.5 million of principal amount of outstanding Notes from February 2, 1999 to the date of calculation of the extent of such lien on the Additional Collateral (but excluding any period for which interest has in fact been paid under the Notes) and all costs and expenses payable by us under the mortgages encumbering the Additional Collateral. We are in the process of obtaining title insurance covering the leasehold mortgages described above. In the event we are unable to obtain title insurance satisfactory to the holders of the Notes, we have agreed to substitute an insurable replacement mortgage or mortgages encumbering other leasehold interests held by us, which leasehold interests are mutually acceptable to both us and the Trustee as directed by the holders of a majority of principal amount of outstanding Notes. We have agreed to obtain this title insurance (including title insurance on the replacement properties, if any) within 45 days following the Effective Date. If we do not obtain this insurance for any reason whatsoever (including, without limitation, our inability to agree on replacement collateral) within this time period, we have agreed to pay the Trustee liquidated damages for the benefit of the Note holders of $5,000 per day until our obligations are satisfied. Prior to any foreclosure of the leasehold mortgages by the Trustee, the Trustee has agreed to generally allow the Company 120 days to conduct going- out-of-business sales at those stores or to remove the inventory located at those stores. Conversion The Notes will be convertible any time after the first anniversary of the Effective Date into shares of our Common Stock. The conversion price will initially be the arithmetic unweighted average closing price of the Common Stock of Bradlees, Inc. during the twenty business days preceding the first anniversary of the Effective Date. The conversion price may change if (i) we make any distributions in shares of our Common Stock to our stockholders; (ii) we issue options, warrants or rights to our stockholders that dilute current owners of Bradlees, Inc. Common Stock; (iii) we take any action to increase or decrease the number of shares outstanding which would effectively dilute the value of the convertible feature of the Note; (iv) we distribute any assets (other than cash dividends not exceeding certain levels), evidences of indebtedness or shares of stock; or (v) certain extraordinary distributions of cash are made to holders of our Common Stock (directly or by means of a tender or exchange offer) where the amount distributed (plus other amounts distributed to holders of our Common Stock in the previous 12 months) exceeds 15% of the market capitalization (determined pursuant to the Indenture) of Bradlees, Inc. In the case of a reclassification, change, merger, consolidation or sale of substantially all assets, Bradlees, Inc. shall, as a condition precedent to such event, enter into a supplemental indenture providing that the consideration to be received by the Note holders upon conversion after such event shall be the same as such holder would have received in connection with such 60 extraordinary event had they held the number of shares of our Common Stock which would have been issued had such Notes been converted immediately prior to such event. The Notes will not be convertible after the close of business on January 30, 2004, or after the close of business on the second day prior to the date on which the specified Note was to be redeemed. Governing Law The Indenture and each Note are governed by, and construed in accordance with, the laws of the State of New York without giving effect to the principles thereof relating to conflicts of law except Sections 5-1401 and 5-1402 of the New York General Obligations Law. The Trustee IBJ Whitehall Bank & Trust Company will be the Trustee under the Indenture. Its address is One State Street, New York, New York 10004. The TIA contains certain limitations on the right of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required to use the degree of care and skill of a prudent person in the conduct of his or her own affairs. Authentication One officer of Bradlees Stores, Inc. will sign each Note on behalf of Bradlees Stores, Inc., in each case by manual or facsimile signature. A Note will not be valid until the Trustee or an Authenticating Agent manually signs the certificate of authentication on the Note. Each Note will be dated as of the date of its authentication. 61 DESCRIPTION OF CAPITAL STOCK General The following summary description of the capital stock of Bradlees is qualified in its entirety by reference to the Bradlees Amended and Restated Articles of Organization (the "Articles") and the Bradlees Amended and Restated By-laws (the "By-laws"), copies of which are filed as exhibits to the Registration Statement of which this Prospectus is a part. All of the stock of Bradlees Stores, Inc. is owned by Bradlees. The terms of the common stock of Bradlees Stores, Inc. are contained in the Amended and Restated Articles of Organization and the Amended and Restated By-laws of Bradlees Stores, Inc., copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Authorized and Outstanding Capital Stock Bradlees has authorized capital stock consisting of 41,000,000 shares, par value $.01 per share, consisting of 40,000,000 shares of Common Stock and 1,000,000 shares of preferred stock. As of February 2, 1999, 10,225,711 shares of Common Stock, held by approximately 2,200 stockholders, are issued and outstanding. As of February 2, 1999, no preferred stock was issued or outstanding. Common Stock. In addition to the 10,225,711 shares we have issued, the following shares of Common Stock are reserved for issuance: . 1,000,000 shares issuable upon exercise of outstanding warrants; and . 1,000,000 shares are reserved for issuance under the Stock Plan. In addition, we have agreed to issue an indeterminate number of shares upon the conversion of the 9% Convertible Notes. The holders of Common Stock are entitled to one vote per share on all matters to be voted on by stockholders. Therefore, the holders of a majority of the shares voted in the election of directors can elect all of the directors then standing for election, subject to the rights of the holders of preferred stock, if and when issued. As of February 2, 1999, no preferred stock was issued or outstanding. The holders of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by our Board of Directors from funds legally available therefor. See "Dividend Policy." The possible issuance of preferred stock with a preference over Common Stock as to dividends could impact that dividend rights of holders of Common Stock. The holders of Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to the Common Stock. All outstanding shares of Common Stock, including the shares offered hereby, are fully paid and non-assessable. Undesignated Preferred Stock. The Board of Directors is authorized, without further action of the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereon as set forth in our Articles of Organization. Any such preferred stock issued by us may rank prior to the Common Stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of Common Stock. Certain Provisions of the Articles and By-laws of Bradlees, Inc. General. Bradlees' Articles and By-laws contain rules of corporate governance and stockholder rights. The Articles and By-laws allow the board of directors to issue shares of preferred stock and to set the voting rights and preferences of that stock. 62 Board of Directors. The Articles and By-laws provide that the initial number of directors shall be 9. The board of directors may increase, but not decrease, the number of directors. The first annual meeting of stockholders will be held in 2000. The initial directors shall serve terms expiring at this annual meeting. Successors will hold office until the next annual meeting of the stockholders in 2001. The initial directors shall hold office until their successors are elected and qualified or until their resignation or removal. Any holder of record of shares of capital stock or the Nominating Committee established by the board of directors may nominate directors. Shareholders who nominate directors are subject to advance notice and disclosure requirements as well as time limits. Shareholders shall elect directors by the affirmative vote of a plurality of the votes cast at the meeting. Removal of Directors. The board of directors may only remove any director by the vote of a majority of directors then in office if the director to be removed is (i) subject to any regulatory or judicial order or decree barring or suspending such individual from any activity related to the purchase, sale or trading of securities or commodities; or (ii) such person has been indicted on charges relating to the purchase, sale or trading of securities or commodities. The shareholders may remove any director with the vote of two-thirds ( 2/3) of the shareholders eligible to elect Directors. Meetings of Stockholders. The board of directors may call a special meeting of stockholders. The clerk or in certain circumstances any other officer must call a special meeting of the stockholders upon written application of one or more stockholders who hold at least (1) a majority in interest in interest of the capital stock entitled to vote at such meeting or (2) such lesser percentage as shall be determined to be the maximum percentage which we are permitted by applicable law to establish for the call of such a meeting. At a special meeting, the shareholders may only act upon those matters set forth in the notice of the special meeting. The By-laws set forth advance notice and disclosure requirements and time limitations on any new business which a stockholder wishes to propose for consideration at an annual meeting of stockholders. Indemnification and Limitation of Liability. The By-laws provide that we shall indemnify our directors and officers to the fullest extent authorized by Massachusetts law against all expense and liabilities reasonably incurred in connection with service for or on behalf of us, unless that director or officer is adjudicated in that proceeding to have breached his or her duty of loyalty to us. We may, in the discretion of the Board of Directors, indemnify our employees and agents as if they were directors or officers, to the fullest extent authorized by Massachusetts law. Pursuant to Massachusetts law and the Articles, a director does not have any liability for monetary damages for breach of fiduciary duty except for: . any breach of the director's duty of loyalty to the corporation or its stockholders; . acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; . an unauthorized distribution or loan to an officer or director in violation of the Massachusetts General Law; or . any transaction from which the director obtained an improper personal benefit. In addition, Massachusetts law states that a corporation may not indemnify a director, officer or employee who has not acted in good faith in the reasonable belief that his or her action was in the best interest of the corporation. Sale, Lease or Exchange of Assets; Merger. Massachusetts law provides that, unless the articles of organization provide otherwise, two-thirds ( 2/3) of the outstanding shares are required to approve a sale, lease or exchange of all or substantially all of our assets or a merger or consolidation. The Articles do not contain a provision changing this requirement. 63 Amendment of the By-laws. The board of directors or the shareholders may amend or repeal the Articles or By-laws, subject to the following: . The board of directors can amend or repeal the By-laws with a majority vote of the directors in office. Following an amendment, the board of directors must give notice to all shareholders entitled to vote on amendments by the time the board gives notice of the next annual meeting. . The shareholders can amend or repeal the By-laws with a vote of at least two-thirds ( 2/3) of all shareholders eligible to vote. All shares of voting stock vote together as a single class. . If the board of directors recommends an amendment or repeal of the By-laws, the shareholders can amend or repeal with a majority vote of all shareholders eligible to vote. All shares of voting stock vote together as a single class. Amendment of the Articles. The shareholders can amend the Articles at any annual meeting or at a special meeting called to amend the Articles. The shareholders may vote to amend the Articles alone or with the board of directors. The board of directors may not amend the Articles without shareholder approval. . The shareholders can amend the Articles with a vote of at least two- thirds of all shareholders eligible to vote. All shares of voting stock vote together as a single class. . If the board of directors recommends an amendment, the shareholders can amend the Articles with a majority vote of all shareholders eligible to vote. All shares of voting stock vote together as a single class. Massachusetts Anti-takeover Laws Chapter 110F Chapter 110F of the Massachusetts General Laws prohibits corporations from engaging in certain business combinations which include mergers and consolidations and certain stock or assets sales with an interested stockholder. This prohibition extends for three years following the date the stockholder becomes an interested stockholder. An interested stockholder is a holder of five percent (5%) or more of the outstanding stock of the corporation. The statute allows corporations to elect not to be governed by Chapter 110F if a majority of shares entitled to vote approves such election. In its Articles, Bradlees has elected not to be governed by Chapter 110F. The Articles were approved by the Bankruptcy Court in connection with the Plan of Reorganization. This election took effect at the Effective Date. Chapter 110D Chapter 110D of the Massachusetts General Laws governs any person (the "acquiror") who makes a bona fide offer to acquire, or acquires, shares of stock of a Massachusetts corporation that when combined with shares already owned, would increase the acquiror's ownership to at least 20% of the voting stock of such company. To vote his or her shares, an acquiror must obtain the approval of a majority of shares held by all stockholders not including shares of the acquiror, officers or inside directors of the corporation. A Massachusetts corporation may elect not to be governed by Chapter 110D by including a provision to that effect in its articles of organization or by- laws. In its Articles, Bradlees has opted not to be governed by the provisions of Chapter 110D. Certain Provisions of the Articles and By-laws of Bradlees Stores, Inc. The Articles and By-laws of Bradlees Stores, Inc. are substantially the same as the Articles and By-laws of Bradlees, Inc. discussed above, with the following major exceptions . Bradlees Stores, Inc. has only three directors; . Bradlees Stores, Inc. has authorized capital stock consisting of 150,000 shares of common stock and 50,000 shares of preferred stock. All of the issued and outstanding shares of common stock of Bradlees Stores, Inc. is held by Bradlees, Inc. There is no preferred stock of Bradlees Stores, Inc. currently outstanding. 64 Transfer Agent and Registrar Boston EquiServe serves as the transfer agent and registrar for the Common Stock. Listing The Common Stock is currently listed on the Nasdaq National Market on a "when issued" basis under the symbol "BRADV." We do not intend to apply for listing of the Notes on any securities exchange or authorization for quotation on the Nasdaq Stock Market. LEGAL MATTERS Goodwin, Procter & Hoar llp, Boston, Massachusetts has passed upon the validity of the shares of the Common Stock and the Notes offered by this Prospectus. EXPERTS The consolidated balance sheet, statements of operations, stockholder's equity (deficiency), and cash flows of the Company as of January 31, 1998 and for the fiscal year then ended included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. Arthur Andersen LLP's report for the fiscal year ended January 31, 1998 contained an explanatory paragraph that raised substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The consolidated financial statements of Bradlees, Inc. as of February 1, 1997 and for the years ended February 1, 1997 and February 3, 1996 included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein (which report expresses an unqualified opinion and includes explanatory paragraphs referring to (a) the Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, and (b) the Company's 1996 and 1995 losses from operations and stockholders' deficiency, which raise substantial doubt about the Company's ability to continue as a going concern), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (including any and all amendments thereto, the "Registration Statement") under the Securities Act and the rules and regulations promulgated thereunder, with respect to the Securities offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Securities offered hereby. Statements contained in this Prospectus concerning the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete with respect to each such contract, agreement or document filed as an exhibit to the Registration Statement, and reference is made to such exhibit for a more complete description of the matters involved, and each such statement shall be deemed qualified by such reference. We are subject to the information requirements of the Exchange Act, and in accordance therewith will file reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information, as well as the Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at the public 65 reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from such offices, upon payment of the fees prescribed by the Securities and Exchange Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that submit electronic filings to the Commission. We intend to furnish our stockholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by an independent public accounting firm, and with quarterly reports for the first three quarters of each fiscal year containing unaudited interim consolidated financial information. On September 24, 1997, the Audit Committee of the Board of Directors of the Company recommended the appointment of Arthur Andersen LLP as certifying accountants for the Company replacing Deloitte & Touche LLP, who was dismissed, effective September 24, 1997 and the appointment along with the dismissal was approved by the Board of Directors and the United States Bankruptcy Court for the Southern District of New York. There were no disagreements between Deloitte & Touche LLP and the Company's management at the decision-making level during the two most recent fiscal years and the subsequent interim periods (the "Reporting Period"), which disagreements, if not resolved to the satisfaction of Deloitte & Touche LLP, would have caused Deloitte & Touche LLP to make reference to the subject matter of the disagreements in connection with its reports. In addition, there were no reportable events, as defined in Item 304(a)(i)(v) of Regulation S-K, during the Reporting Period. Deloitte & Touche LLP's report on the consolidated financial statements for the year ended February 1, 1997 expressed an unqualified opinion and included explanatory paragraphs relating to the following: February 1, 1997 report: a The Company's filing for reorganization protection under Chapter 11 of the Federal Bankruptcy Code. b. The Company's 1996 and 1995 losses from operations and stockholders' deficiency which raises substantial doubt about the Company's ability to continue as a going concern. During the Reporting Period, neither the Company nor anyone on its behalf consulted Arthur Andersen LLP regarding the application of accounting principles to a specified transaction or the type of audit opinion that might be rendered on the Company's financial statements, and Arthur Andersen LLP did not provide a written or oral report or advice that Bradlees' management concluded was an important factor considered by the registrant in reaching a decision on the issue. 66 INDEX TO FINANCIAL STATEMENTS Bradlees, Inc. and Subsidiaries (Operating as Debtor-in-Possession) Index to Consolidated Financial Statements
Page ---- Condensed Consolidated Financial Statements as of October 31, 1998 (unaudited) Condensed Consolidated Statements of Operations for the thirteen weeks ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited)............................ F-2 Condensed Consolidated Statements of Operations for the thirty-nine weeks ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited)..... F-3 Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited) and November 1, 1997 (unaudited)........................................ F-4 Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited)..... F-6 Notes to Condensed Consolidated Financial Statements (unaudited)......... F-7 Consolidated Financial Statements as of January 31, 1998 Report of Independent Public Accountants-Arthur Andersen LLP............. F-21 Independent Auditors' Report-Deloitte & Touche LLP....................... F-22 Consolidated Statements of Operations for the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996......................... F-23 Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997.. F-24 Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1998, February 1, 1997 and February 1, 1996......................... F-25 Consolidated Statements of Stockholders' Equity (Deficiency) for the fis- cal years ended January 31, 1998, February 1, 1997 and February 3, 1996.................................................................... F-26 Notes to Consolidated Financial Statements............................... F-27
F-1 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) PART I - FINANCIAL INFORMATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands except per share amounts)
13 Weeks Ended -------------------------- Oct. 31, 1998 Nov. 1, 1997 ------------- ------------ Total sales........................................ $323,106 $342,337 Leased department sales............................ 10,973 11,904 -------- -------- Net sales.......................................... 312,133 330,433 Cost of goods sold................................. 217,394 233,329 -------- -------- Gross margin....................................... 94,739 97,104 Leased department and other operating income....... 3,028 3,282 -------- -------- 97,767 100,386 -------- -------- Selling, store operating, administrative and distribution expenses............................. 95,549 93,796 Depreciation and amortization expense.............. 7,803 9,004 Interest and debt expense.......................... 4,371 4,187 Reorganization items............................... (2,749) (6,978) -------- -------- Net income (loss).................................. $ (7,207) $ 377 ======== ======== Comprehensive income (loss)........................ $ (7,207) $ 377 ======== ======== Net loss per share - basic and diluted............. $ (0.64) $ 0.03 ======== ======== Weighted average shares outstanding (in thousands) - basic and diluted.................... 11,310 11,366 ======== ========
See accompanying notes to condensed consolidated financial statements. F-2 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands except per share amounts)
39 Weeks Ended -------------------------- Oct. 31, 1998 Nov. 1, 1997 ------------- ------------ Total sales........................................ $939,203 $930,683 Leased department sales............................ 32,818 35,463 -------- -------- Net sales.......................................... 906,385 895,220 Cost of goods sold................................. 635,383 625,521 -------- -------- Gross margin....................................... 271,002 269,699 Leased department and other operating income................................... 8,757 8,722 -------- -------- 279,759 278,421 Selling, store operating, administrative and distribution expenses............................. 280,326 289,844 Depreciation and amortization expense.............. 24,370 27,544 Loss on disposition of properties.................. 241 -- Interest and debt expense.......................... 11,960 11,673 Reorganization items............................... (2,555) (2,160) -------- -------- Net loss........................................... $(34,583) $(48,480) ======== ======== Comprehensive loss................................. $(34,583) $(48,480) ======== ======== Net loss per share - basic and diluted............. $ (3.06) $ (4.26) ======== ======== Weighted average shares outstanding (in thousands) - basic and diluted.................... 11,311 11,382 ======== ========
See accompanying notes to condensed consolidated financial statements. F-3 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997 ------------- ------------- ------------ ASSETS Current assets: Unrestricted cash and cash equivalents........................ $ 10,959 $ 10,949 $ 11,291 Restricted cash and cash equivalents........................ 25,129 16,760 9,436 -------- -------- -------- Total cash and cash equivalents... 36,088 27,709 20,727 -------- -------- -------- Accounts receivable................. 11,925 10,013 14,183 Inventories......................... 318,883 238,629 335,359 Prepaid expenses.................... 11,031 8,733 11,087 Assets held for sale................ - 7,754 7,754 -------- -------- -------- Total current assets.............. 377,927 292,838 389,110 Property, plant and equipment, net: Property excluding capital leases, net................................ 123,892 131,525 135,430 Property under capital leases, net.. 17,732 18,959 21,126 -------- -------- -------- Total property, plant and equipment, net................... 141,624 150,484 156,556 -------- -------- -------- Other assets: Lease interests at fair value, net.. 137,350 142,454 144,705 Assets held for sale................ - 4,000 5,250 Other, net.......................... 4,509 5,390 4,386 -------- -------- -------- Total other assets................ 141,859 151,844 154,341 -------- -------- -------- Total assets........................ $661,410 $595,166 $700,007 ======== ======== ========
(Continued) See accompanying notes to condensed consolidated financial statements. F-4 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands)
Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997 ------------- ------------- ------------ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable.................... $179,413 $124,361 $196,279 Accrued expenses.................... 23,221 30,516 34,619 Self-insurance reserves............. 6,027 6,564 6,144 Short-term debt..................... 157,392 84,208 131,500 Current portion of capital lease obligations........................ 1,038 1,038 1,038 -------- -------- -------- Total current liabilities......... 367,091 246,687 369,580 -------- -------- -------- Long-term liabilities Obligations under capital leases.... 26,211 27,073 32,738 Deferred income taxes............... 8,581 8,581 8,581 Self-insurance reserves............. 12,237 13,328 12,473 Other long-term liabilities......... 19,034 23,342 28,186 -------- -------- -------- Total long-term liabilities....... 66,063 72,324 81,978 -------- -------- -------- Liabilities subject to settlement under the reorganization case........ 548,788 562,105 560,154 Stockholders' deficiency: Common stock - 11,310,384 outstanding (11,312,154 at 1/31/98, 11,387,154 at 11/1/97) Par value.......................... 115 115 115 Additional paid-in-capital......... 137,821 137,821 137,951 Accumulated deficit................. (457,665) (423,082) (449,007) Treasury stock, at cost............. (803) (804) (764) -------- -------- -------- Total stockholders' deficiency.... (320,532) (285,950) (311,705) -------- -------- -------- Total liabilities and stockholders' deficiency......................... $661,410 $595,166 $700,007 ======== ======== ========
See accompanying notes to condensed consolidated financial statements. F-5 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
39 Weeks Ended -------------------------- Oct. 31, 1998 Nov. 1, 1997 ------------- ------------ Cash flows from operating activities: Net loss.......................................... $(34,583) $(48,480) Adjustments to reconcile net loss to cash used by operating activities: Depreciation and amortization expense........... 24,370 27,544 Amortization of deferred financing costs........ 1,215 2,098 Reorganization items............................ (2,555) (2,160) Changes in working capital and other, net....... (37,231) (29,832) -------- -------- Net cash used by operating activities before reorganization items............................. (48,784) (50,830) -------- -------- Reorganization items: Interest income received........................ 746 330 Chapter 11 professional fees paid............... (7,786) (7,877) Other reorganization expenses paid, net......... (3,225) (5,611) -------- -------- Net cash used by reorganization items............. (10,265) (13,158) -------- -------- Net cash used by operating activities............. (59,049) (63,988) Cash flows from investing activities: Capital expenditures, net......................... (10,379) (14,721) Increase in restricted cash and cash equivalents.. (8,369) (310) -------- -------- Net cash used in investing activities............. (18,748) (15,031) -------- -------- Cash flows from financing activities: Payments of liabilities subject to settlement..... (6,551) (5,447) Deferred financing costs.......................... - (2,026) Net borrowings under the DIP facilities........... 73,184 89,000 Proceeds from sales of properties................. 12,036 - Principal payments on capital lease obligations... (862) (1,242) -------- -------- Net cash provided by financing activities......... 77,807 80,285 -------- -------- Net increase (decrease) in unrestricted cash and cash equivalents................................... 10 1,266 Unrestricted cash and cash equivalents: Beginning of period............................... 10,949 10,025 -------- -------- End of period..................................... $ 10,959 $ 11,291 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest and certain debt fees...... $ 10,282 $ 9,264 Cash received (paid) for income taxes............. $ (279) $ 109 Supplemental schedule of noncash (investing and financing) activities: Reduction of liabilities subject to settlement due to transfer of title to property................. $ 2,000 $ -
See accompanying notes to condensed consolidated financial statements. F-6 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The condensed consolidated financial statements of Bradlees, Inc. and subsidiaries, including Bradlees Stores, Inc. (collectively "Bradlees" or the "Company"), have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7: "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") and generally accepted accounting principles applicable to a going concern, which principles, except as otherwise disclosed, assume that assets will be realized and liabilities will be discharged in the normal course of business. The Company filed petitions for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on June 23, 1995 (the "Filing"). The Company is presently operating its business as a debtor-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). With respect to the unaudited condensed consolidated financial statements for the 13 weeks (third quarter) and 39 weeks (year-to-date) ended October 31, 1998 and November 1, 1997, it is the Company's opinion that all necessary adjustments (consisting of normal and recurring adjustments) have been included to present a fair statement of results for the interim periods. Certain prior- year amounts have been reclassified to conform to this year's presentation. These statements should be read in conjunction with the Company's financial statements (Form 10-K) for the fiscal year ended January 31, 1998 ("1997"). Due to the seasonal nature of the Company's business, operating results for the interim periods are not necessarily indicative of results that may be expected for the fiscal year ending January 30, 1999 ("1998"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, pursuant to the general rules and regulations promulgated by the Securities and Exchange Commission (the "SEC"). The Company's ability to continue as a going concern is dependent upon the consummation of the Company's amended plan of reorganization (Note 2), the ability to maintain compliance with debt covenants under the DIP Facility (Note 4), achievement of profitable operations, maintenance of adequate financing, and the resolution of the uncertainties of the reorganization case discussed in Note 2. The Company experienced significant operating losses in 1996 and 1995. In an effort to return the Company to profitability and accomplish its long- term goals, the Company is focusing on three core product lines: moderately- priced basic and casual apparel, basic and fashion items for the home, and edited assortments of frequently purchased commodity and convenience products. Bradlees is committed to quality and fashion, especially in apparel and home furnishings, and to improved customer service. The Company believes that it can strategically leverage its strength in the fashion and quality content of its apparel and decorative home product offerings while driving traffic with selected hardlines merchandise. 2. Reorganization Case In the Chapter 11 case, substantially all liabilities as of the date of the Filing are subject to settlement under the amended and modified plan of reorganization (the "Plan") that was confirmed by the Bankruptcy Court on January 27, 1999. As of the Effective Date, the Plan provided for approximately $163 million in distributions to creditors, inclusive of $16 million of administrative claim payments, $6 million in tax and cure notes, $14 million in cash, $40 million in convertible notes primarily payable to the Company's pre- Chapter 11 bank group, new common stock with an estimated value of $85 million, and $2 million in other distributions. As previously reported, all existing stock will be canceled upon the Company's emergence from bankruptcy with no issuance of new stock to current shareholders. A Form 8-K has been filed with the SEC that describes, among other things, the classification and treatment of pre-petition claims under the Plan and conditions to the occurrence of the Plan's effective date. F-7 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) The Company emerged from Chapter 11 on February 2, 1999. Pro forma financial information has been presented in the Company's Form S-1 Registration Statement ("Form S-1") filed with the SEC in November, 1998 and is updated in Note 11. The Plan was originally confirmed by the Bankruptcy Court on November 18, 1998. The United States District Court for the Southern District of New York reversed this confirmation on December 23, 1998. We modified the Plan and the modified Plan was confirmed by the Bankruptcy Court on January 27, 1999 and became effective on February 2, 1999. Schedules were filed by the Company with the Bankruptcy Court setting forth the assets and liabilities of the Company as of the date of the Filing as shown by the Company's accounting records. Differences between amounts shown by the Company and claims filed by creditors are continuing to be investigated and resolved. Although the ultimate amount and settlement terms for all pre- petition liabilities have not yet been finalized, the Company believes that the total of unsecured claims will not exceed $300 million, a condition precedent to the effectiveness of the Plan. Payments of approximately $2.1 million were made in 1997 to settle certain reclamation claims and two properties that were financed prior to the Filing and held for sale at the beginning of 1998 were either sold or transferred during the second quarter and the associated pre- petition financing obligation was reduced accordingly (Note 7). Under the Bankruptcy Code, the Company may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory pre-petition leases and contracts, subject to Bankruptcy Court approval. A liability of approximately $45.7 million was recorded through October 31, 1998, for rejected leases and contracts. This liability may be subject to future adjustments based on claims filed and Bankruptcy Court actions. The Company believes that it has recorded its best estimate of the liability for rejected leases and contracts based on information currently available. The principal categories of claims classified as "Liabilities Subject to Settlement Under the Reorganization Case" are identified below. Deferred financing costs as of the Filing of $3.4 million, $2.0 million and $2.7 million, respectively, for the pre-petition revolving loan facility (the "Revolver") and subordinated debt (the "2002 and 2003 Notes") have been netted against the related outstanding debt amounts. In addition, a $9.0 million cash settlement and approximately $12.7 million of adequate protection payments since the Filing have been applied to reduce the Revolver debt amount. The cash settlement relates to a portion of the Company's cash balance as of the date of the Filing ($9.3 million) which was claimed as collateral by the pre-petition bank group. The claim was settled in full for $9.0 million and approved by the Bankruptcy Court in 1995. All amounts presented below may be subject to future adjustments depending on Bankruptcy Court actions, further developments with respect to disputed claims, determination as to the security of certain claims, the value of any collateral securing such claims, or other events.
(000's) Liabilities Subject to Settlement ---------------------------------------- Under the Reorganization Case Oct. 31, 1998 Jan. 31, 1998 Nov. 1, 1997 --------------------------------- ------------- ------------- ------------ Accounts payable................... $166,567 $165,324 $165,016 Accrued expenses................... 26,000 27,996 27,694 Revolver........................... 68,405 71,105 72,005 2002 Notes......................... 122,274 122,274 122,274 2003 Notes......................... 97,957 97,957 97,957 Financing obligation............... 12,460 17,951 17,951 Obligations under capital leases... 9,440 11,407 11,527 Provision for rejected leases...... 45,685 48,091 45,730 -------- -------- -------- $548,788 $562,105 $560,154 ======== ======== ========
F-8 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) 3. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents at October 31, 1998 were comprised of the following, along with earned interest of $1.2 million: (a) $6.0 million of the $24.5 million federal income tax refund received in April, 1996; (b) $1.1 million of forfeited deposits, net of property carrying costs, received in 1996 on a planned sale of an owned undeveloped property that was not consummated and $7.6 million of net proceeds received when this property was sold in March, 1998; (c) $8.0 million from the sale of a closed store in January, 1998; and (d) other funds ($1.2 million) restricted for security deposits for utility expenses incurred after the Filing. 4. Debt As a result of the Filing, substantially all debt (exclusive of the DIP Facility) outstanding at October 31, 1998, was classified as liabilities subject to settlement (Note 2). No principal or interest payments are made on any pre-petition debt (excluding certain capital leases) without Bankruptcy Court approval or until a reorganization plan defining the repayment terms has been approved. During 1995, the Company received Bankruptcy Court approval to make certain adequate protection payments to the pre-petition bank group. The adequate protection payments, a cash settlement, and deferred financing costs have been netted against the related outstanding debt amounts (Note 2). Generally, interest on pre-petition debt ceases accruing upon the filing of a petition under the Bankruptcy Code. Contractual interest expense not recorded on certain pre-petition debt (the Revolver, 2002 Notes and 2003 Notes) totaled approximately $7.7 and $23.1 million for the third quarter and year-to-date periods of 1998, respectively, and $7.8 and $23.3 million for the third quarter and year-to-date periods of 1997, respectively. Financing Facility. The Company has a $250 million financing facility (the "Financing Facility") (of which $125 million is available for issuance of letters of credit) with BankBoston Retail Finance, Inc. ("BBNA") as agent, under which the Company is allowed to borrow for general corporate purposes, working capital and inventory purchases. The Financing Facility consists of (a) an up to eighteen month debtor-in-possession revolving credit facility in the maximum principal amount of $250 million (the "DIP Facility" - see below) and, subject to meeting certain conditions, (b) an up to three year post- confirmation revolving credit facility in the maximum principal amount of $250 million (the "Exit Facility" - see below). The commitment period for the combined facility cannot exceed four years. The DIP Facility replaced a $200 million Debtor-in Possession Revolving Credit and Guaranty Agreement (the "Prior DIP Facility") with Chase Manhattan Bank, as agent. There were outstanding direct borrowings of $157.4 million under the DIP Facility as of October 31, 1998. Trade and standby letters of credit outstanding under the DIP Facility were $8.5 and $19.3 million, respectively, at October 31, 1998, and $16.1 and $19.7 million, respectively, at November 1, 1997 under the Prior DIP Facility. The DIP Facility has an advance rate of 60% of the Loan Value of Eligible Receivables (as defined), plus 72% of the Loan Value of Eligible Inventory (as defined). Between March 1 and December 15, the Company can borrow an overadvance amount on the Loan Value of Eligible Inventory of 5% (the "Overadvance Amount"), subject to a $20 million limitation. At the Company's option, the Company may borrow under the DIP Facility at the Alternate Base Rate (as defined) in effect from time to time (the "Base Rate Applicable Margin") or the adjusted Eurodollar rate plus 2.25% (the "Eurodollar Applicable Margin") for interest periods of one, two or three months. The Base Rate Applicable Margin and Eurodollar Applicable Margin would be increased 0.5% during any fiscal month that the Company has Overadvance Amounts. The weighted average interest rate under the DIP Facility was 7.92% in the third quarter and 7.93% in the year-to- date period of 1998. F-9 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) There are no compensating balance requirements under the DIP Facility but the Company is required to pay an annual commitment fee of 0.3% of the unused portion. The DIP Facility contains restrictive covenants including, among other things, limitations on the incurrence of additional liens and indebtedness, limitations on capital expenditures and the sale of assets, the maintenance of minimum operating earnings ("EBITDA") and minimum accounts payable to inventory ratios. The lenders under the DIP Facility have a "super-priority claim" against the estate of the Company. As of October 31, 1998, the Company is in compliance with the DIP Facility covenants. The DIP Facility expires on the earlier of June 30, 1999, or the effective date of the Plan. The Company has received a commitment for the Exit Facility, which consists of a $250 million senior secured revolving line of credit (of which $125 million is available for issuance of letters of credit) and a $20 million junior secured "last in-last out" facility. The Exit Facility is for a term of up to three years. The Company will use the Exit Facility to repay its existing DIP Facility and for working capital and general business needs. The senior secured tranche has an advance rate equal to 80% of the Loan Value of Eligible Receivables, plus the lower of (i) 72% of the Loan Value of Eligible Inventory or (ii) 80% of the ratio of the annual appraised liquidation value to the Loan Value (as defined) of the inventory (the "Loan to Value Ratio"). Between March 1 and December 15, the inventory advance rate will be increased to 77% of the Loan Value of Eligible Inventory. The Company may also borrow up to an additional $20 million under the junior secured facility provided that the total inventory borrowings do not exceed 93% of the Loan to Value Ratio. The Exit Facility permits the Company to borrow funds under the senior secured tranche at an interest rate per annum equal to (a) the higher of (i) the annual rate of interest as announced by BankBoston as its "Base Rate" and (ii) the weighted average of the rates on overnight federal funds plus 0.50% per annum; or (b) 2.25% per annum plus the quotient of (i) the LIBOR Rate in effect divided by (ii) a percentage equal to 100% minus the percentage established by the Federal Reserve as the maximum rate for all reserves applicable to any member bank of the Federal Reserve system in respect of eurocurrency liabilities. Each of these rates is subject to a 0.50% increase in the event of overadvances. The junior secured facility permits the Company to borrow funds at the "Base Rate" plus 7.00% per annum. The Exit Facility is subject to certain conditions being satisfied, including minimum EBITDA performance and minimum borrowing availability on the effective date of the Plan. The Exit Facility will be secured by substantially all of the non-real estate assets of the Company. The Exit Facility contains financial covenants including (i) minimum EBITDA, (ii) minimum accounts payable to inventory; (iii) maximum capital expenditures; and (iv) minimum operating cash flow to interest expense (for the fiscal quarters ending on or about January 31, 2001, and thereafter). 5. Income Taxes The Company provides for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". On an interim basis, the Company provides for income taxes using the estimated annual effective rate method. The Company did not recognize a quarterly or annual income tax expense or benefit in 1997 and also does not expect to recognize a quarterly or annual income tax expense or benefit in 1998. As a result of the implementation of the Plan, the Company will (i) undergo an "ownership change" (generally, a greater than 50 percentage point change in ownership) for purposes of Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and (ii) realize cancellation of indebtedness income ("COI") from the cancellation of certain indebtedness in exchange for common stock, 9% convertible notes and warrants to purchase shares of common stock. Because such ownership change and cancellation of indebtedness arise in a bankruptcy proceeding under Chapter 11, the Company will avoid some of the adverse F-10 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) Federal income tax consequences generally associated with such changes (e.g. the COI realized will not be includible in income). Nevertheless, the Company expects that its ability to offset future taxable income with net operating loss carryforwards ("NOLs"), as well as certain built-in losses and tax credits, will be limited and that certain tax attributes, including NOLs, will be reduced (but not eliminated). In addition, if the Company experiences another "ownership change" under Section 382 of the Code subsequent to emergence, there may be further limits on the Company's NOLs and certain built- in losses and tax credits to income. 6. Reorganization Items The Company provided for or incurred the following expense and income items during the third quarter and year-to-date periods of 1998 and 1997, directly associated with the Chapter 11 reorganization proceedings and the resulting restructuring of its operations:
(000's) ------------------------------------ 13 Weeks Ended 39 Weeks Ended ----------------- ----------------- 10/31/98 11/1/97 10/31/98 11/1/97 -------- ------- -------- ------- Professional fees.................... $ 2,250 $ 2,250 $ 6,750 $ 7,500 Interest income...................... (274) (101) (746) (330) Net asset write-off.................. - - 470 - Gain on disposition of properties.... - (800) (1,873) (1,003) Provision for rejected leases........ (4,725) (5,207) (7,156) (5,207) Employee severance and termination benefits............................ - (3,400) - (3,400) Provision for MIS retention bonuses.. - 280 - 280 ------- ------- ------- ------- $(2,749) $(6,978) $(2,555) $(2,160) ======= ======= ======= =======
Professional fees and interest income: Professional fees represent estimates of expenses incurred, primarily for legal, consulting and accounting services provided to the Company and the creditors committee (which are required to be paid by the Company while in Chapter 11). Interest income represents interest earned on cash invested during the Chapter 11 proceeding. Net asset write-off: The Company incurred a $0.5 million net asset write-off in the second quarter of 1998 relating to the disposal of greeting card fixtures that are being replaced as a consequence of the Company's rejection of its greeting card supply contract. Gain on disposition of properties: The Company sold a previously closed store in the second quarter of 1998 (see Note 7) and recognized a gain of $1.9 million that was classified as a reorganization item since the associated asset write-offs were previously included in reorganization items. In 1997, the Company sold three closed stores leases and certain equipment and recorded related gains of $1.0 million, including $0.8 million in the third quarter, as reorganization items. Provision for rejected leases: During the third quarter of 1998, the Company obtained confirmation that the lessor of a previously rejected lease had re-let the premises and, accordingly, the Company reduced its liability for rejected leases by $4.7 million and recognized a reorganization credit for that amount. During the second quarter of 1998, the Company was notified by two of its former landlords at closed locations that the properties had been re-let and therefore their claims for rejected lease damages were reduced by $2.4 million. The Company reduced its rejected lease liability accordingly and recognized a reorganization credit for that amount in the second quarter. During the third quarter of 1997, the Company sold a closed store lease and reversed the associated $5.2 million rejected lease liability that had previously been recorded at the time of the store-closing announcement when it was expected that the lease would be rejected. F-11 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) Employee severance and termination benefits: The credit of $3.4 million in the third quarter and year-to-date period of 1997 resulted from the reversal of certain executive severance reserves, including a significant portion of the severance reserve that had been established for the Company's former CEO Mark Cohen, whose employment terminated in December 1996, and remaining reserves for certain former executives who found employment. During the third quarter of 1997, a mediated settlement was reached with Mr. Cohen that was subsequently approved by the Bankruptcy Court. MIS retention bonuses: The Company had a retention bonus program for certain Management Information System (MIS) employees that provided for bonuses during the Chapter 11 proceedings for continued employment through April 1998. In April, 1998 these bonuses were paid and this program was then discontinued. Restructuring reserves: The Company closed 6 stores in February, 1998. As of October 31, 1998, the Company had remaining reserves (included in accrued expenses) totaling approximately $1.0 million (exclusive of provisions for rejected leases discussed in Note 2) for costs associated with the closing of the 6 stores and other restructuring activities. Approximately $3.2 million of restructuring costs were paid in the year-to-date period of 1998. The majority of the remaining reserved costs are expected to be paid within a year. The Company expects to incur charges of approximately $5.7 million as of January 30, 1999 for an estimated going-out-of-business inventory impairment of $0.5 million (to be recorded as cost of goods sold) for one store in the process of closing and other store closing costs of $5.2 million, including two other store closings anticipated to begin by the end of fiscal year 1999. At the same time, the Company expects to recognize a gain of approximately $4.5 million from the modification of the Union Square lease terms. 7. Assets Held for Sale The Company had assets held for sale at the beginning of 1998 that consisted of two properties, one of which was sold in the second quarter for approximately $4.3 million. A net gain of approximately $1.9 million was recorded in the second quarter for the sale of that property (Note 6) and the net proceeds from the sale of the property of $3.5 million were utilized to pay down the related pre-petition financing obligation. Title to the other property that had been held for sale was transferred to the related financing group at the end of the second quarter and the pre-petition financing obligation was reduced by the amount of the carrying value of the property ($2 million) pending a final agreement on the economic value of the property (which is currently anticipated to be at or above $2 million). 8. Retirement Plans The Company has a qualified, noncontributory defined benefit pension plan for non-union employees. Plan benefits are based on the participant's compensation and years of service. As of December 31, 1998, the Company will freeze credited service and salary levels in this plan. This change impacts all management and non-union hourly associates. All affected associates were notified of the freeze in November. Vesting service will continue for non- vested associates but no future credited service will be provided. The Company recorded a gain of $6.2 million in the fourth quarter as a result of the freeze, net of the effect of using a lower discount rate in the valuation of the pension liability. The Company has a 401(k) plan for all active employees in eligible job categories. Employees may contribute a portion of their salary to the plan. As of January 1, 1999, the Company will contribute an amount equal to 50% of up to 6% of each participant's salary contributed to the plan. This change impacts all management and non-union hourly associates. Currently eligible participants will become fully vested in the Company contribution as required by law, while new hires on or after January 1, 1999 will have a 20% per year vesting schedule with full vesting after 5 years. F-12 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) The Company provides certain health care and life insurance benefits for certain retired non-union employees meeting age and service requirements. The Company accounts for the post retirement plan in accordance with SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits Other Than Pensions," which requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. The Company's post-retirement benefits are funded on a current basis. The SFAS No. 106 valuation at January 31, 1998, along with amortization credits of $1.3 and $4.0 million in the third quarter and year-to-date periods of 1998, respectively, reflected changes that were effective January 1, 1998. The changes represent the elimination of future benefits for active employees who do not become eligible by January 1, 2000, and a phase-out of the Company contributions over the next two years (at 50% per year beginning January 1, 1999) towards the cost of providing medical benefits to eligible retirees. 9. Changes in Accounting Estimates The Company is primarily self-insured for workers' compensation and general liability costs. Actuarial studies of the self-insurance reserves were completed in the third quarters of 1998 and 1997 using a discount rate of 6.0% (the same rate used at January 31, 1998 and February 1, 1997). As a result of the 1997 study, the self-insurance reserves were reduced by $3.6 million in the third quarter of 1997 with a corresponding reduction in SG&A expenses (selling, store operating, administrative and distribution expenses). 10. Summarized Financial Information for Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. Under the Plan (Note 2), Bradlees, Inc. is issuing common stock and Bradlees Stores, Inc. is issuing certain debt. Bradlees, Inc. operates its stores through Bradlees Stores, Inc., an indirect wholly-owned subsidiary. Bradlees, Inc. is fully and unconditionally guaranteeing the debt issued by Bradlees Stores, Inc. Substantially all of the assets of the Company, on a consolidated basis, are held by Bradlees Stores, Inc. The following summarized financial information of Bradlees Stores, Inc. is presented in accordance with SEC Staff Accounting Bulletin 53 and Regulation S-X Rule 1-02 (bb):
(000's) ---------------------------- Oct. 31, Jan. 31, Nov. 1, 1998 1998 1997 -------- -------- -------- Current Assets................................... $371,208 $286,332 $382,649 Noncurrent Assets................................ 283,441 302,286 310,855 Current Liabilities.............................. 367,091 246,687 369,580 Payable to Bradlees, Inc......................... 189,735 189,881 189,139 Noncurrent Liabilities........................... 66,063 72,324 81,978 Liabilities Subject to Settlement Under the Reorganization Case............................. $328,557 $341,874 $339,923 Thirty-Nine Weeks Ended ------------------ Oct. 31, Nov. 1, 1998 1997 -------- -------- Net Sales........................................ $906,385 $895,220 Gross Margin..................................... 271,002 269,699 Loss from Continuing Operations.................. (34,689) (48,628) Net Loss......................................... $(34,689) $(48,628)
Upon confirmation of the Plan, Bradlees, Inc. will contribute a portion of its intercompany receivable to the capital of Bradlees Stores, Inc. so that $96 million will be allowed as the final intercompany claim. F-13 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(Continued) New Horizons of Yonkers, Inc., a subsidiary of Bradlees Stores, Inc. is the lessee of the Yonkers, New York Bradlees' store lease (with no net book value), which it subleases to Bradlees Stores, Inc. New Horizons of Yonkers, Inc.'s financial activity was limited to rent expense under the lease and rental income from the sublease during the above periods. New Horizons of Yonkers, Inc. is also fully and unconditionally guaranteeing the debt issued by Bradlees Stores, Inc. The following summarized financial information of New Horizons of Yonkers, Inc. is presented in accordance with SEC Staff Accounting Bulletin 53 and Regulation S-X Rule 1-02(bb):
(000's) ----------------------------------- October 31, January 31, November 1, 1998 1998 1997 ----------- ----------- ----------- Due from Bradlees Stores, Inc. ...... $ 1 $ 1 $ 1 Stockholders' Equity................. $ 1 $ 1 $ 1 Thirty-Nine Weeks Ended ----------------------- October 31, November 1, 1998 1997 ----------- ----------- Rental Income........................ $441 $441 Rent Expense......................... $441 $441
11. Pro Forma Financial Information (Unaudited) The following unaudited pro forma summary information, pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statement of operations are based on the statements of Bradlees as adjusted to give effect to the consummation of the Plan (Note 2). The unaudited pro forma summary information, and pro forma condensed consolidated statement of operations have been prepared as if the effective date of the Plan had occurred on February 1, 1997. The unaudited pro forma condensed consolidated balance sheet has been prepared assuming the effective date of the Plan had occurred on October 31, 1998. The unaudited pro forma condensed consolidated financial information and accompanying notes should be read in conjunction with the Company's financial statements and the notes thereto appearing in the Company's Form 10-K for 1997, Form S-1 and elsewhere in these financial statements. The unaudited pro forma condensed consolidated financial information is presented for informational purposes only and does not purport to represent what the Company's financial position or results of operations would actually have been if the consummation of the Plan had occurred on such date or at the beginning of the period indicated, or to project the Company's financial position or results of operations at any future date or for any future period. The following unaudited pro forma summary information for 1997 was derived from the unaudited pro forma condensed consolidated statement of operations for 1997 presented, along with the notes thereto, in the Form S-1: Pro Forma Summary Information (Unaudited) (000's Omitted)
Fiscal Year Ended January 31, 1998 ----------------- Total Sales................................................ $1,340,983 Net Loss................................................... (18,525) Loss Per Common Share...................................... (1.81) Pro Forma Number of Stores................................. 103
The pro forma net loss amount above excludes the gain on debt discharge and fresh-start reporting credit expected to be recorded on the effective date. F-14 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
Pro Forma Adjustments Pro Forma Oct. 31, 1998 Debits Credits Oct. 31, 1998 ------------- ---------- ----------- ------------- ASSETS Current assets: Unrestricted cash and cash equivalents...... $ 10,959 $ 11,000(2) $ 11,005(2) $ 10,954 Restricted cash and cash equivalents...... 25,129 - 25,129(2) - -------- ---------- ----------- -------- Total cash and cash equivalents.......... 36,088 11,000 36,134 10,954 -------- ---------- ----------- -------- Accounts receivable.... 11,925 11,925 Inventories............ 318,883 1,000(3h) 317,883 Prepaid expenses....... 11,031 - - 11,031 -------- ---------- ----------- -------- Total current assets.. 377,927 11,000 37,129 351,793 -------- ---------- ----------- -------- Property, plant and equipment, net: Property excluding capital leases, net... 123,892 - 9,900(2) 111,792 2,200(3j) Property under capital leases, net........... 17,732 9,196(3b) 5,406(3j) 21,522 -------- ---------- ----------- -------- Total property, plant and equipment, net... 141,624 9,196 17,506 133,314 -------- ---------- ----------- -------- Other assets: Lease interests at fair value, net............ 137,350 - 59,530(3j) 77,820 Assets held for sale... - 3,400(2) - 14,000 10,600(3d) Other, net............. 4,509 2,575(2) 1,222(3g) 4,598 1,264(3i) Reorganization value in excess of revalued assets................ - 14,477(3k) - 14,477 -------- ---------- ----------- -------- Total other assets.... 141,859 31,052 62,016 110,895 -------- ---------- ----------- -------- Total assets.......... $661,410 $ 51,248 $ 116,656 $596,002 ======== ========== =========== ========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. F-15 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
Pro Forma Adjustments Pro Forma Oct. 31, 1998 Debits Credits Oct. 31, 1998 ------------- ---------- ----------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable....... $ 179,413 $ - $ - $179,413 Accrued expenses....... 23,221 2,000(2) 2,000(1) 20,746 2,475(3c) Self-insurance reserves.............. 6,027 - - 6,027 Short-term debt........ 157,392 - 4,119(2) 161,511 Current portion of capital lease obligations........... 1,038 - 567(2) 1,605 --------- ---------- ---------- -------- Total current liabilities.......... 367,091 4,475 6,686 369,302 --------- ---------- ---------- -------- Long-term liabilities: Obligations under capital leases........ 26,211 321(3b) - 25,890 Convertible notes payable............... - 11,005(2) 40,000(2) 28,995 Deferred income taxes.. 8,581 8,581(3h) - - Self-insurance reserves.............. 12,237 - - 12,237 Unfavorable lease liability............. - - 45,573(3j) 45,573 Other long-term liabilities........... 19,034 - 2,000(1) 29,005 5,677(2) 2,294(3f) --------- ---------- ---------- -------- Total long-term liabilities.......... 66,063 19,907 95,544 141,700 --------- ---------- ---------- -------- Liabilities subject to settlement under the reorganization case.... 548,788 548,788(2) - - Stockholders' equity (deficiency): Common stock Par value............. 115 115(3a) 102(2) 102 Additional paid-in- capital.............. 137,821 137,821(3a) 84,898(2) 84,898 Accumulated deficit.... (457,665) 4,000(1) 393,463(2) - 68,202(3) Treasury stock, at cost.................. (803) - 803(3a) - --------- ---------- ---------- -------- Total stockholders' equity (deficiency).. (320,532) 141,936 547,468 85,000 --------- ---------- ---------- -------- Total liabilities and stockholders' equity (deficiency)......... $ 661,410 $ 715,106 $ 649,698 $596,002 ========= ========== ========== ========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. F-16 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Dollars in thousands except per share amounts)
Pro Forma 39 Weeks 39 Weeks Ended Pro Forma Adjustments Ended Oct. 31, 1998 Debits Credits Oct. 31, 1998 ------------- ---------- ----------- ------------- Total sales............. $939,203 3,381(1) - $935,822 Leased department sales.................. 32,818 70(1) - 32,748 -------- -------- Net sales............... 906,385 903,074 Cost of goods sold...... 635,383 - 2,472(1) 632,911 -------- -------- Gross margin............ 271,002 270,163 Leased department and other operating in- come................... 8,757 25(1) - 8,732 -------- -------- 279,759 278,895 Selling, store operating, administrative and distribution expenses.. 280,326 2,967(3) 631(1) 278,498 1,021(6) 5,773(7) 724(10) 136(11) Depreciation and amorti- zation expense......... 24,370 - 3(1) 12,761 5,103(3) 2,253(5) 469(6) 3,781(9) Loss on disposition of properties............. 241 241 Interest and debt ex- pense.................. 11,960 869(4) 1,215(4) 21,189 9,575(8) Reorganization items.... (2,555) 2,555(2) - - -------- -------- Net loss................ $(34,583) $(33,794) ======== ======== Comprehensive loss...... $(34,583) $(33,794) ======== ======== Net loss per share - ba- sic and diluted........ $ (3.06) $ (3.30)(12) ======== ======== Weighted average shares outstanding (in thousands) - basis and diluted................ 11,311 10,226 ======== ========
See accompanying notes to unaudited pro forma condensed consolidated financial statements. F-17 BRADLEES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following notes set forth the explanations and assumptions used and adjustments made in preparing the unaudited pro forma condensed consolidated balance sheet as of October 31, 1998, and the unaudited pro forma condensed consolidated statement of operations for the thirty-nine weeks then ended. The unaudited pro forma condensed consolidated financial statements reflect the adjustments described under "Pro Forma Adjustments" below, which are based on the assumptions and preliminary estimates described therein, which are subject to change. These statements do not purport to be indicative of the financial position and results of operations of Bradlees as of such dates or for such periods, nor are they indicative of future results. Furthermore, these unaudited pro forma condensed consolidated financial statements do not reflect the anticipated gain on debt discharge or fresh-start reporting credit which are expected to be incurred as of the effective date of the Plan. (For the purposes of the pro forma financial statements, the "Effective Date" is assumed to be October 31, 1998 for the pro forma balance sheet, and February 1, 1997 for the pro forma statement of operations.) The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in these financial statements. The unaudited pro forma condensed consolidated balance sheet and unaudited pro forma condensed consolidated statements of operations reflect the following pro forma adjustments based on the assumptions described below: October 31, 1998 Balance Sheet Pro Forma Adjustments 1. Reserves established prior to emergence for emergence-related and performance bonuses payable on the Effective Date or subsequent to the Effective Date. 2. Plan consummation distributions that include, among other things, an estimated equity value of $85.0 million, $14.0 million in cash distributions, and 9% Convertible Notes totaling $40.0 million. In connection with the consummation of the Plan, we will receive $11.0 million in cash for the modification of the Union Square lease and immediately pay down the 9% Convertible Notes. The reduction of $9.9 million in property, plant and equipment, net, includes a write-off of $6.5 million for the Union Square store and a reclassification of $3.4 million to assets held for sale for one store lease that is expected to be sold to help fund the further paydown of the 9% Convertible Notes. The payment of $25.1 million out of restricted funds and $4.1 million out of revolver borrowings is for certain settlements due under the POR and for financing costs of $2.6 million associated with the post-emergence revolver. The total payment, including approximately $4.5 million to be paid for professional fees subsequent to emergence, is expected to be $33.7 million in order to fund all administrative and convenience claims, including the bonuses due at consummation and the exit financing costs. 3. Fresh-start accounting adjustments that reflect the estimated adjustments necessary to adopt fresh-start reporting in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code". Fresh-start reporting requires that the reorganization value of Bradlees be allocated to Bradlees' assets in conformity with APB Opinion 16, "Business Combinations", for transactions reported on the basis of the purchase method. Any portion of the assigned reorganization value exceeding the revalued net assets is recorded as a long-term asset, while any portion of the assigned reorganization value that falls below the revalued net assets, which may occur when fresh-start reporting is adopted as of January 30, 1999, will be assigned to reduce long-term assets on a pro rata basis. The calculation of the preliminary and estimated new equity value is discussed in detail in Section Three (Subsection XIII) of the Disclosure Statement filed as an exhibit to this Registration Statement. See also "Risk Factors-- Post Bankruptcy Risks--Determination of Equity Value." F-18 BRADLEES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The fresh-start accounting adjustments are summarized as follows: a. Cancellation of the old common stock pursuant to the Plan and close-out to retained earnings. b. A revaluation of all capital lease obligations and related capital lease assets using our estimated October 31, 1998 borrowing rate (12%) for similar financings. c. Revaluation of the straight-line rent reserve ($2.5 million). Straight-line rent is recalculated on a going-forward basis by the reorganized Bradlees. d. Revaluation of the one store lease held for sale to an estimated total net realizable value of $14 million. e. Restatement of LIFO merchandise inventories to estimated fair value approximates FIFO cost. Inventories valued at FIFO cost then become the base year layer for LIFO inventories in the post-consummation financial reporting period. No LIFO adjustment is expected. f. Recording of additional pension plan liability (primarily from the reduction of the discount rate) of $4.3 million (excluding the impact from the fourth quarter non-union pension freeze-- Note 8 to the October 31, 1998 Form 10-Q.) and additional Supplemental Executive Retirement Plan (the "SERP") liability of $1.4 million, reduced by the write-off of the unrecognized FAS No. 106 prior service costs of $3.4 million. g. Revaluation of the intangible SERP asset ($1.2 million) to its estimated net realizable value. h. Write-off ($8.6 million) of deferred income taxes (due to a change in the status of timing differences) and a $1.0 million reduction to reflect inventory at its estimated net realizable value. i. Write-off of the unamortized deferred financing charges ($1.3 million) associated with the terminated Debtor-in-Possession (DIP) bank facility which will be amortized prior to emergence. j. Revaluation of fixed assets and leasehold interests based upon the estimated fair market value of properties and leases while considering the current markets in which Bradlees has locations. This revaluation resulted in, among other things, the recording of a write-down of $59.5 million in favorable lease interests and an unfavorable lease liability of $45.6 million for certain locations. The remaining favorable lease interests and the unfavorable lease liability will both be amortized to rent expense. k. Recording of the reorganization value in excess of the revalued assets at October 31, 1998. F-19 BRADLEES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Pro Forma Adjustments - Statement of Operations for the Thirty-nine Weeks Ended October 31, 1998 1. To eliminate the sales and expense amounts associated with five stores closed in February, 1998. 2. To eliminate reorganization items. 3. Adjustment in amortization of lease interests revalued under fresh- start reporting. 4. To record amortization of post-emergence deferred financing costs and reverse the historical year to date amortization of deferred financing costs. 5. Reduction in depreciation expense due to certain reclassifications to assets held for sale and fixed asset write-offs resulting from fresh-start reporting. 6. To adjust lease rent expense and amortization expense for revised straight-line rent calculations. 7. To adjust lease rent expense for amortization of the unfavorable lease liability. 8. To adjust interest expense for amortization of the discount on the unfavorable lease liability and for increased interest expense resulting from a slightly higher average revolver borrowing level, the 9% Convertible Notes and other issued notes. 9. To record reduction in depreciation and amortization expense resulting from the allocation of the estimated excess of revalued assets over the reorganization value at February 1, 1997. 10. To record additional FAS No. 106 expense as a result of fresh-start reporting. 11. To reduce pension expense as a result of fresh-start reporting. 12. Pro forma earnings per share were computed based on the estimated weighted average number of common shares outstanding during the applicable period assuming that the Plan was effective on February 1, 1997. F-20 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Bradlees, Inc., Debtor-in-Possession: We have audited the accompanying consolidated balance sheet of Bradlees, Inc. and subsidiaries, Debtor-in-Possession (the "Company"), as of January 31, 1998, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the fiscal year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bradlees, Inc. and subsidiaries as of January 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 3 to the consolidated financial statements on June 23, 1995, the Company filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. In addition, the Company has experienced operating losses in each of the three years ended January 31, 1998 and at January 31, 1998 had a substantial stockholders' deficit. These matters raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon, among other things, (i) acceptance of a Plan of reorganization by the Company's creditors with confirmation by the Bankruptcy Court, (ii) compliance with all debt covenants under the debtor-in-possession financing, (iii) the success of future operations, including returning to profitability and maintaining adequate post bankruptcy financing and liquidity and (iv) the resolution of the uncertainties of the reorganization case discussed in Note 3. Management's plans in regard to these matters are also discussed in Note 1 to the financial statements. The eventual outcome of these matters discussed in the previous paragraph is not presently determinable. The consolidated financial statements do not include any adjustments relating to the resolution of these uncertainties or the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. /s/ Arthur Andersen LLP New York, New York March 17, 1998 (except with respect to the matter discussed in Note 16, as to which the date is February 16, 1999) F-21 Deloitte & Touche LLP INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Bradlees, Inc., Debtor-in-Possession: We have audited the accompanying consolidated balance sheet of Bradlees, Inc. and subsidiaries, Debtor-in-Possession (the "Company"), as of February 1, 1997, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the years ended February 1, 1997 and February 3, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Bradlees, Inc. and subsidiaries at February 1, 1997 and the results of its operations and its cash flows for the years ended February 1, 1997 and February 3, 1996 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 3, the Company has filed for reorganization under Chapter 11 of the Federal Bankruptcy Code. The accompanying consolidated financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such consolidated financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company's 1996 and 1995 losses from operations and stockholders' deficiency raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty. /s/ Deloitte & Touche LLP Boston, Massachusetts March 20, 1997 (February 16, 1999 with respect to Note 16) F-22 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands except per share amounts)
52 Weeks ended 52 Weeks ended 53 Weeks ended January 31, 1998 February 1, 1997 February 3, 1996 ---------------- ---------------- ---------------- Total sales................ $ 1,392,250 $1,619,444 $1,840,926 Leased sales............... 47,806 57,726 60,158 ----------- ---------- ---------- Net sales.................. 1,344,444 1,561,718 1,780,768 Cost of goods sold......... 948,087 1,127,651 1,289,077 ----------- ---------- ---------- Gross margin............... 396,357 434,067 491,691 Leased department and other operating income.......... 12,151 13,734 15,130 ----------- ---------- ---------- 408,508 447,801 506,821 Selling, store operating, administrative and distribution expenses.................. 382,910 504,030 572,843 Depreciation and amortization expense...... 36,244 42,200 54,387 Gain on disposition of properties................ (5,425) (1,739) - Interest and debt expense.. 16,584 11,495 27,176 Impairment of long-lived assets.................... - 40,782 99,358 Reorganization items....... 752 69,792 65,003 ----------- ---------- ---------- Loss before income taxes... (22,557) (218,759) (311,946) Income tax benefit......... - - (104,533) ----------- ---------- ---------- Net loss................... $ (22,557) $ (218,759) $ (207,413) =========== ========== ========== Net loss per share - basic and diluted............... $ (1.98) $ (19.17) $ (18.17) =========== ========== ========== Weighted average shares outstanding (in thousands) - basic and diluted................... 11,365 11,412 11,416 =========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. F-23 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
January 31, 1998 February 1, 1997 ---------------- ---------------- Assets Current assets: Unrestricted cash and cash equivalents..... $ 10,949 $ 10,025 Restricted cash and cash equivalents....... 16,760 9,126 --------- --------- Total cash and cash equivalents.......... 27,709 19,151 --------- --------- Accounts receivable.......................... 10,013 8,240 Inventories.................................. 238,629 236,920 Prepaid expenses............................. 8,733 8,466 Assets held for sale......................... 7,754 8,419 --------- --------- Total current assets..................... 292,838 281,196 --------- --------- Property, plant and equipment, net........... 150,484 163,641 --------- --------- Other assets: Lease interests, net....................... 142,454 150,229 Assets held for sale....................... 4,000 5,250 Other, net................................. 5,390 3,884 --------- --------- Total other assets....................... 151,844 159,363 --------- --------- Total assets............................. $ 595,166 $ 604,200 ========= ========= Liabilities and Stockholders' Deficiency Current liabilities: Accounts payable........................... $ 124,361 $ 115,315 Accrued employee compensation and benefits.................................. 17,401 13,317 Self-insurance reserves.................... 6,564 7,086 Other accrued expenses..................... 13,115 32,607 Short-term debt............................ 84,208 42,500 Current portion of capital lease obligations............................... 1,038 1,722 --------- --------- Total current liabilities................ 246,687 212,547 --------- --------- Obligations under capital leases............. 27,073 33,296 Deferred income taxes........................ 8,581 8,581 Self-insurance reserves...................... 13,328 14,386 Other long-term liabilities.................. 23,342 27,642 Liabilities subject to settlement under the reorganization case......................... 562,105 571,041 Commitments and contingencies (Note 13) Stockholders' equity (deficiency): Common stock - 11,312,154 shares outstanding (11,394,433 at 2/1/97) Par value...................................... 115 115 Additional paid-in-capital................. 137,821 137,951 Unearned compensation...................... - (167) Accumulated deficit........................ (423,082) (400,525) Treasury stock, at cost - 155,575 shares (73,296 at 2/1/97)........................ (804) (667) --------- --------- Total stockholders' deficiency........... (285,950) (263,293) ========= ========= Total liabilities and stockholders' deficiency.............................. $ 595,166 $ 604,200 ========= =========
See accompanying Notes to Consolidated Financial Statements. F-24 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
52 Weeks ended 52 Weeks ended 53 Weeks ended January 31, 1998 February 1, 1997 February 3, 1996 ---------------- ---------------- ---------------- Cash Flows From Operating Activities: Net loss................... $(22,557) $(218,759) $(207,413) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization.............. 36,244 42,200 54,387 Impairment of long-lived assets.................... - 40,782 99,358 Amortization of deferred financing costs........... 3,750 2,154 1,475 Stock compensation......... - - 701 Deferred income taxes...... - - (79,957) Reorganization items....... 752 69,792 65,003 Gain on disposition of properties................ (5,425) (1,739) - Increase (decrease) in cash resulting from changes in: Accounts receivable........ (1,773) 2,296 6,819 Inventories................ (1,709) 44,293 16,848 Prepaid expenses........... (357) 1,542 372 Refundable income taxes.... - 24,576 (24,576) Accounts payable........... 9,046 (32,319) 96,431 Accrued expenses........... (6,185) 580 3,401 Other, net................. (4,547) (1,664) (1,359) -------- --------- --------- Net cash provided (used) by operating activities before reorganization items.................... 7,239 (26,266) 31,490 -------- --------- --------- Operating cash flows from reorganization items: Interest income received... 420 1,445 2,965 Bankruptcy-related professional fees paid.... (9,626) (10,756) (2,250) Other reorganization expenses paid, net........ (7,157) (17,572) (3,084) -------- --------- --------- Net cash used by reorganization items..... (16,363) (26,883) (2,369) -------- --------- --------- Net cash (used) provided by operating activities.. (9,124) (53,149) 29,121 -------- --------- --------- Cash Flows from Investing Activities: Capital expenditures, net.. (19,568) (27,527) (37,029) Increase in restricted cash and cash equivalents...... (7,634) (7,932) (1,194) -------- --------- --------- Net cash used in investing activities............... (27,202) (35,459) (38,223) -------- --------- --------- Cash Flows From Financing Activities: Principal payments on long- term debt................. (1,657) (2,707) (5,794) Payments of liabilities subject to settlement..... (6,467) (5,327) (11,764) Proceeds from sales of assets.................... 7,967 1,739 - Borrowings under pre- petition revolving loan facility.................. - - 72,500 Borrowings under financing obligation................ - - 12,801 Borrowings under DIP facilities................ 41,708 42,500 - Deferred financing costs... (4,301) (584) (4,047) Other common stock activity, net............. - - (18) Dividends paid............. - - (1,712) -------- --------- --------- Net cash provided by financing activities..... 37,250 35,621 61,966 -------- --------- --------- Net increase (decrease) in unrestricted cash and cash equivalents......... 924 (52,987) 52,864 Unrestricted cash and cash equivalents: Beginning of period........ 10,025 63,012 10,148 -------- --------- --------- End of period.............. $ 10,949 $ 10,025 $ 63,012 ======== ========= ========= Supplemental disclosure of cash flow information: Cash paid for interest..... $ 12,807 $ 9,991 $ 16,382 Cash received for income taxes..................... $ 109 $ 25,046 $ 2,869 Supplemental schedule of noncash (investing and financial) activities: Capital lease obligations incurred.................. $ - $ - $ 8,398
See accompanying Notes to Consolidated Financial Statements. F-25 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-in-Possession) (Dollars in thousands except per share amounts) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Retained Earnings Stockholders' Common Stock Additional Unearned (Accumulated Treasury Equity Shares Amount Paid-in-Capital Compensation Deficit) Stock (Deficiency) ------------ ------ --------------- ------------ ------------ -------- ------------- Balance at January 28, 1995................... 11,385,254 $113 $138,077 $(1,697) $ 27,359 $(420) $ 163,432 Restricted stock - grant................. 25,000 1 232 (232) - - 1 Restricted stock - revaluation........... - (628) 628 - - - Restricted stock - forfeitures........... (13,139) - - 79 - (79) - Restricted stock - amortization.......... - - - 429 - - 429 Deferred salary option plan grant............. 27,000 1 270 - - - 271 Other treasury stock activity, net.......... (7,459) - - - - (18) (18) Net loss................ - - - - (207,413) - (207,413) Dividends ($0.15 per share)................. - - - - (1,712) - (1,712) ---------- ---- -------- ------- --------- ----- --------- Balance at February 3, 1996................... 1,416,656 115 137,951 (793) (181,766) (517) (45,010) Restricted stock - forfeitures........... (22,223) - - 150 - (150) - Restricted stock - amortization.......... - - - 476 - - 476 Net loss................ - - - - (218,759) - (218,759) ---------- ---- -------- ------- --------- ----- --------- Balance at February 1, 1997................... 11,394,433 115 137,951 (167) (400,525) (667) (263,293) Restricted stock - forfeitures........... (82,279) - (130) 137 - (137) (130) Restricted stock - amortization.......... - - - 30 - - 30 Net loss................ - - - - (22,557) - (22,557) ---------- ---- -------- ------- --------- ----- --------- Balance at January 31, 1998................... 11,312,154 $115 $137,821 - $(423,082) $(804) $(285,950) ========== ==== ======== ======= ========= ===== =========
See accompanying Notes to Consolidated Financial Statements F-26 BRADLEES, INC. AND SUBSIDIARIES (Operating as Debtor-In-Possession) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Bradlees, Inc. and its subsidiaries, including Bradlees Stores, Inc. (collectively "Bradlees" or the "Company") is a discount department store retailer operating in the Northeast United States. The Company's consolidated financial statements have been prepared in accordance with the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7") and generally accepted accounting principles applicable to a going concern, which principles, except as otherwise disclosed, assume that assets will be realized and liabilities will be discharged in the normal course of business. The Company filed petitions for relief under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on June 23, 1995 (the "Filing"). The Company is presently operating its business as a debtor-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Bradlees acquired the Bradlees Business from The Stop & Shop Companies, Inc. ("Stop & Shop") with the proceeds from a July 10, 1992 initial public offering of 11,018,625 shares of its common stock ("the Acquisition"). The Bradlees Business was comprised of Bradlees New England Holdings, Inc., Bradlees New York Holdings, Inc. and Stop & Shop Holdings, Inc. ("Holdings") and Holdings' wholly-owned subsidiary, Bradlees New Jersey, Inc. and each of their subsidiaries. Certain real estate subsidiaries of the Bradlees Business were retained by Stop & Shop and the properties owned by these subsidiaries were leased to Bradlees. The Acquisition was accounted for using the purchase method of accounting. The Company's ability to continue as a going concern is dependent upon the confirmation of a plan of reorganization by the Bankruptcy Court, the ability to maintain compliance with debt covenants under the New Financing Facility (Note 6), achievement of profitable operations, and the resolution of the uncertainties of the reorganization case discussed in Note 3. A confirmed plan of reorganization could materially change the amounts reported in the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of the value of recorded asset amounts or the amounts and classification of liabilities that might be necessary as a consequence of a confirmed plan of reorganization. The Company incurred significant operating losses in 1996 and 1995. The Company made the following key modifications to its business strategy during fiscal 1997 to enhance profitability and improve customer service: (a) reintroduced lower opening price points in a comprehensive variety of merchandise categories to enhance value and increase customer traffic; (b) reduced costly promotional events and thereby eliminated or reduced the likelihood of substandard profit margins; (c) reintroduced certain basic convenience and commodity products that are typical of assortments carried by discount retailers; (d) reinstituted a layaway program, while controlling promotions of the Bradlees' credit card, and installed new in-store directional and departmental signage; (e) revised the Company's markdown policy based on product rate of sale; (f) modified weekly ad circulars to achieve more item- intensive and price-point oriented ad offerings; (g) introduced both a "Certified Value" program that highlights certain key recognizable items at competitive everyday prices and a "Wow!" program which integrates targeted and unadvertised opportunistic purchases; and (h) significantly reduced overhead while improving operating efficiencies. The Company continues to focus on three key merchandise categories: moderately priced family apparel, home furnishings and conventional consumable hardlines products. Bradlees is committed to quality and fashion, especially in apparel and home furnishings, and to improving customer service, to differentiate itself from its competition. The Company believes that it can strategically leverage its strength in the quality and fashion content of its apparel and decorative home product offerings while driving traffic with selected hardlines merchandise. F-27 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company closed one store in April, 1997 and, in December, 1997, announced the planned closing of six additional underperforming stores by February, 1998, including one owned store that was being closed as a result of the sale of the property in January, 1998 (for which a gain of $5.4 million was recorded). The Company closed 27 stores in 1996. 2. Summary of Significant Accounting Policies Principles of consolidation The consolidated financial statements include the accounts of all subsidiaries and the accounts of the special purpose entity ("SPE") with which the Company had a financing arrangement for new store sites (Note 8). All intercompany transactions have been eliminated in consolidation. The Company's fiscal year ends on the Saturday nearest to January 31. The term "1997" refers to the 52 weeks ended January 31, 1998; "1996" refers to the 52 weeks ended February 1, 1997; and "1995" refers to the 53 weeks ended February 3, 1996. Fair Value of Financial Instruments Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments" requires disclosures of estimated fair values of financial instruments both reflected and not reflected in the accompanying financial statements. The estimated fair values of the Company's cash and cash equivalents, accounts receivable, borrowings under the DIP facilities and accounts payable (post-petition) approximate the carrying amounts at January 31, 1998 and February 1, 1997 due to their short maturities or variable-rate nature of the borrowings. The fair value of the Company's liabilities subject to settlement are not presently determinable as a result of the Chapter 11 proceedings. The fair values of the 2002 Notes and 2003 Notes (Note 6) were not obtainable at January 31, 1998 and February 1, 1997. Face values of the 2002 Notes and 2003 Notes were $125,000 and $100,000, respectively, at January 31, 1998 and February 1, 1997. Geographical concentration As of January 31, 1998, the Company operated 109 discount department stores in seven states in the Northeast, primarily in the heavily populated corridor running from Boston to Philadelphia. A significant change in economic or competitive conditions within this area could have a material impact on the Company's operations. The Company closed six additional stores in February, 1998. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The primary estimates underlying the Company's financial statements include the value of assets held for sale, the estimated useful lives of fixed assets and lease interests, the estimates used in SFAS No. 121 calculations (Note 4), accruals for self-insured workers compensation and general liability (Note 14), vacation pay reserves (Note 14), provisions for rejected leases and restructuring costs associated with closing stores (Note 7), and the classification of liabilities subject to settlement (Note 3). Collective bargaining arrangements Approximately 73% of the Company's labor force is covered by collective bargaining agreements, of which collective bargaining agreements affecting approximately 54% of the labor force will expire within one year and are expected to be renegotiated. Cash and cash equivalents Highly liquid investments with original maturities of 3 months or less when purchased are classified as cash and cash equivalents. Restricted cash and cash equivalents at January 31, 1998 were comprised of the following, along with earned interest of $.5 million: (a) $6.0 million of the $24.5 million federal income tax refund received in April, 1996 held, in escrow pending further order of the Bankruptcy Court; (b) $1.1 million of forfeited deposits, net of property carrying costs, received in 1996 on a F-28 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) planned sale of an owned undeveloped property that was not consummated (pursuant to the Bankruptcy Court order permitting the sale of the property, all proceeds associated with the sale of the property must be maintained in a segregated escrow account pending further order of the Bankruptcy Court); (c) $8.0 million from the sale of a closed store in 1997; and (d) other funds ($1.2 million) restricted for security deposits for utility expenses incurred after the Filing. Inventories Substantially all inventories are valued at the lower of cost (which includes certain warehousing costs) or market, using the last-in, first- out ("LIFO") retail method. No LIFO charge has been recorded by the Company as there has been no excess of current cost over LIFO cost since the Acquisition. Assets held for sale Assets held for sale are stated at the lower of net book value or estimated net realizable value and have been classified as current or noncurrent based upon the anticipated time to sell the asset. Property, plant and equipment Maintenance, repairs and minor renewals are charged to operations as incurred. Major renewals and betterments which substantially extend the useful life of the property are capitalized. The costs of assets sold or retired and the related amounts of accumulated depreciation are eliminated from the accounts in the year of disposal, with the resulting gain or loss included in earnings. Depreciation and amortization are recorded based upon the estimated useful lives under the straight-line method. Leasehold improvements and assets recorded under capital leases are amortized over the lives of the respective leases (including extensions) or the lives of the improvements, whichever is shorter. Buildings............................... 30 years Fixtures, machinery and equipment....... 3 to 10 years Leasehold improvements.................. 10 to 20 years or the term of the lease, if shorter
Lease interests Lease interests represent the lease rights acquired at the Acquisition (Note 1) and are amortized on the straight-line method over the remaining lives of the leases (including option periods) or 40 years, if shorter. Accumulated amortization was $34.8 million at January 31, 1998 and $27.7 million at February 1, 1997. During 1996, accumulated amortization of $3.3 million was eliminated in accordance with SFAS No. 121 (Note 4). Lease interests acquired at the Acquisition represented the value attributed to real estate leased by the Company at July 10, 1992. The lease interests were determined by calculating the present value of the excess of market rent for each lease over the actual rent payable (including percentage rent) over the remaining lease term, including all renewal option periods, discounted at 10%, and then adjusted in accordance with the purchase method of accounting. The recoverability of the remaining carrying value of lease interests is dependent upon the Company's ability to generate sufficient future cash flows from operations at each leased site, or in the case of a sale or disposition of a lease or leases, the continuation of similar favorable market rents. Accordingly, recoverability of this asset could be significantly affected by further economic, market and competitive factors and is subject to the inherent uncertainty associated with estimates. Self-insurance reserves The Company is primarily self-insured for workers' compensation and general liability costs. The self-insurance reserves are actuarially determined using discount rates of 6.00% at January 31, 1998 and February 1, 1997. Self-insurance reserves have been classified as current and noncurrent in accordance with the estimated timing of the projected payments. Deferred financing costs Deferred financing costs (related to the DIP facilities) are amortized over the lives of the related financings. Accumulated amortization was $.1 million at January 31, 1998 and $2.9 million F-29 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) at February 1, 1997. The Company wrote off $1.1 million of unamortized deferred financing costs in 1997 relating to the prior DIP Facility (Note 6) that was replaced in December, 1997. Net deferred financing costs as of the filing date of $3.4 million, $2.0 million, and $2.7 million for the pre-petition revolver, 2002 Notes and 2003 Notes, respectively, were netted against the related outstanding debt subject to settlement during 1995 (Note 3). Store opening and closing costs Pre-opening costs are expensed prior to or when a store opens or, in the case of a remodel, reopens. Store closing costs are provided for when the decision is made to close such stores. Stock compensation The Company accounts for stock-based employee compensation costs using the intrinsic value method. Income taxes The Company provides for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes, net of valuation allowances, are provided to recognize the effect of temporary differences between financial reporting and income tax reporting of assets and liabilities. Net loss per share Net loss per share is computed using the weighted average number of common shares outstanding, plus the common stock equivalents related to stock options if not anti-dilutive, in accordance with the provisions of the SFAS No. 128 "Earnings Per Share", which was adopted in 1997. The weighted average number of shares (in thousands) used in the calculation for both basic and diluted net loss per share in 1997, 1996 and 1995 was 11,365, 11,412 and 11,416 shares respectively. Diluted earnings per share equals basic earning per share as the dilutive calculations would have an antidilutive impact as a result of the net loss incurred in each of the years. Reclassifications Certain reclassifications have been made to the 1996 and 1995 financial statements to conform with the 1997 presentation. New accounting pronouncements In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income", which is effective for the Company beginning with the fiscal year ending January 30, 1999 ("1998"). SFAS No. 130 will require that total comprehensive income (the change in equity from transactions and other events except those resulting from investment by owners) be reported in the financial statements. The Company does not expect SFAS No. 130 to have any material impact on the Company's financial statements. In June 1997, the FASB also issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", which is effective beginning with 1998. SFAS No. 131 will require that segment financial information be publicly reported on the basis that is used internally for evaluating segment performance. The Company does not expect SFAS No. 131 to have a material effect on its financial statement disclosures. In February, 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Post-Retirement Benefits", which is effective beginning with 1998 and which will affect the Company's pension and post- retirement plan disclosures in 1998. SFAS No. 132 requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures. The Company is still reviewing the effect that SFAS No. 132 will have on its 1998 disclosures. F-30 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 3. Reorganization Case During the early 1990's, Bradlees' business strategy relied heavily on opening new stores, remodeling existing locations and competing on the basis of price. From 1992 to January, 1995, Bradlees opened 15 new stores (10 in 1994) and remodeled 41 stores at a total capital cost of $182 million. The new stores were generally larger stores with rents that substantially exceeded the chain average rent per square foot. Some of the new stores were also multilevel facilities which further increased their operating costs when compared with other prototypical Bradlees stores. The store expansion and remodeling program marginally increased sales while gross margins declined and operating expenses increased. Bradlees' declining operating performance, coupled with the aggressive expansion program, began to erode the Company's liquidity. The Company's liquidity further eroded in May and June, 1995, because of the unwillingness of factors and vendors to continue to extend trade credit. Bradlees, unable to obtain sufficient financing to satisfy factor and vendor concerns, was compelled to seek Bankruptcy Court protection on June 23, 1995. In the Chapter 11 case, substantially all liabilities as of the date of the Filing are subject to settlement under a plan of reorganization to be voted upon by the Company's creditors and stockholders and confirmed by the Bankruptcy Court. Schedules have been filed by the Company with the Bankruptcy Court setting forth the assets and liabilities of the Company as of the date of the Filing as shown by the Company's accounting records. Differences between amounts shown by the Company and claims filed by creditors are being investigated and resolved. Except for payments of $2.1 million made in 1997 to settle certain reclamation claims, the ultimate amount and settlement terms for pre-petition liabilities are subject to a confirmed plan of reorganization, and accordingly, are not presently determinable. The Company currently retains the exclusive right to file a plan of reorganization until August 3, 1998 and to solicit acceptance of a plan of reorganization until October 5, 1998, each subject to possible extension as approved by the Bankruptcy Court. The Company filed its plan of reorganization and related disclosure statement with the Bankruptcy Court on April 13, 1998 and, subject to confirmation of the plan of reorganization, currently anticipates emergence from Chapter 11 in August, 1998. A hearing to approve the disclosure statement has been scheduled for May 27, 1998 with the Bankruptcy Court. Under the Bankruptcy Code, the Company may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other executory pre-petition leases and contracts, subject to Bankruptcy Court approval. A liability of approximately $48.1 million has been recorded as of January 31, 1998 for rejected leases. This liability may be subject to future adjustments based on claims filed by the lessors and Bankruptcy Court actions. Although the Company does not currently anticipate the rejection of additional leases, the Company cannot presently determine or reasonably estimate the ultimate liability which may result from the filing of claims for any rejected contracts or from any additional leases which may be rejected at a future date. The Company believes that it recorded its best estimate of the liability for rejected leases based on information available. The principal categories of claims classified as "Liabilities subject to settlement under the reorganization case" are identified below. Deferred financing costs as of the Filing date of $3.4 million, $2.0 million and $2.7 million, respectively, for the pre-petition revolving loan facility (the "Revolver") and subordinated debt (the "2002 and 2003 Notes") have been netted against the related outstanding debt amounts. In addition, a $9.0 million cash settlement and approximately $10 million of adequate protection payments reduced the Revolver debt amount. The cash settlement relates to a portion of the Company's cash balance as of the date of the Filing ($9.3 million) which was claimed as collateral by the pre-petition bank group. The claim was settled in full for $9.0 million and approved by the Bankruptcy Court in 1995. Also, payments of approximately $1.1 and $.8 million were made to IBM Credit Corporation ("IBM") and Comdisco, Inc. ("Comdisco"), respectively, in 1996 for settlement of certain equipment capital lease obligations (Note 6). All amounts presented below may be subject to future adjustments depending on Bankruptcy Court actions, further F-31 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) developments with respect to disputed claims, determination as to the security of certain claims, the value of any collateral securing such claims, or other events.
(000's) --------------------------------- Liabilities Subject to Settlement Under the Reorganization Case January 31, 1998 February 1, 1997 - ------------------------------------------- ---------------- ---------------- Accounts payable............................ $165,324 $167,098 Accrued expenses............................ 27,996 27,932 Revolver.................................... 71,105 75,005 2002 Notes.................................. 122,274 122,274 2003 Notes.................................. 97,957 97,957 SPE financing obligation (Note 8)........... 17,951 17,951 Obligations under capital leases............ 11,407 11,887 Liability for rejected leases............... 48,091 50,937 -------- -------- $562,105 $571,041 ======== ========
4. Statement of Financial Accounting Standards No. 121 In the fourth quarter of 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and recorded a charge of approximately $99.4 million to reflect the impairment of certain long-lived assets. In the fourth quarter of 1996, the Company recorded an additional charge of approximately $40.8 million in accordance with SFAS No. 121 based on revisions to cash flow assumptions and as a result of the significant operating loss incurred in 1996. SFAS No. 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company reviewed its long-lived assets for recoverability in both years primarily as a result of the significant operating losses incurred. Because of these prior-year charges and the closings of unprofitable stores, and because the Company met its operating earnings plan in 1997, there was no such SFAS No. 121 charge in 1997. In applying SFAS No. 121 in 1996 and 1995, the Company compared anticipated cash flows over the remaining lease term, including anticipated renewal periods, from each store (excluding closing stores) with the corresponding carrying amount of identified long-lived assets and recorded a reduction in carrying value where such cash flows were not sufficient to recover the related assets over the term of the lease. The fair value of these impaired long-lived assets was determined primarily using the Company's current estimate of the associated future cash flows over the base lease term, including anticipated renewal periods and consideration of the fair market value of the assets at the end of the lease term. The stream of future cash flows by store were discounted at a 20% rate, which the Company believed to be commensurate with the risks involved. There were significant assumptions, primarily future cash flows, inherent in the SFAS No. 121 calculations, particularly given the Company's prior-year operating losses and evolving merchandising strategy. The assumptions utilized in 1996 and 1995 were subject to significant business, economic and competitive uncertainties. The charges in 1996 and 1995 were comprised of the following long-lived asset impairments (in 000's):
1996 1995 ------- ------- Property excluding capital leases, net...................... $10,548 $43,632 Property under capital leases, net.......................... 3,363 21,688 Lease interest and lease acquisition costs, net............. 26,871 34,038 ------- ------- Total long-lived asset impairment........................... $40,782 $99,358 ======= =======
F-32 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 5. Property, Plant and Equipment, Net
(000's) --------------------------------- January 31, 1998 February 1, 1997 ---------------- ---------------- Property excluding capital leases: Buildings and improvements.................. $ 96,678 $ 96,978 Equipment and fixtures...................... 123,603 109,486 Land........................................ - 3,731 -------- -------- Subtotal.................................. 220,281 210,195 Accumulated depreciation.................... (88,756) (70,949) -------- -------- Property excluding capital leases, net.... 131,525 139,246 -------- -------- Property under capital leases: Buildings and improvements.................. 22,682 28,218 Equipment and fixtures...................... 8,395 8,395 -------- -------- Subtotal.................................. 31,077 36,613 Accumulated amortization.................... (12,118) (12,218) -------- -------- Property under capital leases, net........ 18,959 24,395 -------- -------- Total property, plant and equipment, net...... $150,484 $163,641 ======== ========
6. Debt
(000's) --------------------------------- January 31, 1998 February 1, 1997 ---------------- ---------------- DIP facilities (8.5% - 1997, 8.5% - 1996)... $ 84,208 $ 42,500 Pre-petition Revolver (10.25% - 1997, 10.0% - 1996).............................. 71,105 75,005 Pre-petition 2002 Notes (11%)............... 122,274 122,274 Pre-petition 2003 Notes (9.25%)............. 97,957 97,957 SPE financing obligation (7.75%) (Note 8)... 17,951 17,951 Obligations under capital leases (Note 8)... 39,518 46,905 -------- -------- Total debt.................................. 433,013 402,592 Less: Short-term debt (DIP facilities).. 84,208 42,500 Current portion - capital leases........ 1,038 1,722 Less: Debt subject to settlement (Note 3): Prepetition Revolver.................... 71,105 75,005 Prepetition 2002 Notes.................. 122,274 122,274 Prepetition 2003 Notes.................. 97,957 97,957 SPE financing obligation................ 17,951 17,951 Obligations under capital leases........ 11,407 11,887 -------- -------- Long-term debt obligations under capital leases..................................... $ 27,073 $ 33,296 ======== ========
As a result of the Filing, substantially all debt (exclusive of the DIP facilities) outstanding at January 31, 1998 and February 1, 1997 was classified as liabilities subject to settlement (Note 3). No principal or interest payments are made on any pre-petition debt (excluding certain capital leases) without Bankruptcy Court approval or until a reorganization plan defining the repayment terms has been approved. During 1995, the Company received Bankruptcy Court approval to make certain adequate protection payments to the pre-petition bank group. The adequate protection payments, a cash settlement, and deferred financing costs have been netted against the related outstanding debt amounts (Note 3). F-33 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On June 25, 1996, the Bankruptcy Court approved an agreement between the Company and BTM Capital Corporation ("BTM") that fixed the secured claim of BTM in the amount of $2.25 million, subject to reduction for adequate protection payments also approved by the Bankruptcy Court. On December 17, 1996, the Bankruptcy Court approved agreements between the Company and IBM and between the Company and Comdisco which settled all litigation between the parties regarding the characterization of certain equipment lease agreements. Under these agreements, the Company agreed to pay all amounts due to IBM ($1.1 million in December, 1996) and Comdisco ($.8 million in January, 1997), purchase all the equipment under the IBM equipment lease agreement ($1.4 million in December, 1996) and reject the Comdisco lease effective February 28, 1997. Generally, interest on pre-petition debt ceases accruing upon the filing of a petition under the Bankruptcy Code; if, however, the debt is collateralized by an interest in property whose value (minus the cost of preserving such property) exceeds the amount of the debt, post-petition interest may be payable. Other than those noted above, no other determinations have yet been made regarding the value of the property interests which collateralize various debts. Although interest may be paid pursuant to an order of the Bankruptcy Court, it is uncertain whether any post-petition interest will be payable or paid. The Company believes at this time that it is unlikely that such interest will be paid. Contractual interest expense not recorded on certain pre-petition debt (the Revolver, 2002 Notes and 2003 Notes) totaled approximately $31.1 and $31.3 million for 1997 and 1996, respectively. New Financing Facility The Company obtained a new $250 million financing facility (of which $125 million is available for issuance of letters of credit) in December, 1997 with BankBoston Retail Finance, Inc. ("BBNA") as agent (the "New Facility"), under which the Company is allowed to borrow for general corporate purposes, working capital and inventory purchases. The New Facility consists of (a) an up to eighteen month debtor-in-possession revolving credit facility in the maximum principal amount of $250 million (the "New DIP" - see below) and, subject to meeting certain conditions, (b) an up to three year post-confirmation revolving credit facility in the maximum principal amount of $250 million (the "Exit Facility" - see below). The commitment period for the combined facility cannot exceed four years. The New DIP replaced a $200 million Debtor-in-Possession Revolving Credit and Guaranty Agreement with The Chase Manhattan Bank, as agent (the "Prior DIP Facility"). There were outstanding direct borrowings of $84.2 million under the New DIP as of January 31, 1998. Trade and standby letters of credit outstanding under the DIP facilities were $7.1 and $26.8 million, respectively, at January 31, 1998 and $9.2 and $26.9 million, respectively, as of February 1, 1997. The weighted average borrowings under the DIP facilities in 1997 were $87.2 million. The weighted average interest rate under the DIP facilities in 1997 was 7.54%. The New DIP has an advance rate of 60% of the Loan Value of Eligible Receivables (as defined), plus 72% of the Loan Value of Eligible Inventory (as defined). Between March 1 and December 15, the Company can borrow an overadvance amount on the Loan Value of Eligible Inventory of 5% (the "Overadvance Amount"), subject to a $20 million limitation. At the Company's option, the Company may borrow under the New DIP at the Alternate Base Rate (as defined) in effect from time to time (the "Base Rate Applicable Margin") or the adjusted Eurodollar rate plus 2.25% (the "Eurodollar Applicable Margin") for interest periods of one, two, or three months. The Base Rate Applicable Margin and Eurodollar Applicable Margin will be subject to an additional 0.50% during any fiscal month that the Company has Overadvance Amounts. There are no compensating balance requirements under the New DIP but the Company is required to pay an annual commitment fee of 0.30% of the unused portion of the New DIP. The New DIP contains restrictive covenants including, among other things, limitations of the incurrence of additional liens and indebtedness, limitations on capital expenditures and the sale of assets, the maintenance of minimum operating earnings ("EBITDA"), and minimum accounts payable to inventory ratios. The lenders under the New DIP F-34 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) have a "super-priority claim" against the estate of the Company. As of January 31, 1998, the Company was in compliance with the New DIP covenants. The New DIP expires on the earlier of June 30, 1999 or the effective date of any plan of reorganization that is confirmed by the Bankruptcy Court. In the fourth quarter of 1997, the Company incurred a charge of approximately $1.1 million for the write-off of the Prior DIP Facility's unamortized deferred financing costs and paid approximately $2.3 million for financing fees associated with the New DIP. The Exit Facility has an advance rate equal to 60% of the Loan Value of Eligible Receivables, plus the lower of (i) 72% of the Loan Value of Eligible Inventory or (ii) 80% of the ratio of the annual appraised liquidation value to the Loan Value (as defined) of the inventory (the "Loan to Value Ratio"). Between March 1 and December 15, the Company can borrow an overadvance amount on the Loan Value of Eligible Inventory of 5%, provided the Loan to Value Ratio does not exceed 85%. At the Company's option, the Company may borrow under the Exit Facility at the Base Rate Applicable Margin or the Eurodollar Applicable Margin for interest periods of one, two, or three months. The Base Rate Applicable Margin and Eurodollar Applicable Margin will be subject to an additional 0.50% during any fiscal month that the Company has Overadvance Amounts. The Exit Facility is subject to certain conditions being satisfied, including (i) an all equity plan of reorganization; (ii) minimum EBITDA performance; and (iii) minimum borrowing availability on the effective date of the plan of reorganization. The Company obtained a modification to the commitment letter dated April 7, 1998, from BBNA, as agent, that modifies their commitment so that the plan of reorganization filed by the Company on April 13, 1998, although not an all equity plan, satisfies the conditions for the Exit Facility. The Exit Facility will be secured by all of the assets of the Company, except interests in real property. The Exit Facility contains financial covenants including (i) minimum EBITDA, (ii) minimum accounts payable to inventory, (iii) maximum capital expenditures and (iv) minimum operating cash flow to interest expense (for the fiscal quarters ending on or about January 31, 2000, and thereafter). Prepetition Revolver Prior to the Filing, the Company had a $150 million revolving loan facility ("Revolver"), including outstanding commercial and standby letters of credit. The Revolver had a maturity date of July 31, 1997, and had a variable interest rate based on, among other factors, the Company's elected borrowing period and amount. The weighted average interest rate approximated 10.0% in 1997 and 1996 and 8.1% in 1995. No interest has been paid or accrued on the Revolver since the Filing. Prepetition 2002 Notes and 2003 Notes The 2002 Notes and 2003 Notes are pari passu to each other and subordinated to the Company's senior indebtedness. Beginning on August 1, 1997, the 2002 Notes were to be redeemable, in whole or in part, at the Company's option, at 104%, decreasing annually to par on August 1, 2000. Beginning on March 1, 2000, the 2003 Notes were to be redeemable, in whole or in part, at the Company's option, at par plus accrued interest. Interest on the 2002 Notes and 2003 Notes, due semiannually, has not been paid or accrued since the Filing. F-35 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 7. Reorganization Items The Company provided for or incurred the following expense and income items in 1997, 1996 and 1995 directly associated with the Chapter 11 reorganization proceedings and the resulting restructuring of its operations (in 000's):
1997 1996 1995 ------- ------- ------- Professional fees.................................. $10,000 $10,000 $ 9,200 Interest income.................................... (420) (1,445) (3,078) Provision for rejected leases...................... (2,846) 32,756 18,971 Net asset/liability write-offs..................... (3,408) 4,034 21,548 Gain on disposition of properties.................. (1,153) (1,697) - Provision for inventory impairment................. - (1,000) 7,100 Provision for occupancy and other store closing costs............................................. 1,112 4,102 3,059 Employee severance and termination benefits........ (2,813) 23,042 - Provision for MIS retention bonuses................ 280 - - Chapter 11 customer discounts...................... - - 2,960 Provision for retention bonuses.................... - - 5,243 ------- ------- ------- Total reorganization items........................ $ 752 $69,792 $65,003 ======= ======= =======
Professional fees and interest income: Professional fees represent estimates of expenses incurred, primarily for legal, consulting and accounting services provided to the Company and the creditors committee (which are required to be paid by the Company while in Chapter 11). Interest income represents interest earned on cash invested during the Chapter 11 proceeding. Provision for rejected leases and net asset/liability write-offs: Under the Bankruptcy Code, the Company may elect to reject real estate leases, subject to Bankruptcy Court approval. The Company recorded provisions of approximately $32.8 and $19.0 million in 1996 and 1995, respectively, for rejected leases and anticipated claims for certain closed and closing store leases that were expected to be rejected. In 1997, the Company reversed a rejected lease provision of $5.2 million that had been recorded in 1996 for a store that was subsequently sold in 1997 with no rejection liability. In addition, the Company recorded a provision of approximately $2.4 million in 1997 for four of the six stores closed in February, 1998 whose leases were rejected by the Company. In connection with the store closings and lease rejections, the Company wrote off certain net assets (net liability in 1997), primarily for leasehold improvements, net capital leases and lease interests. The credit of $3.4 million in 1997 resulted from the write-off of closed stores' capital lease obligations that exceeded the carrying value of the closed stores' assets. Net asset write-offs also include adjustments to lower the carrying values of certain properties held for sale to their current net realizable values. The rejected lease liability may be subject to future adjustments based on claims filed by the lessors and Bankruptcy Court actions. The Company cannot presently determine or reasonably estimate the ultimate liability which may result from such claims and actions or from additional leases which may be rejected at a future date. Gain on disposition of properties: The Company sold certain closed store leases in 1997 and 1996 and the related gains were classified as reorganization items since the sales were directly related to the Chapter 11 proceedings and the associated net asset write-offs were previously included in reorganization items. Inventory impairment and store closing costs: In December, 1997, the Company approved a restructuring plan to close 6 stores by February, 1998. One of the 6 stores was owned and closed as a result of the sale of the property in January, 1998. In connection with the plan to close the 6 stores, the Company F-36 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) rejected certain leases and wrote off net assets (see "Provision for rejected leases and net asset/liability write-offs"). In addition, the Company established provisions in 1997 for the associated closing costs and for an inventory impairment for the 6 stores of $2.9 million that was charged to cost of sales. The provision for inventory impairment represented the incremental markdowns required to liquidate the inventory at the closed stores. Such costs are recorded in accordance with the retail inventory method. In January, 1996, the Company approved a restructuring plan to close 13 stores in the first half of 1996. In connection with this plan, the Company also rejected certain leases and wrote off net assets. In addition, the Company established provisions in 1995 for inventory impairment and other closing costs associated with closing the 13 stores. The provision for inventory impairment was reduced by $1 million at the conclusion of the going-out-of-business sales in 1996 when actual results became available. The $1 million reduction was recorded as a credit to reorganization items since the original provision was recorded as a reorganization item in 1995 prior to a Securities and Exchange Commission staff announcement in which it stated that inventory markdowns attributable to a restructuring or exit plan should be classified in the income statement as a component of cost of sales. In July, 1996, the Company approved a restructuring plan to close 14 additional stores in October, 1996. In connection with this plan, the Company also rejected certain leases and wrote off net assets. In addition, the Company established provisions for inventory impairment and other closing costs associated with closing the 14 stores. An inventory impairment charge of $6.7 million for 15 stores (including the one store to be closed in April, 1997) was charged to cost of sales in 1996. Other store closing costs represent incremental asset protection, occupancy and various closing costs associated with the decision to close the stores. Other store closing costs paid in 1997 totaled approximately $3.5 million. Employee severance and termination benefits: The credit to employee severance and termination benefits of $2.8 million in 1997 resulted from the reversal of certain severance reserves totaling $3.4 million, including a significant portion of the severance reserve that had been established in 1996 for Mark Cohen, the Company's former CEO, partially offset by a $0.6 million charge for severance and termination benefits for 382 store associates at the 6 stores closed in February, 1998. A settlement agreement was reached with Mr. Cohen in 1997. Employee severance and termination benefits of $23.0 million in 1996 included the following: (a) $13.5 million for the January 1997 management reorganization and regional and district consolidation; (b) $1.2 million resulting from the 14 stores closed in October, 1996; (c) $4.2 million for central office positions eliminated in September, 1996; (d) $1.1 million resulting from the 13 stores closed in the first half of 1996; and (e) $3.0 million paid to store, district and regional associate positions eliminated as a result of the February, 1996 store management reorganization. Severance and termination benefits paid in 1997 and 1996 totaled approximately $4.5 and $16.6 million, respectively. Chapter 11 customer discounts: The "Chapter 11 customer discounts" reflected a special 5% discount that was provided to customers during a two-week period following the Filing to retain customer loyalty and to compensate customers for the inconvenience of unavailable merchandise. Retention bonuses: During 1995, the Bankruptcy Court approved certain assumed and amended executive contracts and the Company's Retention Bonus Plan (the "Retention Plan") that provided for management bonuses for continued employment during the first fiscal year of Chapter 11 reorganization and through the date of payment. Thereafter, the Retention Plan and executive contracts provided incentives and F-37 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) rewards for performance that met or exceeded established levels, as well as for continued employment. The 1995 provision included the Chapter 11-related bonuses, along with certain executive guaranteed awards related to the Filing. MIS retention bonuses: The Company has a retention bonus program for certain Management Information System (MIS) employees that provides for bonuses during the Chapter 11 proceedings for continued employment through April, 1998. In April, 1998 these bonuses were paid and this program was then discontinued. Closed store results: Net sales and operating losses (exclusive of any central office expense allocation and prior to interest expense, income taxes and reorganization items) from the one store closed in April, 1997, the six stores closed in February, 1998 and the 27 stores closed during 1996 were (in 000's):
1997 1996 1995 ------- -------- -------- Net sales....................................... $61,039 $213,363 $367,693 Operating loss.................................. (251) (28,012) (36,040)
8. Leases At January 31, 1998, the Company had various noncancelable leases in effect for substantially all of its stores, distribution centers, and its office building, as well as certain equipment. In connection with the Filing, all lease contracts whether assumed or rejected are subject to Bankruptcy Court approval. Therefore, the commitments shown below may not reflect actual cash outlays in the future. Payments under certain capital leases which the Company currently believes represent undersecured financings are classified as liabilities subject to settlement and are not presented herein. Minimum payments due under remaining leases, excluding leases which are included in the provision for rejected leases (Notes 3 and 7), are as follows:
(000's) ------------------------------- Capital Leases Operating Leases -------------- ---------------- 1998.......................................... $ 4,645 $ 41,853 1999.......................................... 4,646 40,844 2000.......................................... 4,111 39,357 2001.......................................... 4,132 37,933 2002.......................................... 4,132 36,041 Thereafter.................................... 40,416 220,198 -------- -------- Total minimum payments........................ 62,082 $416,226 ======== Estimated executory costs..................... (2,857) -------- Net minimum lease payments.................... 59,225 Imputed interest.............................. (31,114) -------- Present value of net minimum lease payments... 28,111 Less current portion.......................... (1,038) -------- Obligations under capital leases, net of current portion.............................. $ 27,073 ========
Minimum payments for capital and operating leases have not been reduced by minimum sublease rentals of $11.7 and $10.0 million, respectively, due in the future under noncancelable leases. The minimum payments do not include the contingent rentals that may be payable under certain leases. F-38 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Total rent expense is as follows:
(000's) ------------------------- 1997 1996 1995 ------- ------- ------- Operating leases: Minimum rent....................................... $48,749 $57,352 $60,890 Contingent rent.................................... 425 1,024 972 Sublease income.................................... (7,899) (9,248) (9,585) ------- ------- ------- 41,275 49,128 52,277 ------- ------- ------- Capital leases: Sublease income.................................... (1,297) (1,726) (1,829) ------- ------- ------- Total................................................ $39,978 $47,402 $50,448 ======= ======= =======
Contingent rentals are determined on the basis of a percentage of sales in excess of stipulated minimums for certain stores. Sublease income includes leased department income which is included in leased department and other operating income. Most of the leases require that the Company pay taxes, maintenance, insurance and certain operating expenses. Management expects that, in the normal course of business, expiring leases will be renewed or replaced by other leases. During 1994, the Company entered into a financing facility with a special purpose entity ("SPE") (Note 2) and a group of banks, with Bankers Trust as Agent, that provided a $75 million financing facility for new store sites, which was to expire in 1998. On April 17, 1995, the amount under the financing facility was reduced to $45 million, of which only $30 million could be utilized in 1995. In June, 1995, the amount was further reduced to $24 million, the amount required for the two sites then under development. Under the terms of the financing facility with the SPE, the Company entered into leases with terms of up to six years. Upon expiration of the leases, the Company could purchase the properties, allow the SPE to sell the sites to an unrelated third party (subject to the residual guarantee which, in effect, guarantees 100% of the outstanding borrowings) or extend the lease term. As a result of the guarantee and the Filing, the Company has included the accounts of the SPE in its consolidated financial statements. Borrowings of approximately $18 million at January 31, 1998 and February 1, 1997 are included in liabilities subject to settlement and are collateralized by land and buildings (with a carrying value of $4.0 million) that are classified as long-term assets held for sale. Any proceeds from the sale of these properties will be restricted to pay down the related borrowings. 9. Common Stock and Additional Paid-In Capital The authorized capital stock of the Company consists of 40 million shares of common stock, par value of $0.01 per share ("Common Stock"), of which 11,312,154 shares were outstanding at January 31, 1998, and one million shares of preferred stock, par value of $0.01 per share, none of which were outstanding at January 31, 1998. The Common Stock will be canceled under the Company's filed plan of reorganization. The Company has a Restricted Stock Plan that provides for the award of 277,008 shares of Common Stock ("Restricted Stock") to certain officers and employees. At January 31, 1998, 15,217 shares were outstanding under the Restricted Stock Plan. There have been no awards of Restricted Stock since the Filing. No cash payments are required from Restricted Stock recipients and all issued shares accrue dividends, if any. In general, the shares become unrestricted under a five-year vesting schedule. All shares of Restricted Stock may vest earlier in certain circumstances (death, disability, retirement or a change of control). Shares of Restricted Stock which have not vested are not freely transferable and revert to the Company upon the employee's termination. F-39 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Stock Options The Company has a 1992 Stock Option Plan for Key Employees ("Key Employee Plan") that provides for the grant of options for up to 1,272,283 shares of Common Stock to certain employees. No options have been granted under the Key Employee Plan since the Filing. The options are intended to qualify as incentive stock options or non qualified stock options and generally have a three to five-year vesting schedule. Activity in the Key Employee Plan is as follows:
Weighted Average Shares Exercise Price --------- ---------------- Outstanding at January 28, 1995..................... 1,052,362 $13.65 Granted............................................. 153,000 9.78 Canceled............................................ (261,794) 13.83 Exercised........................................... - - --------- Outstanding at February 3, 1996..................... 943,568 $12.97 Granted............................................. - Canceled............................................ (265,790) $13.46 Exercised........................................... - - --------- Outstanding at February 1, 1997..................... 677,778 $12.78 Granted............................................. - - Canceled............................................ (396,753) $13.32 Exercised........................................... - - --------- ------ Outstanding at January 31, 1998..................... 281,025 $12.30 ========= ====== Exercisable at January 31, 1998..................... 171,997 $12.65 ========= ======
Options outstanding at January 31, 1998, range in exercise price from $6.50 to $18.38 and have a remaining weighted average contractual life of 5.56 years. The Company has a 1993 Non-Employee Directors' Stock Option Plan ("Directors' Plan") that provides for the grant of non qualified options for up to 100,000 shares of Common Stock to non-employee directors. In general, the options have a three-year vesting schedule. During 1997, 1996 and 1995, 30,000, 15,000 and 30,000 options, respectively, were granted under the Directors' Plan. During both 1997 and 1996, 15,000 options were canceled. At January 31, 1998, 90,000 options under the Directors' Plan were outstanding with exercise prices ranging from $0.06 to $15.75 (weighted average exercise price is $7.02). At January 31, 1998, 45,000 of the options were exercisable at a weighted average price of $12.26 and have a weighted average remaining contractual life of 5.26 years. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," effective for the Company's fiscal year beginning February 4, 1996. SFAS No. 123 encourages but does not require the recognition of compensation expense for the fair value of stock option and other equity instruments issued to employees. If the fair-value provisions of SFAS No. 123 are not adopted, certain pro forma amounts of net earnings and earnings per share that would have been reported had these provisions been adopted are required to be disclosed, if material. The Company continues to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" using the intrinsic value method. The difference between accounting for stock-based compensation under APB No. 25 and SFAS No. 123 was not material for 1997, 1996 and 1995, and accordingly the pro forma disclosures have been omitted. F-40 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Employee Benefit Plans Pension plan. Certain union employees are covered by multi-employer defined benefit plans. Expenses for these plans were $.9 million for 1997, $1.1 million for 1996 and $1.3 million for 1995. The Company has a qualified, noncontributory defined benefit pension plan for employees not participating in multi-employer plans. Plan benefits are based on the participant's compensation and/or years of service. The Company funds the net pension costs each year. The plan assets are held in a master trust fund, which invests primarily in equity, fixed income securities and cash and cash equivalents. The Company has several nonqualified, noncontributory defined benefit plans for the benefit of certain highly compensated employees. The plans are unfunded and benefits paid under the plans are based on years of service and employees' compensation. The components of net pension costs for the plans are as follows:
000's ------------------------- 1997 1996 1995 ------- ------- ------- Service costs........................................ $ 3,272 $ 3,897 $ 3,061 Interest costs....................................... 5,054 4,909 4,369 Return on plan assets................................ (9,566) (7,617) (9,165) Net amortization and deferral........................ 4,177 2,993 5,497 Curtailment loss..................................... 126 554 - Special termination benefits......................... (359) 782 - ------- ------- ------- Net pension costs.................................... $ 2,704 $ 5,518 $ 3,762 ======= ======= =======
The funded status is as follows:
(000's) --------------------------------------------- January 31, 1998 February 1, 1997 ---------------------- ---------------------- Qualified Nonqualified Qualified Nonqualified Plan Plans Plan Plans --------- ------------ --------- ------------ Actuarial present value of: Vested benefit obligation..... $61,504 $ 3,046 $55,352 $ 4,444 ======= ======= ======= ======= Accumulated benefit obligation.. $62,656 $ 3,490 $56,183 $ 4,583 ======= ======= ======= ======= Projected benefit obligation.... $72,233 $ 4,236 $66,978 $ 5,126 Plan assets at fair value....... 68,611 - 62,325 - ------- ------- ------- ------- Projected benefit obligation greater than plan assets............... (3,622) (4,236) (4,653) (5,126) Unrecognized prior service cost........................... 518 1,434 576 107 Unrecognized transition obligation..................... - 102 - 1,609 Unrecognized net (gain) loss.... (2,740) 435 313 49 Additional minimum liability (recorded as other assets)............... - (1,225) - (1,222) ------- ------- ------- ------- Accrued pension liability....... $(5,844) $(3,490) $(3,764) $(4,583) ======= ======= ======= =======
The curtailment losses and special termination benefits in 1997 and 1996 result from the employment terminations of several executives and the closing of stores. These costs in 1996 were primarily included in F-41 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) termination benefits as part of reorganization items (Note 7). Certain portions ($1.2 million) of the nonqualified plans' accrued pension liability at January 31, 1998 relate to pre-petition employment contracts and are included in liabilities subject to settlement under the reorganization case. The rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for the qualified plan was 4.09% for 1997 and 1996; the discount rate was 7.0% for 1997 and 7.25% for 1996; and the expected rate of return on the plan assets was 9.25% for 1997 and 9.0% for 1996. The rate of increase in future compensation levels and discount rate used in determining the actuarial present value of the projected benefit obligation for the non qualified plans was 4.25% for 1997 and 1996 and 7.0% for 1997 and 7.25% for 1996, respectively. Defined Contribution Plan The Company has a 401(k) plan for all active employees in eligible job categories. Employees may contribute a portion of their salary to the plan. The Company's contributions to the plan, which were suspended in 1996, were in the form of cash or common stock of the Company and were based on a percentage of employee contributions. There was no plan expense in 1997 and 1996, as compared to $1.0 million for 1995. Postretirement Plan The Company provides certain health care and life insurance benefits for certain retired non-union employees meeting age and service requirements. The Company accounts for the post- retirement plan in accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. The Company's postretirement benefits are funded on a current basis. The SFAS No. 106 valuation at January 31, 1998, along with the $3.9 million curtailment gain and a $.4 million amortization credit, reflects changes that were effective January 1, 1998. The changes represent the elimination of future benefits for active employees who do not become eligible by January 1, 2000, and a phase-out of the Company contributions over the next two years (at 50% per year beginning January 1, 1999) towards the cost of providing medical benefits to eligible retirees. The status of the plan is as follows:
(000's) --------------------------------- January 31, 1998 February 1, 1997 ---------------- ---------------- Accumulated postretirement benefit obligation for: Retirees.................................. $ 733 $ 1,886 Fully eligible actives.................... 536 1,998 Other actives............................. 439 3,983 ------- -------- 1,708 7,867 Plan assets at fair value................... - - ------- -------- Funded status............................... (1,708) (7,867) Unrecognized prior service cost............. (5,189) (5,313) Unrecognized net (gain)..................... (2,513) (1,203) ------- -------- Accrued postretirement benefit cost......... $(9,410) $(14,383) ======= ========
F-42 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Net postretirement (benefit) cost is as follows:
1997 1996 1995 ------- ----- ----- Service cost.......................................... $ 172 $ 241 $ 338 Interest cost......................................... 429 540 774 Amortization, net..................................... (1,359) (877) (808) Curtailment gain...................................... (3,939) - - ------- ----- ----- Net (benefit) cost.................................... $(4,697) $ (96) $ 304 ======= ===== =====
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 8.70% for 1997 (6.25% for post-65 coverage) grading down to 4.25% over 10 years and 8.70% for 1996 (6.75% for post-65 coverage) grading down to 4.25% over 10 years. A one percentage point increase in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation by .56% and the service and interest cost by 3.31%. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.25% for 1997 and 1996. 12. Income Taxes There was no income tax expense or benefit in 1997 and 1996. The income tax benefit in 1995 was comprised of the following components:
(000's) --------- 1995 --------- Current: Federal......................................................... $ (24,476) State........................................................... (100) --------- (24,576) --------- Deferred: Federal......................................................... (74,765) State........................................................... (5,192) --------- (79,957) --------- $(104,533) =========
The income tax expense (benefit) differs from the amount computed by applying the statutory Federal income tax rates to the earnings (loss) before income taxes as follows:
1997 1996 1995 ----- ----- ----- Statutory rate..................................... (35.0%) (35.0%) (35.0%) State income taxes, net of Federal income tax benefit........................................... (4.0%) (6.4%) (4.8%) Non-deductible professional fees................... 14.5% 1.5% 1.2% Non-deductible compensation........................ - 1.5% - Valuation allowance................................ 24.5% 38.4% 5.1% ----- ----- ----- 0% 0% (33.5%) ===== ===== =====
F-43 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Deferred taxes represent the differences between financial statement amounts and the tax bases of assets and liabilities. Deferred tax liabilities (assets) are as follows:
(000's) -------------------- 1997 1996 --------- --------- Lease interests........................................ $ 51,399 $ 50,435 Inventories............................................ 11,854 12,916 Other.................................................. 3,295 793 --------- --------- Total liabilities...................................... 66,548 64,144 --------- --------- Net operating loss carryforwards....................... (105,917) (100,392) Self insurance accruals................................ (8,602) (9,018) Rejected lease claims.................................. (20,350) (21,725) Postretirement benefits................................ (3,704) (5,829) Closing costs.......................................... (2,902) (3,278) Property, plant and equipment, net..................... (3,233) (4,294) Capital leases......................................... (10,708) (2,890) Vacation............................................... (2,636) (3,769) Alternative minimum tax credit carryforwards........... (2,144) (2,144) Other.................................................. (3,182) (2,110) --------- --------- (163,378) (155,449) Valuation allowance.................................... 105,411 99,886 --------- --------- Total assets........................................... (57,967) (55,563) --------- --------- Net deferred tax liability............................. $ 8,581 $ 8,581 ========= =========
At January 31, 1998, the Company had net operating loss carryforwards of approximately $260.8 million for Federal income tax purposes which will expire beginning in fiscal year 2011 and alternative minimum tax credit carryforwards of $2.1 million which are available to reduce future Federal regular income taxes over an indefinite period. As part of the Company's filed plan of reorganization, it is anticipated that a major portion of the net operating loss carryforward will be reduced by the cancellation of indebtedness and that the change in ownership resulting from the issuance of new stock will result in a limitation on the remaining amount of net operating loss and tax credit carryovers that can be utilized each year. The Company had a valuation allowance of $99.9 million against deferred tax assets in 1996. During 1997, the valuation allowance was increased by $5.5 million. The realization of the deferred tax assets is dependent upon future taxable income during the Federal and State carryforward periods. 13. Commitments and Contingencies The Company, exclusive of matters relating to the Filing (Note 3), is party to various legal actions and administrative proceedings and subject to various claims arising in the ordinary course of business. The Company believes that the disposition of these matters will not have a material adverse effect on its financial position, results of operations or liquidity. All civil litigation commenced against the Company prior to the Filing has been stayed by operation of law. There were no material legal proceedings pending against the Company prior to the Filing. In February, 1997 the Company adopted the Corporate Bonus Plan (the "Corporate Bonus Plan") that was approved by the Bankruptcy Court. The Corporate Bonus Plan provides incentives and rewards for (i) F-44 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) performance of key employees that meets or exceeds expectations and (ii) attainment of threshold performance measurements tied directly to the Company's 1997 business plan. The amount of the award would increase as the Company's performance exceeds the business plan. In addition, a discretionary fund in the amount of $500,000 has been established to provide bonuses to (a) non-bonus eligible employees based upon performance regardless of whether the Company achieves its target performance level and (b) bonus eligible employees based on performance if the Company does not achieve its target performance level. Under the Corporate Bonus Plan, the Company had to obtain a minimum EBITDA (as defined) of $28.1 million in 1997, net of the anticipated costs of the Corporate Bonus Plan, in order for any employee to be eligible for an award (except for the discretionary fund mentioned above). For each $5 million of EBITDA improvement over the amount projected, the award increases by 25% of the base award up to a maximum increase of 100% of the award. The Company achieved the minimum EBITDA in 1997 and, accordingly, recorded a provision of approximately $4 million for such bonuses in 1997 that was included in selling, store operating, administrative and distribution expenses. These bonuses were paid in April, 1998. With respect to the five-highest paid officers of the Company and certain other members of senior management of the Company, one-quarter of the amount of any bonus payable before such time as the Company has consummated a Chapter 11 plan of reorganization is contingently payable, with interest, at the earlier of the date of consummation of such plan, or the date of termination of employment by the Company without cause, by the officer for good reason, or on account of death or disability. Approximately $.4 million was subject to this deferral under the Corporate Bonus Plan in 1997. This is in addition to approximately $.2 million of bonuses earned under the Retention Plan (Note 7) in 1995 that remains subject to the same deferral. In August, 1995, the Company adopted, and in November, 1995, the Bankruptcy Court approved, the Enterprise Appreciation Incentive Plan (the "Incentive Plan"). All members of the Company's senior management are eligible to be selected by the Board of Directors to participate in the Incentive Plan. Under the Incentive Plan, each participant receives an equity incentive award payable on June 23, 2000 (the fifth anniversary of the Chapter 11 filing date) equal to the increase in the value of the Company (as determined by appraisal) over the five years ending on June 23, 2000. Each participant's interest in the Incentive Plan vests in equal installments over the five-year period, subject to acceleration in certain situations. In the event a participant terminates his or her employment without good reason or is terminated with cause prior to June 23, 2000, then the participant forfeits his or her rights under the Incentive Plan. Awards under the Incentive Plan will be paid promptly following June 23, 2000 in the form of 60% cash and the balance in cash, notes and stock as described thereunder. In no event will the total of all benefits payable under the Incentive Plan exceed the lesser of $20,000,000 or 13% (6% was for the Company's former CEO, Mark Cohen, and is not reallocable) of the total appreciation in the value of the Company during the five year period. No payments are expected to be paid under the Incentive Plan because the Company anticipates that the Incentive Plan will be canceled and replaced by a different incentive plan under the presently proposed terms of the Company's filed plan of reorganization. The Company has entered into a three-year employment agreement with its current CEO, Peter Thorner, commencing as of October 26, 1995 and amended as of November 7, 1997. Mr. Thorner's employment agreement provides for the payment by the Company of an equity incentive bonus (payable in cash, debt and equity securities) pursuant to the Incentive Plan determined by reference to the increase in value of the Company from the date of the bankruptcy filing to the fifth anniversary of the employment agreement, subject generally to vesting over five years. Mr. Thorner's equity incentive bonus under the Incentive Plan would be at least $1,000,000 but would not exceed the lesser of $4,615,385 or 3% of the appreciation in value of the Company. As stated above, no payments, other than annual nonrefundable advances of $150,000 to Mr. F-45 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Thorner, are expected to be paid under the Incentive Plan because the Company anticipates that the Incentive Plan will be canceled and replaced by a different incentive plan under the presently proposed terms of the Company's filed plan of reorganization. The employment agreement also provides that in the event of Mr. Thorner's termination of employment by the Company (including following a change in control of the Company) without Cause or Good Reason (as defined), Mr. Thorner would generally be entitled to all payments and benefits called for under the agreement for the remainder of its term. In August, 1995, the Company adopted and the Bankruptcy Court approved a severance program (the "Severance Program") that covers certain members of management. If the employment of any participant in the Severance Program is terminated other than for cause, death, disability or by the employee, or in connection with a change in control (as defined), then salary and certain incentive payments are guaranteed for periods ranging up to eighteen months, subject to mitigation by other employment. Amounts payable at January 31, 1998 under the Severance Program for management terminations were included in the reserve for termination benefits (Note 7). 14. Changes in Accounting Estimates As discussed in Note 2, the Company is primarily self-insured for workers' compensation and general liability costs. Actuarial studies of the self- insurance reserves were completed in the third quarter of 1997, using a discount rate of 6.0% (the same rate used at February 1, 1997), and in the third quarter of 1996, using a discount rate of 6.0% (compared to 5.3% at February 3, 1996). As a result of the studies, the self-insurance reserves were reduced by $3.6 million in the third quarter of 1997 with a corresponding reduction in SG&A expenses (selling, store operating, administrative and distribution expenses) and by $5.0 million in the third quarter of 1996 with corresponding reductions of $4.2 and $.8 million in SG&A expenses and interest expense, respectively. The reductions in the self-insurance reserves were primarily the result of aggressive claims management and safety initiatives. The Company changed its vacation pay vesting policy for certain pay groups in December, 1997, whereby the employees in those pay groups earn their vacation pay entitlements the course of each calendar year worked (similar to industry practice) rather than being fully vested on the first day of each calendar year. As a result of this change, $4.5 million of the Company's vacation pay reserves as of January 1, 1998 was eliminated with a corresponding credit in SG&A expenses. 15. Summary of Quarterly Results (Unaudited)
($ in thousands except per share data) -------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total -------- -------- -------- -------- ---------- Year Ended January 31, 1998: Net Sales................. $267,371 $297,416 $330,433 $449,224 $1,344,444 Gross Margin.............. 79,658 92,936 97,104 126,658 396,357 Net income (loss)......... (31,993) (16,864) 376 25,925 (22,557) Net income (loss) per share.................... $ (2.81) $ (1.48) $ 0.03 $ 2.29 $ (1.98) Weeks in period........... 13 13 13 13 52 Year Ended February 1, 1997: Net sales................. $337,703 $369,578 $404,456 $449,981 $1,561,718 Gross margin.............. 102,514 101,396 113,061 117,096 434,067 Net loss.................. (53,746) (82,785) (23,073) (59,155) (218,759) Net loss per share........ $ (4.71) $ (7.25) $ (2.02) $ (5.19) $ (19.17) Weeks in period........... 13 13 13 13 52
F-46 BRADLEES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 16. Summarized Financial Information for Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. On January 27, 1999, the Company's amended and modified plan of reorganization (the "Plan") was confirmed by the Bankruptcy Court. Under the Plan, Bradlees, Inc. is issuing common stock and Bradlees Stores, Inc. is issuing certain debt. Bradlees, Inc. operates its stores through Bradlees Stores, Inc., an indirect wholly-owned subsidiary. Bradlees, Inc. is guaranteeing the debt issued by Bradlees Stores, Inc. Substantially all of the assets of the Company, on a consolidated basis, are held by Bradlees Stores, Inc. The following summarized financial information of Bradlees Stores, Inc. is presented in accordance with SEC Staff Accounting Bulletin 53 and Regulation S- X Rule 1-02 (bb):
(000's) ----------------------------- January 31, February 1, 1998 1997 -------------- -------------- Current Assets................... $ 286,332 $ 274,980 Noncurrent Assets................ 302,286 322,962 Current Liabilities.............. 246,687 212,547 Payable to Bradlees, Inc......... 189,881 190,038 Noncurrent Liabilities........... 72,324 83,905 Liabilities Subject to Settlement Under the Reorganization Case... $ 341,874 $ 350,810 (000's) -------------------------------------------- 52 Weeks ended 52 Weeks ended 53 Weeks ended January 31, February 1, February 3, 1998 1997 1996 -------------- -------------- -------------- Net Sales........................ $1,344,444 $1,561,718 $1,780,768 Gross Margin..................... 396,357 434,067 491,691 Loss from Continuing Operations.. (22,620) (218,726) (206,870) Net Loss......................... $ (22,620) $ (218,726) $ (206,870)
Upon confirmation of the Plan, Bradlees, Inc. will contribute a portion of its intercompany receivable to the capital of Bradlees Stores, Inc. so that $96 million will be allowed as the final intercompany claim. New Horizons of Yonkers, Inc., a subsidiary of Bradlees Stores, Inc., is the lessee of the Yonkers, New York Bradlees' store lease (with no net book value), which it subleases to Bradlees Stores, Inc. New Horizons of Yonkers, Inc.'s financial activity was primarily limited to rent expense under the lease and rental income from the sublease during the above periods. New Horizons of Yonkers, Inc. is also fully and unconditionally guaranteeing the debt issued by Bradlees Stores, Inc. The following summarized financial information of New Horizons of Yonkers, Inc. is presented in accordance with SEC Staff Accounting Bulletin 53 and Regulation S-X Rule 1-02 (bb):
(000's) ----------------------------- January 31, February 1, 1998 1997 -------------- -------------- Due from Bradlees Stores, Inc.... $ 1 $ 1 Stockholders' Equity............. $ 1 $ 1 (000's) -------------------------------------------- 52 Weeks ended 52 Weeks ended 53 Weeks ended January 31, February 1, February 3, 1998 1997 1996 -------------- -------------- -------------- Rental Income.................... $588 $ 588 $588 Rent Expense..................... $588 $ 588 $588 Impairment of Long-Lived Assets (Lease Acquisition Costs)....... -- $15,793 --
F-47 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Prospective investors may rely only on the information contained in this Prospectus. Neither Bradlees, Inc. nor Bradlees Stores, Inc. has authorized anyone to provide prospective investors with information different from that contained in this Prospectus. This Prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this Prospectus is correct only as of the date of this Prospectus, regardless of the time of the delivery of this Prospectus or any sale of these securities. No action is being taken in any jurisdiction outside the United States to permit a public offering of the Securities or possession or distribution of this Prospectus in any such jurisdiction. Persons who come into possession of this Prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this Offering and the distribution of this Prospectus applicable in that jurisdiction. ---------------- TABLE OF CONTENTS
Page Prospectus Summary....................................................... 2 Risk Factors............................................................. 6 The Company.............................................................. 13 Use of Proceeds.......................................................... 18 Dividend Policy.......................................................... 18 Capitalization........................................................... 19 Selected Financial Data.................................................. 20 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 30 Business................................................................. 37 Management............................................................... 41 Principal Stockholders................................................... 50 Certain Relationships and Related Transactions........................... 51 Selling Securityholders.................................................. 51 Plan of Distribution..................................................... 52 Shares Eligible for Future Sale.......................................... 53 Terms of Outstanding Indebtedness........................................ 53 Description of the 9% Convertible Notes.................................. 55 Description of Capital Stock............................................. 62 Legal Matters............................................................ 65 Experts.................................................................. 65 Additional Information................................................... 65 Index to Financial Statements............................................ F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BRADLEES, INC. BRADLEES STORES, INC. 7,267,424 Shares of Common Stock $36,000,000 9% Convertible Notes ---------------- PROSPECTUS ---------------- February , 1999 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the estimated expenses of this Offering (excluding underwriting discounts and commissions):
Nature of Expense Amount(1) ----------------- --------- SEC Registration Fee............................................... $ 27,343 -------- Nasdaq Listing Fee................................................. 77,875 -------- Accounting Fees and Expenses....................................... 185,000 -------- Legal Fees and Expenses............................................ 250,000 -------- Printing Expenses.................................................. 50,000 -------- Trustee's Fees and Expenses........................................ 25,000 -------- Transfer Agent's Fee............................................... 25,000 -------- Miscellaneous...................................................... 9,782 -------- TOTAL............................................................ $650,000 ========
- -------- (1) The amounts set forth above, except for the SEC fee, are in each case estimated. Item 14. Indemnification of Directors and Officers The Company's Amended and Restated Articles of Organization provide that a Director shall not have personal liability to the Company or its stockholders for monetary damages arising out of the Director's breach of fiduciary duty as a Director of the Company to the maximum extent permitted by Massachusetts law. Section 13(b)(1 1/2) of Chapter 156B of the Massachusetts Business Corporation Law provides that the articles of organization of a corporation may state a provision eliminating or limiting the personal liability of a Director to a corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, provided, however, that such provision shall not eliminate or limit the liability of a Director (i) for any breach of the Director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (iii) under Section 61 or 62 of the Massachusetts Business Corporation Law dealing with liability for unauthorized distributions and loans to insiders, respectively, or (iv) for any transaction from which the Director derived an improper personal benefit. The Company's Amended and Restated By-Laws further provide that the Company shall, to the fullest extent authorized by Chapter 156B of the Massachusetts General Laws, indemnify each person who is, or was or has agreed to become, a Director or officer of the Company or who is or was a Director or employee of the Company and is serving, or shall have served, at the request of the Company, as Director or officer of another organization or in any capacity with respect to any employee benefit plan of the Company, against all liabilities and expenses (including reasonable attorneys' fees), judgments and fines incurred by him or on his behalf in connection with, or arising out of, the defense or disposition of any action, suit or other proceeding, whether civil or criminal, or any appeal therefrom in which they may be involved by reason of being or having been such a Director or officer or as a result of service with respect to any such employee benefit plan. Section 67 of Chapter 156B of the Massachusetts General Laws authorizes a corporation to indemnify its directors, officers, employees and other agents unless such person shall have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that such action was in the best interests of the corporation or, to the extent such matter is related to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. II-1 The effect of these provisions would be to permit indemnification by the Company for, among other liabilities, liabilities arising out of the Securities Act of 1933, as amended (the "Securities Act"). Section 67 of the Massachusetts Business Corporation Law also affords a Massachusetts corporation the power to obtain insurance on behalf of its directors and officers against liabilities incurred by them in those capacities. We have procured a directors' and officers' liability and company reimbursement liability insurance policy that (i) insures directors and officers of the Company against losses (above a deductible amount) arising from certain claims made against them by reason of certain acts done or attempted by such directors or officers and (ii) insures the Company against losses (above a deductible amount) arising from any such claims, but only if the Company is required or permitted to indemnify such directors or officers for such losses under statutory or common law or under provisions of the Company's Amended and Restated Articles of Organization or Amended and Restated By-Laws. The By-laws of New Horizons of Yonkers, Inc. provide that such corporation shall indemnify its officers and directors to the extent permitted by the General Corporation Law of Delaware. Item 15. Recent Sales of Unregistered Securities On the Effective Date, we issued the following securities in connection with the Effectiveness of our Plan of Reorganization: 1. We issued 10,225,711 shares of our Common Stock to holders of approximately $361 million of allowed prepetition claims against us in satisfaction of such claims in reliance upon the exemption from registration set forth in Section 1145 of the Bankruptcy Code. 2. We issued $40.0 million aggregate principal amount of 9% Convertible Notes to holders of approximately $108 million of allowed prepetition claims against us in satisfaction of such claims in reliance upon the exemption from registration set forth in Section 1145 of the Bankruptcy Code. 3. We issued warrants to purchase 1,000,000 shares of our common stock to holders of approximately $265 million of allowed prepetition claims against us in satisfaction of such claims in reliance upon the exemption from registration set forth in Section 1145 of the Bankruptcy Code. 4. We issued $3.3 million worth of Cure Notes to holders of approximately $3.3 million of allowed prepetition claims against us in satisfaction of such claims in reliance upon the exemption from registration set forth in Section 1145 of the Bankruptcy Code. 5. We issued $587,094 worth of Cap Notes to holders of approximately $547,094 of allowed prepetition claims against us in satisfaction of such claims in reliance upon the exemption from registration set forth in Section 1145 of the Bankruptcy Code. 6. We issued $2.4 million worth of Tax Notes to holders of approximately $2.4 million of allowed prepetition claims against us in satisfaction of such claims in reliance upon the exemption from registration set forth in Section 1145 of the Bankruptcy Code. Item 16. Exhibits and Financial Schedules (a) Exhibits.
Exhibit No. Title ----------- ----- ##2.1 --Modified Plan of Reorganization and Plan Disclosure Statement. *2.2 --Indenture dated February 2, 1999 between Bradlees Stores, Inc., Bradlees, Inc., New Horizons of Yonkers, Inc. and IBJ Whitehall Bank & Trust Company, with Form of Note. ##2.3 --Form of 9% Convertible Note. *2.4 --Form of Leasehold Mortgage.
II-2
Exhibit No. Title ----------- ----- ##2.5 --Form of CAP Notes. ##2.6 --Form of Cure Note. ##2.7 --Form of Tax Note for other priority tax claims. ##2.8 --Form of Tax Note for Federal priority tax claims. ##2.9 --Form of New Warrant. *2.10 --Stock Pledge Agreement. *3.1 --Amended and Restated Articles of Organization of Bradlees, Inc. *3.2 --Amended and Restated Articles of Organization of Bradlees Stores, Inc. *3.3 --Amended and Restated By-laws of Bradlees, Inc. *3.4 --Amended and Restated By-laws of Bradlees Stores, Inc. *3.5 --Certificate of Incorporation of New Horizons of Yonkers, Inc. *3.6 --By-laws of New Horizons of Yonkers, Inc. *4.1 --Specimen Certificate for shares of Common Stock, $.01 par value, of Bradlees, Inc. ##5.1 --Opinion of Goodwin, Procter & Hoar LLP with respect to the legality of the securities being offered. *10.1 --Registration Rights Agreement. 10.22 --Amended and Restated Employment Agreement dated as of October 26, 1995 between and among Bradlees, Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the Company's Form 10-Q for the quarterly period ended October 28,1995, Part II, Item 6, Exhibit 10.2, as filed with the Securities and Exchange Commission on December 12, 1995. 10.23 --Amendment to Amended and Restated Employment Agreement, dated as of November 7, 1997, between and among Bradlees, Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the Company's Form 10-K for the year ended January 31, 1998, Part IV, Item 14(a)(3), Exhibit 10.23, as filed with the Securities and Exchange Commission on May 1, 1998. 10.25 --Bradlees, Inc. and Bradlees Stores, Inc. Enterprise Appreciation Incentive Plan Effective June 23, 1995 is incorporated by reference from the Company's Form 10-Q for the quarterly period ended October 28, 1995, Part II, Item 6, Exhibit 10.5, as filed with the Securities and Exchange Commission on December 12, 1995. 10.34 --Bradlees, Inc. and Bradlees Stores, Inc. Supplemental Executive Retirement Plan Effective December 1, 1995 is incorporated by reference from the Company's Form 10-K for the year ended February 3, 1996, Part IV, Item 14(a)(3), Exhibit 10.32, as filed with the Securities and Exchange Commission on May 3, 1996. 10.35 --Form of Senior Vice President Severance Agreement is incorporated by reference from the Company's Form 10-K for the year ended February 3, 1996, Part IV, Item 14(a)(3), Exhibit 10.33, as filed with the Securities and Exchange Commission on May 3, 1996. 10.36 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.40, as filed with the Securities and Exchange Commission on May 2, 1997. 10.37 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the Company's Form 10-Q for the quarterly period ended May 3, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on June 6, 1997. 10.38 --Form of President Severance Agreement is incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.41, as filed with the Securities and Exchange Commission on May 2, 1997. 10.39 --Corporate Bonus Plan for Fiscal Year Ended January 31, 1998 and Subsequent Fiscal Years is incorporated by reference from the Company's Form 10-Q for the quarterly period ended August, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on September 16, 1997.
II-3
Exhibit No. Title ----------- ----- 10.40 --Stipulation and Order, dated October 6, 1997, among Bradlees Stores, Inc., Bradlees, Inc. and their Affiliates and Mark A. Cohen Settling Claims Arising Under Employment Contract with Mark A. Cohen and Bar Order, are incorporated by reference from the Company's Form 10-Q for the quarterly period ended November 1, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on December 16, 1997. *10.41 --Revolving Credit and Guaranty Agreement between BankBoston, N.A. as Administrative Agent and as Issuing Bank, and the Borrower, Bradlees Stores, Inc., with Bradlees, Inc. as Guarantor. ##10.42 --Bradlees, Inc. 1999 Stock Option Plan. ##10.43 --Bradlees, Inc. and Bradlees Stores, Inc. Management Emergence Bonus Plan. *10.44 --Vendor Lien Agreement *21 --Subsidiaries of the Registrant. ##23.1 --Consent of Counsel (included in Exhibit 5.1 hereto). *23.2 --Consent of Arthur Andersen LLP. *23.3 --Consent of Deloitte & Touche LLP. *24.1 --Power of Attorney (included on the signature page hereto). ##25.1 --Statement of Eligibility on Form T-1.
- -------- # Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange Commission on November 6, 1998. ## Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange Commission on January 28, 1999. * Filed herewith. (b) Financial Statement Schedule filed as part of this Registration Statement is as follows: Condensed Consolidated Financial Statements as of October 31, 1998 (unaudited) Condensed Consolidated Statements of Operations for the thirteen weeks ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited) Condensed Consolidated Statements of Operations for the thirty-nine weeks ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited) Condensed Consolidated Balance Sheets as of October 31, 1998 (unaudited) and November 1, 1997 (unaudited) Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 31, 1998 (unaudited) and November 1, 1997 (unaudited) Notes to Condensed Consolidated Financial Statements (unaudited) Consolidated Financial Statements as of January 31, 1998 Report of Independent Public Accountants-Arthur Andersen LLP Independent Auditors' Report-Deloitte & Touche LLP Consolidated Statements of Operations for the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996 Consolidated Balance Sheets as of January 31, 1998 and February 1, 1997 Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1998, February 1, 1997 and February 1, 1996 Consolidated Statements of Stockholders' Equity (Deficiency) for the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996 Notes to Consolidated Financial Statements II-4 Item 17. Undertakings Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrants hereby undertake: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To file during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (4) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrants have duly caused this Post-Effective Amendment No. 1 to the Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Braintree, The Commonwealth of Massachusetts on February 15, 1999. BRADLEES, INC. /s/ Peter Thorner By: _________________________________ Name:Peter Thorner Office Title: Chairman of the Board andChief Executive Officer BRADLEES STORES, INC. /s/ Peter Thorner By: _________________________________ Name:Peter Thorner Office Title: Chairman of the Board and Chief Executive Officer NEW HORIZONS OF YONKERS, INC. /s/ Peter Thorner By: ____________________________ Name:Peter Thorner Office Title: Chairman of the Board andChief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears below, with the exception of Charles K. MacDonald, constitutes and appoints each of Peter Thorner and David L. Schmitt such person's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for such person and in such person's name, place and stead in all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any subsequent Registration Statement for the same offering which may be filed under Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated. Each person listed below has signed this Post-Effective Amendment No. 1 to the Registration Statement in their capacity as an officer or director of Bradlees, Inc. Messrs. Thorner and Moses are also signing this Registration Statement as officers and directors of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. Mr. Lynn is also signing this Registration Statement as an officer of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. Mr. Schmitt, in his individual capacity, is signing this Registration Statement solely as a director of Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. II-6 Signature Title Date /s/ Peter Thorner - ------------------------------------- Chief Executive February 16, Peter Thorner Officer (Principal 1999 Executive Officer) and Chairman of the Board /s/ Cornelius F. Moses, III - ------------------------------------- Senior Vice February 16, Cornelius F. Moses, III President and Chief 1999 Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ Robert Lynn - ------------------------------------- Director, President February 16, Robert Lynn and Chief Operating 1999 Officer /s/ Robert A. Altschuler - ------------------------------------- Director February 16, Robert A. Altschuler 1999 /s/ Stephen J. Blauner - ------------------------------------- Director February 16, Stephen J. Blauner 1999 /s/ W. Edward Clingman, Jr. - ------------------------------------- Director February 16, W. Edward Clingman, Jr. 1999 /s/ John M. Friedman, Jr. - ------------------------------------- Director February 16, John M. Friedman, Jr. 1999 /s/ Lawrence Lieberman - ------------------------------------- Director February 16, Lawrence Lieberman 1999 /s/ Charles K. MacDonald - ------------------------------------- Director February 16, Charles K. MacDonald 1999 /s/ William H. Roth - ------------------------------------- Director February 16, William H. Roth 1999 /s/ David L. Schmitt - ------------------------------------- Director of Bradlees Febraury 16, David L. Schmitt Stores, Inc. and 1999 New Horizons of Yonkers, Inc.
II-7 EXHIBIT INDEX
Exhibit No. Title ----------- ----- ##2.1 --Modified Plan of Reorganization and Plan Disclosure Statement. *2.2 --Indenture dated February 2, 1999 between Bradlees Stores, Inc., Bradlees, Inc., New Horizons of Yonkers, Inc. and IBJ Whitehall Bank & Trust Company. ##2.3 --Form of 9% Convertible Note. *2.4 --Form of Leasehold Mortgage. ##2.5 --Form of CAP Note. ##2.6 --Form of Cure Note. ##2.7 --Form of Tax Note for priority tax claims. ##2.8 --Form of Tax Notes for Federal priority tax claims. ##2.9 --Form of New Warrant. *2.10 --Stock Pledge Agreement. *3.1 --Amended and Restated Articles of Organization of Bradlees, Inc. *3.2 --Amended and Restated Articles of Organization of Bradlees Stores, Inc. *3.3 --Amended and Restated By-laws of Bradlees, Inc. *3.4 --Amended and Restated By-laws of Bradlees Stores, Inc. *3.5 --Certificate of Incorporation of New Horizons of Yonkers, Inc. *3.6 --By-laws of New Horizons of Yonkers, Inc. *4.1 --Specimen Certificate for shares of Common Stock, $.01 par value, of Bradlees, Inc. ##5.1 --Opinion of Goodwin, Procter & Hoar LLP with respect to the legality of the securities being offered. *10.1 --Registration Rights Agreement. 10.22 --Amended and Restated Employment Agreement dated as of October 26, 1995 between and among Bradlees, Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the Company's Form 10-Q for the quarterly period ended October 28,1995, Part II, Item 6, Exhibit 10.2, as filed with the Securities and Exchange Commission on December 12, 1995. 10.23 --Amendment to Amended and Restated Employment Agreement, dated as of November 7, 1997, between and among Bradlees, Inc., Bradlees Stores, Inc. and Peter Thorner is incorporated by reference from the Company's Form 10-K for the year ended January 31, 1998, Part IV, Item 14(a)(3), Exhibit 10.23, as filed with the Securities and Exchange Commission on May 1, 1998. 10.25 --Bradlees, Inc. and Bradlees Stores, Inc. Enterprise Appreciation Incentive Plan Effective June 23, 1995 is incorporated by reference from the Company's Form 10-Q for the quarterly period ended October 28, 1995, Part II, Item 6, Exhibit 10.5, as filed with the Securities and Exchange Commission on December 12, 1995. 10.34 --Bradlees, Inc. and Bradlees Stores, Inc. Supplemental Executive Retirement Plan Effective December 1, 1995 is incorporated by reference from the Company's Form 10-K for the year ended February 3, 1996, Part IV, Item 14(a)(3), Exhibit 10.32, as filed with the Securities and Exchange Commission on May 3, 1996. 10.35 --Form of Senior Vice President Severance Agreement is incorporated by reference from the Company's Form 10-K for the year ended February 3, 1996, Part IV, Item 14(a)(3), Exhibit 10.33, as filed with the Securities and Exchange Commission on May 3, 1996. 10.36 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.40, as filed with the Securities and Exchange Commission on May 2, 1997. 10.37 --Form of Revised Senior Vice President Severance Agreement is incorporated by reference from the Company's Form 10-Q for the quarterly period ended May 3, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on June 6, 1997. 10.38 --Form of President Severance Agreement is incorporated by reference from the Company's Form 10-K for the fiscal year ended February 1, 1997, Part IV, Item 14(a)(3), Exhibit 10.41, as filed with the Securities and Exchange Commission on May 2, 1997.
Exhibit No. Title ----------- ----- 10.39 --Corporate Bonus Plan for Fiscal Year Ended January 31, 1998 and Subsequent Fiscal Years is incorporated by reference from the Company's Form 10-Q for the quarterly period ended August 2, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on September 16, 1997. 10.40 --Stipulation and Order, dated October 6, 1997, among Bradlees Stores, Inc., Bradlees, Inc. and their Affiliates and Mark A. Cohen Settling Claims Arising Under Employment Contract with Mark A. Cohen and Bar Order, are incorporated by reference from the Company's Form 10-Q for the quarterly period ended November 1, 1997, Part II, Item 6, Exhibit 10, as filed with the Securities and Exchange Commission on December 16, 1997. *10.41 --Revolving Credit and Guaranty Agreement between BankBoston, N.A. as Administrative Agent and as Issuing Bank, and the Borrower, Bradlees Stores, Inc., with Bradlees, Inc. as Guarantor. ##10.42 --Bradlees, Inc., 1999 Stock Option Plan. ##10.43 --Bradlees, Inc. and Bradlees Stores, Inc. Management Emergence Bonus Plan. *10.44 --Vendor Lien Agreement. *21 --Subsidiaries of the Registrant. ##23.1 --Consent of Counsel (included in Exhibit 5.1 hereto). *23.2 --Consent of Arthur Andersen LLP. *23.3 --Consent of Deloitte & Touche LLP. *24.1 --Power of Attorney (included on the Signature page hereto). ##25.1 --Statement of Eligibility on Form T-1.
- -------- # Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange Commission on November 6, 1998. ## Previously filed as an exhibit to Pre-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 (SEC File No. 333-66953) filed with the Securities and Exchange Commission on January 28, 1999. *Filed herewith. EX-2.2 2 INDENTURE DATED FEBRUARY 2, 1999 Exhibit 2.2 INDENTURE, dated as of February 2, 1999, among Bradlees Stores, Inc., a Massachusetts corporation, as reorganized pursuant to the Plan described below (together with its successors and assigns, the "Issuer"), IBJ Whitehall Bank & Trust Company, a New York banking corporation (the "Trustee"), Bradlees, Inc., a Massachusetts corporation, as reorganized pursuant to the Plan (together with its successors and assigns, "BI") and New Horizons of Yonkers, Inc., a Delaware corporation. W I T N E S S E T H: WHEREAS, the Issuer and certain of its Affiliates filed a voluntary petition (Case Nos. 95 B 42777 through 95 B 42784 (BRL) (Jointly Administered)) (the "Bankruptcy Proceeding") under Chapter 11 of the Bankruptcy Code on June 23, 1995 with the United States Bankruptcy Court Southern District of New York (the "Bankruptcy Court"); WHEREAS, the Bankruptcy Court confirmed the Second Amended Joint Plan of Reorganization of Bradlees Stores, Inc. and Certain Affiliates Under Chapter 11 of the Bankruptcy Code on January 27, 1999 (the "Plan"); WHEREAS, the Plan contemplates the issuance of the Notes (as hereinafter defined) hereunder to certain of the Issuer's pre-petition creditors (together with certain other consideration provided for in the Plan) in exchange for relinquishment by such creditors of their claims filed in connection with the Bankruptcy Proceeding; WHEREAS, as contemplated by the Plan, the Notes issued hereunder shall be a full recourse obligation of the Issuer and shall be secured by (A) first priority mortgage Liens (as hereinafter defined) on the Yonkers Property (as hereinafter defined), and, subject to Section 12.1(b) hereof, the Additional Collateral (as hereinafter defined) and the Net Proceeds of the Disposition (as hereinafter defined) of the Yonkers Property and, subject to Section 12.1(b) hereof, the Additional Collateral and (B) a first priority Lien on the Pledged Stock, in each case as described hereunder and in the Security Documents (as hereinafter defined); WHEREAS, BI has duly authorized the full and unconditional guarantee on an unsecured basis by BI of the Issuer's due and punctual payment of the principal of and interest on the Notes and any other amounts payable on the Notes, whether at maturity, by declaration of acceleration, upon redemption or otherwise; WHEREAS, all acts necessary (i) to make this Indenture a valid and binding agreement and instrument for the security of the Notes, in accordance with its and their terms and (ii) to make the Notes, when executed by the Issuer and authenticated and delivered by the Trustee, valid and binding obligations of the Issuer, have been done, and the Issuer has duly authorized the execution and delivery of this Indenture to secure the Notes and to provide for the authentication and delivery thereof by the Trustee; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, for and in consideration of the premises and of the covenants continued herein, it is mutually covenanted and agreed, for the benefit of the parties hereto and the equal and proportionate benefit of all Noteholders, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions; Construction. ------------------------- (a) For all purposes of this Indenture capitalized terms used herein shall have the meanings set forth below. For purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: "Acceleration Notice" has the meaning specified in Section 8.2. "Additional Collateral" means the Issuer's leasehold interest in the following leases, each as further described in the Leasehold Mortgage applicable thereto: (i) Sublease dated July 8, 1992 between The Stop & Shop Supermarket Company and Bradlees New England, Inc., predecessor in interest to the Issuer ("BNE"), with respect to property located in Danbury, Connecticut; (ii) Lease dated October 26, 1973 between ASC of Moorestown, Inc. and The Stop & Shop Companies, Inc., with respect to property located in Saddle Brook, New Jersey, assigned to Bradlees New Jersey Inc., predecessor in interest to the Issuer ("BNJ"), pursuant to an Assignment of Lease dated June 18, 1988 between the Stop & Shop Companies, Inc. and BNJ; and (iii) Indenture of Lease dated August 24, 1962 between Postrich Realty Corp. and Stop & Shop, Inc., with respect to property located in Norwalk, Connecticut, assigned to BNE pursuant to an Assignment of Lease dated June 18, 1988 between Stop & Shop, Inc. and BNE. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Authenticating Agent" shall mean any Person acting as Authenticating Agent hereunder pursuant to Section 4.13. "Authorized Agent" shall mean any Paying Agent, Authenticating Agent or Security Registrar or other agent appointed by the Trustee in accordance with this Indenture to perform any function that this Indenture authorizes the Trustee or such agent to perform. "Authorized Representative" means, with respect to any Person, the president, vice-president, chief financial officer, treasurer or secretary of the Person 2 authorized to act on behalf of such Person by its Board of Directors or any other governing body of such Person in matters relating to the Notes and this Indenture. "Authorized Signatory" shall mean any officer of the Trustee or any other individual who shall be duly authorized by appropriate corporate action on the part of the Trustee to authenticate Notes. "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as amended, as codified under Title 11 of the United States Code, 11 U.S.C. (S) 101 et -- seq., and the Bankruptcy Rules promulgated thereunder, as the same may be in - --- effect from time to time. "Bankruptcy Court" shall have meaning specified in the recitals hereto. "Bankruptcy Law" means Title 11 of the United States Code, or any similar Federal or state law for the relief of debtors. "Bankruptcy Proceeding" shall have meaning specified in the recitals hereto. "BI" has the meaning specified in the introductory paragraph hereof. "BI Credit Facility Guarantee" means the Indebtedness represented by the guarantee by BI of the Obligations of the Borrower (each as defined in the New Credit Facility) under the New Credit Facility. "BI Guarantee" means the guarantee by BI of the BI Guarantee Obligations, as provided in Article 13. "BI Guarantee Obligations" has the meaning specified in Section 13.1. "Board of Directors", when used with respect to a corporation, shall mean either the board of directors of the corporation, or any committee of that board duly authorized to act for it hereunder. "Board Resolution" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Issuer or BI, as the case may be, to have been adopted by the Board of Directors of the Issuer or BI, as the case may be, and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in New York, New York, or in the city and State where the Trustee's Corporate Trust Office is located, are authorized or obligated by law, executive order or governmental decree to be closed. "Collateral" means, collectively, all of the property and assets that are from time to time subject to the Lien of any of the Security Documents. 3 "Constituent Entity" has the meaning specified in Section 7.1. "Conversion Price" has the meaning specified in Section 9.4. "Conversion Shares" has the meaning specified in Section 9.5(j). "Corporate Trust Office" means the principal office of the Trustee at which any particular time corporate trust business of the Trustee shall be administered, which at the date hereof is One State Street, New York, New York, or such other office as may be designated by the Trustee to the Issuer and each Noteholder. "Credit Facility Guarantees" means, collectively, the BI Credit Facility Guarantee and the New Horizons Credit Facility Guarantee. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under the Bankruptcy Law. "Date of Conversion" has the meaning specified in Section 9.2. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Depository" means DTC, together with any Person succeeding thereto by merger, consolidation or acquisition of all or substantially all of its assets, including substantially all of its securities payment and transfer operations. "Disposition" means, with respect to any Collateral, the sale, assignment, transfer, lease, conveyance or other disposition of all or any portion of such Collateral (including without limitation the disposition of all of the stock of the entity holding such Collateral). Notwithstanding the foregoing, any such sale, assignment, transfer, lease, conveyance or other disposition to a subsidiary of the Issuer or BI shall not be deemed a "Disposition" hereunder so long as such subsidiary acquires its interest subject to the Lien on such Collateral for the benefit of the Holders created by the Security Documents, executes a guarantee under the Notes in substantially the form of the Guarantee and executes an undertaking to be bound by and perform the obligations of the Mortgagor or pledgor under the Security Documents applicable to such Collateral. "Dispose" and "Disposed" shall have the correlative meaning. "Distribution Date" has the meaning specified in Section 9.5(j). "Dollars" means the lawful currency of the United States of America. "DTC" means The Depository Trust Company, having a principal office at 55 Water Street, New York, New York 10041-0099. "Effective Date" has the meaning specified in the Plan. 4 "Equity Offering" shall mean an offering, sale or issuance for cash by BI of its common stock, other than offerings to officers, directors, employees or consultants pursuant to the Plan or pursuant to any compensation, incentive or benefit plan or arrangement adopted by BI. "Events of Default" has the meaning specified in Section 8.1 hereof. "'ex' date" has the meaning specified in Section 9.5(f). "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Expiration Date" has the meaning specified in Section 9.5(e). "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar function of comparable stature and authority within the accounting profession), or in such other statements by such other entity as may be in general use by significant segments of the U.S. accounting profession, which are applicable to the circumstances as of the date of determination. "Global Note" means any global security in registered form representing all or a portion of the Notes. "Guarantees" means, collectively, the BI Guarantee and the New Horizon Guarantee. "Guarantee Obligations" has the meaning specified in Section 13.1. "Guarantor" shall have the meaning specified in Section 13.1. "Holders" has the same meaning as Noteholders. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or bankers' acceptances or letters of credit (or reimbursement agreements in respect thereof) or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to capital leases), except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect by such Person in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any of the items which would be included within this definition. 5 "Indenture" means this instrument as amended or supplemented from time to time pursuant to the terms hereof. "Issue Date" means the date the Notes are issued pursuant to this Indenture. "Issuer" means Bradlees Stores, Inc., a Massachusetts corporation, together with its successors and assigns. "Issuer Request" and "Issuer Order" mean, respectively, a written request or order signed in the name of the Issuer by its Authorized Representative and delivered to the Trustee. "Last Sale Price" has the meaning specified in Section 9.3. "Leasehold Mortgages" means, collectively, each of (a) the Leasehold Mortgage, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Financing Statement by and between New Horizons, as Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders, dated as of February 2, 1999, with respect to the Yonkers Property, in the original principal amount of $17,760,000; (b) the Leasehold Mortgage, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Financing Statement by and between New Horizons, as Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders, dated as of February 2, 1999, with respect to the Yonkers Property, in the original principal amount of $11,240,000; (c) the Leasehold Mortgage, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Financing Statement by and between Bradlees Stores, Inc., as Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders, dated as of February 2, 1999, with respect to property located in Danbury, Connecticut, in the original principal amount of $6,500,000; (d) the Leasehold Mortgage, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Financing Statement by and between Bradlees Stores, Inc., as Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders, dated as of February 2, 1999, with respect to property located in Norwalk, Connecticut, in the original principal amount of $6,500,000; and (e) the Leasehold Mortgage, Security Agreement, Assignment of Leases, Rents and Profits and Fixture Financing Statement by and between Bradlees Stores, Inc. as Mortgagor, and Trustee, as Mortgagee, on behalf of the Holders, dated as of February 2, 1999, with respect to property located in Saddlebrook, New Jersey, in the original principal amount of $6,500,000. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Majority" has the meaning specified in Section 6.8. "Maturity Date" means the date, as set forth on the face of the Notes, on which the Notes will mature. 6 "Mortgaged Property", with respect to any Leasehold Mortgage, shall have the meaning specified in such Leasehold Mortgage. "Mortgagee" and "Mortgagor", with respect to any Leasehold Mortgage, have the meanings specified in such Leasehold Mortgage. "Net Proceeds" means, as appropriate, (i) the proceeds of an Equity Offering minus all customary out-of-pocket expenses and fees relating to such Equity Offering or (ii) the proceeds of the Disposition of the Yonkers Property or the Additional Collateral minus all customary out-of-pocket expenses and fees relating to such Disposition. "New Common Stock" means the common stock, par value $.01, of BI authorized under the amended certificate of incorporation of BI and issued pursuant to the Plan. "New Credit Facility" has the meaning specified in the Plan. "New Credit Facility Waivers and Consents" means all Mortgagee's Waivers and Consents (or similar documents) entered into from time to time by the Issuer, BankBoston Retail Finance, Inc., as collateral agent and the Trustee, as mortgagee, with respect to any Additional Collateral, replacement collateral or the Yonkers Property. "New Horizons" means New Horizons of Yonkers, Inc., a Delaware corporation and wholly-owned subsidiary of the Issuer. "New Horizons Credit Facility Guarantee" means the Indebtedness represented by the guarantee by New Horizons of the Obligations of the Borrower (each as defined in the New Credit Facility) under the New Credit Facility. "New Horizon Guarantee" means the guarantee by New Horizons of the New Horizons Guarantee Obligations, as provided in Article 13. "New Horizons Guarantee Obligations" has the meaning specified in Section 13.1. "New Horizons Old Common Stock" means the common stock issued by New Horizons and outstanding immediately prior to the Effective Date. "non-electing shares" has the meaning specified in Section 9.6. "Notes" means the notes issued to the Holders in accordance with the terms of this Indenture. "Noteholders" means the registered owners of the Notes as shown on the Security Register maintained for that purpose. 7 "Offer" has the meaning specified in Section 9.5(e). "Officers' Certificate" of any Person means a certificate signed by two Authorized Representatives of such Person. "Opinion of Counsel" means a written opinion of counsel for any Person reasonably satisfactory to the intended recipient thereof. "Outstanding" shall mean, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes or portions thereof deemed to have been paid within the meaning of Section 10.1; (iii) Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture; and (iv) Notes converted to New Common Stock pursuant to Article 9; provided, however, that in determining whether the Holders of the requisite principal of Notes outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder or whether or not a quorum is present at a meeting of Holders, Notes owned by the Issuer, BI or any subsidiary thereof shall be disregarded and deemed not to be outstanding as provided in Section 1.4. "Paying Agent" means any Person acting as Paying Agent pursuant to this Indenture. "Person" means an individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, limited liability partnership, institution, public benefit corporation, firm, joint stock company, estate, government (or agency or political subdivision thereof) or other entity. "Place of Payment", when used with respect to the Notes, shall mean the office or agency maintained pursuant to Section 4.13 hereof. "Plan" shall have the meaning specified in the recitals hereto. "Pledged Stock" means 100% of the outstanding New Horizons Old Common Stock, registered in the name of the Issuer. "Predecessor Notes", with respect to any particular Note, shall mean any previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; for the purposes of this definition, any Note authenticated and delivered 8 under Section 2.5 in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the lost, destroyed or stolen Note. "Purchased Shares" has the meaning specified in 9.5(e). "Redemption Account" has the meaning specified in Section 3.4. "Redemption Date" means a date set forth for the redemption of Notes pursuant to Section 3.3. "Redemption Price" means the price to be paid by the Issuer for the Notes that are redeemed under Article 3. "Regular Record Date", for the Stated Maturity of any installment of principal of any Note or payment of interest thereon, shall mean the 15th day (whether or not a Business Day) next preceding such Stated Maturity, or any other date specified for such purpose in the form of the Note. "Responsible Officer" means, when used with respect to the Trustee, any officer assigned to the Corporate Trust Office, including any managing director, vice president, assistant vice president, assistant treasurer, assistant secretary or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and having direct responsibility for the administration of this Indenture, and also, with respect to a particular matter, any other officer, to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Sale Agreement" has the meaning specified in Section 6.9. "SEC" means the Securities and Exchange Commission of the United States or any successor agency. "Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Security Agreement" means the Security Agreement from the Issuer to the Trustee, on behalf of the Holders, dated as of February 1, 1999, as the same may be amended from time to time in accordance with its terms. "Security Documents" means the Leasehold Mortgages, the Security Agreement and any other instruments or documents entered into in connection therewith (for avoidance of doubt, expressly excluding the New Credit Facility or related loan documents), as such instruments and documents may from time to time be amended in accordance with the terms hereof and thereof. "Security Register" means any register which the Issuer shall cause to be kept at the Corporate Trust Office of the Trustee (and in any other office or agency of the Issuer in a place of payment) in which, subject to such reasonable regulations as it may 9 prescribe, the Issuer provides for the registration of Notes and of transfers and exchanges of Notes. "Security Registrar" means any person acting as Security Registrar pursuant to this Indenture. "Significant Subsidiary" means any subsidiary that would be a "significant subsidiary" of the Issuer or BI, as the case may be, within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" when used with respect to any Note or any installment of principal thereof or payment of interest thereon, shall mean the date specified in such Note as the fixed date on which such Note or such installment of principal or payment of interest is due and payable. "Surviving Entity" has the meaning specified in Section 7.1. "Trading Day" means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on which securities are not traded on the NASDAQ (or, if the relevant security is not listed for trading thereon, the principal securities exchange or market on which the New Common Stock is then listed or admitted for trading). "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, and the rules and regulations promulgated thereunder. "Trustee" means IBJ Whitehall Bank & Trust Company, named as "Trustee" in the introductory paragraph hereof until a successor Trustee shall have been appointed pursuant to the applicable provisions hereof, and thereafter means such successor Trustee. "Yonkers Property" means that certain leasehold interest owned by New Horizons located in Yonkers, New York, as further described in the Leasehold Mortgage encumbering the Yonkers Property. (b) (i) the terms defined in this Indenture have the meanings assigned to them in this Indenture and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender; (ii) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP as in effect on the date hereof; (iii) references herein to "Articles", "Sections", "Subsections", "Paragraphs" and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Indenture; (iv) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions; 10 (v) the words "herein", "hereof", "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular provision; and (vi) the term "include" or "including" shall mean without limitation by reason of enumeration. SECTION 1.2 Compliance Certificates and Opinions. Except as otherwise ------------------------------------ expressly provided by this Indenture, upon any application or request by the Issuer to the Trustee to take any action under any provision of this Indenture, the Issuer shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any particular application or request as to which the furnishing of documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (a) a statement that each individual signing such certificate or opinion or such other officer or employee of the Issuer on whom such individual has relied in good faith has read such covenant or condition and the definitions relating thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of each such individual, or such officer or employee, such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with has been made; (d) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with; and (e) in the case of an Officers' Certificate, a statement that no Event of Default has occurred and is continuing. SECTION 1.3 Form of Documents Delivered to Trustee. In any case -------------------------------------- where several matters are required to be certified by or covered by an opinion of any specified Person, it is not necessary that all such matters be certified by or covered by the opinion of only one such Person, or that they be so certified by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matter in one or several documents. 11 Any certificate or opinion of an officer of the Issuer may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows or has reason to believe that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate, opinion or an Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Issuer stating that the information with respect to each factual matters is in the possession of the Issuer unless such counsel knows or in the exercise of reasonable care (without independent investigation) should know that the certificate or opinion or representations with respect to such matters are erroneous. Any Opinion of Counsel stated to be based on the opinion of other counsel shall be accompanied by a copy of such other opinion. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.4 When Securities Disregarded. In determining whether the --------------------------- Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuer, BI or any of their respective subsidiaries shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes with respect to which the Trustee has received written notice that such Notes are so owned shall be so disregarded. Also, subject to the foregoing, only Outstanding Notes shall be considered in any such determination. SECTION 1.5 Conflict with Trust Indenture Act. If any provision --------------------------------- hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provisions shall control. SECTION 1.6 Execution in Counterparts. This instrument may be ------------------------- executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one of the same instrument. SECTION 1.7 Effect of Headings and Table of Contents. The Article ---------------------------------------- and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.8 Successors and Assigns. All covenants and agreements ---------------------- in this Indenture by the Trustee, the Issuer and BI shall bind and, to the extent permitted hereby, shall inure to the benefit of and be enforceable by their respective successors and assigns, whether so expressed or not. The Issuer may not assign or otherwise transfer any of its rights under this Agreement. 12 SECTION 1.9 Severability Clause. In case any provision in this ------------------- Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.10 Benefits of Indenture. Nothing in this Indenture or in --------------------- the Notes, expressed or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders of Notes, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.11 GOVERNING LAW. THIS INDENTURE AND THE NOTES SHALL BE ------------- GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW EXCEPT SECTIONS 5-1401 AND 5- 1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW. SECTION 1.12 Legal Holidays. In any case where the Redemption Date -------------- or the Stated Maturity of any Note or of any installment of principal thereof or payment of interest thereon, is proposed to be paid, shall not be a Business Day, then (notwithstanding any other provision of this Indenture or such Note) payment of interest or principal, if any, need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Redemption Date or at the Stated Maturity, and if such payment is timely made, no interest shall accrue for the period from and after such Redemption Date or Stated Maturity, as the case may be, to the date of such payment. SECTION 1.13 No Recourse Against Others. A director, officer, -------------------------- employee, stockholder or incorporator, as such, of the Issuer or BI shall not have any liability for any obligations of the Issuer or BI under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. This Section 1.13 shall not affect in any respect the obligations of BI set forth in Article 13. SECTION 1.14 Notices. Any notices or other communications required ------- or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: 13 (a) if to the Issuer, to: Bradlees Stores, Inc. One Bradlees Circle P.O. Box 9051 Braintree, MA 02184-9051 Attention: David L. Schmitt, Senior Vice-President & General Counsel Telephone: (781) 380-6190 Telecopy: (781) 380-8096 (b) if to BI or New Horizons, to such entity at: One Bradlees Circle P.O. Box 9051 Braintree, MA 02184-9051 Attention: David L. Schmitt, Senior Vice-President & General Counsel Telephone: (781) 380-6190 Telecopy: (781) 380-8096 and (c) if to the Trustee, to: IBJ Whitehall Bank & Trust Company One State Street New York, New York 10004 Attention: Corporate Trust Administration Telephone: (212) 858-2784 Telecopy: (212) 858-2952 Each of the Issuer, BI and the Trustee by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Issuer, BI or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is confirmed if delivered by commercial courier service; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Security Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 14 ARTICLE 2 THE NOTES SECTION 2.1 Title and Terms. The aggregate principal amount of --------------- Notes which may be authenticated and delivered under this Indenture is limited to $28,995,000, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 2.3, 2.4, 2.5 or 3.5. The Maturity Date of the Notes shall be February 3, 2004 and they shall bear interest at the rate of 9% per annum, from and including the date of issuance thereof until maturity or earlier redemption, payable semi-annually in cash on each of January 1 and July 1, commencing July 1, 1999, until the principal thereof is paid or made available for payment. The Issuer shall pay interest on overdue principal from time to time on demand at the rate of interest borne by the Notes and it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate of interest borne by the Notes to the extent lawful. Interest will be computed on the basis of a 360-day year comprised of twelve 30- day months, and, in the case of a partial month, the actual number of days elapsed. It is acknowledged and agreed that the principal of the Notes may not be repaid prior to the Maturity Date except as specifically provided in this Indenture. The principal of and interest on the Notes shall be payable at the office or agency of the Issuer maintained by the Issuer for such purpose; provided, however, that at the option of the Issuer, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, unless such Person has, at least 30 days prior to the relevant due date for payment, designated in writing a U.S. dollar account maintained by such Person with a bank in the United States, in which case the Issuer shall make payments of interest by wire transfer of funds to such account. The Notes shall be redeemable as provided in Article 3. The Notes shall be convertible as provided in Article 9. The Notes shall be secured by (A) a first priority mortgage Lien on (i) the Yonkers Property and the Net Proceeds of the Disposition of the Yonkers Property and (ii) subject to Section 12.1(b) hereof, the Additional Collateral and the Net Proceeds of the Disposition of the Additional Collateral and (B) a first priority Lien on the Pledged Stock, in each case as and to the extent provided in Article 12 and in the Security Documents. The BI Guarantee Obligations and New Horizons Guarantee Obligations under the Notes shall be fully and unconditionally guaranteed by BI and New Horizons, respectively, as provided in Article 13. SECTION 2.2 Execution, Authentication, Delivery and Dating. The ---------------------------------------------- Notes shall be executed on behalf of the Issuer by one Authorized Representative of the 15 Issuer. The signature of any Authorized Representative on the Notes may be manual or facsimile. Notes bearing the manual or facsimile signatures of individuals who were at the time of execution the proper officers of the Issuer shall bind the Issuer, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. Subject to Section 2.4 hereof, the Issuer shall deliver the Notes executed by the Issuer to the Trustee for authentication, together with an Issuer Order for the authentication and delivery of such Notes, and the Trustee in accordance with the Issuer Order shall authenticate and deliver the Notes. The Trustee shall at all times act as the sole authenticating agent for the authentication of the Notes hereunder unless, and until, the Trustee may appoint a successor Authenticating Agent pursuant to Section 4.13(c) hereof. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Note shall have been authenticated and delivered hereunder but never issued and sold by the Issuer, and the Issuer shall deliver such Note to the Trustee for cancellation as provided in Section 2.8 hereof, for all purposes of this Indenture such Note shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. SECTION 2.3 Temporary Notes. Pending the preparation of definitive --------------- Notes, the Issuer may execute, and upon Issuer Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Issuer executing the same may determine, as evidenced by their execution of such Notes. If temporary Notes are issued, the Issuer will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Issuer in a Place of Payment, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Issuer shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Notes of any authorized denominations and of like tenor and aggregate principal amount. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. 16 SECTION 2.4 Registration; Registration of Transfer and Exchange. --------------------------------------------------- (a) General. The Issuer shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Issuer in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Issuer shall provide for the registration of Notes and of transfers and exchanges of Notes. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Notes and transfers and exchanges of Notes as herein provided. Notwithstanding anything to the contrary set forth herein, the Trustee shall not be required and shall have no obligation to monitor compliance with any federal or state securities laws. Upon surrender for registration of transfer of any Notes at the office or agency of the Issuer in a Place of Payment, the Issuer shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denominations and of like tenor and aggregate principal amount. At the option of the Holder, Notes may be exchanged for other Notes, of any authorized denominations and of like tenor and aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Issuer shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form reasonably satisfactory to the Issuer and the Security Registrar duly executed, by the Holder thereof or its attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 2.3, 2.4, 2.5 or 3.5 hereof not involving any transfer. If any Notes are to be redeemed in part, the Issuer shall not be required (A) to issue, register the transfer of or exchange such Notes during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Notes selected for redemption under Section 3.4 hereof and ending at the close of business on the day of such mailing or (B) to issue, register the transfer of or 17 exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. As used in this Section 2.4, the term "transfer" encompasses any sale, pledge or other transfer or disposition of any Notes referred to herein. (b) Global Notes. This Section 2.4(b) shall apply to Global Notes. (i) Each Global Note authenticated under this Indenture shall be registered in the name of the Depository designated for such Global Note or a nominee thereof and delivered to such Depository or a nominee thereof or custodian therefor, and each such Global Note shall constitute a single Note for all purposes of this Indenture. The Notes may be represented by one or more Global Notes. (ii) Notwithstanding any other provision in this Indenture, no Global Note may be exchanged in whole or in part for Notes registered, and no transfer of a Global Note in whole or in part may be registered, in the name of any Person other than the Depository for such Global Note or a nominee thereof unless (A) such Depository (1) has notified the Issuer that it is unwilling or unable to continue as Depository for such Global Note or (2) has ceased to be a clearing agency registered under the Exchange Act, and, in either case, a successor Depository is not appointed within 90 days thereof, (B) the Issuer executes and delivers to the Trustee an Issuer Order providing that such Global Note shall be so transferable, registrable and exchangeable, and such transfers shall be registrable or (C) there shall have occurred and be continuing an Event of Default with respect to the Notes. Any Global Note exchanged pursuant to subclause (A) above shall be so exchanged in whole and not in part and any Global Note exchanged pursuant to subclause (B) or (C) above may be exchanged in whole or from time to time in part as directed by the Depository for such Global Note. Notwithstanding any other provision in this Indenture, a Global Note to which the restriction set forth in the second preceding sentence shall have ceased to apply may be transferred only to, and may be registered and exchanged for Notes registered only in the name or names of, such Person or Persons as the Depository for such Global Note shall have directed, and no transfer thereof other than such a transfer may be registered. (iii) Subject to clause (ii) above, any exchange of a Global Note for other Notes may be made in whole or in part, and all Notes issued in exchange for a Global Note or any portion thereof shall be registered in such name or names as the Depository for such Global Note shall direct. At the option of the applicable Noteholder, a Note issued in exchange for an interest in a Global Note pursuant to this clause (iii) may be issued, in accordance with the rules and procedures of the Depository, in the form of a permanent certificated Note in registered form in substantially the form set forth of Exhibit A attached hereto (each such Note, a "Physical Note"). In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners where one or more 18 Physical Notes are to be issued, the Trustee shall reflect on its books and records the date and decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Issuer shall execute, and, upon the direction of the Issuer, the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. In connection with the transfer of the entire Global Note to beneficial owners in exchange for a Physical Note, the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Issuer shall execute, and, upon the direction of the Issuer, the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (iv) Every Note authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Note or any portion thereof, whether pursuant to this Section, Section 2.3 or 3.5 hereof or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Note, unless such Note is registered in the name of a Person other than the Depository for such Global Note or a nominee thereof. SECTION 2.5 Mutilated, Destroyed, Lost and Stolen Notes. If (a) any ------------------------------------------- mutilated Note is surrendered to the Trustee or the Issuer, or if the Security Registrar and the Trustee receive evidence to their reasonable satisfaction of the destruction, loss or theft of any Note and (b) there is delivered to the Issuer, the Security Registrar and the Trustee evidence to their reasonable satisfaction of the ownership and authenticity thereof, and such security or indemnity as may be reasonably required by them to save each of them harmless, then, in the absence of notice to the Issuer, the Security Registrar or the Trustee that such Note has been acquired by a bona fide purchaser, the Issuer shall execute and, upon the Issuer's request, the Trustee shall authenticate and make available for delivery in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note, of like tenor (including the same date of issuance) and equal face amount of principal, registered in the same manner, dated the date of its authentication and bearing interest from the date to which interest has been paid on such Note, in lieu of and substitution for such Note. If, after delivery of such new Note, a bona fide purchaser of the original Note in lieu of which such new Note was issued presents for payment such original Note, the Issuer and the Trustee shall be entitled to recover such new Note from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and shall be entitled to recover upon the security or indemnity provided therefor to the extent of any loss, damage, cost or expenses incurred by the Issuer or the Trustee in connection therewith. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable (excluding any payment of principal other than the final installment of principal) the Issuer in its discretion may, instead of issuing a new Note, pay such Note without surrender thereof (except in the case of a mutilated Note) if the applicant for such payment shall furnish to the Issuer and the Trustee such reasonable security or indemnity as they may require to save each of them harmless, and in case of 19 destruction, loss or theft, evidence to the reasonable satisfaction of the Issuer and the Trustee of the destruction, loss or theft of such Note. Upon the issuance of any new Note under this Section, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Issuer, whether or not the destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all the security and benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 2.6 Payments; Interest and Principal Rights Preserved. ------------------------------------------------- Principal and interest on any Note which is payable, and is punctually paid or duly provided for, on any Stated Maturity shall be paid by the close of business, State of New York time, on the applicable payment date to the Person in whose name that Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such principal or interest. Notwithstanding the foregoing, payment of the principal amount of any Note (or any outstanding installment thereof) upon final maturity (whether by redemption, acceleration or otherwise) shall be made instead only upon presentation and surrender of such Note. Each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 2.7 Persons Deemed Owners. Subject to Section 2.4, prior to --------------------- due presentment of a Note for registration of transfer, the Issuer, the Trustee and any agent of the Issuer or the Trustee shall treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of and any interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and neither the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall be affected by notice to the contrary. SECTION 2.8 Cancellation; Purchase by the Issuer. All Notes ------------------------------------ surrendered for payment, redemption, conversion, registration of transfer or exchange or for credit in full against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it following such payment, redemption, conversion, registration, exchange or credit in full. The Issuer may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Issuer may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the 20 Trustee) for cancellation any Notes previously authenticated hereunder which the Issuer has not issued and sold, and all Notes so delivered shall be promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes previously canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Notes held by the Trustee shall be disposed of in accordance with its customary procedure in effect from time to time. SECTION 2.9 Dating of Notes. Each Note shall be dated the date of --------------- its authentication. SECTION 2.10 CUSIP Numbers. The Issuer in issuing the Notes may use ------------- "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption and related materials as a convenience to Holders; provided that the Trustee shall assume no responsibility for the accuracy of such numbers and any such redemption or other notice shall not be affected by any defect in or omission of such numbers. SECTION 2.11 Parity and Ranking of Notes. All Notes issued and --------------------------- Outstanding hereunder rank on a parity with each other Note, and each Note shall be guaranteed equally and ratably under the Guarantee and secured equally and ratably by this Indenture and the Security Documents. SECTION 2.12 Book Entry. In the event the Notes are issued as Global ---------- Notes with the Depository: (i) the Trustee may deal with the Depository as the authorized representative of the Holders who hold interests in such Global Notes; (ii) the Depository will make book-entry transfers among the direct participants of the Depository and will receive and transmit distributions of principal and interest on the Notes to such direct participants; and (iii) the direct participants of the Depository shall have no rights under this Indenture under or with respect to any of the Notes held on their behalf by the Depository other than such rights as are exercised through the Depository, and the Depository may be treated by the Trustee and its agents, employees, officers and directors as the absolute owner of the Notes represented by such Global Notes for all purposes whatsoever; provided, however, that the Trustee may deal -------- ------- directly with any beneficial Holder of Notes holding interests in such Global Notes so long as such beneficial Holder provides to the Trustee evidence satisfactory to the Trustee of such beneficial ownership. ARTICLE 3 REDEMPTION OF NOTES SECTION 3.1 Mandatory Redemption of Notes. The Outstanding Notes ----------------------------- shall be redeemed pro rata with (a) the Net Proceeds of the Disposition of the Yonkers Property, (b) subject to Section 12.1(b) hereof, the Net Proceeds of the Disposition of the Additional Collateral, and (c) the Net Proceeds of any Equity Offering. The Redemption Price shall equal 100% of the unpaid principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon to the Redemption Date. The Redemption Date shall be a date determined by the Issuer which shall be no later than 30 21 days following receipt by the Trustee or the Issuer, as the case may be, of the Net Proceeds referred to in the first sentence of this Section 3.1. SECTION 3.2 Optional Redemption of Notes. The Issuer shall have the ---------------------------- right at any time and from time to time to redeem the Outstanding Notes, in whole or in part, at a Redemption Price equal to 100% of the unpaid principal amount thereof plus accrued and unpaid interest thereon to the Redemption Date. The Redemption Date shall be a date determined by the Issuer. SECTION 3.3 Delivery of Notices, Certificates and Opinions. ---------------------------------------------- (a) The Issuer shall notify the Trustee of any mandatory or optional redemption of Notes at least 20 days prior to the applicable Redemption Date (unless a shorter notice shall be satisfactory to the Trustee), specifying the Redemption Date and the principal amount of Notes to be redeemed. In the case of an optional redemption, such notice shall be accompanied by an Issuer Order. In the case of a mandatory redemption, such notice shall be accompanied or followed (no later than 12 days prior to the applicable Redemption Date) by an Officers' Certificate certifying the amount of the Net Proceeds and the calculation thereof, which amount shall be used for the redemption. In each case, such notice shall be accompanied by an Officers' Certificate setting forth the clause of this Indenture or the Notes pursuant to which redemption shall occur and a statement to the effect that such redemption will comply with the conditions contained therein. (b) Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 10 days prior to the Redemption Date, to each Holder of Notes to be redeemed, at his or her address, appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Notes are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Notes to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Note (or portion thereof) to be redeemed and that interest thereon will cease to accrue on and after said date, (5) the Conversion Price, the date on which the right to convert the principal of the Notes to be redeemed will terminate and the place or places where such Notes may be surrendered for conversion, and (6) the place or places where such Notes are to be surrendered for payment of the Redemption Price. 22 Notice of redemption of Notes to be redeemed shall be given by the Issuer or, at the Issuer's request, by the Trustee in the name and at the expense of the Issuer; provided, however, that the Issuer shall have delivered to the Trustee, at least 20 days prior to the Redemption Date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. (c) If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee in its sole discretion considers fair and appropriate; provided, however, that in the case of a mandatory redemption, selection of the portion of Notes for redemption shall be made by the Trustee only on a pro rata basis unless such method is otherwise prohibited by law. Notes and portions thereof that the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Issuer promptly of the Notes or portions of Notes to be redeemed. SECTION 3.4 Redemption of and Payment on Notes. Notice of ---------------------------------- redemption having been given as aforesaid, and the conditions, if any, set forth in such notice having been satisfied, the Notes or portions thereof so to be redeemed shall, on the Redemption Date, become due and payable, and from and after such date such Notes or portions thereof shall cease to bear interest. Upon delivery of any notice of redemption pursuant to Section 3.3 hereof, the Trustee shall establish a special purpose account (the "Redemption Account"). Following the Disposition of each of the Yonkers Property and the Additional Collateral, the Issuer shall transfer, or cause to be transferred, to the Trustee, immediately upon receipt, the full amount of proceeds therefrom, and the Trustee, immediately upon receipt, shall, in accordance with the terms of the Security Documents, transfer the full Redemption Price in Dollars to the Redemption Account which funds shall be held by the Trustee in the Redemption Account and applied to the redemption of such Notes on the Redemption Date. Following any Equity Offering, the Issuer shall transfer, or cause to be transferred, to the Trustee, immediately upon receipt, the full Redemption Price in Dollars, which amount after transfer to the Trustee by the Issuer shall be held by the Trustee in the Redemption Account and applied to the redemption of such Notes on the Redemption Date. In connection with any mandatory redemption pursuant to Section 3.1 hereof, upon receipt by the Trustee no later than one Business Day prior to the Redemption Date of one or more Officers' Certificates of the Issuer certifying the amounts of customary fees and expenses relating to the transaction resulting in such mandatory redemption, the Trustee shall promptly cause such fees and expenses to be paid from the funds held in the Redemption Account. In connection with any mandatory redemption pursuant to Section 3.1 hereof resulting from a Disposition of the Additional Collateral, the Issuer shall certify to the Trustee in an Officers' Certificate the maximum amount of proceeds of such Disposition that are to be used to redeem the Notes calculated in accordance with Section 12.1(b) hereof. In connection with any optional redemption by the Issuer pursuant to Section 3.2 hereof, the Issuer shall deposit with the Trustee or the Paying Agent on or prior to the Redemption Date money sufficient to pay the Redemption Price on all Notes to be redeemed on that date. Upon 23 surrender of any such Note for redemption in accordance with the notice thereof to Holders sent pursuant to Section 3.3 hereof, the Trustee shall pay an amount in respect of such Note or portion thereof as provided in such notice; provided, however, that any payment of interest on any Note, the Stated Maturity of which payment of interest is on or prior to the Redemption Date, shall be payable to the Holder of such Note or one or more Predecessor Notes, registered as such at the close of business on the related Regular Record Date according to the terms of such Note and subject to the provisions of Section 2.6 hereof. The Trustee or the Paying Agent shall promptly return to the Issuer any money deposited with or transferred to the Trustee or the Paying Agent by the Issuer in excess of the amounts necessary to pay the Redemption Price of or on behalf of all Notes to be redeemed. SECTION 3.5 Notes Redeemed in Part. Any Note that is to be redeemed ---------------------- only in part shall be surrendered at a Place of Payment therefor (with due endorsement by, or a written instrument of transfer in form satisfactory to the Issuer and the Trustee duly executed by, the Holder thereof or its attorney duly authorized in writing), and the Issuer shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Note, in each case as soon as practicable after the surrender of such Note (but in any event within 10 Business Days), without service charge, a new Note or Notes, of any authorized denomination requested by such Holder and of like tenor and in aggregate principal amount equal to and in exchange for the remaining unpaid principal amount of the Note so surrendered. SECTION 3.6 Cancellation of Notes. All Notes redeemed under any of --------------------- the provisions of this Indenture shall forthwith be canceled. ARTICLE 4 CONCERNING THE TRUSTEE SECTION 4.1 Duties and Responsibilities of Trustee; During Default; ------------------------------------------------------- Prior to Default. With respect to the Holders of Notes issued hereunder, the - ---------------- Trustee, prior to the occurrence of an Event of Default with respect to the Notes and after the curing or waiving of all Events of Default which may have occurred with respect to the Notes, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that (a) prior to the occurrence of an Event of Default with respect to the Notes and after the curing or waiving of all such Events of Defaults with respect to the Notes which may have occurred: (i) the duties and obligations of the Trustee with respect to the Notes shall be determined solely by the express provisions of this Indenture, and 24 the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such statements, certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical computations or other facts stated therein); (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders holding a sufficient percentage of Notes to give such direction as permitted by this Indenture relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (d) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Trustee shall have ground for believing that the repayment of such funds or adequate indemnity against such liability is not assured to it. Except as otherwise specifically provided herein, (i) all references in this Indenture to the Trustee shall be deemed to refer to the Trustee in its capacity as Trustee and in its capacity as Security Registrar and Paying Agent and (ii) every provision of this Indenture relating to the conduct or affecting the liability or offering protection, immunity or indemnity to the Trustee shall be deemed to apply with the same force and effect to the Trustee acting in its capacity as Security Registrar and Paying Agent. SECTION 4.2 Certain Rights and Duties of Trustee. Subject to ------------------------------------ Section 4.1 hereof and the Trust Indenture Act, in performing its duties and exercising its powers hereunder: (a) The Trustee may conclusively rely and shall be fully protected in acting, or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties or with respect to any action it takes or omits to take in good faith in 25 accordance with a direction received by it from Holders holding a sufficient percentage of Notes to give such direction as permitted by this Indenture. (b) Any request, direction, order or demand of the Issuer or BI mentioned herein shall be sufficiently evidenced by an instrument signed in the name of the Issuer or BI, as the case may be, by an Authorized Representative (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Issuer. (c) The Trustee may consult with counsel, and the advice of counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (d) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture and may refuse to perform any duty or exercise any such rights or powers unless it shall have received security or indemnity satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby. (e) The Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture with respect to any action it takes or omits to take in good faith in accordance with a direction received by it from Holders holding a sufficient percentage of Notes to give such direction as permitted by this Indenture. (f) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, appraisal, bond, debenture or other paper or document unless requested in writing so to do by the Holders of not less than a majority in aggregate principal amount of the Notes then Outstanding; provided, that, if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require indemnity satisfactory to it against such expenses or liabilities as a condition to so proceeding. The reasonable expense of every such investigation shall be paid by the Issuer or, if paid by the Trustee, shall be repaid by the Issuer upon demand. (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Trustee shall not be responsible for the willful misconduct or negligence on the part of or for the supervision of any agent or attorney appointed with due care by it hereunder. 26 (h) If an Event of Default has occurred and is continuing and the Trustee receives actual notice of such event, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (i) Every provision of this Indenture that in any way relates to the Trustee is subject to this Article 4. (j) The Trustee shall not be charged with knowledge of an Event of Default unless a Responsible Officer of the Trustee obtains actual knowledge of such event or the Trustee receives written notice of such event from the Issuer, BI or Holders owning Notes aggregating not less than 10% of the Outstanding principal amount of the Notes. (k) The Trustee shall have no duty to monitor the performance of the Issuer, nor shall it have any liability in connection with the malfeasance or nonfeasance by the Issuer or BI. The Trustee shall have no liability in connection with compliance by the Issuer or BI with statutory or regulatory requirements related to the transactions contemplated by this Indenture and the Security Documents. SECTION 4.3 Trustee Not Responsible for Recitals, Etc. The recitals ----------------------------------------- contained herein and in the Notes, except the Trustee's certificate of authentication, shall be taken as the statements of the Issuer or BI, as the case may be, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes or of the offering materials used in connection with the offering for sale or sale of the Notes. The Trustee shall not be accountable for the use or application by the Issuer of any of the Notes or of the proceeds of such Notes. SECTION 4.4 Trustee and Others May Hold Notes. The Trustee, or any --------------------------------- Paying Agent or Security Registrar or any other Authorized Agent of the Trustee, or any Affiliate thereof, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Issuer or any other obligor on the Notes with the same rights it would have if it were not Trustee, Paying Agent, Security Registrar or such other Authorized Agent. SECTION 4.5 Monies Held by Trustee or Paying Agent. All monies -------------------------------------- received by the Trustee or any Paying Agent shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law or this Indenture. The Trustee shall not be liable for interest on any money received by it, except as the Trustee may agree in writing with the Issuer. SECTION 4.6 Compensation of Trustee and Its Lien. The Issuer ------------------------------------ covenants and agrees to pay to the Trustee (all references in this Section 4.6 to the Trustee shall be deemed to apply to the Trustee in its capacities as Trustee, Paying Agent 27 and Securities Registrar) from time to time, and the Trustee shall be entitled to, compensation for all services rendered by it hereunder in such amounts as may be agreed to from time to time by the Trustee and the Issuer, and, except as herein otherwise expressly provided, the Issuer will pay or reimburse the Trustee upon its request for all reasonable expenses and disbursements incurred or made by the Trustee in accordance with any of the provisions of this Indenture and the Security Documents (including the reasonable compensation and the reasonable expenses and disbursements of its counsel and of all persons not regularly employed by it) exce pt any such expense or disbursement as may arise from its negligence or bad faith. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. If any property other than cash shall at any time be subject to the Lien of this Indenture, the Trustee, if and to the extent authorized by a receivership or bankruptcy court of competent jurisdiction or by the supplemental instrument subjecting such property to such Lien, shall be entitled, but shall not be required, to make advances for the purpose of preserving such property or of discharging tax liens or other prior liens or encumbrances thereon. The Issuer also covenants and agrees to indemnify the Trustee and its officers, directors, employees and agents for, and to hold them harmless against, any loss, liability, claim, damage or expense (including the reasonable compensation and expenses and disbursements of its counsel) incurred without negligence or bad faith on the part of the Trustee, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder and the performance of its duties and the exercise of its powers under this Indenture and the Security Documents, including the costs and expenses of defending itself against any claim or liability in the premises. The obligations of the Issuer under this Section 4.6 shall constitute additional Indebtedness hereunder. The rights of the Trustee and the obligations of the Issuer under this Section 4.6 shall survive the resignation or removal of the Trustee, the payment of the Notes, and the satisfaction, discharge or termination of this Indenture. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 8.1(d) or (e) hereof, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law. SECTION 4.7 Right of Trustee to Rely on Officers' Certificates and ------------------------------------------------------ Opinions of Counsel. Before the Trustee acts or refrains from acting with - ------------------- respect to any matter contemplated by this Indenture, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to the provisions of Section 1.2 hereof. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. SECTION 4.8 Persons Eligible for Appointment as Trustee. The ------------------------------------------- Trustee shall be a bank or trust company, shall be a Person organized and doing business under the laws of the United States or any State thereof, with a combined capital and surplus of at least US$100,000,000, and shall be authorized under such laws to exercise corporate trust powers, subject to supervision by Federal or state authorities. If such corporation publishes reports of condition at least annually, then, for the purposes of this 28 Section 4.8, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with this Section 4.8, the Trustee shall resign immediately in the manner and with the effect specified in Section 4.9 hereof. SECTION 4.9 Conflicting Interests; Resignation and Removal of ------------------------------------------------- Trustee; Appointment of Successor. - --------------------------------- (a) If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a conflicting interest by virtue of being a trustee under this Indenture with respect to the Notes. (b) The Trustee, or any trustee or trustees hereafter appointed, may at any time resign by giving written notice to the Issuer and by giving notice of such resignation to the Holders of such Notes in the manner provided in Section 1.14 hereof. Upon receiving such notice of resignation, the Issuer shall promptly appoint a successor trustee or trustees by written instrument executed by order of the Board of Directors, one copy of which instrument shall be delivered to each of the resigning trustee and the successor trustee. If no successor trustee shall have been so appointed and shall have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper, appoint a successor trustee. (c) In case at any time any of the following shall occur: (i) the Trustee shall cease to be eligible under Section 4.8 hereof with respect to the Notes and shall fail to resign after written request therefor by the Issuer or by any Holder, or (ii) the Trustee shall become incapable of acting with respect to the Notes, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, the Issuer may remove the Trustee with respect to the Notes and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Issuer, one copy of which instrument shall be delivered to each of the Trustee so removed and the successor Trustee, or, subject to the Trust Indenture Act, any Holder who has been a bona fide Holder of a Note may, on behalf of himself 29 and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor Trustee. (d) The Holders of a majority in aggregate principal amount of the Notes at the time Outstanding may at any time remove the Trustee and appoint a successor Trustee by delivering to the Trustee so removed, the successor Trustee so appointed and the Issuer a written instrument executed by such Holders evidencing the action taken by the Holders. (e) Any resignation or removal of the Trustee and any appointment of a successor Trustee pursuant to this Section 4.9 shall become effective only upon acceptance of appointment by the successor Trustee as provided in Section 4.10 hereof. SECTION 4.10 Acceptance of Appointment by Successor Trustee. Any ---------------------------------------------- successor Trustee appointed under Section 4.9 hereof shall execute, acknowledge and deliver to the Issuer and to its predecessor Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor Trustee hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written request of the Issuer or of the successor Trustee, the Trustee ceasing to act shall, upon payment of any such amounts then due it pursuant to the provisions of Section 4.6 hereof, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the Trustee so ceasing to act. Upon request of any such successor Trustee, the Issuer shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor Trustee all such rights and powers. Any Trustee ceasing to act shall, nevertheless, retain a Lien upon all property or funds held or collected by such Trustee to secure any amounts then due it pursuant to Section 4.6 hereof. No successor Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Trustee shall be qualified under the requirements of the Trust Indenture Act and eligible under the provisions of Section 4.8. Upon acceptance of appointment by a successor Trustee, the Issuer shall give notice of the succession of such Trustee hereunder to the Holders of Notes in the manner provided in Section 1.14 hereof. If the Issuer fails to give such notice within 10 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be given at the expense of the Issuer. SECTION 4.11 Merger, Conversion or Consolidation of Trustee. Any ---------------------------------------------- Person into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder 30 without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such successor Trustee shall be eligible under the provisions of Section 4.8 hereof and Section 310(a) of the Trust Indenture Act. SECTION 4.12 Preferential Collection of Claims Against Issuer and BI. ------------------------------------------------------- If and when the Trustee shall be or become a creditor of the Issuer or BI (or any other obligor upon the Notes or the Guarantee Obligations), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Issuer or BI (or any such other obligor). SECTION 4.13 Maintenance of Offices and Agencies. ----------------------------------- (a) There shall at all times be maintained in the Borough of Manhattan, The City of New York, an office or agency where Notes may be presented or surrendered for registration of transfer or exchange and for payment of principal and interest, and where notices and demands to or upon the Trustee in respect of such Notes or this Indenture may be served. Such office or agency shall be initially at the Corporate Trust Office. Written notice of the location of each of such other office or agency and of any change of location thereof shall be given by the Trustee to the Issuer and the Holders in the manner specified in Section 1.14 hereof. In the event that no such office or agency shall be maintained or no such notice of location or of change of location shall be given, presentations, surrenders and demands may be made and notices may be served at the Corporate Trust Office. (b) There shall at all times be a Security Registrar and a Paying Agent hereunder. Any Paying Agent (other than the Trustee) from time to time appointed hereunder shall execute and deliver to the Trustee an instrument in which said Paying Agent shall agree with the Trustee, subject to the provisions of this Section 4.13, that such Paying Agent will: (i) hold all sums held by it for the payment of principal and interest on the Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (ii) give the Trustee within three days thereafter notice of any default by any obligor upon the Notes in the making of any such payment of principal or interest; and (iii) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Notwithstanding any other provision of this Indenture, any payment required to be made to or received or held by the Trustee may, to the extent authorized by written instructions of the Trustee, be made to or received or held by a Paying Agent in the Borough of Manhattan, The City of New York, for the account of the Trustee. 31 The Trustee at its Corporate Trust Office is hereby appointed as a Paying Agent hereunder. (c) At any time when any Notes remain Outstanding, the Trustee may appoint an Authenticating Agent or Agents with respect to the Notes which shall be authorized to act on behalf of the Trustee to authenticate Notes issued upon original issuance, exchange, registration of transfer or partial redemption thereof or pursuant to Section 2.4 hereof, and Notes so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder (it being understood that wherever reference is made in this Indenture to the authentication and delivery of Notes by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent). If an appointment of an Authenticating Agent shall be made pursuant to this Section 4.13(c) with respect to the Notes, the Notes may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form: This Note is one of the Notes referred to in the within-mentioned Indenture. IBJ Whitehall Bank & Trust Company, as Trustee By:______________________________________ Authenticating Agent By:______________________________________ Authorized Signatory (d) Any Authorized Agent shall be a bank or trust company, shall be a Person organized and doing business under the laws of the United States or any State thereof, with a combined capital and surplus of at least US$100,000,000, and shall be authorized under such laws to exercise corporate trust powers, subject to supervision by Federal or state authorities. If such Authorized Agent publishes reports of its condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 4.13, the combined capital and surplus of such Authorized Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authorized Agent shall cease to be eligible in accordance with the provisions of this Section 4.13, such Authorized Agent shall resign immediately in the manner and with the effect specified in this Section 4.13. 32 (e) Any Person into which any Authorized Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, consolidation or conversion to which any Authorized Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authorized Agent, shall be the successor of such Authorized Agent hereunder, if such successor Person is otherwise eligible under this Section 4.13, without the execution or filing of any paper or any further act on the part of the parties hereto or such Authorized Agent or such successor Person. (f) Any Authorized Agent may at any time resign by giving written notice of resignation to the Trustee and the Issuer. The Issuer may, and at the request of the Trustee shall, at any time, terminate the agency of any Authorized Agent by giving written notice of such termination to the Authorized Agent and to the Trustee. Upon the resignation or termination of an Authorized Agent or in case at any time any such Authorized Agent shall cease to be eligible under this Section 4.13 (when, in either case, no other Authorized Agent performing the functions of such Authorized Agent shall have been appointed), the Issuer shall promptly appoint one or more qualified successor Authorized Agents approved by the Trustee to perform the functions of the Authorized Agent which has resigned or whose agency has been terminated or who shall have ceased to be eligible under this Section 4.13. The Issuer shall give written notice of any such appointment to all Holders pursuant to Section 1.14 hereof. (g) The Paying Agent shall comply with all applicable withholding, information reporting and back-up withholding tax requirements under the United States Internal Revenue Code of 1986, as amended, and the Treasury regulations issued thereunder in respect of any payment on, or in respect of a Note. SECTION 4.14 Trustee Risk. None of the provisions contained in this ------------ Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Trustee shall have ground for believing that the repayment of such funds or liability is not assured to it. Whether or not expressly provided herein, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to Section 4.2 hereof and the requirements of the Trust Indenture Act. SECTION 4.15 Appointment of a Co-Trustee. If the Trustee deems it --------------------------- necessary or desirable in order to carry out the purposes of this Indenture, the Trustee may appoint a co-Trustee, who shall be reasonably acceptable to the Issuer, with such powers of the Trustee as may be designated by the Trustee at the time of such appointment, and the Issuer shall, on request, execute and deliver to such co-Trustee any deeds, conveyances or other instruments reasonably required by such co-Trustee so appointed by the Trustee to more fully and certainly vest in and confirm to such co-Trustee its rights, powers, trusts, duties and obligations hereunder. In case any separate trustee or co-trustee, or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligation of such separate trustee or co-trustee, so far as permitted by law, shall vest in and be 33 exercised by the Trustee until the appointment of a new trustee or successor to such separate trustee or co-trustee. ARTICLE 5 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER SECTION 5.1 Issuer to Furnish Trustee Names and Addresses of Holders. -------------------------------------------------------- The Issuer will furnish or cause to be furnished to the Trustee (1) semi-annually, not later than January 15 and July 15 in each year, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Notes as of a date not more than 15 days prior to the time such list is furnished, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Issuer of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 5.2 Preservation of Information; Communications to Holders. ------------------------------------------------------ The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 5.1 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 5.1 upon receipt of a new list so furnished. The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Notes, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. Every Holder of Notes, by receiving and holding the same, agrees with the Issuer and the Trustee that neither the Issuer nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 5.3 Reports by Trustee. On or before March 1 in every year, ------------------ so long as any Notes are Outstanding hereunder, the Trustee shall transmit to the Holders a brief report, dated as of the preceding December 31, to the extent required by Section 313(a) of the Trust Indenture Act in accordance with the procedures set forth in said Section. The Trustee shall also transmit to the Holders any report required by Section 313(b) during the time specified in such subsection. A copy of each such report at the time of its mailing to Holders shall be filed with the SEC and each stock exchange, if any, on which the Notes are listed. The Issuer shall promptly notify the Trustee if the 34 Notes become listed on any stock exchange, and the Trustee shall comply with Section 313(d) of the Trust Indenture Act. SECTION 5.4 Reports by Issuer and BI. The Issuer and BI shall file ------------------------ with the Trustee and the SEC, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act. ARTICLE 6 COVENANTS SECTION 6.1 Payment of Notes. The Issuer shall pay the principal of ---------------- and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date U.S. legal tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. Notwithstanding anything to the contrary contained in this Indenture, the Issuer may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 6.2 Corporate Existence. Except as otherwise permitted by ------------------- Article 7, each of the Issuer and BI shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence in accordance with its organizational documents. SECTION 6.3 Compliance Certificate; Notice of Default. ----------------------------------------- (a) The Issuer shall deliver to the Trustee within 120 days after the end of the Issuer's fiscal year, an Officers' Certificate stating that a review of its activities and the activities of BI's and its subsidiaries during the preceding fiscal year, has been made under the supervision of the signing officer with a view to determining whether they have complied with their obligations under this Indenture and further stating that to the best of such officers' knowledge such entities during such preceding fiscal year have complied with each and every such covenant and no Default or Event of Default occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such officer does know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. (b) Upon becoming aware of any Default or Event of Default in the performance of any covenant, agreement or condition contained in this Indenture, the Issuer shall deliver to the Trustee, at its address set forth in Section 1.14 hereof, by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy by registered or certified mail, an Officers' Certificate specifying such event, notice or other action and any action the Issuer is taking or proposing to take in connection therewith. 35 SECTION 6.4 Impairment of Security Interest. Each of BI and the ------------------------------- Issuer shall not, and shall not permit any of its subsidiaries to, take or omit to take, any action which would have the result of impairing or adversely affecting the security interest with respect to the Collateral for the benefit of the Holders of the Notes. Notwithstanding the foregoing, nothing herein or in the Security Documents shall prohibit (i) the Disposition, at any time and from time to time, of all or any portion of the Collateral so long as the Net Proceeds of any such sale are applied in accordance with the provisions of the Security Documents and this Indenture or (ii) the release of any Collateral or Lien in accordance with the provisions of the Security Documents and this Indenture. SECTION 6.5 Amendments to Security Documents. Each of BI and the -------------------------------- Issuer shall not, and shall not permit any of its subsidiaries to, amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Security Documents, other than amendments, modifications or supplements which are otherwise permitted pursuant to the provisions of this Indenture and the Security Documents. SECTION 6.6 Reports of Holders. The Issuer will file with the ------------------ Trustee and provide to the Holders of the Notes, within 15 days after filing is or would have been required with the SEC, copies of the quarterly and annual reports (without exhibits) and of the other information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Issuer (i) files with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or (ii) would have been required to so file with the SEC if the Issuer was subject to Section 13 or 15(d) of the Exchange Act. Nothing herein shall require the Issuer to provide financial statements of the Issuer which are separate and unconsolidated from the financial statements of BI unless such unconsolidated financial statements are otherwise required to be filed with the SEC. SECTION 6.7 Limitation on Indebtedness. BI shall not, the Issuer -------------------------- shall not and the Issuer shall not permit any of its subsidiaries to, incur any Indebtedness; provided that the Issuer and its subsidiaries may incur the Indebtedness described in clauses (i) through (v) below and BI may incur the Indebtedness described in clauses (i) through (iii) below; provided that any indebtedness incurred by BI pursuant to clause (iii) below shall rank pari passu with the BI Guarantee: (i) Indebtedness under the New Credit Facility, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time by one or more other agreements, instruments or documents; provided, however, that any such amendment, restatement, modification, renewal, refunding, replacement or refinancing pursuant to this Section 6.7(i) shall not cause the amount of such Indebtedness to exceed $270 million plus any guarantees thereof; (ii) the Notes, the Guarantees and any other Indebtedness incurred pursuant to the Plan, as amended, restated, modified, renewed, refunded, replaced 36 or refinanced in whole or in part from time to time by one or more other agreements, instruments or documents; (iii) Indebtedness, which may be in addition to Indebtedness incurred pursuant to clause (i) above, incurred in connection with the acquisition (by purchase, lease or otherwise) of additional store sites (including Indebtedness incurred under any agreement, instrument or document referred to under Section 6.7(i) hereof or otherwise) to finance the fixtures, equipment, inventory and other costs and expenses associated with such store sites); (iv) Indebtedness incurred to finance or refinance capital expenditures; and (v) Indebtedness incurred in the ordinary course of business of the Issuer and BI and their subsidiaries as of the date hereof in accordance with past practices. SECTION 6.8 Delivery of Title Policies. --------------------------- (a) The Issuer agrees that it shall deliver to the Trustee the following documents, in form and substance satisfactory to the Trustee, as directed by the Holders of a majority of the outstanding aggregate principal amount of the Notes (the "Majority"), and/or take the following actions in a manner acceptable to the Trustee, as directed by the Majority: As promptly as practicable, and in any event within forty-five (45) days following the Effective Date, the Issuer shall deliver to the Trustee title policies (and any endorsements thereto reasonably requested by the Trustee, as directed by the Majority; provided such endorsements are available from the insurer selected by the Issuer and provided further that in no event shall the costs of such endorsements exceed $50,000 in the aggregate) insuring the Liens of the Leasehold Mortgages on property leased by the Issuer or Yonkers (as the case may be) located in Yonkers, New York, Saddle Brook, New Jersey and Danbury and Norwalk, Connecticut with ALTA Extended Coverage Mortgagee Loan Policies (10-17-92 or if available with respect to New Jersey and Connecticut properties ALTA 1970 amended 10-17-70 and 10-17-84) as valid liens prior and superior to all other liens, security interests, encumbrances or other interests in and to such leaseholds, subject only to standard printed exceptions therein and to such additional exceptions that do not adversely affect the value or use of each mortgaged property or the Trustee's ability to effectively realize the benefits of the liens and security interests created pursuant to such Leasehold Mortgages in any material respect. If the Lien of any of the Leasehold Mortgages is not insurable in accordance with the foregoing standards for any reason, the Issuer shall, within such forty-five (45) day period, either (A) correct the condition giving rise to such title defect or (B) provide the Trustee with (i) an insurable replacement mortgage or mortgages encumbering other leasehold interests held by the Issuer and mutually acceptable to the Issuer and the Trustee, as directed by the Majority, which satisfies the foregoing requirements, (ii) legal opinions 37 regarding such replacement mortgages substantially consistent with the opinions delivered to the Trustee on the Effective Date, and (iii) title insurance insuring such replacement mortgages consistent with this Section 6.8(a). The Issuer shall pay all costs and expenses, including the cost of title insurance, legal opinions, mortgage taxes and filing fees, incurred in connection with the Leasehold Mortgages and any replacement mortgages. The Trustee shall respond promptly to written requests by the Issuer to consent to any proposed title policies or replacement properties, provided that any failure by the Trustee to respond to the Issuer within five (5) business days of any such request shall result in a one (1) day extension of the forty-five (45) day period for each day or portion thereof that the Trustee fails to so respond. (b) If the Issuer fails to timely comply with any of the requirements set forth in Section 6.8(a) for any reason whatsoever (including, without limitation, the Issuer's inability to agree on any replacement collateral), the Noteholders will suffer monetary and other damages. The amount of such damages, however, will be impossible to determine, and thus the Issuer agrees to pay to the Trustee as liquidated damages for the ratable benefit of the Noteholders, $5,000 per day (payable on demand in one or more payments) commencing on the date of failure to comply with such obligations and continuing to the date upon which the Issuer's obligations hereunder have been satisfied. (c) Upon receipt of any amounts received by the Trustee pursuant to Section 6.8(b) hereof, the Trustee shall distribute such amounts to the Noteholders ratably as their interests shall appear on the registrar books of the Trustee five (5) Business Days prior to such distribution; provided, however, that such payments shall not be credited towards principal or interest payable under the Notes. The Trustee may set the date for such distribution, which shall be at least once a month. (d) Any and all actions or approvals required to be taken or given by the Trustee pursuant to Section 6.8 shall be taken or given solely upon the written direction of the Majority; provided that such direction shall not be otherwise than in accordance with applicable law. SECTION 6.9 Disposition of Yonkers Property. If the Yonkers ------------------------------- Property is not sold to a third party by August 27, 1999, New Horizons shall use its best efforts to extend the Yonkers Effective Date (as defined in the Plan) to a date specified by the Trustee and shall seek such further extensions as may be reasonably requested by the Trustee. The Issuer and New Horizons shall use reasonable efforts to market and sell the Yonkers Property; provided, however, that any listing or similar agreement entered into by the Issuer or New Horizons shall provide that as of August 1, 1999, the Trustee shall have the right to market the Yonkers Property. The Issuer and New Horizons agree that if they receive a bona fide cash offer to purchase the Yonkers Property in an amount equal to or greater than $15,000,000 (excluding customary prorations and transaction costs), then the Issuer shall seek to cause New Horizons to sell the Yonkers Property to such offeror. If New Horizons has not conveyed the Yonkers Property to a third party purchaser on or before July 31, 1999, then, upon receiving written notice from the Trustee (and, with respect to the following clauses (i), (ii) and (iii), upon receipt of an 38 order of the United States Bankruptcy Court with jurisdiction over the Chapter 11 case of New Horizons authorizing clauses (i), (ii) and (iii) or an order of dismissal of such case), (i) the Trustee shall have the right to market the Yonkers Property, (ii) the Trustee shall have the right to negotiate and agree to the sale price and other terms and conditions relating to the sale of the Yonkers Property, including, without limitation, the form of sale agreement (the "Sale Agreement"), (iii) New Horizons and the Issuer shall promptly execute, deliver and agree to be bound by any Sale Agreement approved by the Trustee, regardless if New Horizons and the Issuer did not negotiate and do not approve the terms of such Sale Agreement, (iv) at the option of the Trustee and without notice to the Issuer, the Trustee may transfer to or register in the name of the Trustee or any other party designated by the Trustee, for the benefit of the Holders, the Pledged Stock (provided that in no event shall the Trustee be obligated to accept a conveyance of the Pledged Stock unless the Trustee agrees to accept such conveyance), in which event, (a) the Pledged Stock shall remain subject to the Security Agreement and the Yonkers Property shall remain subject to the Leasehold Mortgage, (b) the Issuer shall indemnify the entity accepting the Pledged Stock for and against all liability and costs relating to the use and ownership of the Yonkers Property arising from any events or acts occurring prior to the date the Pledged Stock is conveyed to the party designated by the Trustee, (c) New Horizons shall, and the entity accepting the conveyance of the Pledged Stock shall cause New Horizons to, enter into a use agreement with the Issuer providing, among other things, that the Issuer may operate a Bradlees store at the Yonkers Property, the Issuer shall comply with the Yonkers Property lease and all other documents, laws and regulations applicable to the use and ownership of the Yonkers Property, the Issuer shall pay to and indemnify New Horizons from and against all costs, expenses, liabilities and claims relating to the use and ownership of the Yonkers Property, and, subject to any agreements or laws applicable to the Yonkers Property or such sale, the Issuer may remove its property from the Yonkers Property (including, without limitation, (i) all inventory and equipment and (ii) all other personal property other than fixtures and personal property not subject to a lien in favor of the Trustee, all as defined or used in the Uniform Commercial Code as in effect in the State of New York) and/or conduct a going-out-of-business or other public or private sale at the Yonkers Property during the one hundred twenty (120) day period prior to the date the Yonkers Property is sold to a third party, (d) New Horizons shall comply with the terms of the lease with respect to the Yonkers Property at all times prior to the date the Yonkers Property is sold to a third party, 39 (v) if the Trustee collects any money or property pursuant to this Section 6.9, it shall pay out such money or property in the following order: (a) First, all costs incurred by the Trustee in connection with the marketing, sale - ----- and ownership of the Yonkers Property shall be paid from the proceeds resulting from the sale of the Yonkers Property, including, without limitation, brokerage and listing fees and costs, attorneys fees and costs, title insurance costs and recording fees and taxes, and (b) Second, all proceeds from the sale of the ------ Yonkers Property shall be distributed to the Holders in accordance with the Indenture and the Security Documents, (vi) the Issuer and New Horizons shall seek to enter into all documents necessary to effect the obligations set forth in this Section 6.9, which documents shall be subject to the approval of the Trustee, which approval the Trustee may withhold in its sole discretion, (vii) notwithstanding anything to the contrary in this Indenture, the Trustee, on behalf of the Noteholders, shall exercise its rights set forth in this Section 6.9 only as authorized in writing by the Holders of a majority of the then outstanding aggregate principal amount due under the Notes, and (viii) failure by the Issuer and/or New Horizons to perform their obligations under this Section 6.9 shall be an Event of Default and shall entitle the Trustee to exercise any and all rights and remedies available at law, in equity or pursuant to this Indenture, including, without limitation, specific performance. It being understood that the Trustee shall be under no obligation to exercise any rights or powers described in this Section 6.9 and may refuse to perform any duty or exercise any such rights or powers unless it shall have received security or indemnity, in the Trustee's sole discretion, satisfactory to it against any and all costs, expenses and liabilities which may be incurred therein or thereby. ARTICLE 7 SUCCESSOR CORPORATION; MERGER, CONSOLIDATION AND SALE OF ASSETS SECTION 7.1 Merger, Consolidation and Sale of Assets. Each of BI ---------------------------------------- and the Issuer (each a "Constituent Entity") will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose all or substantially all of the Constituent Entity's assets whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) such Constituent Entity shall be the surviving or continuing entity or (2) the Person or Persons (if other than such Constituent Entity) formed by such consolidation or into which such Constituent Entity is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all the properties and assets of such Constituent Entity (the "Surviving Entity") shall be a Person or Persons organized and existing under the laws of any jurisdiction of the United States and shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, (a) in the case of a 40 transaction involving the Issuer, the due and punctual payment of the principal and interest on all of the Notes and the performance of every covenant and obligation of the Issuer under the Notes and the Indenture and the Security Documents to be performed or observed or (b) in the case of a transaction involving BI, the Guarantee Obligations and the other obligations of BI under the Indenture; (ii) immediately before and immediately after giving effect to such transaction and the assumption contemplated above, no Default or Event of Default shall have occurred or be continuing; and (iii) such Constituent Entity or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. Notwithstanding the preceding sentence, so long as no Default or Event of Default shall have occurred or be continuing, (a) any subsidiary of BI or the Issuer may consolidate with, merge into or transfer all or part of its properties and assets to BI or the Issuer; (b) BI or the Issuer may merge with an Affiliate incorporated solely for the purpose of reincorporating in another jurisdiction in the United States; and (c) the Issuer and BI may merge with or into each other. SECTION 7.2 Successor Corporation Substituted. Upon any --------------------------------- consolidation, combination or merger or any transfer of all or substantially all of the assets of a Constituent Entity in accordance with the foregoing, in which such Constituent Entity is not the continuing corporation, the successor Person formed by such consolidation or into which such Constituent Entity is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, such Constituent Entity under this Indenture and the Notes with the same effect as if such surviving entity had been named as such; provided that the predecessor entity in the case of a conveyance, transfer or lease shall not be released from the obligation to pay the principal of and interest on the Notes or honor the Guarantee Obligations, as applicable. ARTICLE 8 DEFAULT SECTION 8.1 Events of Default. It shall be an Event of Default ----------------- hereunder if any of the following events shall have occurred and be continuing: (a) the Issuer fails to pay interest on any Notes when the same becomes due and payable and such default continues for a period of 15 days; or (b) failure to pay the principal on any Notes when such principal becomes due and payable, at maturity, acceleration, upon redemption or otherwise; or (c) the Issuer, New Horizons or BI defaults in the observance or performance of any other covenant or agreement on its part contained in this Indenture or the Security Documents, which default continues for a period of 30 days after the Issuer, New Horizons or BI, as the case may be, receive written notice specifying the default 41 (and demanding that such default be remedied) from the Holders of at least 25% of the principal amount of the Outstanding Notes (it being understood that the failure to have obtained the United States Bankruptcy Court order referred to in Section 13.21 hereof shall not result in a Default or Event of Default hereunder); or (d) subject to the last paragraph of this Section 8.1, the Issuer, BI, New Horizons or a Significant Subsidiary (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; or (e) subject to the last paragraph of this Section 8.1, a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Issuer, BI, New Horizons or a Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Issuer, BI, New Horizons or a Significant Subsidiary, (B) appoint a Custodian of the Issuer, BI, New Horizons or a Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of the affairs of the Issuer, BI, New Horizons or a Significant Subsidiary; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (f) subject to the last paragraph of this Section 8.1, a petition under any Bankruptcy Law seeking reorganization, arrangement, adjustment or composition in respect of the Issuer, BI, New Horizons or a Significant Subsidiary is filed and not controverted within the time prescribed by applicable law or court order or dismissed within 90 days; or (g) any one or more judgments or orders as to a liability or debt for the payment of money (not covered by insurance or workers' compensation payments) in excess of $5 million in the aggregate shall be rendered against the Issuer, BI, New Horizons or a Significant Subsidiary and either (i) enforcement proceedings shall have been commenced and shall be continuing by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal, payment or otherwise, shall not be in effect; or (h) BI fails to deliver shares of New Common Stock in accordance with Article 9 hereof when such delivery is required upon conversion of any Note and such failure continues for a period of three Trading Days; or (i) the BI Guarantee ceases to be in full force and effect or BI denies or disaffirms its obligations under the BI Guarantee and such default continues for a period of 10 days after the notice specified in clause (c) above; or 42 (j) any of the Liens created by the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby for any reason other than satisfaction in full of all obligations under this Indenture and discharge of this Indenture or any reason other than a cessation permitted by and in accordance with this Indenture and the Security Documents; provided that the Issuer shall have 30 days to cure any such cessation; or (k) the collateral agent under the New Credit Facility, has commenced the exercise of its remedies with respect to amounts outstanding under the New Credit Facility or the collateral securing the Issuer's obligations under the New Credit Facility; provided that neither the termination of the Issuer's right to receive loans, advances and other financial accommodations under the New Credit Facility nor the acceleration and demand for payment of Indebtedness under the New Credit Facility shall constitute or be deemed to constitute an "exercise of remedies" for purposes of this Section 8.1(k). For purposes of this Section 8.1, the following conditions or events which would otherwise constitute a Default or Event of Default under clause (d), (e) or (f) above shall not so constitute a Default or Event of Default: any condition or event which is in existence on the issue date of the Notes. SECTION 8.2 Acceleration. If an Event of Default (other than an ------------ Event of Default specified in Section 8.1(d), (e) or (f) with respect to the Issuer, New Horizons or BI) occurs and is continuing and has not been waived pursuant to Section 8.10, then the Holders of at least 25% in principal amount of Outstanding Notes may declare the principal of and accrued interest on all the Notes to be due and payable by notice in writing to the Issuer and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same shall become immediately due and payable after receipt by the Issuer of such Acceleration Notice but only if such Event of Default is then continuing. Upon any such declaration, but subject to the immediately preceding sentence, such amount shall be immediately due and payable. If an Event of Default specified in Section 8.1(d), (e) or (f) occurs and is continuing with respect to the Issuer, New Horizons or BI, all unpaid principal and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration with respect to the Notes in accordance with this Section 8.2, the Holders of a majority in principal amount of the outstanding Notes may, on behalf of the Holders of all of the Notes, rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid and (iv) if the Issuer has paid the Trustee 43 its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances, and all other amounts due the Trustee under Section 4.6. No such rescission shall affect any subsequent Event of Default or impair any right consequent thereto. SECTION 8.3 Collection of Indebtedness by Trustee; Trustee May -------------------------------------------------- Prove Debt. If an Event of Default in payment of principal of or interest on - ---------- any of the Notes specified in clause (a) or (b) of Section 8.1 occurs and is continuing, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against the Issuer, New Horizons or BI upon such Notes or Guarantee Obligations, as the case may be, and collect in the manner provided by law out of the property of the Issuer (including, without limitation, the Collateral), New Horizons or BI upon such Notes or Guarantee Obligations, as the case may be, wherever situated, the moneys adjudged or decreed to be payable. All rights of action and of asserting claims under this Indenture, the Security Documents or under any of the Notes may be enforced by the Trustee without the possession of any of the Notes or the production thereof on any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Trustee, each predecessor Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Holders of the Notes in respect of which such action was taken. In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture, the Security Documents or the Notes to which the Trustee shall be a party), the Trustee shall be held to represent all the Holders of the Notes in respect to which such action was taken, and it shall not be necessary to make any Holders of such Notes parties to any such proceedings. SECTION 8.4 Application of Proceeds. If the Trustee collects any ----------------------- money or property pursuant to this Article 8, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 4.6; ----- Second: to Holders for amounts due and unpaid on the Notes for ------ interest and all other amounts (excluding principal) payable on the Notes to the Holders hereunder by the Issuer, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for interest and such other amounts, respectively; 44 Third: to Holders for amounts due and unpaid on the Notes for ----- principal, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal; and Fourth: to the Issuer or any other obligor on the Notes, as their ------ interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Issuer, may fix a record date and payment date for any payment to Holders pursuant to this Section 8.4. SECTION 8.5 Other Remedies. If an Event of Default occurs and is -------------- continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes, this Indenture or the Security Documents. Each Noteholder, by accepting a Note, acknowledges that the exercise of remedies by the Trustee with respect to the Collateral is subject to the terms and conditions of the Security Documents and the proceeds received upon realization of the Collateral shall be applied by the Trustee in accordance with Section 8.4 hereof and applicable law. SECTION 8.6 Restoration of Rights on Abandonment of Proceedings. --------------------------------------------------- In case the Trustee shall have proceeded to enforce any right under this Indenture or the Security Documents and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, then and in every such case the Issuer and the Trustee shall be restored respectively to their former positions and rights hereunder and under the Security Documents, and all rights, remedies and powers of the Issuer, the Trustee and the Noteholders shall continue as though no such proceedings had been taken. SECTION 8.7 Limitations on Suits by Noteholders. No Holder of any ----------------------------------- Note shall have any right by virtue or by availing itself of any provision of this Indenture or of the Notes to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to this Indenture or the Security Documents, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy hereunder or under the Notes, unless such Holder previously shall have given to the Trustee written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of not less than 25% in aggregate principal amount of the Notes then Outstanding shall have made written request upon the Trustee to institute such action or proceedings in its own name as trustee hereunder and shall have provided to the Trustee such indemnity satisfactory to it as it may require against the costs, expenses and liabilities to be incurred therein or thereby and the Trustee for 10 days after its receipt of such notice, request and indemnity shall have failed to institute any such action or proceeding and no direction inconsistent with such written request shall have been given to the Trustee pursuant to Section 8.9, it being understood and intended, and being expressly covenanted by the taker and Holder of every Note with every other taker and Holder and the Trustee, that no one or more Holders of Notes shall 45 have any right in any manner whatever by virtue or by availing itself of any provision of this Indenture to affect, disturb or prejudice the rights of any other Holder of Notes, or to obtain or seek to obtain priority over or preference to any other Holder or to enforce any right under this Indenture or under the Notes, except in the manner herein provided and for the equal, ratable and common benefit of all Holders of Notes. For the protection and enforcement of the provisions of this Section, each and every Noteholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 8.8 Powers and Remedies Cumulative; Delay or Omission Not ----------------------------------------------------- Waiver of Default. No right or remedy herein conferred upon or reserved to the - ----------------- Trustee or to the Noteholders is intended to be exclusive or any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. No delay or omission of the Trustee or of any Noteholder to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and every power and remedy given by this Indenture or the Security Documents or by law to the Trustee or to the Noteholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Noteholders. SECTION 8.9 Control by Noteholders. The Holders of a majority in ---------------------- aggregate principal amount of the Notes at the time Outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee with respect to the Notes by this Indenture or the Security Documents; provided that such direction shall not be otherwise than in accordance with applicable law (including, without limitation, the Trust Indenture Act) and the provisions of this Indenture and provided further that (subject to the provisions of Section 4.1 hereof) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, shall determine that the action or proceeding so directed may not lawfully be taken or if the Trustee in good faith by action of Responsible Officers of the Trustee shall determine that the action or proceedings so directed would involve the Trustee in personal liability or if the Trustee in good faith shall so determine that the actions or forbearance specified in or pursuant to such direction would be unduly prejudicial to the interests of Holders of the Notes not joining in the giving of said direction, it being understood that (subject to Section 4.1 hereof) the Trustee shall have no duty to ascertain whether or not such actions or forbearance are unduly prejudicial to such Holders. Nothing in this Indenture or the Security Documents shall impair the right of the Trustee in its discretion to take any action deemed proper by the Trustee and which is not inconsistent with such direction or directions by Noteholders. 46 SECTION 8.10 Waiver of Defaults. The Holders of a majority of the ------------------ aggregate principal amount of the Notes Outstanding (or of such lesser percentage as may act at a meeting of Noteholders) may on behalf of the Holders of all the Notes Outstanding waive any past default or Event of Default with respect to the Notes, except a default in the payment of the principal of or interest on any Note or a default in respect of a covenant or provision hereof that cannot be modified or amended without the consent of each Holder affected as provided in Section 11.2 hereof. Any such waiver shall be accompanied by notice to the Trustee of such waiver. In case of any such waiver, the Issuer, the Trustee and the Holders of the Notes shall be restored to their former positions and rights hereunder, respectively. Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 8.11 Unconditional Right of Holders to Receive Principal and ------------------------------------------------------- Interest. Notwithstanding any other provision in this Indenture, the Holder of - -------- any Note shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest on such Note on its Stated Maturity as expressed in such Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 8.12 Undertaking for Costs. All parties to this Indenture --------------------- agree, and each Holder of any Note by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit other than the Trustee of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Noteholder or group of Noteholders holding in aggregate more than 10% in principal amount of Outstanding Notes, or any suit instituted by a Noteholder for enforcement of payment of the principal of, or interest on, any Note on or after the date such amount is required to be paid or for the enforcement of the right to convert any Note in accordance with Article 9. SECTION 8.13 Trustee May File Proofs of Claim. In case of any -------------------------------- judicial proceeding relative to the Issuer (or any other obligor upon the Notes), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the 47 same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments dire ctly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 4.6. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. SECTION 8.14 New Credit Facility Waivers and Consents. With respect ---------------------------------------- to the Trustee's exercise of its rights and remedies under Sections 8.3, 8.5 and 8.8, the Trustee shall comply with the New Credit Facility Waivers and Consents, if and to the extent applicable. ARTICLE 9 CONVERSION OF NOTES SECTION 9.1 Conversion Privilege. Subject to and upon compliance -------------------- with the provisions of this Article 9, at the option of the Holder thereof, the then outstanding principal amount of any Note may at any time after the first anniversary of the original issuance of the Notes be converted, in whole, or in part in multiples of $1,000 principal amount, into fully paid and non-assessable shares of New Common Stock issuable upon conversion of the Notes, at the Conversion Price in effect at the Date of Conversion, until and including, but not after the close of business on the second Business Day prior to the Maturity Date, or unless such Note or some portion thereof shall have been called for redemption prior to such date and no default is made in making due provision for the payment of the Redemption Price in accordance with the terms of this Article 9 and the Notes, in which case, with respect to such Note or portion thereof as has been so called for redemption, such Note or portion thereof may be so converted until and including, but not after, the close of business on the second Business Day prior to the Redemption Date for such Note, unless the Issuer subsequently fails to pay the applicable Redemption Price. SECTION 9.2 Exercise of Conversion Privilege. In order to exercise -------------------------------- the conversion privilege, the Holder of any Note to be converted shall surrender such Note to BI at any time during usual business hours at its office or agency maintained for the purpose as provided in this Indenture, accompanied by a fully executed written notice, in substantially the form set forth on the reverse of the Note, that the Holder elects to convert such Note or a stated portion thereof constituting a multiple of $1,000 principal amount, and, if such Note is surrendered for conversion during the period between the close of business on any Regular Record Date and the opening of business 48 on the next following Stated Maturity for the payment of interest and has not been called for redemption on a Redemption Date which occurs within such period, accompanied also by payment to the Issuer of an amount equal to the interest payable on such Stated Maturity on the principal amount of the Note being surrendered for conversion, notwithstanding such conversion. The Holder of any Note at the close of business on a Regular Record Date will be entitled to receive the interest payable on such Note on the corresponding Stated Maturity for the payment of interest notwithstanding the conversion thereof after such Regular Record Date. The interest payment with respect to a Note called for redemption on a date during the period from the close of business on or after any Regular Record Date to the close of business on the Business Day following the corresponding Stated Maturity will be payable on the corresponding Stated Maturity to the registered Holder at the close of business on that Regular Record Date (notwithstanding the conversion of such Note after the corresponding Stated Maturity) and a Holder who elects to convert need not include funds equal to the interest paid. A notice of conversion shall state the name or names (with address) in which the certificate or certificates for shares of New Common Stock shall be issued. Notes surrendered for conversion shall (if reasonably required by BI or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to BI duly executed by the Holder or his attorney duly authorized in writing. As promptly as practicable after the receipt of such notice and the surrender of such Note as aforesaid, BI shall, subject to the provisions of Section 9.9 herein, issue and deliver at such office or agency to such Holder, or in accordance with the written instruction of the Holder, a certificate or certificates for the number of full shares of New Common Stock issuable on such conversion of New Notes in accordance with the provisions of this Article 9 and cash, as provided in Section 9.3 in respect of any fraction of a share of New Common Stock otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date (the "Date of Conversion") on which such Note shall have been surrendered as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of New Common Stock shall be issuable upon such conversion shall be deemed to have become on the Date of Conversion the holder or holders of record of the shares represented thereby; provided, however, that any such surrender on any date when the stock transfer books of BI are closed shall cause the person or persons in whose name or names the certificate or certificates for such shares are to be issued to be deemed to have become the recordholder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open but such conversion shall nevertheless be at the Conversion Price in effect at the close of business on the date when such Note shall have been so surrendered with the conversion notice. In the case of conversion of a portion, but less than all, of a Note, the Issuer shall as promptly as practicable execute, and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Issuer, a Note or Notes in the aggregate principal amount of the unconverted portion of the Note surrendered. Except as otherwise expressly provided in this Indenture, no payment or adjustment shall be made for interest accrued on any Note (or portion thereof) converted 49 or for dividends or distributions on any New Common Stock issued upon conversion of any Note. SECTION 9.3 Fractional Interests. No fractions of shares or scrip -------------------- representing fractions of shares shall be issued upon conversion of any Note. If more than one Note shall be surrendered for conversion at one time by the same holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Notes so surrendered. If any fraction of a share of New Common Stock would, except for the foregoing provisions of this Section 9.3, be issuable on the conversion of any Note or Notes, The Issuer shall make payment in lieu thereof in an amount of cash equal to the value of such fraction computed on the basis of the last sale price of the New Common Stock as reported on the NASDAQ (or if not listed for trading thereon, then on the principal national securities exchange on which the New Common Stock is listed or admitted to trading) at the close of business on the Date of Conversion or if no such sale takes place on such day, the last sale price for such day shall be the average of the closing bid and asked prices regular way on the NASDAQ (or if not listed for trading thereon, on the principal national securities exchange on which the New Common Stock is listed or admitted to trading) for such day (any such last sale price, the "Last Sale Price"). If on such Trading Day the New Common Stock is not quoted by any such organization, the closing price on the prior Trading Day shall be used. SECTION 9.4 Conversion Price. The Conversion Price per share of New ---------------- Common Stock issuable upon conversion of the Notes shall initially be the price equal to the arithmetic unweighted average closing price of such stock (or, for any day on which no closing price is reported, the average of the bid and ask prices) during the 20 Business Days prior to the one year anniversary of the original issuance of the Notes. SECTION 9.5 Adjustment of Conversion Price; Notice of Adjustments. ----------------------------------------------------- The Conversion Price shall be subject to adjustment from time to time as follows: (a) In case BI shall (1) make or pay a dividend (or other distribution) in shares of New Common Stock on any class of capital stock of BI, (2) subdivide its outstanding shares of New Common Stock into a greater number of shares, or (3) combine or reclassify its outstanding shares of New Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such action shall be adjusted so that the Holder of any Note thereafter surrendered for conversion shall be entitled to receive the number of shares of New Common Stock that such Holder would have owned immediately following such action had such Note been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately, except as provided in subsection (h) below, after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. (b) In case BI shall issue rights, options or warrants to all holders of New Common 50 Stock entitling them to subscribe for or purchase shares of New Common Stock at a price per share less than the then current market price per share of the New Common Stock (as determined pursuant to subsection (f) below) on the record date mentioned below, the Conversion Price shall be adjusted to a price, computed to the nearest cent, so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which: (i) the numerator shall be (A) the number of shares of New Common Stock outstanding on the date of issuance of such rights, options or warrants, immediately prior to such issuance, plus (B) the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such current market price (determined by multiplying such total number of shares by the exercise price of such rights, options or warrants and dividing the product so obtained by such current market price); and (ii) the denominator shall be (A) the number of shares of New Common Stock outstanding on the date of issuance of such rights, options or warrants, immediately prior to such issuance, plus (B) the number of additional shares of New Common Stock which are so offered for subscription or purchase. Such adjustment shall become effective immediately, except as provided in subsection (h) below, after the record date for the determination of holders entitled to receive such rights, options or warrants; provided, however, that if any such rights, options or warrants issued by BI as described in this subsection (b) are only exercisable upon the occurrence of certain triggering events relating to changes in control and provided for in shareholder rights plans, then the Conversion Price will not be adjusted as provided in this subsection (b) until such triggering events occur. (c) In case BI or any subsidiary of BI shall distribute to all holders of New Common Stock, any of its assets, evidences of Indebtedness, cash or other assets or shares of capital stock other than New Common Stock (including securities, but other than (x) dividends or distributions exclusively in cash or (y) any dividend or distribution for which an adjustment is required to be made in accordance with subsection (a) or (b) above), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the then current market price per share of the New Common Stock (determined as provided in subsection (f) below) on the record date mentioned below less the then fair market value (as reasonably determined in good faith by the Board of Directors of BI) of the portion of the assets so distributed applicable to one share of New Common Stock, and of which the denominator shall be such current market price per share of the New Common Stock. Such adjustment shall become effective immediately, except as provided in subsection (h) below, after the record date for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event that the fair market value of the assets , evidences of Indebtedness or other securities so distributed applicable to one share of New Common Stock equals or exceeds 51 such current market price per share of New Common Stock, or such current market price exceeds such fair market value by less than $0.10 per share, the Conversion Price shall not be adjusted pursuant to this subsection (c) and, to the extent applicable, the provisions of subsection (k) shall apply to such distribution. (d) In case BI or any subsidiary of BI shall make any distribution consisting exclusively of cash (excluding any cash portion of distributions for which an adjustment is required to be made in accordance with (c) above, or cash distributed upon a merger or consolidation) to all holders of New Common Stock in an aggregate amount that, combined together with (i) all other such all-cash distributions made within the then preceding 12 months in respect of which no adjustment has been made and (ii) any cash and the fair market value of other consideration paid or payable in respect of any tender offer by BI or any of its subsidiaries for New Common Stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 15% of BI's market capitalization (defined as being the product of the then current market price of the New Common Stock (determined as provided in subsection (f) below) times the number of shares of New Common Stock then outstanding) on the record date of such distribution, then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the then current market price per share of the New Common Stock on such record date less the amount of the cash so distributed applicable to one share of New Common Stock, and of which the denominator shall be such current market price per share of the New Common Stock. Such adjustment shall become effective immediately, except as provided in subsection (h) below, after the record date for the determination of stockholders entitled to receive such distribution. Notwithstanding the foregoing, in the event that the cash so distributed applicable to one share of New Common Stock equals or exceeds such current market price per share of New Common Stock, or such current market price exceeds such amount of cash by less than $0.10 per share, the Conversion Price shall not be adjusted pursuant to this subsection (d), and, to the extent applicable, the provisions of subsection (k) shall apply to such distribution. (e) In case there shall be completed a tender or exchange offer made by BI or any subsidiary of BI for all or any portion of the New Common Stock (any such tender or exchange offer being referred to as an "Offer") that involves an aggregate consideration having a fair market value as of the expiration of such Offer (the "Expiration Date") that, together with (i) any cash and the fair market value of any other consideration payable in respect of any other Offer, as of the expiration of such other Offer, expiring within the 12 months preceding the expiration of such Offer and in respect for which no Conversion Price adjustment pursuant to this subsection (e) has been made and (ii) the aggregate amount of any all-cash distributions referred to in subsection (d) of this Section 9.5 to all holders of New Common Stock within the 12 months preceding the expiration of such Offer for which no conversion price adjustment pursuant to such subsection (d) has been made, exceeds 15% of the product of the then current market price per share (determined as provided in subsection (f) below) of the New Common Stock on the Expiration Date times the number of shares of New Common Stock outstanding (including any tendered shares) on the Expiration Date, the Conversion 52 Price shall be reduced by multiplying such Conversion Price in effect immediately prior to the Expiration Date by a fraction of which the numerator shall be (i) the product of the then current market price per share (determined as provided in subsection (f) below) of the New Common Stock on the Expiration Date times the number of shares of New Common Stock outstanding (including any tendered shares) on the Expiration Date minus (ii) the fair market value of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the Offer) of all shares validly tendered and not withdrawn as of the Expiration Date (the shares deemed so accepted being referred to as the "Purchased Shares") and the denominator shall be the product of (i) such current market price per share on the Expiration Date times (ii) such number of outstanding shares on the Expiration Date less the number of Purchased Shares, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Date. For purposes of this subsection (e), the fair market value of any consideration with respect to an Offer shall be reasonably determined in good faith by the Board of Directors of BI and described in a Board Resolution. (f) For the purpose of any computation under subsections (b), (c), (d) and (e) above, the current market price per share of New Common Stock on any date shall be deemed to be the average of the Last Sale Prices of a share of New Common Stock for the five consecutive Trading Days selected by BI commencing not more than 20 Trading Days before, and ending not later than the earlier of the date in question and the date before the "'ex' date" with respect to the issuance, distribution or Offer requiring such computation. If on any such Trading Day the New Common Stock is not quoted by any organization referred to in the definition of Last Sale Price in Section 9.3, the fair value of the New Common Stock on such day, as reasonably determined in good faith by the Board of Directors of BI, shall be used. For purposes of this paragraph, the term "'ex' date" when used with respect to any issuance, distribution or payments with respect to an Offer, means the first date on which the New Common Stock trades regular way on the NASDAQ (or if not listed or admitted to trading thereon, then on the principal national securities exchange on which the New Common Stock is listed or admitted to trading) without the right to receive such issuance, distribution or Offer. (g) In addition to the foregoing adjustments in subsections (a), (b), (c), (d) and (e) above, BI will be permitted to make such reductions in the Conversion Price as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of the shares of New Common Stock. (h) In the event BI elects to make such a reduction in the Conversion Price, BI will comply with the requirements of Rule 14e-1 of the Exchange Act and any other Federal and state laws and regulations thereunder if and to the extent that such laws and regulations are applicable in connection with the reduction of the Conversion Price of the Notes; provided that any provisions of this Indenture which conflict with such laws shall be deemed to be superseded by the relevant provisions of such laws. 53 (i) In any case in which this Section 9.5 shall require that an adjustment (including by reason of the last sentence of subsection (a) or (c) above) be made immediately following a record date, BI may elect to defer the effectiveness of such adjustment (but in no event until a date later than the effective time of the event giving rise to such adjustment), in which case BI shall, with respect to any Note converted after such record date and on and before such adjustment shall have become effective, (i) defer paying any cash payment pursuant to Section 9.3 or issuing to the Holder of such Note the number of shares of New Common Stock and other capital stock of BI (or other assets or securities) issuable upon such conversion in excess of the number of shares of New Common Stock and other capital stock of BI issuable thereupon only on the basis of the Conversion Price prior to adjustment, and (ii) not later than five Business Days after such adjustment shall have become effective, pay to such Holder the appropriate cash payment pursuant to Section 9.3 of this Article 9 and issue to such Holder the additional shares of New Common Stock and other capital stock of BI issuable on such conversion. (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one percent (1.0%) of the Conversion Price; provided, that any adjustments which by reason of this subsection (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 9 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Whenever the Conversion Price is adjusted as herein provided, BI shall promptly (i) file with the Trustee and each conversion agent an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment, and (ii) mail or cause to be mailed a notice of such adjustment to each Holder of Notes at the Holder's address as the same appears on the Security Register. (k) In the event that BI distributes rights (including rights to distributions referred to by paragraphs (c) and (d) of this Section 9.5 to the extent this paragraph (k) applies thereto) or warrants (other than those referred to in subsection (b) above) pro rata to holders of New Common Stock, so long as any such rights or warrants have not expired or been redeemed by BI, BI shall make proper provision so that the Holder of any Note surrendered for conversion will be entitled to receive upon such conversion, in addition to the shares of New Common Stock issuable upon such conversion (the "Conversion Shares"), a number of rights or warrants to be determined as follows: (i) if such conversion occurs on or prior to the date for the distribution to the holders of rights or warrants of separate certificates evidencing such rights or warrants (the "Distribution Date"), the same number of rights or warrants to which a holder of a number of shares of New Common Stock equal to the number of Conversion Shares is entitled at the time of such conversion in accordance with the terms and provisions of and applicable to the rights or warrants, and (ii) if such conversion occurs after such Distribution Date, the same number of rights or warrants to which a holder of the number of shares of New Common Stock into which the principal amount of such Note so converted was convertible immediately prior to such Distribution Date would have been 54 entitled on such Distribution Date in accordance with the terms and provisions of and applicable to the rights or warrants. SECTION 9.6 Continuation of Conversion Privilege in Case of ----------------------------------------------- Reclassification, Change, Merger, Consolidation or Sale of Assets. If any of the - ----------------------------------------------------------------- following shall occur, namely: (a) any reclassification or change of outstanding shares of New Common Stock issuable upon conversion of the Notes (other than a change in par value, or from par value to no par value, or from no par value, to par value, or as a result of a subdivision or combination), (b) any consolidation or merger of BI with or into any other Person, or the merger of any other Person with or into BI (other than a merger which does not result in any reclassification, change, conversion, exchange or cancellation of outstanding shares of New Common Stock) or (c) any sale, transfer or conveyance of all or substantially all of the assets of BI (computed on a consolidated basis), then BI, or such successor or purchasing entity, as the case may be, shall, as a condition precedent to such reclassification, change, consolidation, merger, sale or conveyance, execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Note then outstanding shall have the right to convert such Note only into the kind and amount of shares of stock and other securities and property (including cash) receivable upon such reclassification, change, consolidation, merger, sale, transfer or conveyance by a holder of the number of shares of New Common Stock issuable upon conversion of such Note immediately prior to such reclassification, change, consolidation, merger, sale, transfer or conveyance assuming such holder of New Common Stock of BI failed to exercise his rights of an election, if any, as to the kind or amount of securities, cash and other property receivable upon such reclassification, change, consolidation, merger, sale, transfer or conveyance (provided that if the kind or amount of securities, cash, and other property receivable upon such reclassification, change, consolidation, merger, sale, transfer or conveyance is not the same for each share of New Common Stock of BI held immediately prior to such reclassification, change, consolidation, merger, sale, transfer or conveyance in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section 9.6 the kind and amount of securities, cash and other property receivable upon such reclassification, change, consolidation, merger, sale, transfer or conveyance by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 9. If, in the case of any such consolidation, merger, sale or conveyance, securities and property (including cash) receivable thereupon by a holder of shares of New Common Stock includes shares of stock or other securities and property (including cash) of a corporation other than the successor or purchasing corporation, as the case may be, in such consolidation, merger, sale or conveyance, then such supplemental indenture shall also be executed by such other corporation and shall contain such additional provisions to protect the interests of the Holders of the Notes as the Board of Directors of BI shall reasonably consider necessary by reason of the foregoing. The provisions of this Section 9.6 shall similarly apply to successive consolidations, mergers, sales or conveyances. 55 Notice of the execution of each such supplemental indenture shall be mailed to each Holder of Notes at his address as the same appears in the Security Register. SECTION 9.7 Notice of Certain Events. ------------------------ In the event (a) BI shall declare a dividend (or any other distribution) payable to the holders of New Common Stock (other than cash dividends); (b) BI shall authorize the grant to holders of New Common Stock of rights, warrants or options to subscribe for or purchase any shares of stock of any class or of any other rights; (c) BI shall authorize any reclassification or change of the New Common Stock (including a subdivision or combination of its outstanding shares of New Common Stock), or any consolidation or merger to which BI is a party and for which approval of any stockholders of BI is required, or the sale or conveyance of all or substantially all the property or business of BI; (d) there shall be proposed any voluntary or involuntary dissolution, liquidation or winding-up of BI; or (e) BI or any of its subsidiaries shall complete an Offer; then, BI shall cause to be filed at the office or agency maintained for the purpose of conversion of the Notes as provided in Section 9.12 and shall cause to be mailed to each Holder of Notes, at its address as it shall appear on the registry books of BI, at least 20 days before the date hereinafter specified (or the earlier of the dates hereinafter specified, in the event that more than one date is specified), a notice stating the date on which (1) a record is expected to be taken for the purpose of such dividend, distribution, rights, warrants or options or Offer, or if a record is not to be taken, the date as of which the holders of New Common Stock of record to be entitled to such dividend, distribution, rights, warrants or options or to participate in such Offer are to be determined, or (2) such reclassification, change, consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up is expected to become effective and the date, if any is to be fixed, as of which it is expected that holders of New Common Stock of record shall be entitled to exchange their shares of New Common Stock for securities or other property deliverable upon such reclassification, change, consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up. SECTION 9.8 Taxes on Conversion. BI will pay any and all ------------------- documentary, stamp or similar taxes payable to the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of shares of New Common Stock on conversion of Notes pursuant thereto; provided, however, that BI shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of New Common Stock in a name other than that of the Holder of the Notes to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has 56 paid to BI the amount of any such tax or has established, to the satisfaction of BI, that such tax has been paid. BI extends no protection with respect to any other taxes imposed in connection with conversion of Notes. SECTION 9.9 BI to Provide Stock. BI shall reserve, free from ------------------- preemptive rights, out of its authorized but unissued shares, sufficient shares to provide for the conversion of the Notes from time to time as such Notes are presented for conversion, provided, that nothing contained herein shall be construed to preclude BI from satisfying its obligations in respect of the conversion of Notes by delivery of repurchased shares of New Common Stock which are held in the treasury of BI. If any shares of New Common Stock to be reserved for the purpose of conversion of Notes hereunder require registration with or approval of any governmental authority under any Federal or state law before such shares may be validly issued or delivered upon conversion, then BI covenants that it will in good faith and as expeditiously as possible use its best efforts to secure such registration or approval, as the case may be, provided, however, that nothing in this Section 9.9 shall be deemed to limit in any way the obligations of BI provided in this Article 9. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the New Common Stock, BI will take all corporate action which may be necessary in order that BI may validly and legally issue fully paid and nonassessable shares of New Common Stock at such adjusted Conversion Price. BI covenants that all shares of New Common Stock which may be issued upon conversion of Notes will upon issue be fully paid and nonassessable by BI and free of preemptive rights. SECTION 9.10 Disclaimer of Responsibility for Certain Matters. ------------------------------------------------ Neither the Trustee nor any agent of the Trustee shall at any time be under any duty or responsibility to any Holder of Notes to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the Officers' Certificate referred to in Section 9.5 or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee nor any agent of the Trustee shall be accountable with respect to the validity or value (or the kind or amount) of any shares of New Common Stock, or of any securities or property (including cash), which may at any time be issued or delivered upon the conversion of any Note; and neither the Trustee nor any conversion agent makes any representation with respect thereto. Neither the Trustee nor any agent of the Trustee shall be responsible for any failure of BI to issue, register the transfer of or deliver any shares of New Common Stock or stock certificates or other securities or property (including cash) upon the surrender of any Note for the purpose of conversion or to comply with any of the covenants of BI contained in this Article 9. 57 SECTION 9.11 Return of Funds Deposited for Redemption of Converted ----------------------------------------------------- Note . Any funds which at any time shall have been deposited with the Trustee or - ---- any other Paying Agent for the purpose of paying the principal of and interest on any of the Notes and which shall not be required for such purposes because of the conversion of such Notes, as provided in this Article 9, shall after such conversion be repaid to the Issuer by the Trustee or such other Paying Agent upon receipt of an Officers' Certificate of the Issuer to that effect. SECTION 9.12 Registrar and Paying Agent. The Issuer shall maintain -------------------------- or cause to be maintained an office or agency in the Borough of Manhattan, The City of New York, where Notes may be presented for conversion and where notices and demands to or upon the Issuer in respect of the conversion of the Notes may be served. Such office or agency shall initially be the Corporate Trust Office. ARTICLE 10 SATISFACTION AND DISCHARGE SECTION 10.1 Defeasance of Notes. Except as otherwise provided in ------------------- the terms of any Notes, the Issuer shall be deemed to have made all payments due on the Notes prior to the Maturity Date thereof for all purposes of this Indenture, and the entire Indebtedness of the Issuer in respect thereof shall be deemed to have been satisfied and discharged, and the Guarantee Obligations of BI shall be released, upon satisfaction of each of the following conditions: (a) The Issuer shall have irrevocably deposited with the Trustee, in trust, for the benefit of the Holders, cash in Dollars or obligations of the United States Government, or a combination thereof, in such amount as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of and interest on, the Outstanding Notes on and prior to the Maturity Date thereof as such payments become due or upon redemption; (b) If any such deposit of money shall have been made prior to the Maturity Date or Redemption Date of such Notes, the Issuer shall have delivered to the Trustee an Issuer Order stating that such money shall be held by the Trustee, in trust, as provided in Section 10.3 hereof; (c) In the case of redemption of Notes, the notice requisite to the validity of such redemption shall have been given, or irrevocable instructions shall have been given by the Issuer to the Trustee to give such notice, under arrangements satisfactory to the Trustee; (d) The Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such defeasance as set forth in this Section 10.1 and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred, and such opinion must refer to and be based upon a 58 published ruling of the U.S. Internal Revenue Service or a change in applicable federal U.S. income tax laws since the date hereof; (e) No Default or Event of Default shall have occurred and be continuing on the date of such deposit, both before and after giving effect thereto and no Event of Default referenced in Section 8.1(d), (e) or (f) shall occur on or before the 91st day following the deposit referred to above; (f) The Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that, after the 91st day following the deposit referred to above, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (g) The Issuer shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel satisfactory to the Trustee which, taken together, shall state that all conditions precedent under this Indenture to such defeasance have been complied with. In the event that Notes which shall be deemed to have been paid as provided in this Section 10.1 do not mature and are not to be redeemed within the 60-day period commencing on the date of the deposit with the Trustee of monies, the Issuer shall, as promptly as practicable, give or cause to be given a notice, in the same manner as a notice of redemption with respect to such Notes, to the Holders of such Notes to the effect that the Issuer is deemed to have made full payment on such Notes and the circumstances thereof. The Issuer shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited obligations of the United States Government or the principal and interest received in respect thereof. Notwithstanding the satisfaction and discharge of any Notes as aforesaid, the obligations of the Issuer and the Trustee in respect of such Notes under Sections 2.5, 2.6, 2.7 and 2.12, Section 4.6 and this Article 10 hereof shall survive. SECTION 10.2 Satisfaction and Discharge of the Indenture. This ------------------------------------------- Indenture shall upon Issuer Request cease to be of further effect (except as hereinafter expressly provided), and the Trustee, at the expense of the Issuer, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when: (a) the Issuer has paid and discharged the entire Indebtedness by (i) paying in full the outstanding principal of, and accrued and unpaid interest on, the Notes and all other payment obligations under the Notes, the Indenture and the Security Documents, as and when payable, (ii) depositing with the Trustee cash in a sufficient amount (in the opinion of a nationally recognized firm of independent public accountants) to redeem all Outstanding Notes in accordance with their terms together with proof that notice of redemption has been given or waived as required under this Indenture or an irrevocable order of the Issuer directing the Trustee to give such notice 59 together with an amount sufficient to pay any and all amounts due and owing to the Trustee or (iii) delivering to the Trustee for cancellation all Outstanding Notes; and (b) the Issuer has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Upon satisfaction of the aforesaid conditions, the Trustee shall, upon receipt of an Issuer Request, acknowledge in writing the satisfaction and discharge of this Indenture and take all other action reasonably requested by the Issuer to evidence the termination of any and all Liens created by or with respect to this Indenture. Notwithstanding the satisfaction and discharge of this Indenture as aforesaid, the obligations of the Issuer and the Trustee under Sections 2.5, 2.6, 2.7 and 2.14, Section 4.6 and this Article 10 hereof shall survive. Upon satisfaction and discharge of this Indenture as provided in this Section 10.2, the Trustee shall assign, transfer and turn over to or upon the order of the Issuer any and all money, securities and other property then held by the Trustee for the benefit of the Holders, other than money deposited with the Trustee pursuant to Section 10.1(a) or Section 10.2(a)(ii) hereof and interest and other amounts earned or received thereon. SECTION 10.3 Application of Trust Money. The money deposited with -------------------------- the Trustee pursuant to Section 10.1 or Section 10.2(a)(ii) hereof shall not be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, and interest on, the Notes or portions of principal amount thereof in respect of which such deposit was made. SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent ------------------------------------------------- Unclaimed for One Year. Unless otherwise required by mandatory - ---------------------- provisions of the applicable escheat or abandoned or unclaimed property law, any moneys deposited with or paid to the Trustee or any Paying Agent for the payment of principal of, or interest on, any Note, other than amounts held pursuant to Section 10.1 or Section 10.2(a)(ii) hereof, and not applied but remaining unclaimed for one year after the date upon which such principal or interest shall have become due and payable, shall, upon written request of the Issuer, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be repaid to the Issuer by the Trustee or such Paying Agent, and the Holder of such Note shall thereafter look only to the Issuer for any payment that such Holder may be entitled to collect, and all liability of the Trustee or any paying agent with respect to such moneys shall thereupon cease. ARTICLE 11 AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 11.1 Without Consent of Holders. The Issuer, when authorized -------------------------- by a Board Resolution, BI, when authorized by a Board Resolution, and the 60 Trustee, together, may amend or supplement this Indenture, any Security Document or the Notes without notice to or consent of any Holder: (a) to cure any ambiguity, defect or inconsistency, provided that such amendment or supplement does not, in the opinion of the Trustee, adversely affect the rights of any Holder in any respect; in formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely an Opinion of Counsel; (b) to give effect to the release of any Collateral or of any Lien in accordance with the provisions of the Security Documents; (c) to provide for uncertificated Notes in addition to or in place of certificated Notes; (d) to make any other change that does not adversely affect the rights of any Noteholder hereunder in any respect; (e) to maintain compliance with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act; (f) to evidence the succession of another Person to the Issuer as obligor under the Indenture to the extent permitted under this Indenture; (g) to provide for the acceptance of appointment by a successor Trustee or facilitate the administration of the trust under the Indenture by more than one Trustee; or (h) to make any change that would provide any additional benefit or rights to the Holders or that does not adversely affect the rights of any Holder; provided that the Issuer has delivered to the Trustee an Opinion of Counsel and an Officers' Certificate, each stating that such amendment or supplement complies with the provisions of this Section 11.1. SECTION 11.2 With Consent of Holders. The Issuer, when authorized by ----------------------- a Board Resolution, BI and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Notes, may amend or supplement this Indenture, any Security Document or the Notes, and the Holder or Holders of a majority in aggregate principal amount of the outstanding Notes may waive compliance by the Issuer with any provision of this Indenture or the Notes; provided, however, no amendment, supplement or waiver, including a waiver pursuant to Section 8.10, shall, without the consent of each Holder of each Note: (a) reduce the percentage of any outstanding Notes necessary to modify or amend the Indenture with respect to such Notes or to waive compliance with certain provisions thereof or certain Events of Default and consequences thereunder; 61 (b) reduce the rate of interest or change or have the effect of changing the Stated Maturity for payment of interest on any Notes; (c) reduce the principal of or change or have the effect of changing the Stated Maturity of any Notes, or change the date on which any Notes may be subject to redemption, or reduce the Redemption Price therefor; (d) change the Place of Payment or make any Notes payable in money other than that stated in the Notes; (e) make any change in the provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Events of Default; (f) change any material provision of any of the Security Documents that releases the Collateral securing the Notes (other than a release in accordance with the provisions of the Security Documents) or adversely affects the interest of any Holder of the Notes; (g) adversely affect the right of the Holders of the Notes to convert the Notes into New Common Stock as provided in Article 9; (h) waive a Default in the payment of principal of or interest on any Note (except payment Defaults resulting from acceleration where acceleration has been rescinded); (i) release BI from any of its Guarantee Obligations or release Collateral in either case other than pursuant to the terms of this Indenture and the Security Documents; or (j) amend, modify, change or waive any provision of this Section 11.2. It shall not be necessary for the consent of the Holders under this Section 11.2 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 11.2 becomes effective, the Issuer shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver and a copy of the supplemental indenture relating thereto. At the Issuer's request, such notice shall be given in the name and at the expense of the Issuer, provided that the Issuer shall have delivered to the Trustee an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice. Any failure to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. 62 SECTION 11.3 Compliance with Trust Indenture Act. Every amendment, ----------------------------------- waiver or supplement of this Indenture or the Notes shall comply with the Trust Indenture Act as then in effect. SECTION 11.4 Revocation and Effect of Consents. Until an amendment, --------------------------------- waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by written notice to the Trustee or the Issuer received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of outstanding Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver (at which time such amendment, supplement or waiver shall become effective). The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (a) through (h) of Section 11.2, in which case, the amendment, supplement or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 11.5 Notation on or Exchange of Notes. If an amendment, -------------------------------- supplement or waiver changes the terms of a Note, the Trustee may require the Holder of such Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Issuer or the Trustee so determines, the Issuer in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Any such notation or exchange shall be made at the sole cost and expense of the Issuer. SECTION 11.6 Trustee to Sign Amendments, Etc. The Trustee shall ------------------------------- execute any amendment, supplement or waiver authorized pursuant to this Article 11; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or 63 immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each complying with Sections 11.4 and 11.5 and stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article 11 is authorized or permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee. SECTION 11.7 Payment for Consent. Neither the Issuer nor any ------------------- subsidiary of the Issuer shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Security Documents or the Notes unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 12 COLLATERAL AND SECURITY DOCUMENTS SECTION 12.1 Collateral and Security Documents. --------------------------------- (a) To secure the due and punctual payment of the principal of and interest on the Notes when and as the same shall become due and payable, whether on an interest payment date, at maturity, by acceleration, redemption or otherwise, and the performance of all other obligations of the Issuer to the Holders under this Indenture and the Notes, the Issuer, New Horizons and the Trustee have entered into the Security Documents pursuant to which (i) New Horizons has granted to the Trustee, for the benefit of the Holders, a first priority mortgage Lien on the Yonkers Property and the Net Proceeds of the Disposition of the Yonkers Property, (ii) subject to Section 12.1(b) below, the Issuer has granted to the Trustee, for the benefit of the Holders, a first priority mortgage Lien on the Additional Collateral and the Net Proceeds of the Disposition of the Additional Collateral and (iii) the Issuer has granted to the Trustee, for the benefit of the Holders, a first priority Lien on the Pledged Stock. Each such Lien shall be subject to modification, and certain portions of the Collateral shall be subject to release, upon the terms and provisions set forth herein and in the Security Documents. (b) The Additional Collateral only shall secure Indebtedness under the Notes in an amount equal to the sum of (A) $6.5 million (the "Differential Amount") plus (B) an amount (the "Assumed Unpaid Interest Amount") from time to time equal to the amount of interest (including interest on interest to the extent payable under the Notes) that would accrue on $6.5 million of Outstanding Notes from January 29, 1999 to the date of calculation of the extent of the Lien on the Additional Collateral (but excluding any period for which interest has in fact been paid under the Notes) and all costs and expenses payable by the Issuer under the Leasehold Mortgages encumbering the Additional Collateral. The Issuer shall not be under any obligation to seek to Dispose of the Additional Collateral to prepay the Notes. 64 (c) The Lien on the Pledged Stock shall be terminated and released upon the Disposition of the Yonkers Property and the application of the Net Proceeds of such Disposition in accordance with Article 3 hereof. (d) With respect to any Leasehold Mortgage, if (i) all of the outstanding principal of and interest on all of the Notes shall be paid in accordance with the terms thereof and hereof and any and all sums payable by the Issuer or the Mortgagor hereunder and under the Security Documents shall be paid or (ii) if all of the interests of the Mortgagor in the Mortgaged Property under such Leasehold Mortgage shall be Disposed of and if each of the Issuer and the Mortgagor shall be in compliance with all the terms, covenants and conditions applicable to it to be complied with under the Notes, the Indenture and the Security Documents (including, without limitation, payment of the Net Proceeds (subject, in the case of Additional Collateral, to Section 12.1(b)) to the Trustee), then in either such case, such Leasehold Mortgage shall be null and void and of no further force and effect and the Mortgaged Property thereunder shall thereupon be, and shall be deemed to have been, reconveyed, released and discharged from such Leasehold Mortgage without further notice on the part of the Mortgagor or Mortgagee thereunder, and the Mortgagee, at the Mortgagor's expense, will execute and deliver such reasonable or necessary instruments, if any, as the Mortgagor may request evidencing or confirming the reconveyance, release and discharge of the Mortgaged Property from such Leasehold Mortgage, and any such instrument, when duly executed by the Mortgagee and duly recorded in the place where such Leasehold Mortgage is recorded, shall conclusively evidence such reconveyance, release and discharge. Notwithstanding the foregoing, if (i) or (ii) above shall occur, then the Mortgagor shall have the option to request an assignment of such Leasehold Mortgage, without recourse, representation or warranty in lieu of the satisfaction of such Leasehold Mortgage as described above, and, at the Mortgagor's written request, the Leasehold Mortgage shall remain in full force and effect and the Mortgagee shall assign such Leasehold Mortgage, and the Mortgagee, at the Mortgagor's expense, will execute and deliver such reasonable or necessary instruments, if any, as the Mortgagor may request evidencing or confirming the assignment of such Leasehold Mortgage, and any such instrument, when duly executed by the Mortgagee and duly recorded in the place where such Leasehold Mortgage is recorded, shall conclusively evidence the assignment of such Leasehold Mortgage, and the release and discharge of the Mortgagor from its obligations thereunder. Notwithstanding the foregoing, any release of such Leasehold Mortgage in connection with a sale of the Mortgaged Property shall not include a release of the security interest of the Mortgagee in the proceeds of such sale and shall expressly reserve the Mortgagee's security interests in such proceeds unless and until such proceeds are actually received by the Mortgagee. (e) Each Holder of a Note, by accepting a Note, agrees to all of the terms and provisions of the Security Documents, as the same may be amended from time to time pursuant to the provisions of the Security Documents and this Indenture. SECTION 12.2 Release of Lien. The Trustee, in its capacity as --------------- trustee for the Holders under this Indenture, will not at any time permit the release of any Collateral from the security interest created by the Security Documents unless such 65 release is in accordance with the provisions of this Indenture and the Security Documents. To the extent applicable, the Issuer shall cause (S) 314(d) of the Trust Indenture Act relating to the release of property or securities from the security interest pursuant hereto and the Security Documents to be complied with. Any certificate or opinion required by (S) 314(d) of the Trust Indenture Act may be made by an Officer of the Issuer, except in cases which (S) 314(d) of the Trust Indenture Act requires that such certificate or opinion be made by an independent person. SECTION 12.3 Recording, Certificates and Opinions. ------------------------------------ (a) The Issuer will take or cause to be taken all action required to perfect, maintain, preserve and protect the security interest in the Collateral granted by or pursuant to this Indenture and the Security Documents. (b) The Issuer shall deliver to the Trustee promptly after the execution and delivery of this Indenture, an Opinion of Counsel either stating that in the opinion of such counsel the Indenture and the Security Documents have been properly recorded and filed so as to perfect and make effective the mortgage liens and security interests intended to be created for the benefit of the Holders of Notes, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to perfect and make effective such mortgage liens and security interests. (c) The Issuer shall deliver to the Trustee on or before January 1 of each year, an Opinion of Counsel either stating that in the opinion of such counsel such action has been taken with respect to the recording, filing, re-recording and re-filing of the Indenture and the Security Documents as is necessary to maintain the security interests intended to be created thereby for the benefit of the Holders of Notes, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such security interest. (d) The Issuer shall comply with Trust Indenture Act (S) 314(d), relating to, among other matters, the release of Collateral from the Liens of the Security Documents and Officers' Certificates or other documents regarding fair value of the Collateral, to the extent such provisions are applicable. Any certificate or opinion required by Trust Indenture Act (S) 314(d) may be executed and delivered by an Authorized Representative of the Issuer to the extent permitted by Trust Indenture Act (S) 314(d). SECTION 12.4 Authorization of Actions to Be Taken by the Trustee --------------------------------------------------- Under the Security Documents. Subject to the provisions of the Security - ---------------------------- Documents, (i) the Trustee, in its sole discretion and without the consent of the Holders, may take all actions it deems necessary or appropriate in order to (x) enforce any of the terms of the Security Documents, and (y) collect and receive any and all amounts payable in respect of the obligations of the Issuer; and (ii) the Trustee may institute and maintain such suits and proceedings, as it may deem expedient to prevent any impairment of the Collateral by any acts that may be unlawful or in violation of this Indenture or the Security Documents, and such suits and proceedings as the Trustee may deem expedient to 66 preserve or protect its interests and the interests of the Holders in the Collateral (including the power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest thereunder or be prejudicial to the interests of the Holders or of the Trustee). Article 4 of this Indenture applies to all duties and obligations of the Trustee with respect to the Security Documents and the Collateral. SECTION 12.5 Authorization of Receipt of Funds by the Trustee Under ------------------------------------------------------ the Security Documents. The Trustee is authorized to receive any funds for the - ---------------------- benefit of Holders received under the Security Documents, and to make further distributions of such funds to the Holders in accordance with the provisions of this Indenture, the Security Documents and applicable law. SECTION 12.6 Trustee's Disclaimer. The Trustee shall not be -------------------- responsible for and makes no representation as to the validity or adequacy of the Security Documents, the Collateral or the perfection of the Collateral (except with respect to taking the actions specifically set forth in Opinions of Counsel delivered to the Trustee pursuant to Section 12.3(b) with respect to the perfection of the Collateral) and it shall not be responsible for any statement contained in the Security Documents. SECTION 12.7 Release upon Termination of the Issuer's Obligations. ---------------------------------------------------- In the event that the Issuer delivers an Officers' Certificate certifying that all the obligations under this Indenture, the Notes and the Security Documents have been satisfied and discharged by complying with the provisions of Article 10 (and all such obligations have been satisfied and discharged as provided in this Indenture), the Trustee shall deliver to the Issuer a notice stating that the Trustee, on behalf of the Holders, disclaims and gives up any and all rights it has in or to the Collateral and any rights it has under the Security Documents, and, upon and after receipt by the Issuer of such notice, the Trustee shall not be deemed to hold any Liens in the Collateral for the benefit of the Holders. ARTICLE 13 GUARANTEE SECTION 13.1 Guarantee. Each of BI and New Horizons (each a --------- "Guarantor") hereby severally fully and unconditionally guarantees to each Holder of a Note, and to the Trustee on behalf of each such Holder, the due and punctual payment of the principal of and interest on such Note, and the due and punctual payment of any redemption payment with respect to such Note, when and as the same shall become due and payable, whether at Stated Maturity, upon redemption, upon acceleration or otherwise, according to the terms thereof and of this Indenture and all other payment obligations of the Issuer to the Trustee for the benefit of the Holders under the Indenture, the Notes and the Security Documents (the "BI Guarantee Obligations" and the "New Horizons Guarantee Obligations", respectively and collectively the "Guarantee Obligations"). In case of the failure of the Issuer punctually to pay any such Guarantee 67 Obligations, each Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at Stated Maturity, upon redemption, upon declaration of acceleration or otherwise, as if such payment were made by the Issuer. Each Guarantor hereby agrees that its Guarantee Obligations hereunder shall be as if it were principal debtor and not merely surety and shall be absolute and unconditional, irrespective of the granting of time, renewals, extensions, compromises, concessions, waivers, releases, discharges and other indulgences to the Issuer or any other Person, the validity, regularity or enforceability of any such Note, this Indenture or any Security Documents, the absence of any action to enforce the same, any waiver, consent or extension by the Holder of any such Note with respect to any provisions thereof, the recovery of any judgment against the Issuer or any action to enforce the same, or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest, notice and all demands whatsoever and covenants that its Guarantee will not be discharged except by complete performance of its obligations contained in such Note and in this Guarantee. Each Guarantor's Guarantee shall be a guaranty of payment and not of collection. Each Guarantor agrees, to the fullest extent that it may lawfully do so, that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 8 hereof for the purposes of the applicable Guarantee, notwithstanding any stay, injunction or other prohibition extant under any applicable Bankruptcy Law preventing such acceleration in respect of the obligations guaranteed hereby. Each Guarantor shall be subrogated to all rights of the Holders of the Notes against the Issuer in respect of any amounts paid by the applicable Guarantor on account of such Notes or this Indenture; provided, however, that such Guarantor shall not be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until the principal of and interest, if any, on all such Notes shall have been paid in full. SECTION 13.2 Guarantees Subordinated to Credit Facility Guarantees. ----------------------------------------------------- Each Guarantor and the Trustee covenant and agree, and each Holder, by its acceptance of a Note and the corresponding Guarantee, likewise covenants and agrees, that the BI Guarantee Obligations and the New Horizons Guarantee Obligations shall, to the extent and in the manner set forth in this Article 13, be obligations of the corresponding Guarantor, ranking equally in right of payment with other nonsubordinated Indebtedness of such Guarantor, except that (i) the BI Guarantee Obligations and the New Horizons Guarantee Obligations shall be junior and expressly subordinated in right of payment to the BI Credit Facility Guarantee and the New Horizons Credit Facility Guarantee, respectively; (ii) this subordination is for the benefit of the holders of the BI Credit 68 Facility Guarantee and the New Horizons Credit Facility Guarantee, respectively; and (iii) such subordination shall not in any way apply to any shares of BI stock distributed to the Trustee for the benefit of the Holders or directly to any Holder upon exercise of conversion rights under this Indenture or to the Net Proceeds of a Disposition of the Yonkers Property. SECTION 13.3 Liquidation, Dissolution, Bankruptcy. Upon any payment ------------------------------------ or distribution of the assets of BI or New Horizons to creditors upon a liquidation or dissolution of BI or New Horizons or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to BI or New Horizons or its property (other than any such bankruptcy, reorganization, insolvency or similar proceedings in existence on the issue date of the Notes): (1) holders of the BI Credit Facility Guarantee or the New Horizons Credit Facility Guarantee, as the case may be, shall be entitled to receive payment in full of such Credit Facility Guarantee (including interest after the commencement of any such proceedings at the rate specified in such Credit Facility Guarantee) from BI or New Horizons, as the case may be, in cash before Noteholders shall be entitled to receive any payment pursuant to the corresponding Guarantee Obligations; and (2) until the BI Credit Facility Guarantee or the New Horizons Credit Facility Guarantee, as the case may be, is paid or discharged in full, any distribution to which Noteholders would be entitled but for this Article 13 shall be made to holders of such Credit Facility Guarantee as their interests may appear, except that Noteholders may receive (i) shares of stock as provided in Section 13.2(iii) above, and (ii) any debt securities of BI or New Horizons, as the case may be, that are subordinated to the corresponding Credit Facility Guarantee, and to any debt securities received by holders of such Credit Facility Guarantee, of BI or New Horizons, as the case may be, to at least the same extent as the corresponding Guarantee Obligations are subordinated to such Credit Facility Guarantee. SECTION 13.4 Execution and Delivery of Guarantees. To evidence its ------------------------------------ Guarantee with respect to the Notes, each Guarantor hereby agrees to execute its Guarantee, substantially in the form of Exhibit B hereto, to be endorsed on each Note authenticated and delivered by the Trustee. Each such Guarantee shall be executed on behalf of such Guarantor by an Authorized Representative and attested by its Secretary or one of its Assistant Secretaries or Assistant Clerks or an Authorized Representative. The signature of any of these officers on such Guarantee may be manual or facsimile. A Guarantee bearing the manual or facsimile signatures of the individuals who were the proper officers of the Guarantor thereof shall bind such Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Notes upon which such Guarantee is endorsed or did not hold such offices at the date of such Notes. 69 The delivery of any Notes by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantees endorsed thereon on behalf of the Guarantors. Each Guarantor hereby agrees that its Guarantee set forth in this Article shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. SECTION 13.5 Obligations Reinstated. The obligations of each ---------------------- Guarantor under its Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any payment which would otherwise have reduced such obligations of such Guarantor (whether such payment shall have been made by or on behalf of the Issuer or by or on behalf of such Guarantor) is rescinded or reclaimed from any of the Holders upon the insolvency, bankruptcy, liquidation or reorganization of the Issuer or such Guarantor or otherwise, all as though such payment had not been made. If demand for, or acceleration of the time for, payment by the Issuer is stayed upon the insolvency, bankruptcy, liquidation or reorganization of the Issuer, all such Indebtedness otherwise subject to demand for payment or acceleration shall nonetheless be payable by such Guarantor as provided herein subject to Section 13.3. SECTION 13.6 When Distribution Must Be Paid Over. If a distribution ----------------------------------- is made to Noteholders that because of this Article 13 should not have been made to them, the Noteholders who receive the distribution shall hold it in trust for holders of the Credit Facility Guarantees and pay it over to them or their representative as their interests may appear. SECTION 13.7 Relative Rights. This Article 13 defines the relative --------------- rights of holders of Notes and holders of the Credit Facility Guarantees. Nothing in this Indenture shall: (1) impair, as between each Guarantor and the holders of Notes, the obligation of such Guarantor, which is absolute and unconditional, to pay its Guarantee Obligations to the extent set forth in this Article 13; or (2) prevent the Trustee or any holder of Notes from exercising its available remedies upon a default by a Guarantor under its Guarantee Obligations, subject to the rights of holders of the corresponding Credit Facility Guarantee to receive certain distributions otherwise payable to holders of Notes. SECTION 13.8 Rights of Trustee and Paying Agent. The Trustee or ---------------------------------- Paying Agent may continue to make distributions pursuant to a Guarantee and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless the corresponding Guarantor and a trust officer of the Trustee receives written notice from the representative of the corresponding Credit Facility Guarantee that payments may not be made under this Article 13. The Trustee or Paying Agent shall make inquiry with the representative of the corresponding Credit Facility Guarantee prior to making any distributions pursuant to the corresponding Guarantee as to whether such payment may be made under this Article 13, but if no written response thereon is received by the Trustee or Paying Agent within 24 hours after making such 70 inquiry, the Trustee and Paying Agent shall continue to make payment pursuant to such Guarantee in accordance with the first sentence of this Section 13.11. The representative of the corresponding Credit Facility Guarantee shall keep on file with the Trustee and any Paying Agent its address, telephone and facsimile information. SECTION 13.9 Trustee Entitled to Rely. Upon any payment or ------------------------ distribution pursuant to this Article 13, the Trustee and the holders of Notes shall be entitled to rely (i) upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 13.3 are pending, (ii) upon a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the holders of Notes or (iii) upon the representative for the holders of the Credit Facility Guarantees for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of such Credit Facility Guarantees, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 13. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of a Credit Facility Guarantee to participate in any payment or distribution pursuant to this Article 13, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of the Credit Facility Guarantee held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 13, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such person to receive such payment. SECTION 13.10 Trustee to Effectuate Subordination. Each holder of ----------------------------------- Notes by accepting a Note authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the holders of Notes and the holders of the Credit Facility Guarantees as provided in this Article 13 and appoints the Trustee as attorney-in-fact for any and all such purposes. SECTION 13.11 Trustee not Fiduciary for Holders of the Credit ----------------------------------------------- Facility Guarantees. The Trustee shall not be deemed to owe any fiduciary duty - ------------------- to the holders of the Credit Facility Guarantees and shall not be liable to any such holders if it shall mistakenly pay over or distribute to holders of Notes or the Issuer or any other Person money or assets to which any holders of a Credit Facility Guarantee shall be entitled by virtue of this Article 13 or otherwise, except if such payment is made as a result of the willful misconduct of the Trustee. SECTION 13.12 Notice by Issuer. The Issuer shall promptly notify the ---------------- Trustee of any facts known to the Issuer that would cause a payment of the Guarantee Obligations to violate this Article 13, but failure to give such notice shall not affect the subordination of the Guarantees to the Credit Facility Guarantees as provided in this Article 13. 71 SECTION 13.13 Acceleration of Notes. For so long as Indebtedness is --------------------- outstanding under the New Credit Facility, if payment of the Notes is accelerated because of a Default or Event of Default, the Issuer shall promptly notify the Administrative Agent (as defined in the New Credit Facility) of such acceleration. SECTION 13.14 Default on Credit Facility Guarantee. Other than as ------------------------------------ provided in Section 13.2(ii) hereof, a Guarantor may not make any payment pursuant to its Guarantee Obligations ("pay its Guarantee") and may not acquire from the Trustee or any holder of Notes any Notes or any Guarantee for cash or property if the corresponding Credit Facility Guarantee is not paid when due unless the corresponding Credit Facility Guarantee has been paid or discharged in full; provided, however, that such Guarantor may pay its Guarantee without regard to the foregoing if such Guarantor and the Trustee receive written notice approving such payment from the representative of the holders of the corresponding Credit Facility Guarantee. SECTION 13.15 Waiver. Without in any way limiting the provisions of ------ Section 13.1 hereof, each Guarantor hereby waives notice of acceptance hereof, notice of any liability of such Guarantor under its Guarantee, notice or proof of reliance by the Holders upon the obligations of such Guarantor under its Guarantee, and diligence, presentment demand for payment on the Issuer, protest, notice of dishonor or nonpayment of any of the Issuer's or any other Person's obligations under this Indenture, the Notes or the Security Documents, or other notice or formalities to the Issuer or such Guarantor of any kind whatsoever. SECTION 13.16 Survival of Obligations. To the extent the Trustee ----------------------- receives any payment by or on behalf of the Issuer, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Issuer, its estate, trustee, receiver, custodian or any other party under any Bankruptcy Law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of the Issuer to the Trustee as of the date such initial payment, reduction or satisfaction occurred. SECTION 13.17 Subordination may not be impaired by the Issuer or a ---------------------------------------------------- Guarantor. No right of any holder of a Credit Facility Guarantee to enforce the - --------- subordination of the Indebtedness evidenced by the corresponding Guarantee shall be impaired by any act or failure to act by the applicable Guarantor or any holder of such Guarantee or by the failure of such Guarantor or any holder of such Guarantee to comply with this Indenture. SECTION 13.18 Guarantees in Addition to Other Obligations. The ------------------------------------------- obligations of each Guarantor under its Guarantee and this Indenture are in addition to and not in substitution for any other obligations to the Trustee or to any of the Holders in relation to this Indenture, the Notes or the Security Documents and any guarantees or security at any time held by or for the benefit of any of them. 72 SECTION 13.19 Limitation of Guarantor's Liability. Each Guarantor, ----------------------------------- and by its acceptance of a Note each Holder, hereby confirms that it is the intention of all such parties that in no event shall any Guarantee Obligations under such Guarantor's Guarantee constitute or result in a fraudulent transfer or conveyance for purposes of, or result in a violation of, any United States federal, or applicable United States state, fraudulent transfer or conveyance or similar law. To effectuate the foregoing intention, in the event that any Guarantee Obligations in respect of the Notes would, but for this sentence, constitute or result in such a fraudulent transfer or conveyance or violation, then the liability of the Guarantor under the corresponding Guarantee in respect of the Notes shall be reduced to the extent necessary to eliminate such fraudulent transfer or conveyance or violation under the applicable fraudulent transfer or conveyance or similar law. SECTION 13.20 Amendments. If any Indebtedness is outstanding under ---------- the New Credit Facility, the provisions of this Article 13 relating to the Credit Facility Guarantees or the subordination of the Guarantees (including, without limitation, Sections 13.2, 13.3, 13.5, 13.6, 13.7, 13.8, 13.9, 13.10, 13.11, 13.12, 13.13, 13.14, 13.16, 13.17 and 13.20) shall not be amended or modified without the prior written consent of the Administrative Agent (as defined in the New Credit Facility). SECTION 13.21 Acknowledgement. The Issuer, the Guarantors, the --------------- Trustee and, by its acceptance of a Note, each Holder hereby acknowledge that the Issuer and the Guarantors have made no representation or warranty regarding whether approval of or authorization by the United States Bankruptcy Court with jurisdiction over the Chapter 11 case of New Horizons is necessary with respect to the effectiveness of the New Horizons Guarantee and the other obligations of New Horizons under this Indenture or the effect of receiving or not receiving any such approvals or authorizations, and the Trustee is not and, by its acceptance of a Note, each Holder is deemed not to be, relying on the Issuer or the Guarantors with respect to the same. The Issuer and the Guarantors shall take such actions as they deem necessary or advisable to seek to obtain such court order, and the Issuer shall use reasonable efforts to provide advance written notice to the Trustee at the commencement of any such action. 73 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed by their respective officers duly authorized as of the day and year first above written. BRADLEES STORES, INC., as the Issuer By:_________________________________ Name:____________________________ Title:___________________________ BRADLEES, INC. By:_________________________________ Name:____________________________ Title:___________________________ NEW HORIZONS OF YONKERS, INC. By:_________________________________ Name:____________________________ Title:___________________________ IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee By:_________________________________ Name:____________________________ Title:___________________________ 74 EXHIBIT A --------- FORM OF NOTE EXHIBIT B --------- FORM OF NOTATION RELATING TO GUARANTEES ________________________________________________________ INDENTURE dated as of February 2, 1999 between BRADLEES STORES, INC., as Issuer, BRADLEES, INC., as Guarantor, NEW HORIZONS OF YONKERS, INC., as Guarantor, and IBJ WHITEHALL BANK & TRUST COMPANY, as Trustee $28,995,000 ________________________________________________________ TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 2 SECTION 1.1 Definitions; Construction............................... 2 SECTION 1.2 Compliance Certificates and Opinions.................... 11 SECTION 1.3 Form of Documents Delivered to Trustee.................. 11 SECTION 1.4 When Securities Disregarded............................. 12 SECTION 1.5 Conflict with Trust Indenture Act....................... 12 SECTION 1.6 Execution in Counterparts............................... 12 SECTION 1.7 Effect of Headings and Table of Contents................ 12 SECTION 1.8 Successors and Assigns.................................. 12 SECTION 1.9 Severability Clause..................................... 13 SECTION 1.10 Benefits of Indenture................................... 13 SECTION 1.11 GOVERNING LAW........................................... 13 SECTION 1.12 Legal Holidays.......................................... 13 SECTION 1.13 No Recourse Against Others.............................. 13 SECTION 1.14 Notices................................................. 13 ARTICLE 2 THE NOTES 15 SECTION 2.1 Title and Terms......................................... 15 SECTION 2.2 Execution, Authentication, Delivery and Dating.......... 15 SECTION 2.3 Temporary Notes......................................... 16 SECTION 2.4 Registration; Registration of Transfer and Exchange.............................................. 17 SECTION 2.5 Mutilated, Destroyed, Lost and Stolen Notes............. 19 SECTION 2.6 Payments; Interest and Principal Rights Preserved............................................. 20 SECTION 2.7 Persons Deemed Owners................................... 20 SECTION 2.8 Cancellation; Purchase by the Issuer.................... 20 SECTION 2.9 Dating of Notes......................................... 21 SECTION 2.10 CUSIP Numbers........................................... 21 SECTION 2.11 Parity and Ranking of Notes............................. 21 SECTION 2.12 Book Entry.............................................. 21 ARTICLE 3 REDEMPTION OF NOTES 21 SECTION 3.1 Mandatory Redemption of Notes........................... 21 SECTION 3.2 Optional Redemption of Notes............................ 22 SECTION 3.3 Delivery of Notices, Certificates and Opinions.......... 22 SECTION 3.4 Redemption of and Payment on Notes...................... 23 SECTION 3.5 Notes Redeemed in Part.................................. 24 SECTION 3.6 Cancellation of Notes................................... 24 ARTICLE 4 CONCERNING THE TRUSTEE 24 SECTION 4.1 Duties and Responsibilities of Trustee; During Default; Prior to Default............................. 24
SECTION 4.2 Certain Rights and Duties of Trustee.................... 25 SECTION 4.3 Trustee Not Responsible for Recitals, Etc............... 27 SECTION 4.4 Trustee and Others May Hold Notes....................... 27 SECTION 4.5 Monies Held by Trustee or Paying Agent.................. 27 SECTION 4.6 Compensation of Trustee and Its Lien.................... 27 SECTION 4.7 Right of Trustee to Rely on Officers' Certificates and Opinions of Counsel.................. 28 SECTION 4.8 Persons Eligible for Appointment as Trustee............. 28 SECTION 4.9 Conflicting Interests; Resignation and Removal of Trustee; Appointment of Successor.................. 29 SECTION 4.10 Acceptance of Appointment by Successor Trustee.......... 30 SECTION 4.11 Merger, Conversion or Consolidation of Trustee.......... 30 SECTION 4.12 Preferential Collection of Claims Against Issuer and BI......................................... 31 SECTION 4.13 Maintenance of Offices and Agencies..................... 31 SECTION 4.14 Trustee Risk............................................ 33 SECTION 4.15 Appointment of a Co-Trustee............................. 33 ARTICLE 5 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND ISSUER 34 SECTION 5.1 Issuer to Furnish Trustee Names and Addresses of Holders............................................ 34 SECTION 5.2 Preservation of Information; Communications to Holders............................................ 34 SECTION 5.3 Reports by Trustee...................................... 34 SECTION 5.4 Reports by Issuer and BI................................ 35 ARTICLE 6 COVENANTS 35 SECTION 6.1 Payment of Notes........................................ 35 SECTION 6.2 Corporate Existence..................................... 35 SECTION 6.3 Compliance Certificate; Notice of Default............... 35 SECTION 6.4 Impairment of Security Interest......................... 36 SECTION 6.5 Amendments to Security Documents........................ 36 SECTION 6.6 Reports of Holders...................................... 36 SECTION 6.7 Limitation on Indebtedness.............................. 36 SECTION 6.8 Delivery of Title Policies.............................. 37 SECTION 6.9 Disposition of Yonkers Property......................... 38 ARTICLE 7 SUCCESSOR CORPORATION; MERGER, CONSOLIDATION AND SALE OF ASSETS 40 SECTION 7.1 Merger, Consolidation and Sale of Assets................ 40 SECTION 7.2 Successor Corporation Substituted....................... 41
ARTICLE 8 DEFAULT 41 SECTION 8.1 Events of Default....................................... 41 SECTION 8.2 Acceleration............................................ 43 SECTION 8.3 Collection of Indebtedness by Trustee; Trustee May Prove Debt........................................ 44 SECTION 8.4 Application of Proceeds................................. 44 SECTION 8.5 Other Remedies.......................................... 45 SECTION 8.6 Restoration of Rights on Abandonment of Proceedings........................................... 45 SECTION 8.7 Limitations on Suits by Noteholders..................... 45 SECTION 8.8 Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default........................ 46 SECTION 8.9 Control by Noteholders.................................. 46 SECTION 8.10 Waiver of Defaults...................................... 47 SECTION 8.11 Unconditional Right of Holders to Receive Principal and Interest................................ 47 SECTION 8.12 Undertaking for Costs................................... 47 SECTION 8.13 Trustee May File Proofs of Claim........................ 47 SECTION 8.14 New Credit Facility Waivers and Consents................ 48 ARTICLE 9 CONVERSION OF NOTES 48 SECTION 9.1 Conversion Privilege.................................... 48 SECTION 9.2 Exercise of Conversion Privilege........................ 48 SECTION 9.3 Fractional Interests.................................... 50 SECTION 9.4 Conversion Price........................................ 50 SECTION 9.5 Adjustment of Conversion Price; Notice of Adjustments........................................... 50 SECTION 9.6 Continuation of Conversion Privilege in Case of Reclassification, Change, Merger, Consolidation or Sale of Assets....................... 55 SECTION 9.7 Notice of Certain Events................................ 56 SECTION 9.8 Taxes on Conversion..................................... 56 SECTION 9.9 BI to Provide Stock..................................... 57 SECTION 9.10 Disclaimer of Responsibility for Certain Matters............................................... 57 SECTION 9.11 Return of Funds Deposited for Redemption of Converted Notes.................................... 58 SECTION 9.12 Registrar and Paying Agent.............................. 58 ARTICLE 10 SATISFACTION AND DISCHARGE 58 SECTION 10.1 Defeasance of Notes..................................... 58 SECTION 10.2 Satisfaction and Discharge of the Indenture............. 59 SECTION 10.3 Application of Trust Money.............................. 60 SECTION 10.4 Return of Moneys Held by Trustee and Paying Agent Unclaimed for One Year.......................... 60
ARTICLE 11 AMENDMENTS, SUPPLEMENTS AND WAIVERS 60 SECTION 11.1 Without Consent of Holders.............................. 60 SECTION 11.2 With Consent of Holders................................. 61 SECTION 11.3 Compliance with Trust Indenture Act..................... 63 SECTION 11.4 Revocation and Effect of Consents....................... 63 SECTION 11.5 Notation on or Exchange of Notes........................ 63 SECTION 11.6 Trustee to Sign Amendments, Etc......................... 63 SECTION 11.7 Payment for Consent..................................... 64 ARTICLE 12 COLLATERAL AND SECURITY DOCUMENTS 64 SECTION 12.1 Collateral and Security Documents....................... 64 SECTION 12.2 Release of Lien......................................... 65 SECTION 12.3 Recording, Certificates and Opinions.................... 66 SECTION 12.4 Authorization of Actions to Be Taken by the Trustee Under the Security Documents........... 66 SECTION 12.5 Authorization of Receipt of Funds by the Trustee Under the Security Documents.................. 67 SECTION 12.6 Trustee's Disclaimer.................................... 67 SECTION 12.7 Release upon Termination of the Issuer's Obligations........................................... 67 ARTICLE 13 GUARANTEE 67 SECTION 13.1 Guarantee............................................... 67 SECTION 13.2 Guarantees Subordinated to Credit Facility Guarantees............................................ 68 SECTION 13.3 Liquidation, Dissolution, Bankruptcy.................... 69 SECTION 13.4 Execution and Delivery of Guarantees.................... 69 SECTION 13.5 Obligations Reinstated.................................. 70 SECTION 13.6 When Distribution Must Be Paid Over..................... 70 SECTION 13.7 Relative Rights......................................... 70 SECTION 13.8 Rights of Trustee and Paying Agent...................... 70 SECTION 13.9 Trustee Entitled to Rely................................ 71 SECTION 13.10 Trustee to Effectuate Subordination..................... 71 SECTION 13.11 Trustee not Fiduciary for Holders of the Credit Facility Guarantees............................ 71 SECTION 13.12 Notice by Issuer........................................ 71 SECTION 13.13 Acceleration of Notes................................... 72 SECTION 13.14 Default on Credit Facility Guarantee.................... 72 SECTION 13.15 Waiver.................................................. 72 SECTION 13.16 Survival of Obligations................................. 72 SECTION 13.17 Subordination may not be impaired by the Issuer or a Guarantor................................. 72 SECTION 13.18 Guarantees in Addition to Other Obligations............. 72 SECTION 13.19 Limitation of Guarantor's Liability..................... 73 SECTION 13.20 Amendments.............................................. 73 SECTION 13.21 Acknowledgement......................................... 73 EXHIBIT A FORM OF NOTE EXHIBIT B FORM OF NOTATION RELATING TO GUARANTEES
FORM OF NOTE BRADLEES STORES, INC. 9% SECURED CONVERTIBLE NOTE DUE 2004 Number: CUSIP Number: 104500AA1 Principal Amount Maturity Date Issue Date ------ ------------- ---------- $ ________ February 3, 2004 February 2, 1999 INTEREST RATE: Nine percent (9%) per annum BRADLEES STORES, INC., a corporation duly organized and existing under the laws of the Commonwealth of Massachusetts (hereinafter called the "Issuer", which term includes any successor or assign under the Indenture referred to below), for value received hereby promises to pay to [_____________], or its registered assigns, the outstanding Principal Amount hereof on the Maturity Date set forth above, and to pay interest on the unpaid portion of the Principal Amount semi-annually on each of January 1 and July 1 of each year (each of such dates and the Maturity Date are hereinafter individually referred to as the "Stated Maturity") at the Interest Rate set forth above from the most recent Stated Maturity for which interest has been paid or duly provided for or, if no interest has been paid, from the Issue Date set forth above, until the Principal Amount is paid in full. The Issuer shall pay interest on overdue principal from time to time on demand at the rate of interest borne by the Notes and it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the rate of interest borne by the Notes to the extent lawful. It is acknowledged and agreed that the principal of the Notes may not be repaid prior to the Maturity Date except as specifically provided in the Indenture (as hereinafter defined). The principal and interest so payable on any Stated Maturity shall, as provided in the Indenture, be paid to the person in whose name this Note is registered in the Security Register at the close of business on the Regular Record Date for such payment of principal and interest, which shall be the fifteenth day preceding each Stated Maturity, respectively. Any such principal and interest not so punctually paid or duly provided for shall forthwith cease to be payable to the person in whose name this Note was registered in the Security Register at the close of business on such Regular Record Date, and may be paid to the person in whose name this Note is registered at the close of business on a special record date for the payment of such overdue interest and/or overdue principal, to be fixed by the Trustee, notice of which shall be given to the Holder hereof at least 15 days prior to such special 82 record date, or may be paid at any time in any other lawful manner. Notwithstanding the foregoing, payment of the principal amount of this Note (or any outstanding installment thereof) upon final maturity (whether by redemption, acceleration or otherwise) shall be made instead only upon presentation and surrender of this Note. All payments in respect of this Note shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of debts. Whenever any amount to be paid hereunder is stated to be due on a day that is not a Business Day, such amount shall be payable on the next succeeding Business Day. This Note is one of an authorized issue of Notes of the Issuer known as its 9% Secured Convertible Notes Due 2004 (the "Notes") and ranks equally in right of payment with other non-subordinated indebtedness of the Issuer. The Notes are issued under the Indenture, dated as of February 2, 1999 (the "Indenture"), among the Issuer, IBJ Whitehall Bank & Trust Company (the "Trustee," which term includes any successor indenture trustee under the Indenture), Bradlees, Inc. ("BI") and New Horizons of Yonkers, Inc. All capitalized terms used herein, unless defined herein, shall have the meanings ascribed to them in the Indenture. All rights, powers and remedies available to any Holder of this Note shall be subject to the provisions of the Indenture. Reference is hereby made to the Indenture for a description of the nature and extent of the Notes and the respective rights of the Holders of the Notes, the Indenture Trustee, the Issuer, BI and New Horizons in respect of the Notes and the terms upon which the Notes are made and are to be authenticated and delivered. The principal of, and interest on, and all other amounts payable under this Note are secured by (A) a first priority mortgage Lien on (i) the Yonkers Property and the Net Proceeds of the Disposition of the Yonkers Property and (ii) subject to Section 12.1(b) of the Indenture, the Additional Collateral and the Net Proceeds of the Disposition of the Additional Collateral and (B) a first priority Lien on the Pledged Stock, in each case as described in the Indenture and the Security Documents. Such Liens shall be subject to modification, and certain portions of the Collateral shall be subject to release, upon the terms and provisions set forth in the Security Documents. Each Holder of a Note, by accepting a Note, shall be deemed to have agreed to all of the terms and provisions of the Security Documents, as the same may be amended from time to time pursuant to the provisions thereof, the Notes and the Indenture. Payment and performance of the BI Guarantee Obligations and the New Horizons Guarantee Obligations in connection with the Notes are severally fully and unconditionally guaranteed by BI and New Horizons, respectively, in accordance with the terms of Article 13 of the Indenture. The Indenture permits, with certain exceptions, as therein provided, the amendment thereof and the Security Documents and the modification of the rights and obligations of the Issuer and the rights of the Holders of the Notes to be affected under the Indenture or the Security Documents at any time by the Issuer with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Notes. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Outstanding Notes, on behalf of the 83 Holders of all the Notes, to waive compliance by the Issuer with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver or direction by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any security issued upon the transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. The Notes shall be redeemed pro rata with (a) the Net Proceeds of the Disposition of the Yonkers Property, (b) subject to Section 12.1(b) of the Indenture, the Net Proceeds of the Disposition of the Additional Collateral and (c) the Net Proceeds of any Equity Offering, in each case at a Redemption Price equal to 100% of the unpaid principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon to the Redemption Date. The Notes may be redeemed in whole or in part at any time at the option of the Issuer at a Redemption Price equal to 100% of the unpaid principal amount thereof plus accrued and unpaid interest thereon to the Redemption Date. Notice of any redemption of Notes will be given at least 10 days before the Redemption Date to each Holder at its registered address. Notes (or portions thereof as aforesaid) redeemed in accordance with the Indenture shall thereupon cease to be entitled to the Liens of the Security Documents and shall cease to bear interest from and after the Redemption Date. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed pro rata or by lot or by a method that complies with applicable requirements, and that the Trustee considers fair and appropriate; provided that in the case of a mandatory redemption, selection of the portion of Notes for redemption shall be made by the Trustee only on a pro rata basis unless prohibited by law. The Notes are, subject to the terms of the Indenture, convertible in whole or in part at the option of the Holder thereof into shares of New Common Stock of BI at any time after the first anniversary of the original issuance of the Notes. The Conversion Price per share of New Common Stock shall initially be equal to the arithmetic unweighted average closing price of such stock during the 20 Business Days prior to the first anniversary of the original issuance of the Notes. The Conversion Price shall be adjusted from time to time in the case of certain dividends and distributions in respect of the New Common Stock, in the event of certain tender or exchange offers for the New Common Stock and under certain other circumstances, as further provided in the Indenture. If an Event of Default occurs and is continuing, the Holders of at least 25% in aggregate principal amount of the Notes Outstanding may declare the principal amount of, and any accrued and unpaid interest on, all the Notes to be due and payable immediately; provided, that in the case of an Event of Default -------- arising from certain events of bankruptcy or insolvency with respect to the Issuer, the principal amount of and any accrued and unpaid interest on all outstanding Notes shall become due and payable immediately without further action or notice. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged 84 as provided in the Indenture. The Registrar and the Trustee may require a Noteholder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or the Indenture. The person in whose name this Note is registered shall be deemed to be the owner and holder hereof for the purpose of receiving payment as herein provided and for all other purposes. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. A director, officer, employee, stockholder or incorporator, as such, of the Issuer or BI shall not have any liability for any obligations of the Issuer under the Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. Such waiver and release shall not affect the Guarantee Obligations of BI or New Horizons pursuant to the Indenture. 85 Unless the certificate of authentication hereon has been executed by the Indenture Trustee by manual or facsimile signature, this Note shall not be entitled to any benefit under such Indenture, or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly executed. BRADLEES STORES, INC. By: ------------------------------------ Name: Paul R. McKelvey Title: Vice President & Treasurer CERTIFICATE OF AUTHENTICATION This is one of the Notes referred to in the within-mentioned Indenture. IBJ Whitehall Bank & Trust Company, as Trustee By: ------------------------------------- Authorized Signatory 86 CONVERSION NOTICE To BRADLEES STORES, INC. and BRADLEES, INC. The undersigned registered holder of this Note hereby irrevocably exercises the option to convert this Note, or portion hereof, which is $1,000 or a multiple thereof below designated into shares of common stock of BRADLEES, INC. in accordance with the terms of the Indenture referred to in this Note and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares be issued and delivered to the registered holder hereof unless a different name has been indicated below. Unless otherwise directed, a new Note representing any unconverted principal amount hereof shall be delivered to the registered holder hereof. If shares are to be issued in the name of a person other than the undersigned, this Note must be duly endorsed by or accompanied by instruments of transfer in form reasonably satisfactory to BRADLEES STORES, INC. and BRADLEES, INC. duly executed by the undersigned and the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Note. Dated: If different from that of Noteholder, print name, address (including ZIP ---------------------------- code) and Social Security or other Signature of Noteholder taxpayer identification number of person in whose name the New Common Signature Guaranteed Stock will be issued. Signature must be guaranteed by a participant in a recognized signature guarantee medallion program or other signature guarantor acceptable to the Trustee. SOCIAL SECURITY OR OTHER Principal amount to be TAXPAYER IDENTIFYING NUMBER converted (if less than all) Name ($1,000 or an integral multiple thereof) - ---------------------------------------- Address $ - ----------------------------------------
87 TRANSFER FORM FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE Please print or typewrite name and address including postal zip code of assignee the within Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer said Note on the books of the Company, with full power of substitution in the premises. Signature: Dated: Signature Guaranteed: Signature must be guaranteed by a participant in a recognized signature guarantee medallion program or other signature guarantor acceptable to the Trustee. NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatever. 88 FORM OF NOTATION RELATING TO GUARANTEES Bradlees, Inc. ("BI") and New Horizons of Yonkers, Inc. ("New Horizons") have severally fully and unconditionally guaranteed, to the extent set forth in Article 13 of the Indenture and subject to the provisions of the Indenture, the complete and punctual payment by the Issuer of the BI Guarantee Obligations and the New Horizons Guarantee Obligations, respectively, in connection with the Notes. The BI Guarantee Obligations shall rank equally in right of payment with other non-subordinated indebtedness of BI, except that the BI Guarantee Obligations shall be expressly subordinated in right of payment to the BI Credit Facility Guarantee, as more particularly set forth in the Indenture. The New Horizons Guarantee Obligations shall rank equally in right of payment with other non-subordinated indebtedness of New Horizons, except that the New Horizons Guarantee Obligations shall be expressly subordinated in right of payment to New Horizons Credit Facility Guarantee, as more particularly set forth in the Indenture. The obligations of BI and New Horizons to the Holders of Notes and to the Trustee pursuant to the Guarantees are expressly set forth in Article 13 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantees. Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. BRADLEES, INC. By: ------------------------------ Name: Paul R. McKelvey Title: Vice-President & Treasurer Attest: -------------------------- Name: Raymond C. Zemlin Title: Assistant Clerk NEW HORIZONS OF YONKERS, INC. By: ------------------------------ Name: Paul R. McKelvey Title: Vice-President & Treasurer Attest: -------------------------- Name: Raymond C. Zemlin Title: Assistant Secretary 89 EX-2.4 3 FORM OF LEASEHOLD MORTGAGE Exhibit 2.4 ----------- SECTION: 4 BLOCK: 4877 LOTS: 20, 100, 200, 250 Premises: 2500 Central Park Avenue Yonkers, New York =============================================================================== MORTGAGE AMOUNT: $17,760,000 LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES RENTS AND PROFITS AND FIXTURE FINANCING STATEMENT from NEW HORIZONS OF YONKERS, INC. to IBJ WHITEHALL BANK & TRUST COMPANY as Trustee Dated as of February 2, 1999 =============================================================================== WHEN RECORDED, RETURN TO: Matthew R. Hartley, Esq. Skadden, Arps, Slate, Meagher & Flom 333 West Wacker Drive, Suite 2100 Chicago, Illinois 60606 THIS MORTGAGE DOES NOT COVER REAL PROPERTY PRINCIPALLY IMPROVED OR TO BE IMPROVED BY ONE (1) OR MORE STRUCTURES CONTAINING IN THE AGGREGATE NOT MORE THAN SIX (6) RESIDENTIAL DWELLING UNITS, EACH HAVING ITS OWN SEPARATE COOKING FACILITIES. MORTGAGE AMOUNT: $17,760,000 LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES, RENTS AND PROFITS AND FIXTURE FINANCING STATEMENT ------------------------------------------------------------ THIS LEASEHOLD MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES, RENTS AND PROFITS AND FIXTURE FINANCING STATEMENT, made as of February 2, 1999, by, NEW HORIZONS OF YONKERS, INC., a Delaware corporation, having an address at One Bradlees Circle, P.O. Box 9051, Braintree, Massachusetts 02184-9051 (together with its permitted successors and assigns, the "Mortgagor"), in favor --------- of IBJ WHITEHALL BANK & TRUST COMPANY, having an address at One State Street, New York, New York 10004, as Trustee for the benefit of the Noteholders (as such terms are defined in the Indenture, hereinafter defined, together with its successors in interest, the "Mortgagee"). --------- WITNESSETH: ---------- WHEREAS, the Mortgagee, Bradlees Stores, Inc. (the "Issuer") and ------ Bradlees, Inc. have entered into an Indenture of even date herewith (as the same may be amended, supplemented, renewed or extended from time to time, the "Indenture") pursuant to which the Issuer issued the Notes in the aggregate - ---------- principal amount of $29,000,000, dated the date hereof. (ALL CAPITALIZED TERMS USED IN THIS MORTGAGE AND NOT OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THE INDENTURE.) NOW, THEREFORE, to secure (i) payment of a portion of the indebtedness evidenced by the Notes, in the Mortgage Amount (as defined above), together with all interest accrued thereon as provided for in the Notes, and (ii) payment of all other amounts due under the Indenture and the other Security Documents, and (iii) the performance of the covenants and agreements contained herein and in the Indenture and the other Security Documents; and also in consideration of the sum of Ten Dollars in hand paid, the receipt and sufficiency of which are hereby acknowledged: GRANTING CLAUSE The Mortgagor, intending to be legally bound, hereby mortgages, gives, grants, assigns, transfers, pledges, grants a security interest and sets over to the Mortgagee, to secure (i) payment of a portion of the indebtedness evidenced by the Notes, in the Mortgage Amount, together with all interest accrued thereon as provided for in the Notes, and (ii) payment of all other amounts due under the Indenture and the other Security Documents, and (iii) the performance of the covenants and agreements contained herein and in the Indenture and the other Security Documents, any and all of the Mortgagor's right, title and interest in and to the following property (collectively as set forth in this Granting Clause the "Mortgaged Property"): ------------------ 2 (a) the leasehold estate of the Mortgagor created pursuant to the lease (the "Lease") described in Schedule A hereto covering the property described in ------ Schedule A hereto and any additions thereto covered by the Lease (collectively the "Premises"); -------- (b) all buildings, plants, structures and other improvements now or hereafter constructed or located on the Premises, or within the Easement Areas (as hereinafter defined) to the extent constructed and/or owned by the Mortgagor, and all right, title and interest of the Mortgagor, if any, in and to all fixtures now or hereafter located on the Premises, within the Easement Areas or in any such improvements (such of the Mortgaged Property as is referred to in this paragraph (b) being hereinafter collectively called the "Improvements"), including, without limitation, all heating, ------------ lighting, pipes, pipelines, pumps, conduits, plumbing, lifting, cleaning, fire prevention, fire extinguishing, refrigerating, ventilating, communications, air cooling and air conditioning apparatus, elevators, escalators, shades, awnings, screens, storm doors and windows, permanently attached cabinets, partitions, ducts and compressors, and all of the right, title and interest of the Mortgagor in and to any Improvements which may be subject to any title retention or security agreement superior in lien to the lien of this Mortgage; it being understood and agreed that all Improvements are part and parcel of the Premises and appropriated to the use of the Premises and, whether affixed or annexed or not, shall for the purpose of this Mortgage be deemed conclusively to be real estate and conveyed hereby; (c) any insurance proceeds, and the right to receive the same, and any and all awards or payments, including interest thereon, and the right to receive the same, which may be made with respect to the Mortgaged Property as a result of (i) the exercise of the right of eminent domain, (ii) the alteration of the grade of any street, or (iii) any other injury to or decrease in the value of the Mortgaged Property; (d) to the extent permitted by law, all franchises, permits, licenses and contract rights regarding the use, occupancy or operation of the Mortgaged Property, including, without limitation, all warranties, all rights with respect to contracts for utilities, maintenance, service or repair of the Mortgaged Property and all development and water rights, if any; (e) all and singular the easements, rights-of-way or use, licenses, privileges, servitudes, tenements, hereditaments and appurtenances now or hereafter belonging to or in anywise appertaining to any of the foregoing, including, without limitation, all easements, interests and rights created and granted pursuant to the terms of the Lease(all of the foregoing hereinafter collectively being referred to the "Easements" and the areas subject to the --------- Easements being referred to as the "Easement Areas"); all rents, income, -------------- issues, profits and proceeds thereof; and all the estate, right, title, interest, property, claim and demand whatsoever, in law as well as in equity, which the Mortgagor now has or may hereafter acquire, in and to any of the foregoing; 3 (f) all other title, estates, interests or rights of the Mortgagor in the Premises, the Improvements and the Easement Areas, whether now existing or hereafter acquired; and (g) any proceeds, and the right to receive the same, arising from or relating to any conversion (voluntary or involuntary) of the Mortgaged Property, including, without limitation, proceeds of any sale, assignment, sublease or transfer of the Lease, Premises or Improvements. AND without limiting any of the other provisions of this Mortgage, the Mortgagor expressly grants to the Mortgagee, as secured party, a security interest in all of those portions of the Mortgaged Property (for the avoidance of doubt, expressly excluding any and all "inventory", "equipment" and other personal property (other than, with respect to such other personal property, as expressly set forth in paragraphs (a) through (g) above) as such terms are defined or used in the New York Uniform Commercial Code (the "New York UCC")) ------------ which are or may be subject to the New York UCC provisions applicable to secured transactions (including, without limitation, Article 9 of the New York UCC). The Mortgagor agrees to execute and deliver, from time to time such further instruments (including, without limitation, further security agreements, as defined in subdivision (1) of Section 9-105 of the New York UCC) as may be reasonably requested by the Mortgagee to confirm the security interest and lien of this Mortgage on the Mortgagor's interest in such portions of the Mortgaged Property. SUBJECT, HOWEVER, to the encumbrances, if any, listed in the title insurance policies issued to and approved by the Mortgagee in connection herewith (which encumbrances are hereinafter collectively referred to as the "Permitted Encumbrances"). - ----------------------- TO HAVE AND TO HOLD the Mortgaged Property with all privileges and appurtenances hereby granted, pledged, transferred, conveyed, mortgaged and assigned, or agreed or intended so to be, unto the Mortgagee and its successor and assigns, forever. The Mortgagor covenants that (i) it is lawfully seized and possessed of good and marketable title to the Premises, the Easement Areas and the Improvements; (ii) the Mortgaged Property is subject only to the Permitted Encumbrances; (iii) it has a good right and full power and authority to make this Mortgage; and (iv) the Mortgagor at its expense will warrant and defend to the Mortgagee such title to the Mortgaged Property and the lien and interest of the Mortgagee thereon and therein against all claims and demands and will maintain and preserve such lien and will keep this Mortgage a first lien upon the Mortgaged Property subject only to Permitted Encumbrances. The Mortgagor further represents, warrants, covenants and agrees as follows: 4 ARTICLE I Payment of Taxes, Insurance, etc. --------------------------------- 1.1. Certain Definitions. - ---- ------------------- Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Indenture. 1.2. Payment of Taxes and Claims. - ---- --------------------------- The Mortgagor shall pay, or cause to be paid when due, all taxes assessments or similar charges, payments in lieu of taxes, assessments, or similar charges and all charges, betterments, or other assessments relating to or imposed upon the Mortgaged Property and all other lawful claims required to be paid by the Mortgagor (including, without limitation, claims for labor, services, materials and supplies) pursuant to the terms and provisions of the Lease. 1.3. Compliance with Insurance Requirements Instruments. - ---- -------------------------------------------------- The Mortgagor shall at all times (a) obtain and maintain, or cause to be obtained and maintained, the types and amounts of insurance required by the Lease, and (b) comply or cause compliance with any instruments of record at the time in force affecting the Mortgaged Property or any part thereof. 1.4. Compliance with Laws. - ---- -------------------- The Mortgagor shall comply with all Laws, and shall not do or permit any act or thing to be done which is contrary to any Law in respect of the ownership and use of the Mortgaged Property, provided, however, that the Mortgagor shall have the right to contest same in good faith. 1.5. Government Approvals. - ---- -------------------- The Mortgagor shall maintain all Government Approvals as required by Law relating to the Premises. 1.6. Liens. - ---- ----- The Mortgagor shall not create, incur, assume or suffer to exist, directly or indirectly, any Lien on or with respect to the Mortgaged Property or any portion thereof, or the Mortgagor's or the Mortgagee's interest therein, or any income or profits arising therefrom, except for the Permitted Encumbrances. 1.7. The Lease. - ---- --------- 1.7.1. Modifications. The Mortgagor shall neither cancel, terminate or - ------ ------------- surrender the Lease, nor amend or modify the Lease in any respect, nor request or grant any consent or waiver thereunder. 1.7.2. Performance. The Mortgagor shall faithfully keep and perform all of its - ------ ----------- obligations as lessee under the Lease. The Mortgagor, on behalf of the Mortgagee, shall send written notice (by certified mail, return receipt requested) to the Landlord, with a copy to the Mortgagee, setting forth (i) the terms of this Section 1.7, (ii) the name and address of the 5 Mortgagee, and (iii) the recording date and other recording information for this Mortgage, together with a true copy of this Mortgage, within sixty (60) days after the execution of this Mortgage. (The Premises being located in New York State, reference is made to Section 291-f of the Real Property Law in applying the provisions of Section 1.7.) Mortgagor shall provide copies to Mortgagee of all material notices and communications to or from the Landlord. 1.8. Utility Services. - ---- ---------------- The Mortgagor shall (i) pay or cause to be paid all charges for all public and private utility services, all public or private rail and highway services and all other public or private transportation services, if any, all public or private communications services, and all sprinkler systems and protective services at any time rendered to or in connection with the Premises to the extent required by the Lease, (ii) comply or cause compliance with all contracts relating to any such services, and (iii) do all other things required for the maintenance and continuance of all such services. 1.9. Maintenance and Repair, etc. - ---- ---------------------------- The Mortgagor shall maintain and operate (or cause to be maintained and operated) the Premises and the Easement Areas in accordance with good business practices consistent with those used by prudent operators of similar facilities. The Mortgagor shall keep, or cause to be kept, in good working order and condition, ordinary wear and tear excepted, the Improvements necessary or useful in the proper conduct of its business on the Premises. The Mortgagor shall not permit the Improvements or any portion thereof to be removed, demolished or materially altered, except where such events involve less than $250,000 per event or $1,000,000 in the aggregate in any fiscal year. To the extent required by Law, the Lease or the Easements, the Mortgagor shall keep or cause to be kept the adjoining sidewalks, curbs, vaults and vault space, if any, and streets and ways located on or adjacent to the same, and all means of access to the Premises, in good and clean order and condition and in such a fashion that the value and utility of the Premises will not be diminished, subject only to ordinary wear and tear. The Mortgagor promptly, at its own expense, shall make or cause to be made all necessary or appropriate repairs, replacements and renewals of the Improvements, whether interior or exterior, structural or nonstructural, ordinary or extraordinary, foreseen or unforeseen to the extent required pursuant to the Lease. All repairs, replacements and renewals shall be equal or superior in quality, utility and class to the original work. The Mortgagor, at its expense, shall do or cause others to do every act necessary or appropriate for the preservation and safety of the Premises by reason of or in connection with any excavation or other building operation upon the Premises and upon any adjoining property, whether or not the Mortgagor or any other Person shall be required to take such action or be liable for failure to do so. 1.10. Alterations, Changes, etc. - ----- -------------------------- So long as no Event of Default shall have occurred and be continuing, the Mortgagor shall have the right to make or cause to be made reasonable replacements in the ordinary course of business for, alterations of and additions to the Premises or any part thereof, 6 provided that any replacement, alteration or addition (a) shall not change the general character or affect adversely the structural integrity of the Premises, or reduce the fair market value thereof below its value immediately before such replacement, alteration or addition or impair the usefulness of the Premises, (b) is effected with due diligence, in a good and workmanlike manner and in compliance with all Laws and insurance requirements, as set forth in the Indenture, (c) is promptly and fully paid for, or caused to be paid for, by the Mortgagor, (d) is made, if the estimated cost of such replacement, alteration or addition exceeds $2,000,000, (i) under the supervision of an engineer or architect and in accordance with the plans, specifications and cost estimates reasonably satisfactory to the Mortgagee, and (ii) only after the Mortgagor shall have furnished or caused to be furnished to the Mortgagee a contractor's payment and performance bond. In any event in which the Mortgagor shall furnish the Mortgagee with plans and specifications for any such replacement, alteration or addition, the Mortgagee may engage, at the Mortgagor's reasonable expense, an architect or engineer to review such plans and specifications on the Mortgagee's behalf. All replacements for, alterations of and additions to the Premises shall immediately constitute a part of the Mortgaged Property subject to this Mortgage. 1.11. Acquired Property Subject to Lien. - ----- --------------------------------- All property at any time acquired by the Mortgagor which is located at the Premises and required by this Mortgage to become subject to the lien hereof, including any property acquired as provided in Section 1.11, whether such property is acquired by exchange, purchase, construction or otherwise, shall forthwith become subject to the lien of this Mortgage without further action on the part of the Mortgagor or the Mortgagee. The Mortgagor, at its expense, will execute and deliver to the Mortgagee, upon request (and will record and file as provided in the Granting Clause), an instrument supplemental to this Mortgage, satisfactory in substance and form to the Mortgagee, whenever such an instrument is, in the opinion of the Mortgagee, necessary or desirable under applicable law to subject to the lien of this Mortgage all right, title and interest of the Mortgagor in and to all property required by this Mortgage to be subjected to the lien hereof and acquired by the Mortgagor since the date of this Mortgage or the date of the most recent supplemental instrument so subjecting property to the lien hereof, whichever is later. ARTICLE II Covenants of the Mortgagor -------------------------- 2.1. Compliance with Indenture. - ---- ------------------------- The Mortgagor shall comply or cause compliance with all of the covenants, conditions and agreements contained in the Indenture applicable to the Mortgagor, all of which covenants, conditions and agreements are hereby incorporated herein by reference as though set forth herein in their entirety. 2.2. Obligations Secured by Mortgage. - ---- ------------------------------- This Mortgage shall secure the payment of the principal sum of, interest on, additional 7 interest as provided in and any prepayment premiums due under, the Notes and shall further secure all advances for the payment of taxes, assessments, insurance premiums and all other costs incurred for the protection of the Mortgaged Property, together with interest thereon from the date of such advances at the highest rate then borne by any of the Notes or at the highest rate permitted by law, whichever is less. 2.3. Prohibitions on Sale Transfer etc. - ---- ---------------------------------- Except as provided herein or permitted under the Indenture, the Mortgagor shall not, directly or indirectly, voluntarily sell, lease, assign, transfer or convey, or permit the sale, lease, assignment, transfer or conveyance of the Premises or Improvements or any additions, alterations or changes to existing improvements on, the Mortgaged Property or any part thereof or interest therein. If the Mortgaged Property is sold, transferred, assigned or conveyed by operation of law without compliance with the terms of the Indenture, the Mortgagee may, at its option as provided in the Indenture, declare the entire indebtedness secured hereby to be immediately due and payable. Subject to the terms of the Lease and except for the assignment effected hereby, by the Security Documents and the liens created by the Permitted Encumbrances, the Mortgagor will not assign the whole or any part of the rents, income or profits arising from the Mortgaged Property, and all other assignments thereof shall be null and void. 2.4. Recordation. - ---- ----------- The Mortgagor agrees that, at its expense, it will cause this Mortgage and all Security Documents, UCC-1 Financing Statements and each supplement or extension hereto or thereto to be recorded, registered and filed, as applicable, and shall cause the recording, registering and filing, of the same to be kept current in the same manner and in such places, and will pay or cause to be paid all such recording, registration, filing or other taxes, fees and other charges. The Mortgagor shall comply or cause compliance with all such statutes and regulations, as may be required by law in order to establish, preserve and protect the lien of this Mortgage as a valid, direct first mortgage lien on the Mortgaged Property, including all right, title and interest of the Mortgagor in and to all property required by this Mortgage to be subject to the lien hereof and acquired by the Mortgagor after the date of this Mortgage, subject only to the Permitted Encumbrances. The Mortgagor hereby indemnifies the Mortgagee in respect of any of such costs which may at any time be incurred by the Mortgagee. 2.5. No Waste. - ---- -------- The Mortgagor shall not commit or permit to be committed any physical waste upon the Mortgaged Property, or do any act that would materially impair or depreciate the value of the Mortgaged Property. 2.6. Inspection, etc. - ---- ---------------- The Mortgagor shall permit the Mortgagee and any representatives designated by the Mortgagee to visit and inspect the Mortgaged Property or any part thereof, to inspect all property, books of record and account and other records of the Mortgagor relating to the Mortgaged Property and to make copies thereof and extracts therefrom, and to discuss its 8 affairs, finances and accounts with, and to be advised as to the same by, any officer and any employee or independent accountant or the Mortgagor, all at such reasonable times and intervals as from time to time may be requested upon two (2) days' prior notice. The Mortgagee shall not have any duty to make any such inspection and shall not incur any liability or obligation for not making the same carefully or properly, or for not completing the same; nor shall the fact that such inspection may not have been made by the Mortgagee relieve the Mortgagor of any obligations that it may otherwise have under this Mortgage. 2.7. Notice of Event of Default, Default or Claimed Default. - ---- ------------------------------------------------------ The Mortgagor shall deliver, without request or demand, a notice to the Mortgagee within four (4) business days of becoming aware of the existence of any condition or event which constitutes an Event of Default or which, after notice or lapse of time or both, would constitute an Event of Default, which notice shall specify (i) the nature and period of existence thereof, and (ii) what action the Mortgagor is taking, or causing to be taken, or intends to take, or to cause to be taken, with respect thereto. 2.8. No Credit for Payment of Taxes. - ---- ------------------------------ The Mortgagor shall not be entitled to any credit against the principal or premium, if any, or interest or additional interest on the Notes or any other sum which may become payable under the terms of the Indenture or any Security Document by reason of the payment of any tax on the Mortgaged Property or any part thereof or by reason of the payment of any other taxes, assessments or similar charges, and shall not apply for or claim any deduction from the taxable value of the Mortgaged Property or any part thereof by reason of this Mortgage. 2.9. Use of Mortgagee's Name. - ---- ----------------------- The Mortgagor shall not use the Mortgagee's name or the name of any Person controlling, controlled by or under common control with the Mortgagee in connection with the Mortgaged Property, or any part thereof, or any of the Mortgagor's activities, except as such use may be required by applicable requirements of law. 2.10. The Lease. - ----- --------- (a) The Mortgagor shall: (i) pay all rents, additional rents and other sums required to be paid by the Mortgagor under and pursuant to the provisions of the Lease; (ii) diligently perform and observe before the expiration of applicable cure periods all of the terms, covenants and conditions of the Lease on the part of the Mortgagor, as tenant thereunder, to be performed and observed, unless such performance or observance shall be waived or not required by the Landlord; 9 (iii) promptly advise the Mortgagee of any default under the Lease on the part of the Landlord or any successor landlord; and (iv) upon written request of Mortgagee, use reasonable efforts to obtain a certificate of estoppel of the Landlord or any successor landlord at such intervals as the same may be obtained under the Lease. (b) The Mortgagor shall not surrender the leasehold estate created by the Lease or terminate or cancel the Lease or modify, change, supplement, alter or amend the Lease, in any respect, either orally or in writing, and the Mortgagor hereby assigns to the Mortgagee, as further security for the payment and performance of the obligations and indebtedness secured hereby and for the performance and observance of the terms, covenants and conditions of this Mortgage, all of the rights, privileges and prerogatives of the Mortgagor, as tenant under the Lease, to surrender the leasehold estate created by the Lease or to terminate, cancel, modify, change, supplement, alter or amend the Lease, and any such surrender of the leasehold estate created by the Lease or termination, cancellation, modification, change, supplement, alteration or amendment of the Lease shall be void and of no force and effect. Simultaneously with the execution of this Mortgage, the Mortgagor has delivered to the Mortgagee a true copy of an executed counterpart of the Lease, together with a true copy of an executed counterpart of any and all assignments thereof and amendments thereto and an executed counterpart of any memorandum of lease recorded in connection therewith, all of which shall be retained by the Mortgagee until the entire indebtedness secured hereby has been paid in full. (c) If the Mortgagor shall default in the performance or observance of any term, covenant or condition of the Lease on the part of the Mortgagor, as tenant thereunder, to be performed or observed, then, without limiting the generality of the other provisions of this Mortgage, and without waiving or releasing the Mortgagor from any of its obligations hereunder, the Mortgagee shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of the Lease on the part of the Mortgagor, as tenant thereunder, to be promptly performed or observed on behalf of the Mortgagor, to the end that the rights of the Mortgagor in, to and under the Lease shall be kept unimpaired and free from default. If the Mortgagee shall make any payment or perform any act or take action in accordance with the preceding sentence, the Mortgagee will use its diligent efforts to notify the Mortgagor of the making of any such payment, the performance of any such act, or taking of any such action. All sums so paid and expended by the Mortgagee and the interest thereon shall be secured by the lien of this Mortgage. In any such event, the Mortgagee and any person designated by the Mortgagee shall have, and are hereby granted, the right to enter upon the Mortgaged Property at any time and from time to time for the purpose of taking any such action. (d) If the Landlord shall deliver to the Mortgagee a copy of any notice of default sent by the Landlord to the Mortgagor, as tenant under the Lease, such notice shall constitute full protection to the Mortgagee for any action taken or omitted to be taken by the Mortgagee, in good faith, in reliance thereon. 10 (e) The Mortgagor shall, from time to time, use reasonable efforts to obtain from the Landlord such certificates of estoppel with respect to compliance by the Mortgagor with the terms of the Lease as may be requested by the Mortgagee. (f) If the Lease is for any reason whatsoever terminated prior to the natural expiration of its term, and if, pursuant to any provision of the Lease or otherwise, the Mortgagee or its designee shall acquire from the Landlord a new lease of the Premises, the Mortgagor shall have no right, title or interest in or to such new lease or the leasehold estate created thereby. (g) No release or forbearance of any of the "Tenant" obligations under the Lease, pursuant to the Lease or otherwise, shall release the Mortgagor from any of its obligations under this Mortgage. (h) In the event of any arbitration or court proceedings pursuant to the Lease, the Mortgagor hereby authorizes the Mortgagee to participate in such arbitration or court proceedings in order to protect the Mortgagee's interests hereunder and provided same shall not be exercised prior to an Event of Default hereby irrevocably appoints the Mortgagee its agent and attorney-in-fact (which appointment shall be deemed to be an agency coupled with an interest) to exercise all of its rights in connection with such arbitration or court proceedings, including the right to appoint arbitrators and to conduct arbitration proceedings on its behalf, after the occurrence of any event of default, but nothing contained herein shall obligate the Mortgagee to participate in any such arbitration or court proceedings. (i) (i) The Mortgagor shall not, without the Mortgagee's prior written consent, elect to treat the Lease or the leasehold estate created thereby as terminated under Subsection 365(h)(1) of the Bankruptcy Code, after rejection or disaffirmance of the Lease by the Landlord thereunder or by any trustee of such party, and any such election made without such consent shall be void and ineffective. (ii) The Mortgagor hereby unconditionally assigns, transfers and sets over to the Mortgagee all of the Mortgagor's claims and rights to the payment of damages that may hereafter arise as a result of any rejection or disaffirmance of the Lease by the Landlord thereunder or by any trustee of such party, pursuant to the Bankruptcy Code. The Mortgagee shall have and is hereby granted the right to proceed, in its own name or in the name of the Mortgagor, in respect of any claim, suit, action or proceeding relating to the rejection or disaffirmance of the Lease (including, without limitation, the right to file and prosecute, to the exclusion of the Mortgagor, any proofs of claim, complaint, motions, applications, notices and other documents) in any case in respect of the Landlord under the Bankruptcy Code. This assignment constitutes a present, irrevocable and unconditional assignment of the foregoing claims, rights and remedies, and shall continue in effect until all of the indebtedness and obligations secured by this Mortgage shall have been satisfied and discharged in full. Any amounts received by the Mortgagee as damages arising out of any such rejection of the Lease shall be applied first to all reasonable costs and expenses of the Mortgagee (including, without limitation, reasonable legal fees) in connection with the exercise of its rights under this paragraph and then, in such manner as the Mortgagee shall determine, to the reduction and payment of the indebtedness secured by this Mortgage, and thereafter any balance shall be remitted to the Mortgagor. 11 (iii) The Mortgagee shall not, pursuant to Subsection 365(h)(2) of the Bankruptcy Code, offset against the rent payable under the Lease the amount of any damages caused by the nonperformance by the Landlord of such party's obligations under the Lease after rejection or disaffirmance thereof under the Bankruptcy Code, without the prior written consent of the Mortgagee if such offset would result in a forfeiture of the Lease. The Mortgagee shall have the right to object to all or any part of such offset, and, in the event of such objection, the Mortgagor shall not effect any offset of the amounts so objected to by the Mortgagee. The Mortgagor shall indemnify and hold the Mortgagee harmless from and against any and all claims, demands, actions, suits, proceedings, damages, losses, costs and expenses of every nature whatsoever (including, without limitation, reasonable legal fees) arising from or relating to any such offset by the Mortgagor. (iv) The Mortgagor shall, promptly after obtaining knowledge thereof, give written notice to the Mortgagee of any actual filing by or against the Landlord of a petition under the Bankruptcy Code. The aforesaid written notice shall set forth any information possessed by the Mortgagor concerning the date of such filing and the court in which such petition was filed. (v) In the event that any action, proceeding, motion or notice shall be commenced or filed in respect of the Landlord under the Lease or the Mortgaged Property or any part thereof, in connection with any case under the Bankruptcy Code, following an Event of Default hereunder the Mortgagee shall have, and is hereby granted, the option, to the exclusion of the Mortgagor, exercisable upon notice from the Mortgagee to the Mortgagor, to conduct and control any such litigation with counsel of the Mortgagee's choice. The Mortgagee may proceed, in its own name or in the name of the Mortgagor, in connection with any such litigation, and the Mortgagor agrees to execute any and all powers, authorizations, consents and other documents required by the Mortgagee in connection therewith. The Mortgagor shall, upon demand, pay to the Mortgagee all reasonable costs and expenses (including, without limitation, reasonable legal fees) paid or incurred by the Mortgagee in connection with the prosecution or conduct of any such proceedings, and, to the extent permitted by law, such costs and expenses shall be added to the indebtedness secured by this Mortgage. The Mortgagor shall not, without the prior written consent of the Mortgagee, commence any action, suit, proceeding or case, or file any application or make any motion, in respect of the Lease in any such case under the Bankruptcy Code. (vi) In the event that a petition under the Bankruptcy Code shall be filed by or against the Mortgagor, and the Mortgagor or any trustee of the Mortgagor shall decide to reject the Lease pursuant to Section 365(a) of the Bankruptcy Code or the Lease shall be subject to rejection pursuant to Section 365(d)(4) of the Bankruptcy Code, 12 the Mortgagor shall give the Mortgagee at least ten (10) days' prior written notice of the date on which application shall be made to the court for authority to reject the Lease. The Mortgagee shall have the right, but not the obligation, to serve upon the Mortgagor or such trustee within such ten (10) day period a notice stating that (A) the Mortgagee demands that the Mortgagor or such trustee assume and assign the Lease to the Mortgagee pursuant to Section 365 of the Bankruptcy Code, and (B) the Mortgagee covenants to cure, or provide adequate assurance of prompt cure of, all defaults and provide adequate assurance of future performance under the Lease. In the event that the Mortgagee serves such notice upon the Mortgagor or such trustee, neither the Mortgagor nor such trustee shall seek to reject the Lease, and the Mortgagor and such trustee shall comply with such demand within thirty (30) days after such notice shall have been given, subject to the Mortgagee's performance of such covenant. (vii) In the event that a petition under the Bankruptcy Code shall be filed by or against the Mortgagor, neither the Mortgagor nor any trustee of the Mortgagor shall seek to extend any of the deadlines set forth in Section 365 of the Bankruptcy Code without the written consent of the Mortgagee. (viii) The Mortgagor hereby assigns, transfers and sets over to the Mortgagee a nonexclusive right to apply to the Bankruptcy Court under Subsection 365(d)(4) of the Bankruptcy Code for an order extending the period during which the Lease may be rejected or assumed after the entry of any order for relief in respect to the Mortgagor under Chapter 7 or Chapter 11 of the Bankruptcy Code. 2.11. The Easements. - ----- ------------- (a) The Mortgagor shall: (i) pay or cause to be paid all sums required to be paid by the Mortgagor under and pursuant to the provisions of the Easements; (ii) diligently perform and observe before the expiration of applicable cure periods all of its obligations under the Easements; and (iii) promptly notify the Mortgagee of the giving of any notice to the Mortgagor of any default by the Mortgagor in the performance or observance of any of its obligations under the Easements and promptly deliver to the Mortgagee a true copy of each such notice. (b) The Mortgagor shall not terminate or cancel any Easement or modify, change, supplement, alter or amend any Easement, in any respect either orally or in writing, and the Mortgagor hereby assigns to the Mortgagee, as further payment and performance of the obligations and indebtedness secured hereby and for the performance and observance of the terms, covenants and conditions of this Mortgage, all 13 of the rights, privileges and prerogatives of the Mortgagor to terminate, cancel, modify, change, supplement, alter or amend any Easement and any termination, cancellation, modification, change, supplement, alteration or amendment of any Easement shall be void and of no force and effect. Simultaneously with the execution of this Mortgage, the Mortgagor has delivered to the Mortgagee true and complete certified copies of the Easements, together with certified copies of any and all assignments thereof and amendments thereto. (c) If the Mortgagor shall default in the performance or observance of its obligations under the Easements, then without limiting the generality of the other provisions of this Mortgage, and without waiving or releasing the Mortgagor from any of its obligations hereunder, the Mortgagee shall have the right, but shall be under no obligation, to pay any sums and to perform any act or take any action as may be appropriate to cause all of the terms, covenants and conditions of the Easements on the part of the Mortgagor to be promptly performed or observed on behalf of the Mortgagor, to the end that the rights of the Mortgagor in, to and under the Easements shall be kept unimpaired and free from default. All sums so paid and expended by the Mortgagee and the interest thereon shall be secured by the lien of this Mortgage. In any such event, the Mortgagee and any Person designated by the Mortgagee shall have, and are hereby granted, the right to enter upon the Mortgaged Property at any time and from time to time for the purpose of taking any such action. ARTICLE III Eminent Domain, Insurance Proceeds, Etc. ---------------------------------------- 3.1. Damage, Destruction or Taking; the Mortgagor to Give Notice; Assignment of - ---- -------------------------------------------------------------------------- Awards. In case of (a) any damage to or destruction of the Premises or any - ------ part thereof, or (b) any condemnation proceedings or exercise of any right of eminent domain (hereinafter a "Taking") of all or any part of the Premises, or to the commencement of any proceedings or negotiations which might result in any such Taking, the Mortgagor will promptly give or cause to be given written notice thereof to the Mortgagee, generally describing the nature and extent of such damage or destruction or of such Taking or the nature of such proceedings or negotiations and the nature and extent of the Taking which might result therefrom, as the case may be. Subject to the terms and provisions of the Lease, the Mortgagee shall be entitled to all insurance proceeds payable on account of such damage or destruction and to all awards or payments allocable to the Mortgaged Property on account of such Taking and the Mortgagor hereby irrevocably assigns, transfers and sets over to the Mortgagee all rights of the Mortgagor to any such proceeds, award or payment and irrevocably authorizes and empowers the Mortgagee, at its option, in the name of the Mortgagor or otherwise, to file and prosecute what would otherwise be the Mortgagor's claim for any such proceeds, award or payment and to collect, receipt for and retain the same for disposition in accordance with Section 3.2, in the case of proceeds received in connection with damage or destruction to the Premises, and Section 3.3, in the case of proceeds received in connection with a Taking. The Mortgagor will pay or cause to be 14 paid all reasonable costs and expenses incurred by the Mortgagee in connection with any such damage, destruction or Taking and seeking and obtaining any insurance proceeds, award or payment in respect thereof. Notwithstanding the foregoing, provided no Event of Default exists, the Mortgagor shall be entitled to file and prosecute all claims and to apply any proceeds or awards to restoration. 3.2. Application of Insurance Proceeds. - ---- --------------------------------- All insurance proceeds received by or payable to the Mortgagee on account of any damage to or destruction of the Premises or any part thereof (less the actual costs, fees and expenses incurred by the Mortgagee, including, without limitation, attorneys' fees and expenses, in connection therewith, for which the Person incurring the same shall be reimbursed from such proceeds) shall be paid to the Mortgagee and applied in accordance with Section 8.4 of the Indenture. 3.3. Application of Awards, etc. - ---- --------------------------- All awards and payments received by or payable to the Mortgagor and the Mortgagee or either of them on account of a Taking (less the actual costs, fees and expenses incurred by the Mortgagee, including, without limitation, attorneys' fees and expenses, in connection therewith, for which the Person incurring the same shall be reimbursed from such award or payment), together with any interest or other income earned on such awards from the investment thereof and any other interest paid on any such awards prior to disbursement hereunder shall be paid to the Mortgagee and applied in accordance with Section 8.4 of the Indenture, provided, however, that if the terms of the Indenture are inconsistent or conflict with the terms and provisions of the Lease, the terms and provisions of the Lease shall control. ARTICLE IV Events of Default ----------------- 4.1. Events of Default; Indebtedness Due. - ---- ----------------------------------- If any one or more of the following events (herein sometimes called "Events of --------- Default") shall occur: - ------- (a) if there shall occur any "Event of Default" as defined in the Indenture or in any other Security Documents; or (b) if the Mortgagor defaults in the observance or performance of any covenant or agreement on its part to be performed contained in this Mortgage beyond applicable cure or grace periods; or (c) if subsequent to the date of this Mortgage the law of the State of New York shall be changed by statutory enactment judicial decision, regulation or otherwise, so as (i) to tax the holder of any lien or charge upon real property (for state, county, municipal or other purpose) based on the value of the real property subject to such lien or charge, or (ii) to change the 15 taxation (other than income taxes imposed on the income of the holder thereof) of deeds of trust, mortgages or debts secured by land or property or the manner of collecting any such taxation, in either such case in a manner such as to affect adversely this Mortgage or the indebtedness secured hereby or the holder of this Mortgage, unless, within thirty (30) days following receipt of a written request from the Mortgagee, the Mortgagor shall have entered into a lawful and binding agreement satisfactory in substance and form to the Mortgagee, obligating the Mortgagor to pay or reimburse the Mortgagee for any tax (other than income taxes imposed on the income of the holder thereof) imposed on the Mortgagee by reason of any of the foregoing; then, (1) if such event is an Event of Default specified in the Indenture in Section 8.1 (d),(e) or (f) with respect to the Mortgagor, the outstanding principal of the Notes (with accrued interest thereon) and all other amounts owing under the Indenture or any other Security Document shall automatically become immediately due and payable at par together with interest accrued thereon without presentment, demand, protest or notice of any kind all of which are hereby waived by the Mortgagor, and (2) in the case of any other Event of Default, the Mortgagee may, in addition to any right, power or remedy permitted by law or equity, by Acceleration Notice and in accordance with Section 8.2 of the Indenture, declare the outstanding principal of the Notes (with accrued interest thereon) and all other amounts owing under the Indenture or any Security Document to be, and the outstanding principal of the Notes and such amounts shall thereupon be and become, immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Mortgagor. The Mortgagor shall pay on demand all reasonable costs and expenses (including, without limitation, attorneys' fees) incurred by or on behalf of the Mortgagee in enforcing the payment of such Notes or other obligations, or occasioned by any default or Event of Default under this Mortgage. The Mortgagor hereby waives any notice of default except as specifically required hereby or in the Indenture. Notwithstanding the foregoing, if the Event of Default occurs solely as a result of a notice of default by Landlord to the Mortgagor, the Mortgagor shall have the right to cure the default so noticed within applicable grace periods under the Lease. The foregoing is not intended to limit the rights of the Mortgagee pursuant to Section 4.12 hereof and in the event the Mortgagee exercises such rights, the Mortgagor shall have ten (10) days after notice from the Mortgagee within which to reimburse the Mortgagee for all costs and expenses incurred by the Mortgagee in the exercise thereof. 4.2. Enforcement; Foreclosure. - ---- ------------------------ If an Event of Default shall have occurred and be continuing beyond any applicable grace or cure period provided for herein or in the Indenture, the Mortgagee, at any time, at its election may, subject to Sections 8.3, 8.5, and 8.8 of the Indenture, proceed at law or in equity or otherwise to enforce the payment of any outstanding Notes in accordance with the terms hereof and thereof, obtain specific performance of any agreement contained herein, obtain an injunction against the violation of any of the terms hereof, or in the aid 16 of the exercise of any power granted hereby, or by law, in accordance with the terms hereof or institute foreclosure or other proceedings according to law. All procedural errors in said proceedings, together with any stay of or exemption from execution, or extension of time of payment, which may be given by any statute now in force or enacted hereafter, are hereby forever irrevocably waived and released. 4.3. Power of Sale. - ---- ------------- If the unpaid principal amount of and the premium, if any, and interest on the Notes at the time outstanding shall have become due and payable and shall not have been paid, the Mortgagee may, subject to Sections 8.3, 8.5, and 8.8 of the Indenture, sell, assign, transfer and deliver the whole or, from time to time, any part of the Mortgaged Property, or any interest in any part thereof, at any private sale or at public auction, with or without demand, advertisement or notice, for cash, on credit or for other property, for immediate or future delivery, and for such price or prices and on such terms as the Mortgagee in its uncontrolled discretion may determine, or as may be required by law. 4.4. The Mortgagee Authorized to Execute Deeds, etc. - ---- ----------------------------------------------- The Mortgagor irrevocably appoints the Mortgagee the true and lawful attorney of the Mortgagor, coupled with an interest, in its name and stead and on its behalf, for the purpose of effectuating any sale, assignment, transfer or delivery for the enforcement hereof, whether pursuant to power of sale, foreclosure or otherwise, upon the occurrence and during the continuance of an Event of Default to execute and deliver all such deeds, bills of sale, assignments and other instruments as the Mortgagee may consider necessary or appropriate, with full power of substitution, the Mortgagor hereby ratifying and confirming all that its said attorney or any substitute shall lawfully do by virtue hereof. Nevertheless, if so requested by the Mortgagee or any purchaser, the Mortgagor will ratify and confirm any such sale, assignment, transfer or delivery by executing and delivering to the Mortgagee or such purchaser all such proper deeds, bills of sale, assignments, releases and other instruments as may be designated in any such request. 4.5. Purchase of Mortgaged Property by the Mortgagee. - ---- ----------------------------------------------- Any Holder may be a purchaser of the Mortgaged Property or of any part thereof or of any interest therein at any sale thereof, whether pursuant to power of sale, foreclosure or otherwise, and may apply upon the purchase price thereof the indebtedness secured hereby owing to such Holder, to the extent of such Holder's distributive share of the purchase price. Any such Holder shall, upon any such purchase, acquire good title to the properties so purchased, free of the lien of this Mortgage and free of all rights of redemption in the Mortgagor. 4.6. Receipt a Sufficient Discharge to Purchaser. - ---- ------------------------------------------- Upon any sale of the Mortgaged Property or any part thereof or any interest therein, whether pursuant to power of sale, foreclosure or otherwise, the receipt of the Mortgagee or the officer making the sale under judicial proceedings shall be a sufficient discharge to the purchaser for the purchase money, and such purchaser shall not be obliged to see to the application thereof. 17 4.7. Waiver of Appraisement, Valuation, etc. --------------------------------------- The Mortgagor hereby waives, to the fullest extent it may lawfully do so, the benefit of all appraisement, valuation, stay, extension and redemption laws now or hereafter in force and all rights of marshalling in the event of any sale of the Mortgaged Property or any part thereof or any interest therein. 4.8. Sale a Bar Against the Mortgagor. -------------------------------- Any sale of the Mortgaged Property or any part thereof or any interest therein under or by virtue of this Mortgage, whether pursuant to foreclosure or power of sale or otherwise, shall forever be a perpetual bar against the Mortgagor. 4.9. Application of Proceeds of Sale and Other Monies. ------------------------------------------------ The proceeds of any sale of the Mortgaged Property or any part thereof or any interest therein upon foreclosure of this Mortgage or otherwise and all other sums at any time received or held by the Mortgagee hereunder, shall (except as otherwise provided herein or by law) be applied as follows: First: to the payment of all court costs, all reasonable expenses of ----- sale, all reasonable costs and expenses of any receiver and any taxes, assessments or charges, which are prior to the lien of this Mortgage; Second: to the payment of any indebtedness secured by this Mortgage ------ other than indebtedness evidenced by the Notes; and Third: to the Mortgagee for pay out in accordance with Section 8.4 ----- of the Indenture. 4.10. Appointment of Receiver. ----------------------- If an Event of Default shall have occurred and be continuing, the Mortgagee shall, as a matter of right, be entitled to the appointment of a receiver for all or any part of the Mortgaged Property, whether such receivership be incidental to an action of foreclosure or otherwise, and the Mortgagor hereby consents to the appointment of such a receiver and will not oppose any such appointment. Such appointment may be made either before or after sale, without notice, without regard to the solvency of the Mortgagor at the time of application for such receiver and without regard to the then value of the Mortgaged Property or whether the same shall be then occupied as a homestead or not, and the Mortgagee or any other person may be appointed as such receiver. Such receiver shall have the power to collect the rents, issues and profits of the Mortgaged Property during the pendency of such foreclosure suit and, in case of a sale and a deficiency, during the full statutory period of redemption, if any, whether there be redemption or not, as well as during any further times when the Mortgagor, except for the intervention of such receiver, would be entitled to collect such rents, issues and profits, and all other powers which may be necessary or are usual in such cases for the protection, possession, control, management and operation of the Mortgaged Property during the whole of said period. All sums paid by such receiver and all costs and expenses (including, without limitation, reasonable attorneys' fees) incurred by such receiver in exercising such powers, together with interest thereon at the highest rate then borne by any of the Notes from the date of payment or incurring, shall constitute additional indebtedness secured by this Mortgage. 18 4.11. Possession, Management and Income. --------------------------------- At any time after the occurrence of an Event of Default, the Mortgagee, upon notice to the Mortgagor and without the appointment of a receiver or an application therefor, may enter upon and take possession of the Mortgaged Property or any part thereof by force, summary proceedings, ejectment or otherwise and may remove the Mortgagor and all other Persons and any and all property therefrom and may hold, operate, maintain, repair, preserve, lease either in its name or in the name of the Mortgagor) and manage the same and receive all earnings, income, rents, issues, proceeds and profits accruing with respect thereto or any part thereof. The Mortgagee shall be under no liability (other than liability for its own gross negligence or willful misconduct) for or by reason of any such taking of possession, entry, removal, holding, operation or management, except that any amounts so received by the Mortgagee shall be applied to pay all reasonable costs and expenses of so entering upon, taking possession of, holding, operating, maintaining, repairing, preserving, leasing and managing the Mortgaged Property or any part thereof, and any taxes, assessments or other charges prior to the lien of this Mortgage which the Mortgagee may consider it necessary or desirable to pay, and any balance of such amounts shall be applied as provided in Section 4.9 hereof. 4.12. Right to Perform the Mortgagor's Covenants. ------------------------------------------ If the Mortgagor shall fail to make any payment or perform any term, covenant or condition required to be performed hereunder or under the Notes, the Indenture or any Security Document and such failure either constitutes an Event of Default hereunder or thereunder, the Mortgagee, without waiving or releasing any obligation or default, may (but shall be under no obligation to) at any time thereafter upon five days' prior written notice to the Mortgagor (which notice shall not be deemed to be required in the event that the Mortgagee reasonably believes that any delay will impair the value of the Mortgaged Property or its rights hereunder) make such payment or perform such act for the account and at the expense of the Mortgagor, and may enter upon the Mortgaged Property for such purpose and take all such action thereon as may be necessary or appropriate therefor. No such entry and no such action shall be deemed an eviction of any lessee of the Mortgaged Property or any part thereof. All sums so paid by the Mortgagee and all costs and expenses (including, without limitation, reasonable attorneys' fees) so incurred, together with interest thereon at the highest rate per annum applicable to the Notes, from the date of payment or incurring, shall constitute additional indebtedness secured by this Mortgage, and the Mortgagor agrees to pay such sums to the person incurring the same on demand. 4.13. Cumulative Remedies. ------------------- Each right, power and remedy of the Mortgagee provided for in this Mortgage, the Indenture or the other Security Documents or now or hereafter existing at law or in equity or by statute or otherwise shall be separate, distinct, cumulative and concurrent and shall be in addition to every other right, power or remedy provided for in this Mortgage, the 19 Indenture or the other Security Documents now or hereafter existing at law or in equity or by statute or otherwise, and the exercise or beginning of the exercise by the Mortgagee of any one or more of the rights, powers or remedies provided for in this Mortgage, the Indenture or the other Security Documents or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Mortgagee of any or all such other rights, powers or remedies, and no act of the Mortgagee shall be construed as an election to exercise any one such right, power or remedy to the exclusion of any other such right, power or remedy, anything herein or otherwise to the contrary notwithstanding. The Mortgagor expressly waives (i) all demands, presentments, notices of protest and of dishonor and notices of every kind or nature (other than notices expressly provided for in the Indenture, the Notes or the Security Documents), including without limitation those of any action or non-action on the part of the Mortgagee or any guarantor, or any other person whomsoever, (ii) the right to require the Mortgagee to proceed against any guarantor or any other party, (ii) the right to require the Mortgagee to proceed against or apply any other security it may hold, and (iv) the right to require the Mortgagee to pursue any other remedy for the benefit of the Mortgagor. Furthermore, the Mortgagor agrees that the Mortgagee may in its sole discretion without prejudice to or in any way limiting or lessening its rights hereunder, and without affecting or impairing in any way the liability of the Mortgagor hereunder or under any obligation secured hereby (A) exercise its rights under this Mortgage without taking any action against any guarantor or any other party, and without proceeding against or applying any other security it may hold, (B) at its election, exercise any right or remedy it may have against any security held by the Mortgagee, including without limitation the right to foreclose upon any such security by judicial or non-judicial sale, and the Mortgagor hereby irrevocably and unconditionally waives, releases and forever agrees not to assert any defense arising out of the absence, impairment or loss of any right of reimbursement or subrogation or any other right or remedy of the Mortgagor against any such security, whether resulting from such election by the Mortgagee or otherwise, and (C) take or give up, or modify, vary, exchange, renew or abstain from perfecting or taking advantage of, any security for any such obligation secured hereby. 4.14. Provisions Subject to Applicable Law. - ----- ------------------------------------ All rights, powers and remedies provided in this Mortgage may be exercised only to the extent that the exercise thereof does not violate any provisions of applicable law and are intended to be limited to the extent necessary so that they will not render this Mortgage invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. If any term of this Mortgage or any application thereof shall be invalid or unenforceable, the remainder of this Mortgage and any other application of such term shall not be affected thereby. 4.15. No Waiver. - ----- --------- Any failure by the Mortgagee to insist upon the strict performance by the Mortgagor of any of the terms and provisions hereof shall not constitute a waiver of any such term or provision or of any Event of Default. The Mortgagee, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by the Mortgagor of 20 any and all of the terms and provisions of this Mortgage to be performed by the Mortgagor and no waiver of any Event of Default shall affect or alter this Mortgage, which shall continue in full force and effect with respect to any other then existing or subsequent Event of Default. By accepting payment of any amount secured hereby after its due date, the Mortgagee shall not be deemed to waive its right either to require prompt payment when due of all other amounts payable hereunder or otherwise secured hereby or to declare a default for failure to effect such prompt payment. Regardless of consideration and without the necessity for any notice to or consent by the holder of any subordinate lien on the Mortgaged Property, the obligation of anyone at any time liable for any of the indebtedness secured by this Mortgage or any part of the security held for the indebtedness may be released and the time of payment may be extended and the terms of any of the Notes and/or this Mortgage may otherwise be modified without, as to the security for the remainder thereof, in anywise impairing or affecting the lien of this Mortgage or the priority of such lien, as security for the payment of the indebtedness as it may be so extended or modified, over any subordinate lien. The Mortgagee may resort for the payment of the indebtedness secured hereby to any other security therefor, including without limitation the Security Documents, in such order and manner as the Mortgagee may elect. By exercising or failing to exercise any right, power or remedy under this Mortgage or the Indenture or any of the other Security Documents separately from or independent of any other of such instruments, no such person or persons shall be deemed to have waived, released or in any way limited its or their right to exercise any right, power or remedy under any other of such instruments. In no event shall the indebtedness secured by this Mortgage be deemed to be discharged, released or reduced by the exercise of any right, power or remedy hereunder, except to the extent of the actual net proceeds received by the Mortgagee from such enforcement of any said right, power or remedy (including without limitation judicial or non-judicial sale or deed in lieu of foreclosure), after deducting all legally permitted costs of such sale or other disposition. 4.16. Compromise of Actions. - ----- --------------------- Following an Event of Default any action, suit or proceeding brought by the Mortgagee pursuant to any of the terms of this Mortgage or otherwise, and any claim made by the Mortgagee hereunder (other than against Mortgagor) may be compromised, withdrawn or otherwise dealt with without any notice to or approval of the Mortgagor. 4.17. Expenses Incurred in Protecting or Enforcing Rights. - ----- --------------------------------------------------- If the Mortgagee shall incur or expend any sums, including reasonable attorneys' fees, to the extent permitted by law, whether in connection with any action or proceeding or not, to sustain the lien of this Mortgage or its priority, or to protect or enforce any of its rights hereunder, or to recover any indebtedness hereby secured, or for any title examination or title insurance policy relating to the title to the Mortgaged Property if obtained for any of the purposes herein above in this paragraph set forth, all such sums, to the extent permitted by law, shall on notice and demand be paid by the Mortgagor, together with interest thereon at the rate per annum applicable to the Notes, and shall be a lien on the Mortgaged Property, if and to the extent permitted by applicable law, prior to any right of title to, interest in, or claim upon, the Mortgaged Property subordinate to the lien of this Mortgage, and shall be deemed to be part of the indebtedness secured hereby. 21 4.18. Power of Attorney. - ----- ----------------- The Mortgagor hereby irrevocably and unconditionally appoints the Mortgagee as the Mortgagor's true and lawful attorney-in-fact, to act for the Mortgagor in the Mortgagor's name, place and stead, and for the Mortgagor's use and benefit, to execute, deliver and file all applications and any and all other necessary documents or things, to effect a transfer, reinstatement, renewal and/or extension of any and all licenses, permits, certifications, consents and approvals from all applicable governmental agencies or authorities ("Governmental Authorizations") issued to the Mortgagor in connection with the - ----------------------------- Mortgagor's use or occupancy of the Mortgaged Property or operation of the Premises, to permit any transferee of the Premises to operate under the authority of the Governmental Authorizations issued to the Mortgagor, and to do any and all other acts incidental to any of the foregoing. The Mortgagor irrevocably and unconditionally grants to the Mortgagee, as its attorney-in- fact, full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as the Mortgagor might or could do if personally present or acting, with full power of substitution, hereby ratifying and confirming all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and is irrevocable prior to payment in full of the obligations secured hereby. The Mortgagee agrees not to exercise such powers as attorney-in-fact of the Mortgagor unless an Event of Default under the Indenture has occurred and is continuing. ARTICLE V Financing Statement and Miscellaneous Provisions ------------------------------------------------ 5.1. Further Assurances. - ---- ------------------ The Mortgagor, at its expense shall execute, acknowledge and deliver all such instruments and take all such action as the Mortgagee may from time to time reasonably request for assuring to the Mortgagee the properties and rights now or hereafter subjected to the lien hereof or assigned hereunder or intended so to be, including without limitation, the execution of a supplemental mortgage or mortgages relating to any land or other interest in real estate acquired after the date hereof and referred to in clause (ii) of paragraph (a) of the granting clause hereof. 5.2. Fixtures; Financing Statement. - ---- ----------------------------- This Mortgage constitutes a security agreement under the Uniform Commercial Code as enacted in the State of New York. The Mortgagor covenants and agrees that, upon the request of the Mortgagee or upon the subsequent acquisition of any proceeds, fixtures and other real property, the Mortgagor will provide to the Mortgagee such further assurances and take such further actions as may be required by the Mortgagee to establish the Mortgagee's first and prior security interest in any such proceeds, fixtures and other real property, including, without limitation, execution and filing or recording in all necessary public offices, at the Mortgagor's sole cost and expense, any UCC financing statements in 22 form acceptable to the Mortgagee. Upon request, the Mortgagor shall execute, deliver and cause to be recorded and filed from time to time with all necessary public offices, at the Mortgagor's sole cost and expense, continuances and such other instruments as will maintain the Mortgagee's priority of security in all such proceeds, fixtures and other property. IT IS INTENDED BY THE MORTGAGOR AND THE MORTGAGEE THAT THIS MORTGAGE BE EFFECTIVE AS A FINANCING STATEMENT FILED WITH THE REAL ESTATE RECORDS AS A FIXTURE FILING. FOR THIS PURPOSE, THE FOLLOWING INFORMATION IS SET FORTH: (a) Debtor shall mean the Mortgagor, and the address of Debtor shall be its address set forth on the cover hereof. (b) Secured Party shall mean the Mortgagee, and the address of Secured Party shall be its address set forth on the cover hereof. (c) This document covers goods which are or are to become fixtures related to the real estate. (d) The record owners of the real estate are set forth in Schedule A. 5.3. Assignment of Leases, Rents and Profits. - ---- --------------------------------------- To further secure the Obligations, the Mortgagor hereby sells, assigns and transfers unto the Mortgagee all the rents, issues and profits of the Mortgaged Property (collectively, "Rents") now due and which may hereafter become due ----- under or by virtue of any lease, whether written or verbal, or any letting of, or of any agreement for the use or occupancy of the Mortgaged Property or any part thereof, which may have been heretofore or may be hereafter made or agreed to or which may be made or agreed to by the Mortgagee under the powers herein granted, it being the intention hereby to establish an absolute transfer and assignment of all such leases and agreements, and all the avails thereunder, to the Mortgagee and not merely the passing of a security interest. The Mortgagor, to the extent permitted by applicable law, hereby irrevocably appoints the Mortgagee its true and lawful attorney (coupled with an interest) in its name, place and stead (with or without taking possession of the Premises) to rent, lease or let all or any portion of the Mortgaged Property to any party or parties at such rental and upon such terms as the Mortgagee shall, in its reasonable discretion, determine, and to collect all of said Rents arising from or accruing at any time hereafter, and all now due or that may hereafter become due under each and every one of the leases and agreements, written or verbal, or other tenancy existing, or which may hereafter exist on the Mortgaged Property, with the same rights and powers and subject to the same immunities, exoneration of liability and rights of recourse and indemnity as the Mortgagee would have upon taking possession pursuant to the provisions of Article 4 hereof. The Mortgagor represents and agrees that no Rent has been or will be paid by any person or entity in possession of any portion of the Mortgaged Property for more than one installment in advance and that the payment of none of the Rents to accrue for any portion of the Mortgaged Property will be waived, released, reduced, discounted or otherwise discharged or compromised by the Mortgagor. As between the Mortgagor and the Mortgagee, the Mortgagor waives any rights to set- off disputed amounts due from any person or entity in possession of any portion of the 23 Mortgaged Property against sums due to the Mortgagee (but the Mortgagor shall not be deemed hereunder to have waived any rights or remedies against such person or entity). The Mortgagor agrees that it will not assign any of the Rents of the Mortgaged Property. Nothing herein contained shall be construed as constituting the Mortgagee a mortgagee in possession in the absence of the taking of actual possession of the Mortgaged Property by the Mortgagee pursuant to Article 4 hereof. In the exercise of the powers herein granted the Mortgagee, no liability shall be asserted or enforced against the Mortgagee, all such liability being expressly waived and released by the Mortgagor, except liability arising out of the gross negligence or willful misconduct of the Mortgagee. The Mortgagor further agrees to assign and transfer to the Mortgagee all future leases upon all or any part of the Mortgaged Property and to execute and deliver, at the request of the Mortgagee, all such further assurances and assignments in the Mortgaged Property as the Mortgagee shall from time to time reasonably require. Although it is the intention of the parties that the assignment contained in this section shall be a present absolute assignment, it is expressly understood and agreed, anything herein contained to the contrary notwithstanding, that the Mortgagee shall not exercise any of the rights or powers conferred upon it by this section except after the occurrence and during the continuance of an Event of Default and until such time the Mortgagor may continue to collect and use the rents and operate and manage the Mortgaged Property. 5.4. Partial Release. - ---- --------------- The Mortgagee, at any time and from time to time, without liability therefor, without prior notice to the Mortgagor and without affecting the lien of this Mortgage on any Mortgaged Property or the liability of the Mortgagor except as expressly provided by such release, easement or other agreement, may release any part of the Mortgaged Property, consent to the making of any map or plat of all or any part of the Mortgaged Property, join in granting any easement thereon or join in any extension agreement or agreement subordinating the lien of this Mortgage or enter into any other agreement in connection with the Mortgaged Property. 5.5. Release and Discharge of Mortgage. - ---- --------------------------------- If (i) all of the outstanding principal of and interest on all of the Notes shall be paid in accordance with the terms thereof and of the Indenture and any and all sums payable by the Issuer or the Mortgagor under the Indenture and under the Security Documents shall be paid or (ii) if all of the interests of the Mortgagor in the Mortgaged Property under the Mortgage shall be Disposed of and if each of the Issuer and the Mortgagor shall be in compliance with all the terms, covenants and conditions applicable to it to be complied with under the Notes, the Indenture and the Security Documents, including, without limitation, payment of the Net Proceeds to the Trustee, then in either such case, this Mortgage shall be null and void and of no further force and effect and the Mortgaged Property hereunder shall thereupon be, and shall be deemed to have been, reconveyed, released and discharged from the lien of this Mortgage without further notice on the part of the Mortgagor or Mortgagee hereunder, and the Mortgagee, at the Mortgagor's expense, will execute and deliver such reasonable or necessary instruments, if any, as the Mortgagor may request evidencing or confirming the reconveyance, release and discharge 24 of the Mortgaged Property from the lien of this Mortgage, and any such instrument, when duly executed by the Mortgagee and duly recorded in the place where this Mortgage is recorded, shall conclusively evidence such reconveyance, release and discharge, all as set forth in Section 12.1(d) of the Indenture. Notwithstanding the foregoing, if (i) or (ii) above shall occur, then the Mortgagor shall have the option to request to request an assignment of this Mortgage without recourse, representation or warranty in lieu of the termination of this Mortgage as described above, and, at the Mortgagor's written request, which request may be denied in Mortgagee's sole discretion, this Mortgage shall remain in full force and effect and the Mortgagee shall assign this Mortgage, and the Mortgagee, at the Mortgagor's expense, will execute and deliver such reasonable or necessary instruments, if any, as the Mortgagor may request evidencing or confirming the assignment of this Mortgage, and any such instrument, when duly executed by the Mortgagee and duly recorded in the place where this Mortgage is recorded, shall conclusively evidence the assignment of this Mortgage, and the release and discharge of the Mortgagor from its obligations hereunder, as set forth in Section 12.1(d) of the Indenture. Notwithstanding the foregoing, any release of this Mortgage in connection with a sale of the Mortgaged Property shall not include a release of the security interests of the Mortgagee in the proceeds of such sale and shall expressly reserve the Mortgagee's security interests in such proceeds unless and until such proceeds are actually received by the Mortgagee. 5.6. Mortgagor, Mortgagee, Person(s). - ---- ------------------------------- Wherever used in this Mortgage, unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, the word "the Mortgagor" shall mean "the Mortgagor or any subsequent owner or owners of the Mortgaged Property, or both", and the word "the Mortgagee" shall mean "the Mortgagee or any holder or holders from time to time of the Notes." 5.7. Cessation of Mortgagor's Interest. - ---- --------------------------------- No cessation of the Mortgagor's interest in the Mortgaged Property shall affect this Mortgage or any of the Notes. 5.8. Notices. - ---- ------- All notices, demands, requests, consents, approvals and other instruments under this Mortgage or any of the Notes shall be in writing and shall be sent by first class mail, registered mail or overnight courier and, if to the Mortgagee, addressed to the Mortgagee at the address set forth for communications in the Indenture, and, if to the Mortgagor, addressed to it at the address set forth for communications in the Indenture, or to such other address with respect to any party as such party shall notify the other in writing; provided any such -------- communication to the Mortgagor may also, at the option of the Mortgagee, be hand delivered to the Mortgagor at its address set forth above. 5.9. No Merger of Fee and Leasehold Estates. - ---- -------------------------------------- So long as any portion of the obligations and indebtedness secured hereby remains unpaid or has not been performed, unless the Mortgagee shall otherwise consent, the fee title to 25 the Premises and the leasehold estate therein created pursuant to the provisions of the Lease shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates in the Mortgagor, or in any other person by purchase, operation of law or otherwise. If the Mortgagee shall acquire the fee title to the Premises and the leasehold estate therein created pursuant to the provisions of the Lease, by foreclosure of this Mortgage or otherwise, such estates shall not merge as a result of such acquisition and shall remain separate and distinct for all purposes after such acquisition unless and until the Mortgagee shall elect to merge such estates. 5.10. No Claims Against the Mortgagee, etc. - ----- ------------------------------------- Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Mortgaged Property or any part thereof, or shall be construed to permit the making of any claim against the Mortgagee in respect of labor or services or the furnishing of any materials or other property or any claim that any lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the lien of this Mortgage. 5.11. Waiver of Right to Bring Counterclaim in Foreclosure Action. - ----- ----------------------------------------------------------- In any action to foreclose the lien or liens of this Mortgage, including a partial foreclosure, no defense, counterclaim, or setoff shall be available to the Mortgagor other than a compulsory counterclaim or one which denies the existence or sufficiency of the facts upon which the action is grounded. If any defense, counterclaim or setoff, other than one permitted by the preceding sentence, is timely raised in such foreclosure action, such defense, counterclaim, or setoff shall be dismissed; provided, however, that if such -------- ------- defense, counterclaim, or setoff is based on a claim which could be tried in an action for money damages, such claim may be brought in a separate action which shall not thereafter be consolidated with such foreclosure action. The bringing of such separate action for money damages shall not be deemed to afford any grounds for staying the foreclosure action. Any assignee of this Mortgage and the Notes shall take the same free and clear of all offsets, counterclaims, or defenses of any nature whatsoever which the Mortgagor may have against any assignor of this Mortgage and the Notes and no such offset, counterclaim, or defense shall be interposed or asserted by the Mortgagor in any action or proceeding brought by any such assignee upon this Mortgage or the Notes and any such right to interpose or assert any such offset, counterclaim, or defense in any such action or proceeding is hereby expressly waived by the Mortgagor. In addition, the Mortgagor shall not make, nor be entitled to make, any claim for money damages against the Mortgagee based upon any claim or assertion that the Mortgagee has unreasonably withheld or delayed the Mortgagee's consent and/or approval with respect to any provision contained in the Notes, this Mortgage or the other Security Documents which provides, in effect, that the Mortgagee's consent and/or approval is required and shall not be unreasonably withheld or delayed. The Mortgagor's sole remedy in such event shall be limited to an action or proceeding to enforce any such provision pursuant to specific performance, injunction, or declaratory judgment. 26 5.12. Usury Laws. - ----- ---------- It is the intent of the Mortgagor and the Mortgagee to comply at all times with applicable usury laws. If at any time such laws would render usurious any amounts called for under the Notes or any of the Security Documents, then it is the Mortgagor's and the Mortgagee's express intention that such excess amount be immediately credited on the principal balance of the Notes (or, if the Notes have been fully paid, refunded by the Mortgagee to the Mortgagor and the Mortgagor shall accept such refund), and the provisions hereof and thereof be immediately deemed to be reformed to comply with the then applicable laws, without the necessity of the execution of any further documents, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. Any such crediting or refund shall not cure or waive any default by the Mortgagor under the Notes or under the Security Documents. If, at any time following any such reduction in the interest rate payable by the Mortgagor, there remains unpaid any principal amounts under the Notes and the maximum interest rate permitted by applicable law is increased or eliminated, then the interest rate payable hereunder shall be readjusted, to the extent permitted by applicable law, so that the total dollar amount of interest payable hereunder shall be equal to the dollar amount of interest which would have been paid by the Mortgagor without giving effect to the applicable usury laws theretofore in effect. The Mortgagor agrees, however, that in determining whether or not any interest payable under the Notes or any of the Security Documents exceeds the highest rate permitted by law, any non-principal payment (except payments specifically stated in the Notes or in any Security Document to be "interest"), including, without limitation, prepayment fees and late charges, shall be deemed, to the extent permitted by law, to be an expense, fee, premium, or penalty rather than interest. 5.13. FIRPTA. - ----- ------ If the Mortgagee purchases the Mortgaged Property pursuant to a foreclosure under this Mortgage, or accepts an assignment of the Mortgaged Property in lieu of the foreclosure, the Mortgagor hereby authorizes the Mortgagee to withhold the amount of tax, if any, required to be withheld under Section 1445 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto), out of any sums payable to the Mortgagor from such foreclosure sale or assignment in lieu thereof, as the case may be, after payment of all parties other than the Mortgagor who are entitled to be paid out of any foreclosure or assignment proceeds, as if the Mortgagor were a foreign person, unless the Mortgagor certifies its nonforeign status at the time of such foreclosure sale or assignment, as the case may be, by executing and delivering to the Mortgagee a certificate satisfactory to the Mortgagee. 5.14. Conflicts with Indenture. - ----- ------------------------ Notwithstanding any other provision hereof, in the event of any conflict between the terms of this Mortgage and the Indenture, the provisions of the Indenture will apply. 5.15. Trust Funds. - ----- ----------- The Mortgagor shall receive the advances secured hereby subject to the trust fund provisions of Section 13 of the Lien Law of the State of New York. 27 5.16. Miscellaneous. - ----- ------------- All the terms of this Mortgage shall apply to and be binding upon and inure to the benefit of the successors and assigns of the Mortgagor and all persons claiming under or through the Mortgagor or any such successor or assign and the Mortgagee and its successors in interest. The headings in this Mortgage are for convenient reference only and shall not limit or otherwise affect any of the terms hereof. This Mortgage may be executed in several counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. This Mortgage is to be construed according to the laws of the State of New York. The clauses and covenants contained in this Mortgage which are construed by Section 254 of the Real Property Law of the State of New York shall be construed as provided in those sections, except that the provisions of subsection 4 of said Section 254 shall not in any manner apply to or construe the provisions of this Mortgage; the additional clauses and covenants contained herein shall afford rights supplemental to and not exclusive of the rights conferred by the clauses and covenants construed by said Section 254 and shall not impair, modify, alter or defeat such rights (except that the provisions hereof shall be exclusive of and shall be in substitution for the rights which would be conferred by the clauses and covenants construed by said subsection 4 of said Section 254), notwithstanding that such additional clauses and covenants may relate to the are subject matter or provide for different or additional rights in the same or similar contingencies as the clauses and covenants construed by said Section 254; in the event of any inconsistencies between the provisions of Section 254 and the provisions of this Mortgage, the provisions of this Mortgage shall prevail. 5.17. Mortgagee Waiver and Consent Agreement. - ----- -------------------------------------- A Mortgagee Waiver and Consent Agreement, among the Mortgagee, the Mortgagor and BankBoston Retail Finance, Inc. exists with respect to the Mortgaged Property. 5.18. WAIVER OF JURY TRIAL. - ----- -------------------- BOTH THE MORTGAGOR AND THE MORTGAGEE HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS MORTGAGE. 28 IN WITNESS WHEREOF, this Mortgage has been duly executed by the Mortgagor on the day and year first above written. WITNESS: NEW HORIZONS OF YONKERS, INC. By By ----------------------------- ------------------------------ Title: Cornelius F. Moses, III Senior Vice President and Chief Financial Officer By By ----------------------------- ------------------------------ Title: David L. Schmidt Senior Vice President and General Counsel [Corporate Seal] 29 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this 29th day of January, 1999, before me, the undersigned officer, personally appeared Cornelius F. Moses, III, having an address c/o New Horizons of Yonkers, Inc., One Bradlees Circle, P.O. Box 9051, Braintree, Massachusetts 02184, personally known and acknowledged himself to me to be the Senior Vice President and Chief Financial Officer of New Horizons of Yonkers, Inc., and that as such officer, being duly authorized to do so pursuant to its bylaws or a resolution of its board of directors, executed, subscribed and acknowledged the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself in his authorized capacity as such officer as his free and voluntary act and deed and the free and voluntary act and deed of said corporation. IN WITNESS WHEREOF, hereunto set my hand and official seal. Notary Public NOTARIAL SEAL My Commission Expires: /s/ ---------------------- 30 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this 29th day of January, 1999, before me, the undersigned officer, personally appeared David L. Schmitt, having an address c/o New Horizons of Yonkers, Inc., One Bradlees Circle, P.O. Box 9051, Braintree, Massachusetts 02184, personally known and acknowledged himself to me to be the Senior Vice President and General Counsel of New Horizons of Yonkers, Inc., and that as such officer, being duly authorized to do so pursuant to its bylaws or a resolution of its board of directors, executed, subscribed and acknowledged the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself in his authorized capacity as such officer as his free and voluntary act and deed and the free and voluntary act and deed of said corporation. IN WITNESS WHEREOF, hereunto set my hand and official seal. Notary Public NOTARIAL SEAL My Commission Expires: /s/ - -------------------------- 31 Schedule A ---------- Lease 32 TABLE OF CONTENTS Page ---- ARTICLE I PAYMENT OF TAXES, INSURANCE, ETC........................... 5 1.1. Certain Definitions........................................ 5 1.2. Payment of Taxes and Claims................................ 5 1.3. Compliance with Insurance Requirements Instruments......... 5 1.4. Compliance with Laws....................................... 5 1.5. Government Approvals....................................... 5 1.6. Liens...................................................... 5 1.7. The Lease.................................................. 5 1.8. Utility Services........................................... 6 1.9. Maintenance and Repair, etc................................ 6 1.10. Alterations, Changes, etc.................................. 6 1.11. Acquired Property Subject to Lien.......................... 7 ARTICLE II COVENANTS OF THE MORTGAGOR................................. 7 2.1. Compliance with Indenture.................................. 7 2.2. Obligations Secured by Mortgage............................ 7 2.3. Prohibitions on Sale Transfer etc.......................... 8 2.4. Recordation................................................ 8 2.5. No Waste................................................... 8 2.6. Inspection, etc............................................ 8 2.7. Notice of Event of Default, Default or Claimed Default..... 9 2.8. No Credit for Payment of Taxes............................. 9 2.9. Use of Mortgagee's Name.................................... 9 2.10. The Lease.................................................. 9 2.11. The Easements.............................................. 13 ARTICLE III EMINENT DOMAIN, INSURANCE PROCEEDS, ETC.................... 14 3.1. Damage, Destruction or Taking; the Mortgagor to Give Notice; Assignment of Awards.......................... 14 3.2. Application of Insurance Proceeds.......................... 15 3.3. Application of Awards, etc................................. 15 ARTICLE IV EVENTS OF DEFAULT.......................................... 15 4.1. Events of Default; Indebtedness Due........................ 15 4.2. Enforcement; Foreclosure................................... 16 4.3. Power of Sale.............................................. 17 4.4. The Mortgagee Authorized to Execute Deeds, etc............. 17 4.5. Purchase of Mortgaged Property by the Mortgagee............ 17 4.6. Receipt a Sufficient Discharge to Purchaser................ 17 4.7. Waiver of Appraisement, Valuation, etc..................... 18 4.8. Sale a Bar Against the Mortgagor........................... 18 4.9. Application of Proceeds of Sale and Other Monies........... 18 4.10. Appointment of Receiver.................................... 18 4.11. Possession, Management and Income.......................... 19 4.12. Right to Perform the Mortgagor's Covenants................. 19 4.13. Cumulative Remedies........................................ 19 4.14. Provisions Subject to Applicable Law....................... 20 4.15. No Waiver.................................................. 20 4.16. Compromise of Actions...................................... 21 4.17. Expenses Incurred in Protecting or Enforcing Rights........ 21 4.18. Power of Attorney.......................................... 22 ARTICLE V FINANCING STATEMENT AND MISCELLANEOUS PROVISIONS........... 22 5.1. Further Assurances......................................... 22 5.2. Fixtures; Financing Statement.............................. 22 5.3. Assignment of Leases, Rents and Profits.................... 23 5.4. Partial Release............................................ 24 5.5. Release and Discharge of Mortgage.......................... 24 5.6. Mortgagor, Mortgagee, Person(s)............................ 25 5.7. Cessation of Mortgagor's Interest.......................... 25 5.8. Notices.................................................... 25 5.9. No Merger of Fee and Leasehold Estates..................... 25 5.10. No Claims Against the Mortgagee, etc....................... 26 5.11. Waiver of Right to Bring Counterclaim in Foreclosure Action......................................... 26 5.12. Usury Laws................................................. 27 5.13. FIRPTA..................................................... 27 5.14. Conflicts with Indenture................................... 27 5.15. Trust Funds................................................ 27 5.16. Miscellaneous.............................................. 28 5.17. Mortgagee Waiver and Consent Agreement..................... 28 5.18. WAIVER OF JURY TRIAL....................................... 28 SCHEDULE A - Lease EX-2.10 4 STOCK PLEDGE AGREEMENT Exhibit 2.10 SECURITY AGREEMENT (Pledge) Between BRADLEES STORES, INC. And IBJ WHITEHALL BANK & TRUST COMPANY, As Trustee February 2, 1999 SECURITY AGREEMENT THIS SECURITY AGREEMENT is made as of February 2, 1999, between BRADLEES STORES, INC., a Massachusetts corporation, as reorganized pursuant to the Plan described below ("Pledgor"), and IBJ WHITEHALL BANK & TRUST COMPANY, a New York ------- banking corporation as trustee for itself, and on behalf of each holder (as defined below) ("Secured Party"). ------------- RECITALS -------- A. Reference is made to the 9% Notes Due 2004 (the "Notes") issued pursuant to ----- that certain Indenture, dated as of February 2, 1999 (the "Indenture") among --------- Pledgor, Secured Party and Bradlees, Inc., a Massachusetts corporation, as reorganized pursuant to the Plan ("BI"). For purposes of this Agreement, "Holders" means the registered owners of the Notes as shown on the Security Register (as defined in the Indenture) maintained for that purpose. B. Reference is also made to the Second Amended Joint Plan of Reorganization of Bradlees Stores, Inc. and Certain Affiliates under Chapter 11 of the Bankruptcy Code confirmed on January 27, 1999 by the United States Bankruptcy Court Southern District of New York (the "Plan"). ---- C. Pursuant to the Plan and the Indenture, the Pledgor has agreed to enter into this Security Agreement. D. Therefore, in order to comply with the terms and conditions of the Plan and the Indenture and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Pledgor hereby agrees with Secured Party as follows: ARTICLE 1. Security Interest ----------------- Section 1.01 Pledge. Pledgor hereby pledges, assigns, and grants to Secured - ------------ ------ Party a security interest in all of Pledgor's right, title and interest in the assets referred to in Section 1.02 (the "Collateral") to secure the prompt ---------- payment when due (whether for principal, interest or otherwise at stated maturity, by acceleration or otherwise) of the payment obligations of the Pledgor under the Indenture (the "Obligations"). ----------- Section 1.02 Collateral. The Collateral consists of the following: - ------------ ---------- (i) 100% of the common stock of New Horizons of Yonkers, Inc., a Delaware corporation ("New Horizons"), whether now or hereafter existing, including without limitation 1,000 shares of common stock, no par value, of New Horizons registered in the name of the Pledgor on the books of New Horizons (such 1,000 shares represented by Certificate No. 3). 2 (ii) (i) the certificates or instruments, if any, representing such securities, (ii) all dividends (cash, stock or otherwise), cash, instruments, rights to subscribe, purchase or sell and all other rights and property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such securities, and (iii) the proceeds, interest, profits and other income on any of the property referred to in this Section 1.02. Section 1.03 Additional Shares. Pledgor agrees that it will cause New - ------------ ----------------- Horizons not to issue any additional shares of common stock. Notwithstanding the foregoing, (i) if any stock dividend, stock split, reclassification, readjustment or other change is declared or made in the capital structure of New Horizons, all new, substituted and additional shares issued by reason thereof and received by Pledgor shall be promptly delivered to Secured Party in accordance with the provisions of Section 1.04 below and (ii) if any subscriptions or other rights shall be issued in connection with the Pledged Securities, all new stock acquired through such subscriptions or rights shall be promptly delivered to Secured Party in accordance with the provisions of Section 1.04 below. Section 1.04 Transfer of Collateral. All certificates or instruments - ------------ ---------------------- representing or evidencing the Pledged Securities (as hereinafter defined) shall be delivered to and held pursuant hereto by Secured Party or a Person designated by Secured Party and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to Secured Party. After the occurrence and continuance of an Event of Default (as hereinafter defined), Secured Party shall have the right, at any time in its discretion and without notice to Pledgor, to transfer to or to register in the name of Secured Party or any of its nominees any or all of the Pledged Securities, subject only to the revocable rights of Pledgor specified in Section 6.04, and to exchange certificates or instruments representing or evidencing Pledged Securities for certificates or instruments of smaller or larger denominations. ARTICLE 2. Definitions ----------- Section 2.01 Terms Defined Herein. As used in this Agreement, the terms - ------------ -------------------- defined herein shall have the meanings respectively assigned to them. Other capitalized terms which are defined in the Indenture but which are not defined herein shall have the same meanings as defined in the Indenture. 3 Section 2.02 Certain Definitions. As used in this Agreement, the following - ------------ ------------------- terms shall have the following meanings, unless the context otherwise requires: "Agreement" means this Security Agreement, as the same may from time --------- to time be amended or supplemented. "Code" means the Uniform Commercial Code as presently in effect in the ---- State of New York; provided that, if by reason of mandatory provisions of -------- ---- law, the perfection or the effect of perfection or nonperfection of the assignment and security interest in any Collateral is governed by the Uniform Commercial Code or similar legislation as in effect in a jurisdiction other than New York, "Code" means the Uniform Commercial Code ---- or similar legislation as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or nonperfection. Unless otherwise indicated by the context herein, all uncapitalized terms which are defined in the Code shall have their respective meanings as used in Articles 8 and 9 of the Code. "Event of Default" has the meaning set forth in the Indenture. ---------------- "Pledged Securities" means all of the securities and other property ------------------ (whether or not the same constitutes a "security" under the Code) referred to in Section 1.02 and all additional securities (as that term is defined in the Code), if any, constituting Collateral under this Agreement. ARTICLE 3. Representations and Warrants ---------------------------- In order to induce Secured Party to accept this Agreement, Pledgor represents and warrants to Secured Party that: Section 3.01 Execution, Delivery and Performance. The execution, delivery - ------------ ----------------------------------- and performance by Pledgor of this Agreement do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of Pledgor or of any agreement, judgment, injunction, order, decree or other instrument, binding upon Pledgor or result in the creation or imposition of any Lien on any assets of Pledgor, except for the security interests granted under this Agreement. Section 3.02 Binding Obligations. This Agreement has been duly executed and - ------------ ------------------- delivered by Pledgor and constitutes a legal, valid and binding obligation of Pledgor, enforceable against Pledgor in accordance with its terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other similar law affecting creditors' rights generally or general principles of equity. 4 Section 3.03 Ownership of Collateral. Pledgor is the legal and beneficial - ------------ ----------------------- owner of the Collateral free and clear of any adverse claim, lien, security interest, option or other charge or encumbrance except for the security interest created by this Agreement. Section 3.04 Pledged Securities. The Pledged Securities have been duly - ------------ ------------------ authorized and validly issued, and are fully paid and non-assessable. Section 3.05 Valid Security Interest. The pledge of the Pledged Securities - ------------ ----------------------- (together with physical delivery of the certificates representing the Pledged Securities in accordance with Section 1.04 hereof) pursuant to this Agreement creates a valid and perfected security interest in the Collateral. ARTICLE 4. Covenants and Agreements ------------------------ Section 4.01 Sale, Disposition or Encumbrance of Collateral. Pledgor will - ------------ ---------------------------------------------- not in any way encumber any of the Collateral (or permit or suffer any of the Collateral to be encumbered) or sell, pledge, assign, lend or otherwise dispose of or transfer any of the Collateral to or in favor of any Person other than Secured Party, in each case other than the Disposition of all of the Pledged Securities in connection with the Disposition of the Yonkers Property and other than as permitted pursuant to Section 6.9 of the Indenture. Section 4.02 Dividends or Distributions. So long as no Event of Default - ------------ -------------------------- shall have occurred and be continuing, Pledgor shall be entitled to receive and retain any and all dividends and distributions paid in respect of the Collateral. Section 4.03 Records and Information. Pledgor shall keep accurate and - ------------ ----------------------- complete records of the Collateral (including proceeds, payments, distributions, income and profits). Pledgor shall permit Secured Party to have access to, examine, audit, make extracts from and inspect Pledgor's records and files with respect to the Collateral at such reasonable times during normal business hours as may be reasonably requested by Secured Party. Pledgor will promptly provide written notice to Secured Party of all information which in any way relates to or affects the filing of any financing statement or other public notices or recordings, or the delivery and possession of items of Collateral for the purpose of perfecting a security interest in the Collateral. Section 4.04 Stock Powers. Pledgor shall furnish to Secured Party such - ------------ ------------ stock powers and other instruments as may be required by Secured Party to assure the transferability of the Collateral pursuant to Section 6.02 when and as often as may be requested by Secured Party. Secured Party shall furnish to Pledgor such stock powers and other instruments as may be required by Pledgor in order to permit Pledgor to receive dividends and distributions pursuant to Section 4.02 above and exercise its voting and other rights pursuant to Section 4.05 below. 5 Section 4.05 Voting and Other Consensual Rights. Except to the extent - ------------ ---------------------------------- otherwise provided in subsection 6.04(c), Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose which does not violate the terms of this Agreement. Section 4.06 Further Assurances. Pledgor at its own expense, as promptly as - ------------ ------------------ practical, will execute and deliver to Secured Party upon request all such instruments and take all such action in order fully to effectuate the purposes of this Agreement. ARTICLE 5. Rights, Duties, and Powers of Secured Party ------------------------------------------- Section 5.01 Transfer of Collateral. Subject to the provisions of the - ------------ ---------------------- Indenture, Secured Party may resign or be removed as Trustee under the Indenture, and, upon any such resignation or removal, the interest of Secured Party in any or all of the Collateral shall automatically be transferred to the successor Trustee under the Indenture and Secured Party shall be fully discharged thereafter from all liability therefor. Any successor Trustee shall be vested with all rights, powers and remedies of Secured Party hereunder. Section 5.02 Cumulative and Other Rights. The rights, powers and remedies - ------------ --------------------------- of Secured Party hereunder are in addition to all rights, powers and remedies given by law or in equity. The exercise by Secured Party of any one or more of the rights, powers and remedies herein shall not be construed as a waiver of any other rights, powers and remedies, including, without limitation, any other rights of set-off. Section 5.03 Disclaimer of Certain Duties. - ------------ ---------------------------- (a) The powers conferred upon Secured Party by this Agreement are to protect its interest in the Collateral and shall not impose any duty upon Secured Party or any Holder to exercise any such powers. Pledgor hereby agrees that Secured Party shall not be liable for, nor shall the indebtedness evidenced by the Obligations be diminished by, Secured Party's delay or failure to collect upon, foreclose, sell, take possession of or otherwise obtain value for the Collateral. (b) Except as may be required pursuant to the Indenture, Secured Party shall be under no duty whatsoever to make or give any presentment, notice of dishonor, protest, demand for performance, notice of non-performance, notice of intent to accelerate, notice of acceleration, or other notice or demand in connection with any Collateral or the Obligations, or to take any steps necessary to preserve any rights against any Person. Section 5.04 Custody and Preservation of the Collateral. Secured Party - ------------ ------------------------------------------ shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which comparable secured parties accord comparable collateral. 6 Section 5.05 Waivers. Except to the extent such matters are required - ------------ ------- pursuant to the Indenture, Pledgor waives diligence, presentment, protest, demand for payment, and notice of default or nonpayment, notice of intention to accelerate maturity, and notice of acceleration of maturity to or upon Pledgor with respect to the Obligations. ARTICLE 6. Events of Default ----------------- Section 6.01 Events. It shall constitute an Event of Default under this - ------------ ------ Agreement if an Event of Default occurs and is continuing under the Indenture. Section 6.02 Remedies. Upon the occurrence and during the continuance of - ------------ -------- any Event of Default, Secured Party, in accordance with the terms of the Indenture, may take any or all of the following actions: (a) Sell, in one or more sales and in one or more parcels, or otherwise dispose of any or all of the Collateral in any commercially reasonable manner as Secured Party may elect, in a public or private transaction, at any location as deemed reasonable by Secured Party for cash or for future delivery at such price as Secured Party may deem fair, and (unless prohibited by the Code, as adopted in any applicable jurisdiction) Secured Party or any Holder may be the purchaser of any or all Collateral so sold and may apply the purchase price therefor towards the payment of any Obligations secured hereby. Upon any such sale or transfer, Secured Party shall have the right to deliver, assign and transfer to the purchaser or transferee thereof the Collateral so sold or transferred. If Secured Party deems it advisable to do so, it may restrict the bidders or purchasers of any such sale or transfer to Persons or entities who will represent and agree that they are purchasing the Collateral for their own account and not with the view to the distribution or resale of any of the Collateral. Secured Party may, at its discretion, provide for a public sale, and any such public sale shall be held at such time or times within ordinary business hours and at such place or places as Secured Party may fix in the notice of such sale. Secured Party shall not be obligated to make any sale pursuant to any such notice. Secured Party may adjourn any public or private sale by announcement at any time and place fixed for such sale, and such sale may be made at any time or place to which the same may be so adjourned. In the event that Secured Party elects not to sell the Collateral, Secured Party retains its rights to dispose of or utilize the Collateral or any part or parts thereof in any manner authorized or permitted by law or in equity, and to apply the proceeds of the same towards payment of the Obligations. (b) Apply proceeds of the disposition of the Collateral to the Obligations in any manner elected by Secured Party and permitted by the Code or otherwise permitted by law or in equity. Any surplus of proceeds held by Secured Party and remaining after payment of all of the Obligations shall be paid over to Pledgor or to whomever may be lawfully entitled to receive such surplus. 7 (c) Appoint any Person as agent to perform any act or acts necessary or incident to any sale or transfer by Secured Party of the Collateral. (d) Exercise all other rights and remedies permitted by law or in equity. Section 6.03 Attorney-in-Fact. Pledgor hereby irrevocably appoints Secured - ------------ ---------------- Party as Pledgor's attorney-in-fact, with full authority in the place and stead of pledgor and in the name of Pledgor or otherwise, from time to time in Secured Party's discretion upon the occurrence and during the continuance of an Event of Default, but at Pledgor's cost and expense, to take any action and to execute any assignment, certificate, financing statement, stock power, notification, document or instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to Pledgor representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same. Section 6.04 Pledged Securities. Upon the occurrence and during the - ------------ ------------------ continuance of an Event of Default: (a) All rights of Pledgor to receive the dividends and interest payments which it would otherwise be authorized to receive and retain pursuant to this Agreement shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Collateral such dividends and interest payments. (b) All dividends and interest payments which are received by Pledgor contrary to the provisions of this Section 6.04 shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Secured Party as Collateral in the same form as so received (with any necessary endorsement). (c) If the issuer of any Pledged Securities is the subject of bankruptcy, insolvency, receivership, custodianship or other proceedings under the supervision of any court or governmental agency or instrumentality (other than any proceedings in existence as of the date of this Agreement), then all rights of Pledgor to exercise the voting and other consensual rights which Pledgor would otherwise be entitled to exercise pursuant to Section 4.05 with respect to the Pledged Securities issued by such issuer shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting or other consensual rights. 8 ARTICLE 7. Miscellaneous Provisions ------------------------ Section 7.01 Notices. Any notice required or permitted to be given under or - ------------ ------- in connection with this Agreement shall be given in accordance with the notice provisions of the Indenture. Section 7.02 Amendments and Waivers. Secured Party's acceptance of partial - ------------ ---------------------- or delinquent payments or any forbearance, failure or delay by Secured Party in exercising any right, power or remedy hereunder shall not be deemed a waiver of any obligation of Pledgor, or of any right, power or remedy of Secured Party; and no partial exercise of any right, power or remedy shall preclude any other or further exercise thereof. Secured Party may remedy any Event of Default hereunder or in connection with the Obligations without waiving the Event of Default so remedied. Pledgor hereby agrees that if Secured Party agrees to a waiver of any provision hereunder, or an exchange of or release of the Collateral, or the addition or release of any other Person, any such action shall not constitute a waiver of any of Secured Party's other rights or of Pledgor's obligations hereunder. This Agreement may be amended only by an instrument in writing executed jointly by Pledgor and Secured Party and may be supplemented only by documents delivered or to be delivered in accordance with the express terms hereof. Section 7.03 Governing Law; Jurisdiction. This Agreement and the security - ------------ --------------------------- interest granted hereby shall be construed in accordance with and governed by the laws of the State of New York (except to the extend that the laws of any other jurisdiction govern the perfection and priority of the security interest granted hereby). Section 7.04 Continuing Security Agreement. - ------------ ----------------------------- (a) This Agreement shall create a continuing security interest in the Collateral and shall, unless otherwise provided in the Indenture or this Agreement, (i) remain in full force and effect until payment in full is made of all Obligations in accordance with the terms of the Indenture, (ii) be binding upon Pledgor, its successors and assigns, and (iii) inure, together with the rights and remedies of the Trustee hereunder, to the benefit of the Trustee, the Holders and each of their respective successors, transferees and assigns. (b) To the extent that any payments on the Obligations or proceeds of the Collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not be received by Secured Party or the Holders, and Secured Party's and the Holders' security interests, rights, powers and remedies hereunder shall continue in full force and effect. In such event, this Agreement shall be automatically reinstated if it shall theretofore have been terminated pursuant to Section 7.05. Section 7.05 Termination. The grant of a security interest hereunder and - ------------ ----------- all of the Secured Party's and the Holders' rights, powers and remedies in connection therewith shall remain in full force and effect until Secured Party has (a) retransferred and delivered 9 all Collateral in its possession to Pledgor, and (b) executed a written release or termination statement and reassigned to Pledgor without recourse or warranty any remaining Collateral and all rights conveyed hereby. Upon (i) the complete payment of the Obligations, (ii) satisfaction and discharge of the Obligations pursuant to Article 10 of the Indenture or (iii) the Disposition of the Yonkers Property and the application of the Net Proceeds of such Disposition in accordance with Article 3 of the Indenture, Secured Party will release, reassign and transfer the Collateral to Pledgor and declare this Agreement to be of no further force or effect. Section 7.06 Invalidity. In case any provision of this Agreement shall be - ------------ ---------- invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 7.07 Counterparts, Effectiveness. This Agreement may be executed in - ------------ --------------------------- two or more counterparts. Each counterpart is deemed an original, but all such counterparts taken together constitute one and the same instrument. 10 PLEDGOR: BRADLEES STORES, INC. - ------- By: ---------------------------------- Name: Title: TRUSTEE: IBJ WHITEHALL BANK & TRUST COMPANY - ------- By: ---------------------------------- Name: Title: 11 EX-3.1 5 AMENDED AND RESTATED ARTICLES OF BRADLEES, INC. Exhibit 3.1 FEDERAL IDENTIFICATION NO. __________________ __________ The Commonwealth of Massachusetts Examiner William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) __________ Name Approved We, Robert G. Lynn, , *President ---------------------------------------------------------------- and David L. Schmitt , *Clerk -------------------------------------------------------------------- of Bradlees, Inc. , ----------------------------------------------------------------------------- (Exact name of corporation) located at One Bradlees Circle, Braintree, MA 02184 , -------------------------------------------------------------------- (Street address of corporation Massachusetts) do hereby certify that the following Restatement of the Articles of Organization was duly adopted on February 2, 1999 by order of the Bankruptcy Court ____ shares of ________________________________ of ____ shares outstanding, (type, class & series, if any) ____ shares of ________________________________ of ____ shares outstanding, and (type, class & series, if any) ____ shares of ________________________________ of ____ shares outstanding, (type, class & series, if any) **being at least a majority of each type, class or series outstanding and entitled to vote thereon: /**being at least two-thirds of each type, class or series outstanding and entitled to vote thereon and each type, class or series of stock whose rights are adversely affected thereby: C [_] ARTICLE I P [_] The name of the corporation is: M [_] R.A. [_] Bradlees, Inc. ARTICLE II The purpose of the corporation is to engage in the following business activities: 1. To own, operate and maintain discount department stores, and 2. to conduct all lawful acts and activities for which corporations may be organized under the Massachusetts Business Corporation Law. __________ P.C. *Delete the inapplicable words. **Delete the inapplicable clause. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue: - -------------------------------------------------------------------------------- WITHOUT PAR VALUE WITH PAR VALUE - -------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- Common: Common: 40,000,000 $.01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Preferred: Preferred: 1,000,000 $.01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Addendum A. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: None. ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Addendum B. **If there are no provisions state "None". Note: The preceding six (6) articles are considered to be permanent and may ONLY be changed by filing appropriate Articles of Amendment. ARTICLE VII The effective date of the restated Articles of Organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII The information contained in Article VIII is not a permanent part of the Articles of Organization. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: One Bradlees Circle, Braintree, MA 02184 b. The name, residential address and post office address of each director and officer of the corporation is as follows: NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS President: Robert G. Lynn 35 Cattle Pen Lane One Bradlees Circle Ridgefield, CT 06877 Braintree, MA 02184 Treasurer: Paul R. McKelvey 30 Planting Field Road One Bradlees Circle Medfield, MA 02052 Braintree, MA 02184 Clerk: David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle Weymouth, MA 02191 Braintree, MA 02184 Directors: See Addendum C. c. The fiscal year (i.e., tax year) of the corporation shall end on the Saturday nearest January 31 of each year. d. The name and business address of the resident agent, if any, of the corporation is: ** We further certify that the foregoing Restated Articles of Organization affect no amendments to the Articles of Organization of the corporation as heretofore amended, except amendments to the following articles. Briefly describe amendments below: See Addendum D. SIGNED UNDER THE PENALTIES OF PERJURY, this 2/nd/ day of February ,1999. /s/ Robert G. Lynn , *President - -------------------------------------------------------------- /s/ David L. Schmitt , *Clerk - ----------------------------------------------------------------- *Delete the inapplicable words. **If there are no amendments, state "None". THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) ================================================================================ I hereby approve the within Restated Articles of Organization and, the filing fee in the amount of $ __________ having been paid, said articles are deemed to have been filed with me this _______ day of _______________, 19__. Effective Date: February 2, 1999 _______________________________________________________________ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: William V. Buccella - -------------------------------------------------------------------------------- Goodwin, Procter & Hoar LLP - -------------------------------------------------------------------------------- 53 State Street - -------------------------------------------------------------------------------- Exchange Place Boston, MA 02109-2881 Telephone: (617) 570-1000 ---------------------------------------------------------------------- ADDENDA TO THE RESTATED ARTICLES OF ORGANIZATION OF BRADLEES, INC. Addendum A ---------- ARTICLE IV CAPITAL STOCK ------------- The authorized capital stock of BRADLEES, INC. (the "Corporation") shall consist of (i) common stock, $.01 par value per share (the "Common Stock"), and (ii) preferred stock, $.01 par value per share (the "Preferred Stock"). A. Common Stock ------------ 1. The holders of shares of Common Stock shall be entitled to one vote for each share so held with respect to all matters voted on by the stockholders of the Corporation, subject in all cases to the voting rights of any holders of Preferred Stock. 2. Subject to the rights of the Preferred Stock upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests. 3. Subject to the rights, if any, of any holders of Preferred Stock, dividends may be paid on the Common Stock as and when declared by the Board of Directors of the Corporation (the "Board of Directors") out of funds legally available therefor. B. Preferred Stock --------------- Subject to any limitations prescribed by law or these Articles, the Board of Directors or any authorized committee thereof is expressly authorized to provide for the issuance of up to 1,000,000 shares of Preferred Stock in one or more series of stock, and by filing a certificate pursuant to applicable law of the Commonwealth of Massachusetts, to establish or change from time to time the number of shares to be included in each series, and to fix the designation, voting powers, preferences, qualifications, privileges and rights of the shares of each series and any qualifications, limitations and restrictions thereof. The Board of Directors or any authorized committee thereof shall have the right to determine or fix by vote or votes providing for the issuance of the shares thereof one or more of the following with respect to each series of such Preferred Stock: 1. The distinctive serial designation and the number of shares constituting such series; 2. The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating and other rights, if any, with respect to dividends; 3. The voting powers, full or limited, of the shares of such series; 4. Whether the shares of such series shall be redeemable (at the option of the holder or of the Corporation or otherwise) and, if so, the price or prices at which, and the terms and conditions on which, such shares may be redeemed; 5. The amount or amounts payable upon the shares of such series and any preferences applicable thereto in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 6. Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such fund; 7. Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other series of the same or any other class or classes of stock of the Corporation or the securities of any other entity or any other assets and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; 8. The price or other consideration for which the shares of such series shall be issued; 9. Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of Preferred Stock and whether such shares may be reissued as shares of the same or any other class or series of stock; and 10. Such other powers, preferences, rights, qualifications, limitations and restrictions thereof as the Board of Directors or any authorized committee thereof may deem advisable. 2 Subject to the authority of the Board of Directors or any authorized committee thereof as set forth in Paragraph 9 above, any shares of Preferred Stock shall, upon reacquisition thereof by the Corporation, be restored to the status of authorized but unissued Preferred Stock under this Section B. Except as specifically provided in these Articles, the holders of Preferred Stock or Common Stock shall not be entitled to any vote and shall not have any voting rights concerning the designation or issuance of any shares of Preferred Stock authorized by and complying with the conditions of these Articles, and subject to the authority of the Board of Directors or any authorized committee thereof as set forth above, the right to any such vote is expressly waived by all present and future holders of the capital stock of the Corporation. C. Issuance of Capital Stock ------------------------- The Corporation shall not (a) issue non-voting equity securities, (b) create a class of equity securities having a preference over any other class of equity securities with respect to dividends unless adequate provision is made for the election of Directors representing the preferred class in the event of a default in the payment of its dividends, or (c) create any other class of equity securities unless an appropriate distribution of voting power is made among all such classes. 3 Addendum B ---------- ARTICLE VI (A) CLASSIFICATION OF DIRECTORS --------------------------- The initial Directors shall serve for a term expiring at the annual meeting of stockholders to be held in the year ending December 31, 2000, which meeting shall be held no sooner than following the close of the 1999 fiscal year. At each annual meeting of stockholders, the successors of the Directors whose term expires at such meeting shall be elected by a plurality of the votes cast at such meeting and shall hold office for a term expiring at the annual meeting of stockholders held in the year following the year of their election. The Directors elected shall hold office until their successors are duly elected and qualified or until their earlier resignation or removal. ARTICLE VI (B) LIMITATION OF LIABILITY OF DIRECTORS ------------------------------------ A. No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any provision of law imposing such liability; provided, however, that this Article shall not eliminate or limit any liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Sections 61 or 62 of Chapter 156B of the General Laws of the Commonwealth of Massachusetts, or (iv) with respect to any transaction from which the Director derived an improper personal benefit. B. No amendment or repeal of this Article shall adversely affect the rights and protection afforded to a Director of this Corporation under this Article for acts or omissions occurring prior to such amendment or repeal. If the Massachusetts Business Corporation Law is hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by the Massachusetts Business Corporation Law as so amended. 4 ARTICLE VI (C) TRANSACTIONS WITH INTERESTED PERSONS ------------------------------------ A. Unless entered into in bad faith, no contract or transaction by the Corporation shall be void, voidable or in any way affected by reason of the fact that it is with an Interested Person. B. For the purposes of this Article, "Interested Person" means any person or organization in any way interested in the Corporation whether as an officer, Director, stockholder, employee or otherwise, and any other entity in which any such person or organization or the Corporation is in any way interested. C. Unless such contract or transaction was entered into in bad faith, no Interested Person, because of such interest, shall be liable to the Corporation or to any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction. D. The provisions of this Article shall be operative notwithstanding the fact that the presence of one or more Interested Persons was necessary to constitute a quorum at a meeting of Directors or stockholders of the Corporation at which such contract or transaction was authorized or that the vote of one or more Interested Persons was necessary for the authorization of such contract or transaction. E. Business Combination with Interested Shareholders. The provisions of ------------------------------------------------- Chapter 110F of the General Laws of the Commonwealth of Massachusetts ("Chapter 110F"), as it may be amended from time to time, shall, except to the extent set forth in Chapter 110F, not apply to "business combinations with interested shareholders" of the Corporation within the meaning of Chapter 110F. F. Control Share Acquisition. The provisions of Chapter 110D of the ------------------------- General Laws of the Commonwealth of Massachusetts ("Chapter 110D"), as it may be amended from time to time, shall not apply to "control share acquisitions" of the Corporation within the meaning of Chapter 110D. ARTICLE VI (D) STOCKHOLDERS' MEETINGS ---------------------- A. Action by Written Consent ------------------------- Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, provided that all (or such lesser percentage as may be permitted by the law of The Commonwealth of Massachusetts) stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consents shall be treated for all purposes as a vote at a meeting of stockholders. B. Location of Meetings -------------------- Meetings of stockholders of the Corporation may be held anywhere within the United States. 5 ARTICLE VI (E) ACTING AS A PARTNER ------------------- The Corporation may be a partner in any business enterprise which it would have power to conduct by itself. ARTICLE VI (F) EXAMINATION OF BOOKS -------------------- Except as otherwise provided by law, no stockholder shall have any right to examine any property or any books, accounts or other writings of the Corporation if there is reasonable ground for belief that such examination will for any reason be adverse to the interests of the Corporation, and a vote of the Directors refusing permission to make such examination and setting forth that in the opinion of the Directors such examination would be adverse to the interests of the Corporation shall be prima facie evidence that such examination would be adverse to the interests of the Corporation. Every such examination which is permitted shall be subject to such reasonable requirements as the Corporation may establish in regard thereto. ARTICLE VI (G) AMENDMENT OF BY-LAWS -------------------- A. Amendment by Directors ---------------------- Except as otherwise required by law, the By-laws of the Corporation may be amended or repealed by the affirmative vote of a majority of the Directors then in office. Not later than the time of giving notice of the annual meeting of stockholders next following the amending or repealing by the Directors of any By-law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-laws. B. Amendment by Stockholders ------------------------- The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class. 6 ARTICLE VI (H) STOCKHOLDER VOTE REQUIRED FOR AMENDMENT OF ------------------------------------------ ARTICLES OF ORGANIZATION ------------------------ Except as otherwise required by law, these Articles may be amended at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment at such meeting of stockholders, such amendment shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment by holders of voting stock, voting together as a single class. 7 Addendum C ----------
POST OFFICE NAME RESIDENTIAL ADDRESS ADDRESS ---- ------------------- ----------- Directors Peter Thorner 1243 Adams Street Bradlees, Inc. Dorchester, MA 02124 One Bradlees Circle Braintree, MA 02184 Robert G. Lynn 35 Cattle Pen Lane Bradlees, Inc. Ridgefield, CT 06877 One Bradlees Circle Braintree, MA 02184 Robert Altschuler 200 Long Lots Road Marx Realty & Westport, CT 06880 Improvement Co., Inc. 708 Third Avenue New York, NY 10017 Lawrence Lieberman 64 Wright Street 888 Broadway Westport, CT 06880 New York, NY 10003 William H. Roth 144 East 84th Street 36 West 44th Street New York, NY 10028 New York, NY 10036 Charles K. MacDonald 5120 NE 29th Avenue Mongandane Management Corp. Lighthouse Point, FL 33064 5120 NE 29th Avenue Lighthouse Point, FL 33064 Stephen J. Blauner 449 Hudson Street One Chase Manhattan Plaza New York, NY 10014 New York, NY 10005 W. Edward Clingman, Jr. 7371 Beulah Church Road c/o Best Products Co., Inc. Mechanicsville, VA 23111 P. O. Box 26303 Richmond, VA 23260 John M. Friedman, Jr. 62 Barner Road 62 Barner Road New Milford, CT 06776 New Milford, CT 06776
8 Addendum D ---------- Article IV(A) Description of Voting Rights, Liquidation Rights, and Dividends of Common Stock. Article IV(B) Description of powers and rights of Board of Directors with respect to Preferred Stock. Article IV(C) Description of the Corporation's rights with respect to issuance of capital stock. Article VI(A) Provision regarding classification of directors. Article VI(B) Provision regarding the limitation of liability of directors. Article VI(C) Provision regarding transactions with interested persons. Article VI(D) Provision regarding action of stockholders by written consent and location of stockholder meetings. Article VI(E) Provision permitting the Corporation to act as a partner in any business enterprise. Article VI(F) Provision regarding stockholders' rights to examine books of the Corporation. Article VI(G) Provision regarding amendment of the By-laws of the Corporation. Article VI(H) Provision describing stockholder vote required for amendment of the Articles of Organization of the Corporation. 9 EX-3.2 6 AMENDED AND RESTATED ARTICLES OF BRADLEES STORES Exhibit 3.2 FEDERAL IDENTIFICATION NO. __________________ __________ The Commonwealth of Massachusetts Examiner William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) __________ Name Approved We, Robert G. Lynn, , *President ---------------------------------------------------------------- and David L. Schmitt , *Clerk -------------------------------------------------------------------- of Bradlees Stores, Inc. , ----------------------------------------------------------------------------- (Exact name of corporation) located at One Bradlees Circle, Braintree, MA 02184 , -------------------------------------------------------------------- (Street address of corporation Massachusetts) do hereby certify that the following Restatement of the Articles of Organization was duly adopted on February 2, 1999 order of the Bankruptcy ____ shares of ________________________________ of ____ shares outstanding, (type, class & series, if any) ____ shares of ________________________________ of ____ shares outstanding, and (type, class & series, if any) ____ shares of ________________________________ of ____ shares outstanding, (type, class & series, if any) **being at least a majority of each type, class or series outstanding and entitled to vote thereon: /**being at least two-thirds of each type, class or series outstanding and entitled to vote thereon and each type, class or series of stock whose rights are adversely affected thereby: C [_] ARTICLE I P [_] The name of the corporation is: M [_] R.A. [_] Bradlees Stores, Inc. ARTICLE II The purpose of the corporation is to engage in the following business activities: 1. To own, operate and maintain discount department stores, and 2. to conduct all lawful acts and activities for which corporations may be organized under the Massachusetts Business Corporation Law. __________ P.C. *Delete the inapplicable words. **Delete the inapplicable clause. Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated. ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue: - -------------------------------------------------------------------------------- WITHOUT PAR VALUE WITH PAR VALUE - -------------------------------------------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------------------------------------------------------- Common: Common: 150,000 $.01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Preferred: Preferred: 50,000 $.01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Addendum A. ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: None. ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Addendum B. **If there are no provisions state "None". Note: The preceding six (6) articles are considered to be permanent and may ONLY be changed by filing appropriate Articles of Amendment. ARTICLE VII The effective date of the restated Articles of Organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify such date which shall not be more than thirty days after the date of filing. ARTICLE VIII The information contained in Article VIII is not a permanent part of the Articles of Organization. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: One Bradlees Circle, Braintree, MA 02184 b. The name, residential address and post office address of each director and officer of the corporation is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS President: Robert G. Lynn 35 Cattle Pen Lane One Bradlees Circle Ridgefield, CT 06877 Braintree, MA 02184 Treasurer: Paul R. McKelvey 30 Planting Field Road One Bradlees Circle Medfield, MA 02052 Braintree, MA 02184 Clerk: David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle Weymouth, MA 02191 Braintree, MA 02184 Directors: Peter Thorner 1243 Adams Street One Bradlees Circle Dorchester, MA 02124 Braintree, MA 02184 David L. Schmitt 84 Broadreach Road, #601B One Bradlees Circle Weymouth, MA 02191 Braintree, MA 02184 Cornelius F. Moses, III 8 Quail Run One Bradlees Circle Medfield, MA 02052 Braintree, MA 02184
c. The fiscal year (i.e., tax year) of the corporation shall end on the Saturday nearest January 31 of each year. d. The name and business address of the resident agent, if any, of the corporation is: ** We further certify that the foregoing Restated Articles of Organization affect no amendments to the Articles of Organization of the corporation as heretofore amended, except amendments to the following articles. Briefly describe amendments below: See Addendum C. SIGNED UNDER THE PENALTIES OF PERJURY, this 2/nd/ day of February, 1999. /s/ Robert G. Lynn , *President - -------------------------------------------------------------- /s/ David L. Schmitt , *Clerk - ----------------------------------------------------------------- *Delete the inapplicable words. **If there are no amendments, state "None". THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) ================================================================================ I hereby approve the within Restated Articles of Organization and, the filing fee in the amount of $ __________ having been paid, said articles are deemed to have been filed with me this _______ day of _______________, 19__. Effective Date: February 2, 1999 WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION Photocopy of document to be sent to: William V. Buccella - -------------------------------------------------------------------------------- Goodwin, Procter & Hoar LLP - -------------------------------------------------------------------------------- 53 State Street - -------------------------------------------------------------------------------- Exchange Place Boston, MA 02109-2881 Telephone: (617) 570-1000 ---------------------------------------------------------------------- ADDENDA TO THE RESTATED ARTICLES OF ORGANIZATION OF BRADLEES STORES, INC. Addendum A ---------- ARTICLE IV CAPITAL STOCK ------------- The authorized capital stock of BRADLEES STORES, INC. (the "Corporation") shall consist of (i) common stock, $.01 par value per share (the "Common Stock"), and (ii) preferred stock, $.01 par value per share (the "Preferred Stock"). A. Common Stock ------------ 1. The holders of shares of Common Stock shall be entitled to one vote for each share so held with respect to all matters voted on by the stockholders of the Corporation, subject in all cases to the voting rights of any holders of Preferred Stock. 2. Subject to the rights of the Preferred Stock upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock in accordance with their respective rights and interests. 3. Subject to the rights, if any, of any holders of Preferred Stock, dividends may be paid on the Common Stock as and when declared by the Board of Directors of the Corporation (the "Board of Directors") out of funds legally available therefor. B. Preferred Stock --------------- Subject to any limitations prescribed by law or these Articles, the Board of Directors or any authorized committee thereof is expressly authorized to provide for the issuance of up to 50,000 shares of Preferred Stock in one or more series of stock, and by filing a certificate pursuant to applicable law of the Commonwealth of Massachusetts, to establish or change from time to time the number of shares to be included in each series, and to fix the designation, voting powers, preferences, qualifications, privileges and rights of the shares of each series and any qualifications, limitations and restrictions thereof. The Board of Directors or any authorized committee thereof shall have the right to determine or fix by vote or votes providing for the issuance of the shares thereof one or more of the following with respect to each series of such Preferred Stock: 1. The distinctive serial designation and the number of shares constituting such series; 2. The dividend rates or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date or dates, the payment date or dates for dividends, and the participating and other rights, if any, with respect to dividends; 3. The voting powers, full or limited, of the shares of such series; 4. Whether the shares of such series shall be redeemable (at the option of the holder or of the Corporation or otherwise) and, if so, the price or prices at which, and the terms and conditions on which, such shares may be redeemed; 5. The amount or amounts payable upon the shares of such series and any preferences applicable thereto in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation; 6. Whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price or prices at which such shares may be redeemed or purchased through the application of such fund; 7. Whether the shares of such series shall be convertible into, or exchangeable for, shares of any other series of the same or any other class or classes of stock of the Corporation or the securities of any other entity or any other assets and, if so convertible or exchangeable, the conversion price or prices, or the rate or rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; 8. The price or other consideration for which the shares of such series shall be issued; 9. Whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of Preferred Stock and whether such shares may be reissued as shares of the same or any other class or series of stock; and 10. Such other powers, preferences, rights, qualifications, limitations and restrictions thereof as the Board of Directors or any authorized committee thereof may deem advisable. 2 Subject to the authority of the Board of Directors or any authorized committee thereof as set forth in Paragraph 9 above, any shares of Preferred Stock shall, upon reacquisition thereof by the Corporation, be restored to the status of authorized but unissued Preferred Stock under this Section B. Except as specifically provided in these Articles, the holders of Preferred Stock or Common Stock shall not be entitled to any vote and shall not have any voting rights concerning the designation or issuance of any shares of Preferred Stock authorized by and complying with the conditions of these Articles, and subject to the authority of the Board of Directors or any authorized committee thereof as set forth above, the right to any such vote is expressly waived by all present and future holders of the capital stock of the Corporation. C. Issuance of Capital Stock ------------------------- The Corporation shall not (a) issue non-voting equity securities, (b) create a class of equity securities having a preference over any other class of equity securities with respect to dividends unless adequate provision is made for the election of Directors representing the preferred class in the event of a default in the payment of its dividends, or (c) create any other class of equity securities unless an appropriate distribution of voting power is made among all such classes. 3 Addendum B ---------- ARTICLE VI (A) CLASSIFICATION OF DIRECTORS --------------------------- The initial Directors shall serve for a term expiring at the annual meeting of stockholders to be held in the year ending December 31, 2000, which meeting shall be held no sooner than following the close of the 1999 fiscal year. At each annual meeting of stockholders, the successors of the Directors whose term expires at such meeting shall be elected by a plurality of the votes cast at such meeting and shall hold office for a term expiring at the annual meeting of stockholders held in the year following the year of their election. The Directors elected shall hold office until their successors are duly elected and qualified or until their earlier resignation or removal. ARTICLE VI (B) LIMITATION OF LIABILITY OF DIRECTORS ------------------------------------ A. No Director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director notwithstanding any provision of law imposing such liability; provided, however, that this Article shall not eliminate or limit any liability of a Director (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Sections 61 or 62 of Chapter 156B of the General Laws of the Commonwealth of Massachusetts, or (iv) with respect to any transaction from which the Director derived an improper personal benefit. B. No amendment or repeal of this Article shall adversely affect the rights and protection afforded to a Director of this Corporation under this Article for acts or omissions occurring prior to such amendment or repeal. If the Massachusetts Business Corporation Law is hereafter amended to further eliminate or limit the personal liability of Directors or to authorize corporate action to further eliminate or limit such liability, then the liability of the Directors of this Corporation shall be eliminated or limited to the fullest extent permitted by the Massachusetts Business Corporation Law as so amended. 4 ARTICLE VI (C) TRANSACTIONS WITH INTERESTED PERSONS ------------------------------------ A. Unless entered into in bad faith, no contract or transaction by the Corporation shall be void, voidable or in any way affected by reason of the fact that it is with an Interested Person. B. For the purposes of this Article, "Interested Person" means any person or organization in any way interested in the Corporation whether as an officer, Director, stockholder, employee or otherwise, and any other entity in which any such person or organization or the Corporation is in any way interested. C. Unless such contract or transaction was entered into in bad faith, no Interested Person, because of such interest, shall be liable to the Corporation or to any other person or organization for any loss or expense incurred by reason of such contract or transaction or shall be accountable for any gain or profit realized from such contract or transaction. D. The provisions of this Article shall be operative notwithstanding the fact that the presence of one or more Interested Persons was necessary to constitute a quorum at a meeting of Directors or stockholders of the Corporation at which such contract or transaction was authorized or that the vote of one or more Interested Persons was necessary for the authorization of such contract or transaction. E. Business Combination with Interested Shareholders. The provisions of ------------------------------------------------- Chapter 110F of the General Laws of the Commonwealth of Massachusetts ("Chapter 110F"), as it may be amended from time to time, shall, except to the extent set forth in Chapter 110F, not apply to "business combinations with interested shareholders" of the Corporation within the meaning of Chapter 110F. F. Control Share Acquisition. The provisions of Chapter 110D of the ------------------------- General Laws of the Commonwealth of Massachusetts ("Chapter 110 D"), as it may be amended from time to time, shall not apply to "control share acquisitions" of the Corporation within the meaning of Chapter 110D. ARTICLE VI (D) STOCKHOLDERS' MEETINGS ---------------------- A. Action by Written Consent ------------------------- Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, provided that all (or such lesser percentage as may be permitted by the laws of The Commonwealth of Massachusetts) stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consents shall be treated for all purposes as a vote at a meeting of stockholders. B. Location of Meetings -------------------- Meetings of stockholders of the Corporation may be held anywhere within the United States. 5 ARTICLE VI (E) ACTING AS A PARTNER ------------------- The Corporation may be a partner in any business enterprise which it would have power to conduct by itself. ARTICLE VI (F) EXAMINATION OF BOOKS -------------------- Except as otherwise provided by law, no stockholder shall have any right to examine any property or any books, accounts or other writings of the Corporation if there is reasonable ground for belief that such examination will for any reason be adverse to the interests of the Corporation, and a vote of the Directors refusing permission to make such examination and setting forth that in the opinion of the Directors such examination would be adverse to the interests of the Corporation shall be prima facie evidence that such examination would be adverse to the interests of the Corporation. Every such examination which is permitted shall be subject to such reasonable requirements as the Corporation may establish in regard thereto. ARTICLE VI (G) AMENDMENT OF BY-LAWS -------------------- A. Amendment by Directors ---------------------- Except as otherwise required by law, the By-laws of the Corporation may be amended or repealed by the affirmative vote of a majority of the Directors then in office. Not later than the time of giving notice of the annual meeting of stockholders next following the amending or repealing by the Directors of any By-law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-laws. B. Amendment by Stockholders ------------------------- The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class. 6 ARTICLE VI (H) STOCKHOLDER VOTE REQUIRED FOR AMENDMENT OF ------------------------------------------ ARTICLES OF ORGANIZATION ------------------------ Execpt as otherwise may be required by law, these Articles may be amended at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment at such meeting of stockholders, such amendment shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment by holders of voting stock, voting together as a single class. 7 Addendum C ---------- Article IV(A) Description of Voting Rights, Liquidation Rights, and Dividends of Common Stock. Article IV(B) Description of powers and rights of Board of Directors with respect to Preferred Stock. Article IV(C) Description of the Corporation's rights with respect to issuance of capital stock. Article VI(A) Provision regarding classification of directors. Article VI(B) Provision regarding the limitation of liability of directors. Article VI(C) Provision regarding transactions with interested persons. Article VI(D) Provision regarding action of stockholders by written consent and location of stockholder meetings. Article VI(E) Provision permitting the Corporation to act as a partner in any business enterprise. Article VI(F) Provision regarding stockholders' rights to examine books of the Corporation. Article VI(G) Provision regarding amendment of the By-laws of the Corporation. Article VI(H) Provision describing stockholder vote required for amendment of the Articles of Organization of the Corporation. 8 EX-3.3 7 AMENDED AND RESTATED BY-LAWS OF BRADLEES EXHIBIT 3.3 AMENDED AND RESTATED BY-LAWS ---------------------------- of BRADLEES, INC. ARTICLE I --------- Stockholders ------------ 1. Annual Meeting. The annual meeting of stockholders shall be held at -------------- the hour, date and place within or without the United States which is fixed by the majority of the Board of Directors, the Chairman of the Board or the President, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. The purposes for which such annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization (which, as used herein, means the Restated Articles of Organization of the Corporation, as amended and restated from time to time), or by these By- laws (which, as used herein, means the Amended and Restated By-laws of the Corporation, as amended and restated from time to time) may be specified by the Board of Directors, the Chairman of the Board or the President. If no annual meeting of stockholders has been held within six months after the end of the fiscal year of the Corporation, a special meeting in lieu thereof may be held, and such special meeting shall have, for purposes of these By-laws or otherwise, all the force and effect of an annual meeting. Any and all references hereafter in these By-laws to an annual meeting or annual meetings shall be deemed to refer also to any special meeting(s) in lieu thereof. 2. Special Meetings. Special meetings of stockholders may be called by ---------------- the Board of Directors. Special meetings shall be called by the Clerk or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold at least (i) a majority in interest of the capital stock entitled to vote at such meeting or (ii) such lesser percentage, if any, as shall be determined to be the maximum percentage which the Corporation is permitted by applicable law to establish for the call of such a meeting. Application to a court pursuant to Section 34(b) of Chapter 156B of the General Laws of the Commonwealth of Massachusetts requesting the call of a special meeting of stockholders because none of the officers is able and willing to call such a meeting may be made only by stockholders who hold at least (i) a majority in interest of the capital stock entitled to vote at such meeting or (ii) such lesser percentage, if any, as shall be determined to be the maximum percentage which the Corporation is permitted by applicable law to establish for the call of such a meeting. The hour, date and place of any special meeting and the record date for determining the stockholders having the right to notice of and to vote at such meeting shall be determined by the Board of Directors or the President. At a special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been stated in the written notice of the special meeting and otherwise properly brought before the special meeting. 3. Matters to be Considered at Annual Meetings. At any annual meeting of ------------------------------------------- stockholders or any special meeting in lieu of annual meeting of stockholders (the "Annual Meeting"), only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such Annual Meeting. To be considered as properly brought before an Annual Meeting, business must be: (a) specified in the notice of meeting, (b) otherwise properly brought before the meeting by, or at the direction of, the Board of Directors, or (c) otherwise properly brought before the meeting by any holder of record (both as of the time notice of such proposal is given by the stockholder as set forth below and as of the record date for the Annual Meeting in question) of any shares of capital stock of the Corporation entitled to vote at such Annual Meeting who complies with the requirements set forth in this By-law. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder of record of any shares of capital stock entitled to vote at such Annual Meeting, such stockholder shall: (i) give timely notice as required by this By-law to the Clerk of the Corporation and (ii) be present at such meeting, either in person or by a representative. For the first Annual Meeting following the Effective Date of the Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates under Chapter 11 of the Bankruptcy Code (the "Effective Date"), a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not less than 75 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting (the "Anniversary Date"); provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than 30 days before the Anniversary Date or more than 60 days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. For purposes of these By-laws, "public announcement" shall mean: (i) disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, (ii) a report or other document filed publicly with the Securities and Exchange Commission (including, without limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of record of the Corporation at the time of the mailing of such letter or report. A stockholder's notice to the Clerk shall set forth as to each matter proposed to be brought before an Annual Meeting: (i) a brief description of the business the stockholder 2 desires to bring before such Annual Meeting and the reasons for conducting such business at such Annual Meeting, (ii) the name and address, as they appear on the Corporation's stock transfer books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation's capital stock beneficially owned by the stockholder proposing such business, (iv) the names and addresses of the beneficial owners, if any, of any capital stock of the Corporation registered in such stockholder's name on such books, and the class and number of shares of the Corporation's capital stock beneficially owned by such beneficial owners, (v) the names and addresses of other stockholders known by the stockholder proposing such business to support such proposal, and the class and number of shares of the Corporation's capital stock beneficially owned by such other stockholders, and (vi) any material interest of the stockholder proposing to bring such business before such meeting (or any other stockholders known to be supporting such proposal) in such proposal. If the Board of Directors or a designated committee thereof determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this By-law or that the information provided in a stockholder's notice does not satisfy the information requirements of this By-law in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If neither the Board of Directors nor such committee makes a determination as to the validity of any stockholder proposal in the manner set forth above, the presiding officer of the Annual Meeting shall determine whether the stockholder proposal was made in accordance with the terms of this By-law. If the presiding officer determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this By-law or that the information provided in a stockholder's notice does not satisfy the information requirements of this By-law in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a stockholder proposal was made in accordance with the requirements of this By-law, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such proposal. Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder with respect to the matters set forth in this By-law and nothing in this By-law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 4. Notice of Meetings. A written notice of each meeting of stockholders ------------------ (other than adjournments governed by Section 5 of this Article I) stating the place, date and hour and the purpose or purposes of such meeting shall be given by the Clerk or an Assistant Clerk (or other officer designated by the Board of Directors) at least 7 days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, under the Articles of Organization or under these By-laws, is entitled to such notice, by delivering such notice 3 to him or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears in the Corporation's stock transfer books. Such notice shall be deemed to be delivered when hand delivered to such address or deposited in the mail so addressed, with postage prepaid. Notice of an annual or special meeting of stockholders need not be given to a stockholder if a written waiver of notice is signed before or after such meeting by such stockholder or such stockholder's authorized attorney, if communication with such stockholder is unlawful, or if such stockholder attends such meeting, unless such attendance was for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual Meeting or special meeting of stockholders need be specified in any written waiver of notice. 5. Rescheduling of Meetings; Adjournments. The Board of Directors may -------------------------------------- postpone and reschedule any previously scheduled annual or special meeting of stockholders, and a record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting or record date has been sent or made pursuant to Section 3 of this Article I or Section 3 of Article II hereof or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled Annual Meeting of stockholders commence a new time period for the giving of a stockholder's notice under Section 3 of Article I and Section 3 of Article II of these By-laws. When any meeting is convened, the presiding officer may adjourn the meeting if (a) no quorum is present for the transaction of business, (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (c) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place to which the meeting is adjourned. 6. Quorum. The holders of a majority in interest of all capital stock of ------ the Corporation issued, outstanding and entitled to vote at a meeting of stockholders shall constitute a quorum, but if a quorum is not present, a majority in interest of the stockholders present or the presiding officer may adjourn the meeting from time to time and the meeting may be held as adjourned without further notice other than an announcement at the meeting at which the adjournment is taken of the hour, date and place to which the meeting is adjourned. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 4 7. Voting and Proxies. Unless otherwise provided by law or by the ------------------ Articles of Organization, stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the books of the Corporation. Stockholders entitled to vote may vote either in person or by written proxy dated not more than six months before the meeting named therein, unless the proxy is coupled with an interest and provides otherwise. Except as otherwise permitted by law or limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. The Corporation shall not directly or indirectly vote any share of its own stock. 8. Action at Meeting. When a quorum is present, any matter before a ----------------- meeting of stockholders shall be decided by vote of the holders of a majority of the shares of stock voting on such matter, except where a larger vote is required by law, by the Articles of Organization or by these By-laws. Any election by stockholders shall be determined by a plurality of the votes cast, except where a greater vote is required by law, by the Articles of Organization or by these By-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 9. Action without Meeting. Any action required or permitted to be taken ---------------------- at any annual or special meeting of stockholders (including any actions or powers reserved to the stockholders under these By-laws) may be taken without a meeting, provided that all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consents shall be treated for all purposes as a vote at a meeting. 10. Presiding Officer. The Chairman or, in his absence, the President or, ----------------- in his absence, such other officer as shall be designated by the Board of Directors, shall preside at all annual or special meetings of stockholders and shall have the power, among other things, to 5 adjourn such meetings at any time and from time to time in accordance with the provisions of Sections 5 and 6 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer. 11. Voting Procedures and Inspectors of Elections. In advance of any --------------------------------------------- meeting of stockholders, the Board of Directors may appoint one or more inspectors to act at an annual or special meeting of stockholders and make a written report thereon. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector(s) shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspector(s) may appoint or retain other persons or entities to assist the inspector(s) in the performance of the duties of the inspector(s). The presiding officer may review all determinations made by the inspector(s), and in so doing the presiding officer shall be entitled to exercise his sole judgment and discretion and he shall not be bound by any determinations made by the inspector(s). All determinations by the inspector(s) and, if applicable, presiding officer shall be subject to further review by any court of competent jurisdiction. ARTICLE II ---------- Directors --------- 1. Classes of Directors; Term of Office; Qualification. The number of --------------------------------------------------- Directors of the Corporation shall be fixed at nine or such larger number of directors as may be fixed by the Board of Directors from time to time after the annual meeting of the Corporation for the fiscal year 1999. The Directors shall hold office in the manner provided in the Articles. No Director need be a stockholder of the Corporation. 2. Powers. The business of the Corporation shall be managed by a Board ------ of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Articles of Organization or by these By-laws. In particular, and without limiting the generality of the foregoing, the Directors may at any time issue all or from time to time any part of the unissued capital stock of the Corporation from time to time authorized under the Articles of Organization and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. 6 3. Director Nominations. Nominations of candidates for election as -------------------- Directors of the Corporation at any Annual Meeting may be made only (a) by, or at the direction of, the Nominating Committee established in accordance with Article II, Section 14 of these By-laws or (b) by any holder of record (both as of the time notice of such nomination is given by the stockholder as set forth below and as of the record date for the Annual Meeting in question) of any shares of the capital stock of the Corporation entitled to vote at such Annual Meeting who complies with the timing, informational and other requirements set forth in this By-law. Any stockholder who has complied with the timing, informational and other requirements set forth in this By-law and who seeks to make such a nomination, or his, her or its representative, must be present in person at the Annual Meeting. Only persons nominated in accordance with the procedures set forth in this By-law shall be eligible for election as Directors at an Annual Meeting. Nominations, other than those made by, or at the direction of, the Nominating Committee, shall be made pursuant to timely notice in writing to the Clerk of the Corporation as set forth in this By-law. For the first Annual Meeting following the Effective Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not less than 75 days nor more than 120 days prior to the Anniversary Date; provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than 30 days before the Anniversary Date or more than 60 days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed and received by, the Corporation at its principal executive office not later than the close of business on the later of (i) the 75th day prior to the scheduled date of such Annual Meeting or (ii) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. A stockholder's notice to the Clerk shall set forth as to each person whom the stockholder proposes to nominate for election or re-election as a Director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation's capital stock which are beneficially owned by such person on the date of such stockholder notice, and (iv) the consent of each nominee to serve as a Director if elected. A stockholder's notice to the Clerk shall further set forth as to the stockholder giving such notice (i) the name and address, as they appear on the Corporation's stock transfer books, of such stockholder and of the beneficial owners (if any) of the Corporation's capital stock registered in such stockholder's name and the name and address of other stockholders known by such stockholder to be supporting such nominee(s), (ii) the class and number of shares of the Corporation's capital stock which are held of record, beneficially owned or represented by proxy by such 7 stockholder and by any other stockholders known by such stockholder to be supporting such nominee(s) on the record date for the Annual Meeting in question (if such date shall then have been made publicly available) and on the date of such stockholder's notice, and (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder. If the Board of Directors or a designated committee thereof determines that any stockholder nomination was not made in accordance with the terms of this By- law or that the information provided in a stockholder's notice does not satisfy the informational requirements of this By-law in any material respect, then such nomination shall not be considered at the Annual Meeting in question. If neither the Board of Directors nor such committee makes a determination as to whether a nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall determine whether a nomination was made in accordance with such provisions. If the presiding officer determines that any stockholder nomination was not made in accordance with the terms of this By-law or that the information provided in a stockholder's notice does not satisfy the informational requirements of this By-law in any material respect, then such nomination shall not be considered at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a nomination was made in accordance with the terms of this By-law, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such nominee. Notwithstanding anything to the contrary in the second sentence of the second paragraph of this By-law, in the event that the number of Directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 75 days prior to the Anniversary Date, a stockholder's notice required by this By- law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if such notice shall be delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the 15th day following the day on which such public announcement is first made by the Corporation. No person shall be elected by the stockholders as a Director of the Corporation unless nominated in accordance with the procedures set forth in this By-law. Election of Directors at the Annual Meeting need not be by written ballot, unless otherwise provided by the Board of Directors or presiding officer at such Annual Meeting. If written ballots are to be used, ballots bearing the names of all the persons who have been nominated for election as Directors at the Annual Meeting in accordance with the procedures set forth in this Section shall be provided for use at the Annual Meeting. 8 4. Application of Section 50A of Chapter 156B of the General Laws of the --------------------------------------------------------------------- Commonwealth of Massachusetts. Notwithstanding anything to the contrary in the - ----------------------------- Articles of Organization or these By-laws, the provisions of Section 50A of Chapter 156B of Massachusetts General Laws shall not be applicable to the Corporation. 5. Vacancies. The Board of Directors may act notwithstanding a vacancy --------- or vacancies in its membership. Any and all vacancies in the Board of Directors, however occurring including, without limitation, by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a Director shall be nominated by the Nominating Committee and shall be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum. Any Director elected in accordance with this Section 5 shall hold office for the remainder of the full term of the vacancy filled and until his or her successor is duly elected and qualified. 6. Resignation. Any Director may resign by delivering his written ----------- resignation to the Corporation at its principal executive office or to the President or Clerk. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 7. Removal. ------- (a) Removal by Directors. Except as set forth in the following sentence, -------------------- a Director may not be removed by the other Directors then in office. A Director who (i) is the subject of any regulatory or judicial order or decree barring or suspending such individual from engaging in any activity related to the purchase, sale or trading of securities or commodities, or (ii) is indicted for any criminal charge relating to the purchase, sale or trading of securities or commodities, may be removed by a vote of a majority of the other Directors then in office. (b) Removal by Stockholders. Stockholders may remove a Director only by ----------------------- the affirmative vote of at least two-thirds of the total votes which would be eligible to be cast by stockholders in the election of such Director. 8. Meetings. Regular meetings of the Board of Directors may be held -------- without notice at such time, date and place as the Board of Directors may from time to time determine provided that reasonable notice of the first regular meeting following such determination shall be given to absent Directors. A regular meeting of the Board of Directors may be held without notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders. 9 Special meetings of the Board of Directors may be called, orally or in writing, by the Board of Directors, by the Chairman of the Board or by the President designating the time, date and place thereof. 9. Notice of Meetings. Notice of the time, date and place of all special ------------------ meetings of the Board of Directors shall be given to each Director by the Clerk or Assistant Clerk, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by facsimile sent to his business or home address, at least twenty-four hours in advance of the meeting, or by written notice mailed to his business or home address at least forty-eight hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 10. Quorum. At any meeting of the Board of Directors, a majority of the ------ Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice. 11. Action at Meeting. At any meeting of the Board of Directors at which ----------------- a quorum is present, a majority of the Directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Articles of Organization or by these By-laws. 12. Presence Through Communications Equipment. Unless otherwise provided ----------------------------------------- by law or the Articles of Organization, members of the Board of Directors may participate in a meeting of the Board of Directors by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. 13. Action by Consent. Unless the Articles of Organization otherwise ----------------- provide, any action by the Board of Directors may be taken without a meeting if all the Directors consent to the action in writing and the written consents are filed with the records of the meetings of the Board of Directors. Such consents shall be treated for all purposes as a vote at a meeting of the Board of Directors. 14. Nominating Committee. The Board of Directors shall establish and at -------------------- all times maintain a Nominating Committee consisting of the Chairman of the Board and two non-employee Directors proposed by the Chairman of the Board and approved by a majority of the Board of Directors. The duties and responsibilities of the Nominating Committee shall be to select and nominate candidates for election as Directors of the Corporation. 10 15. Audit Committee. The Board of Directors shall establish and at all --------------- times maintain an Audit Committee consisting of at least three non-employee Directors selected by a vote of a majority of the members of the Board of Directors. The duties and responsibilities of the Audit Committee shall be determined by the Board of Directors from time to time. 16. Compensation Committee. The Board of Directors shall establish and at ---------------------- all times maintain a Compensation Committee consisting of at least three non-employee Directors selected by a vote of a majority of the members of the Board of Directors. The duties and responsibilities of the Compensation Committee shall be determined by the Board of Directors from time to time. 17. Other Committees. In addition to the Nominating Committee provided ---------------- for in Article III, Section 14 of these By-laws, the Audit Committee provided for in Article III, Section 15 of these By-laws and the Compensation Committee provided for in Article III, Section 16 of these By-laws, the Board of Directors, by vote of a majority of the Directors then in office, may elect from its number an Executive Committee or other committees and may delegate thereto some or all of its powers except those which by law, by the Articles of Organization, or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors by vote of a majority of the Directors then in office may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The Board of Directors shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect. ARTICLE III ----------- Officers -------- 1. Enumeration. The officers of the Corporation shall consist of a ----------- Chairman of the Board, a President, a Treasurer, a Clerk, and such other officers, including a Chairman of the Board or one or more Vice Presidents, Assistant Treasurers or Assistant Clerks, as the Board of Directors may determine. 2. Election. The Chairman of the Board, President, Treasurer and Clerk -------- shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be chosen by the Board of Directors at such meeting or at any other meeting. 3. Qualification. No officer need be a Director of the Corporation ------------- except for the Chairman of the Board. Any two or more offices may be held by any person. The Clerk shall be a resident of Massachusetts unless the Corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Board of Directors to give bond for the faithful performance of his duties in such amount and with such sureties as the Board of Directors may determine. 4. Tenure. Except as otherwise provided by law, by the Articles of ------ Organization or by these By-laws, the Chairman of the Board, the President, Treasurer and Clerk shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their respective successors are chosen and qualified; and all other officers shall hold office until the first meeting of the Board of Directors following the next 11 annual meeting of stockholders and until their successors are chosen and qualified, or for such shorter term as the Board of Directors may fix at the time such officers are chosen. 5. Resignation. Any officer may resign by delivering his written ----------- resignation to the Corporation at its principal office, to the Chairman of the Board or to the President or Clerk, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 6. Removal. The Board of Directors may remove any officer with or ------- without cause by a vote of a majority of the entire number of Directors then in office; provided, that an officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors. 7. Vacancies. Any vacancy in any office may be filled for the unexpired --------- portion of the term by the Board of Directors. The Board of Directors shall elect a successor if the office of Chairman of the Board, President, Treasurer or Clerk becomes vacant and may elect a successor if any other office becomes vacant. 8. Chairman of the Board. The Chairman of the Board shall preside at all --------------------- meetings of the Stockholders and of the Board of Directors. Unless the Board of Directors shall otherwise determine, the Chairman of the Board shall be the Chief Executive Officer and general manager of the Corporation, shall in general supervise and control all of the business and affairs of the Corporation, and shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. 9. President and Vice Presidents. The President shall, in the absence of ----------------------------- the Chairman of the Board preside, when present, at all meetings of stockholders and, if the Chairman of the Board is absent, at meetings of the Board of Directors. The President shall exercise and perform such other powers and duties as the Board of Directors or these By-laws may designate. Any Vice President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate. 10. Chief Financial Officer, Treasurer and Assistant Treasurers. The ----------------------------------------------------------- Chief Financial Officer or the Treasurer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. Such officer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. 12 Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors may from time to time designate. 11. Clerk and Assistant Clerks. The Clerk shall keep a record of the -------------------------- meetings of stockholders. In case a Clerk is not elected or is absent, the Clerk or an Assistant Clerk shall keep a record of the meetings of the Board of Directors. In the absence of the Clerk from any meeting of stockholders, an Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the person presiding at the meeting, shall perform the duties of the Clerk. 12. Other Powers and Duties. Subject to these By-laws, each officer of ----------------------- the Corporation shall have in addition to, and to the extent not inconsistent with, the duties and powers specifically set forth in these By-laws, such duties and powers as are customarily incident to his office, and such duties and powers as may be designated from time to time by the Board of Directors. ARTICLE IV ---------- Capital Stock ------------- 1. Certificates of Stock. The Board of Directors may provide by --------------------- resolution that some or all of any or all classes and series of shares shall be uncertificated shares. Unless such a resolution has been adopted, each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a Director, officer or employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. 2. Transfers. Subject to any restrictions on transfer, shares of stock --------- may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. 3. Record Holders. Except as may be otherwise required by law, by the -------------- Articles of Organization or by these By-laws, the Corporation shall be entitled to treat the record holder 13 of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws. It shall be the duty of each stockholder to notify the Corporation of his post office address. 4. Record Date. The Board of Directors may fix in advance a time of not ----------- more than sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date. Without fixing such record date the Board of Directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed, (a) the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, and (b) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto. 5. Replacement of Certificates. In case of the alleged loss, destruction --------------------------- or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe. 6. Issuance of Capital Stock. The Board of Directors shall have the ------------------------- authority to issue or reserve for issue from time to time the whole or any part of the capital stock of the Corporation which may be authorized from time to time, to such persons or organizations, for such consideration, whether cash, property, services or expenses, and on such terms as the Board of Directors may determine, including without limitation the granting of options, warrants, or conversion or other rights to subscribe to said capital stock. The Board of Directors may delegate some or all of its authority under this Section 6 to one or more committees of Directors. 14 ARTICLE V --------- Indemnification --------------- 1. Actions, Suits and Proceedings. The Corporation shall indemnify each ------------------------------ person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become, a Director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a Director or officer of, or in a similar capacity with, another organization or in any capacity with respect to any employee benefit plan of the Corporation or any subsidiary of the Corporation (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted to be taken in such capacity, against all expenses (including reasonable attorneys' fees), judgments and fines incurred by him or on his behalf in connection with such action, suit, proceeding or investigation, and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in such action, suit, proceeding or investigation, not to have acted in good faith in the reasonable belief that his action was in the best interests of the Corporation or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. Notwithstanding anything to the contrary in this Article V, except as set forth in Section 7 of this Article V, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with an action, suit, proceeding or investigation (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. Employees and Agents. The Corporation may, at the discretion of the -------------------- Board of Directors, indemnify employees and agents of the Corporation as if they were included in Section 1 of this Article V. 3. Settlements. The right to indemnification conferred in this Article V ----------- shall include the right to be paid by the Corporation for amounts paid in settlement of any such action, suit, proceeding or investigation and any appeal therefrom, and all expenses (including reasonable attorneys' fees) incurred in connection with such settlement, pursuant to a consent decree or otherwise, unless and to the extent it is determined pursuant to Section 6 of this Article V that the Indemnitee did not act in good faith in the reasonable belief that his or her action was in the best interests of the Corporation or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. 4. Notification and Defense of Claim. As a condition precedent to his or --------------------------------- her right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee or with respect to which indemnity will or could be sought. With respect to any action, suit, proceeding or 15 investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4 of this Article V. The Indemnitee shall have the right to employ his of her own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article V. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 of this ------------------- Article V, in the event that the Corporation does not assume the defense, or unless and until the Corporation assumes the defense, pursuant to Section 4 of this Article V of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article V, any expenses (including reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such expenses incurred by an Indemnitee - -------- ------- in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article V. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtain indemnification or ----------------------------- advancement of expenses pursuant to Sections 1, 3 or 5 of this Article V, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification pursuant to Section 1 of this Article V shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless a court of competent jurisdiction finally adjudicates that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 of this 16 Article V. Any such indemnification pursuant to Section 3 of this Article V or advancement of expenses pursuant to Section 5 of this Article V shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Sections 1 or 3 of this Article V, as the case may be. Such determination by the Corporation shall be made in each instance by (a) a majority vote of a quorum of the Directors of the Corporation, (b) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for Directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit, proceeding or investigation in question, or (c) independent legal counsel (who may be regular legal counsel to the Corporation). 7. Remedies. The right to indemnification or advances as granted by this -------- Article V shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6 of this Article V. Unless otherwise provided by law, the Corporation shall have the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article V. Neither the failure of the Corporation to have made a determination prior to the commencement of any such action by the Indemnitee that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this Article V that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination or repeal of this -------------------- Article V or of the relevant provisions of Chapter 156B of the Massachusetts General Laws or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 9. Other Rights. The indemnification and advancement of expenses ------------ provided by this Article V shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or Directors or otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a Director or officer, and shall inure to the benefit of the estate, heirs, executors, personal representatives and administrators of the Indemnitee. Nothing contained in this Article V shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers 17 and Directors providing indemnification rights and procedures different from those set forth in this Article V. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors pursuant to Section 2 of this Article V or otherwise, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article V. 10. Partial Indemnification. If an Indemnitee is entitled under any ----------------------- provision of this Article V to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by such Indemnitee or on such Indemnitee's behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including reasonable attorneys' fees), judgments, fines or amounts paid in settlement to which such Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintain insurance, at --------- its expense, to protect itself and any Director, officer, employee or agent of the Corporation, any subsidiary, another organization or employee benefit plan against any expense, liability or loss incurred by him of her in any such capacity, or arising out of his of her status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Chapter 156B of the Massachusetts General Laws. 12. Merger or Consolidation. If the Corporation is merged into or ----------------------- consolidated with another corporation and the Corporation is not the surviving corporation, the surviving Corporation shall assume the obligations of the Corporation under this Article V with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring at or prior to the date of such merger or consolidation. 13. Savings Clause. If this Article V or any portion hereof shall be -------------- invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including reasonable attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article V that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Subsequent Legislation. If the Massachusetts General Laws are amended ---------------------- after adoption of this Article V to expand further the indemnification permitted to Indemnitees, then the Corporation shall indemnify such persons to the fullest extent permitted by the Massachusetts General Laws, as so amended. 18 ARTICLE VI ---------- Miscellaneous Provisions ------------------------ 1. Fiscal Year. Except as otherwise determined by the Board of ----------- Directors, the fiscal year of the Corporation shall be the year ending on the Saturday nearest January 31 of each year. 2. Seal. The Board of Directors shall have power to adopt and alter the ---- seal of the Corporation. 3. Execution of Instruments. All deeds, leases, transfers, contracts, ------------------------ bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without Director action, may be executed on behalf of the Corporation by the Chairman of the Board, the President, any Vice President or the Treasurer except as the Board of Directors may generally or in particular cases otherwise determine. 4. Voting of Securities. Unless otherwise provided by the Board of -------------------- Directors, the President or Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation. 5. Resident Agent. The Board of Directors may appoint a resident agent -------------- upon whom legal process may be served in any action or proceeding against the Corporation. Said resident agent shall be either an individual who is a resident of and has a business address in Massachusetts, a corporation organized under the laws of Massachusetts, or a corporation organized under the laws of any other state of the United States, which has qualified to do business in, and has an office in, Massachusetts. 6. Corporate Records. The original, or attested copies, of the Articles ----------------- of Organization, By-laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the Corporation, or at an office of its transfer agent, Clerk or resident agent, and shall be open at all reasonable times to the inspection of any stockholder for any proper purpose, but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the Corporation. 19 7. Articles of Organization. All references in these By-laws to the ------------------------ Articles of Organization shall be deemed to refer to the Amended and Restated Articles of Organization of the Corporation, as amended and in effect from time to time. 8. Amendment --------- (a) Amendment by Directors. Except with respect to any provisions of these ---------------------- By-laws which by law, the Articles of Organization or these By-laws require action by the stockholders, these By-Laws may be amended or repealed by the affirmative vote of a majority of the Directors then in office. Not later than the time of giving notice of the annual meeting of stockholders next following the amending or repealing by the Directors of any By-law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-laws. (b) Amendment by Stockholders. These By-laws may be amended or repealed at ------------------------- any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class. Notwithstanding the foregoing, no shareholder approval shall be required unless mandated by the Articles of Organization, these By-laws, or other applicable law. 20 EX-3.4 8 AMENDED AND RESTATED BY-LAWS OF BRADLEES STORES EXHIBIT 3.4 AMENDED AND RESTATED BY-LAWS ---------------------------- of BRADLEES STORES, INC. ARTICLE I --------- Stockholders ------------ 1. Annual Meeting. The annual meeting of stockholders shall be -------------- held at the hour, date and place within or without the United States which is fixed by the majority of the Board of Directors, the Chairman of the Board or the President, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. The purposes for which such annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization (which, as used herein, means the Restated Articles of Organization of the Corporation, as amended and restated from time to time), or by these By-laws (which, as used herein, means the Amended and Restated By-laws of the Corporation, as amended and restated from time to time) may be specified by the Board of Directors, the Chairman of the Board or the President. If no annual meeting of stockholders has been held within six months after the end of the fiscal year of the Corporation, a special meeting in lieu thereof may be held, and such special meeting shall have, for purposes of these By-laws or otherwise, all the force and effect of an annual meeting. Any and all references hereafter in these By-laws to an annual meeting or annual meetings shall be deemed to refer also to any special meeting(s) in lieu thereof. 2. Special Meetings. Special meetings of stockholders may be ---------------- called by the Board of Directors. Special meetings shall be called by the Clerk or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer, upon written application of one or more stockholders who hold at least (i) a majority in interest of the capital stock entitled to vote at such meeting or (ii) such lesser percentage, if any, as shall be determined to be the maximum percentage which the Corporation is permitted by applicable law to establish for the call of such a meeting. Application to a court pursuant to Section 34(b) of Chapter 156B of the General Laws of the Commonwealth of Massachusetts requesting the call of a special meeting of stockholders because none of the officers is able and willing to call such a meeting may be made only by stockholders who hold at least (i) a majority in interest of the capital stock entitled to vote at such meeting or (ii) such lesser percentage, if any, as shall be determined to be the maximum percentage which the Corporation is permitted by applicable law to establish for the call of such a meeting. The hour, date and place of any special meeting and the record date for determining the stockholders having the right to notice of and to vote at such meeting shall be determined by the Board of Directors or the President. At a special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been stated in the written notice of the special meeting and otherwise properly brought before the special meeting. 3. Matters to be Considered at Annual Meetings. At any annual ------------------------------------------- meeting of stockholders or any special meeting in lieu of annual meeting of stockholders (the "Annual Meeting"), only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before such Annual Meeting. To be considered as properly brought before an Annual Meeting, business must be: (a) specified in the notice of meeting, (b) otherwise properly brought before the meeting by, or at the direction of, the Board of Directors, or (c) otherwise properly brought before the meeting by any holder of record (both as of the time notice of such proposal is given by the stockholder as set forth below and as of the record date for the Annual Meeting in question) of any shares of capital stock of the Corporation entitled to vote at such Annual Meeting who complies with the requirements set forth in this By-law. In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder of record of any shares of capital stock entitled to vote at such Annual Meeting, such stockholder shall: (i) give timely notice as required by this By-law to the Clerk of the Corporation and (ii) be present at such meeting, either in person or by a representative. For the first Annual Meeting following the Effective Date of the Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates under Chapter 11 of the Bankruptcy Code (the "Effective Date"), a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not less than 75 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting (the "Anniversary Date"); provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than 30 days before the Anniversary Date or more than 60 days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. For purposes of these By-laws, "public announcement" shall mean: (i) disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, (ii) a report or other document filed publicly with the Securities and Exchange Commission (including, without limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of record of the Corporation at the time of the mailing of such letter or report. A stockholder's notice to the Clerk shall set forth as to each matter proposed to be brought before an Annual Meeting: (i) a brief description of the business the stockholder 2 desires to bring before such Annual Meeting and the reasons for conducting such business at such Annual Meeting, (ii) the name and address, as they appear on the Corporation's stock transfer books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation's capital stock beneficially owned by the stockholder proposing such business, (iv) the names and addresses of the beneficial owners, if any, of any capital stock of the Corporation registered in such stockholder's name on such books, and the class and number of shares of the Corporation's capital stock beneficially owned by such beneficial owners, (v) the names and addresses of other stockholders known by the stockholder proposing such business to support such proposal, and the class and number of shares of the Corporation's capital stock beneficially owned by such other stockholders, and (vi) any material interest of the stockholder proposing to bring such business before such meeting (or any other stockholders known to be supporting such proposal) in such proposal. If the Board of Directors or a designated committee thereof determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this By-law or that the information provided in a stockholder's notice does not satisfy the information requirements of this By-law in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If neither the Board of Directors nor such committee makes a determination as to the validity of any stockholder proposal in the manner set forth above, the presiding officer of the Annual Meeting shall determine whether the stockholder proposal was made in accordance with the terms of this By-law. If the presiding officer determines that any stockholder proposal was not made in a timely fashion in accordance with the provisions of this By-law or that the information provided in a stockholder's notice does not satisfy the information requirements of this By-law in any material respect, such proposal shall not be presented for action at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a stockholder proposal was made in accordance with the requirements of this By-law, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such proposal. Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder with respect to the matters set forth in this By-law and nothing in this By-law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 4. Notice of Meetings. A written notice of each meeting of ------------------ stockholders (other than adjournments governed by Section 5 of this Article I) stating the place, date and hour and the purpose or purposes of such meeting shall be given by the Clerk or an Assistant Clerk (or other officer designated by the Board of Directors) at least 7 days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, under the Articles of Organization or under these By-laws, is entitled to such notice, by delivering such notice to 3 him or by mailing it, postage prepaid, and addressed to such stockholder at his address as it appears in the Corporation's stock transfer books. Such notice shall be deemed to be delivered when hand delivered to such address or deposited in the mail so addressed, with postage prepaid. Notice of an annual or special meeting of stockholders need not be given to a stockholder if a written waiver of notice is signed before or after such meeting by such stockholder or such stockholder's authorized attorney, if communication with such stockholder is unlawful, or if such stockholder attends such meeting, unless such attendance was for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual Meeting or special meeting of stockholders need be specified in any written waiver of notice. 5. Rescheduling of Meetings; Adjournments. The Board of Directors -------------------------------------- may postpone and reschedule any previously scheduled annual or special meeting of stockholders, and a record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting or record date has been sent or made pursuant to Section 3 of this Article I or Section 3 of Article II hereof or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled Annual Meeting of stockholders commence a new time period for the giving of a stockholder's notice under Section 3 of Article I and Section 3 of Article II of these By-laws. When any meeting is convened, the presiding officer may adjourn the meeting if (a) no quorum is present for the transaction of business, (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (c) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place to which the meeting is adjourned. 6. Quorum. The holders of a majority in interest of all capital ------ stock of the Corporation issued, outstanding and entitled to vote at a meeting of stockholders shall constitute a quorum, but if a quorum is not present, a majority in interest of the stockholders present or the presiding officer may adjourn the meeting from time to time and the meeting may be held as adjourned without further notice other than an announcement at the meeting at which the adjournment is taken of the hour, date and place to which the meeting is adjourned. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 4 7. Voting and Proxies. Unless otherwise provided by law or by the ------------------ Articles of Organization, stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the books of the Corporation. Stockholders entitled to vote may vote either in person or by written proxy dated not more than six months before the meeting named therein, unless the proxy is coupled with an interest and provides otherwise. Except as otherwise permitted by law or limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them unless at or prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. The Corporation shall not directly or indirectly vote any share of its own stock. 8. Action at Meeting. When a quorum is present, any matter before ----------------- a meeting of stockholders shall be decided by vote of the holders of a majority of the shares of stock voting on such matter, except where a larger vote is required by law, by the Articles of Organization or by these By-laws. Any election by stockholders shall be determined by a plurality of the votes cast, except where a greater vote is required by law, by the Articles of Organization or by these By-laws. No ballot shall be required for any election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. 9. Action without Meeting. Any action required or permitted to be ---------------------- taken at any annual or special meeting of stockholders (including any actions or powers reserved to the stockholders under these By-laws) may be taken without a meeting, provided that all stockholders entitled to vote on the matter consent to the action in writing and the written consents are filed with the records of the meetings of stockholders. Such consents shall be treated for all purposes as a vote at a meeting. 10. Presiding Officer. The Chairman or, in his absence, the ----------------- President or, in his absence, such other officer as shall be designated by the Board of Directors, shall preside at all annual or special meetings of stockholders and shall have the power, among other things, to 5 adjourn such meetings at any time and from time to time in accordance with the provisions of Sections 5 and 6 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer. 11. Voting Procedures and Inspectors of Elections. In advance of --------------------------------------------- any meeting of stockholders, the Board of Directors may appoint one or more inspectors to act at an annual or special meeting of stockholders and make a written report thereon. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector(s) shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The inspector(s) may appoint or retain other persons or entities to assist the inspector(s) in the performance of the duties of the inspector(s). The presiding officer may review all determinations made by the inspector(s), and in so doing the presiding officer shall be entitled to exercise his sole judgment and discretion and he shall not be bound by any determinations made by the inspector(s). All determinations by the inspector(s) and, if applicable, presiding officer shall be subject to further review by any court of competent jurisdiction. ARTICLE II ---------- Directors --------- 1. Classes of Directors; Term of Office; Qualification. The number --------------------------------------------------- of Directors of the Corporation shall be fixed at three or such larger number of directors as may be fixed by the Board of Directors from time to time after the annual meeting of the Corporation for the fiscal year 1999. The Directors shall hold office in the manner provided in the Articles. No Director need be a stockholder of the Corporation. 2. Powers. The business of the Corporation shall be managed by a ------ Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Articles of Organization or by these By-laws. In particular, and without limiting the generality of the foregoing, the Directors may at any time issue all or from time to time any part of the unissued capital stock of the Corporation from time to time authorized under the Articles of Organization and may determine, subject to any requirements of law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. 6 3. Director Nominations. Nominations of candidates for election as -------------------- Directors of the Corporation at any Annual Meeting may be made only (a) by, or at the direction of, the Nominating Committee established in accordance with Article II, Section 14 of these By-laws or (b) by any holder of record (both as of the time notice of such nomination is given by the stockholder as set forth below and as of the record date for the Annual Meeting in question) of any shares of the capital stock of the Corporation entitled to vote at such Annual Meeting who complies with the timing, informational and other requirements set forth in this By-law. Any stockholder who has complied with the timing, informational and other requirements set forth in this By-law and who seeks to make such a nomination, or his, her or its representative, must be present in person at the Annual Meeting. Only persons nominated in accordance with the procedures set forth in this By-law shall be eligible for election as Directors at an Annual Meeting. Nominations, other than those made by, or at the direction of, the Nominating Committee, shall be made pursuant to timely notice in writing to the Clerk of the Corporation as set forth in this By-law. For the first Annual Meeting following the Effective Date, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the later of (A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be timely if delivered to, or mailed to and received by, the Corporation at its principal executive office not less than 75 days nor more than 120 days prior to the Anniversary Date; provided, however, that in the event the Annual Meeting is scheduled to be held on a date more than 30 days before the Anniversary Date or more than 60 days after the Anniversary Date, a stockholder's notice shall be timely if delivered to, or mailed and received by, the Corporation at its principal executive office not later than the close of business on the later of (i) the 75th day prior to the scheduled date of such Annual Meeting or (ii) the 15th day following the day on which public announcement of the date of such Annual Meeting is first made by the Corporation. A stockholder's notice to the Clerk shall set forth as to each person whom the stockholder proposes to nominate for election or re-election as a Director (i) the name, age, business address and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation's capital stock which are beneficially owned by such person on the date of such stockholder notice, and (iv) the consent of each nominee to serve as a Director if elected. A stockholder's notice to the Clerk shall further set forth as to the stockholder giving such notice (i) the name and address, as they appear on the Corporation's stock transfer books, of such stockholder and of the beneficial owners (if any) of the Corporation's capital stock registered in such stockholder's name and the name and address of other stockholders known by such stockholder to be supporting such nominee(s), (ii) the class and number of shares of the Corporation's capital stock which are held of record, beneficially owned or represented by proxy by such 7 stockholder and by any other stockholders known by such stockholder to be supporting such nominee(s) on the record date for the Annual Meeting in question (if such date shall then have been made publicly available) and on the date of such stockholder's notice, and (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder. If the Board of Directors or a designated committee thereof determines that any stockholder nomination was not made in accordance with the terms of this By-law or that the information provided in a stockholder's notice does not satisfy the informational requirements of this By-law in any material respect, then such nomination shall not be considered at the Annual Meeting in question. If neither the Board of Directors nor such committee makes a determination as to whether a nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall determine whether a nomination was made in accordance with such provisions. If the presiding officer determines that any stockholder nomination was not made in accordance with the terms of this By-law or that the information provided in a stockholder's notice does not satisfy the informational requirements of this By- law in any material respect, then such nomination shall not be considered at the Annual Meeting in question. If the Board of Directors, a designated committee thereof or the presiding officer determines that a nomination was made in accordance with the terms of this By-law, the presiding officer shall so declare at the Annual Meeting and ballots shall be provided for use at the meeting with respect to such nominee. Notwithstanding anything to the contrary in the second sentence of the second paragraph of this By-law, in the event that the number of Directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 75 days prior to the Anniversary Date, a stockholder's notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if such notice shall be delivered to, or mailed to and received by, the Corporation at its principal executive office not later than the close of business on the 15th day following the day on which such public announcement is first made by the Corporation. No person shall be elected by the stockholders as a Director of the Corporation unless nominated in accordance with the procedures set forth in this By-law. Election of Directors at the Annual Meeting need not be by written ballot, unless otherwise provided by the Board of Directors or presiding officer at such Annual Meeting. If written ballots are to be used, ballots bearing the names of all the persons who have been nominated for election as Directors at the Annual Meeting in accordance with the procedures set forth in this Section shall be provided for use at the Annual Meeting. 8 4. Application of Section 50A of Chapter 156B of the General Laws -------------------------------------------------------------- of the Commonwealth of Massachusetts. Notwithstanding anything to the contrary - ------------------------------------ in the Articles of Organization or these By-laws, the provisions of Section 50A of Chapter 156B of Massachusetts General Laws shall not be applicable to the Corporation. 5. Vacancies. The Board of Directors may act notwithstanding a --------- vacancy or vacancies in its membership. Any and all vacancies in the Board of Directors, however occurring including, without limitation, by reason of an increase in size of the Board of Directors, or the death, resignation, disqualification or removal of a Director shall be nominated by the Nominating Committee and shall be filled by the affirmative vote of a majority of the Directors then in office, even though less than a quorum. Any Director elected in accordance with this Section 5 shall hold office for the remainder of the full term of the vacancy filled and until his or her successor is duly elected and qualified. 6. Resignation. Any Director may resign by delivering his written ----------- resignation to the Corporation at its principal executive office or to the President or Clerk. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 7. Removal. ------- (a) Removal by Directors. Except as set forth in the following -------------------- sentence, a Director may not be removed by the other Directors then in office. A Director who (i) is the subject of any regulatory or judicial order or decree barring or suspending such individual from engaging in any activity related to the purchase, sale or trading of securities or commodities, or (ii) is indicted for any criminal charge relating to the purchase, sale or trading of securities or commodities, may be removed by a vote of a majority of the other Directors then in office. (b) Removal by Stockholders. Stockholders may remove a Director ----------------------- only by the affirmative vote of at least two-thirds of the total votes which would be eligible to be cast by stockholders in the election of such Director. 8. Meetings. Regular meetings of the Board of Directors may be -------- held without notice at such time, date and place as the Board of Directors may from time to time determine 9 provided that reasonable notice of the first regular meeting following such determination shall be given to absent Directors. A regular meeting of the Board of Directors may be held without notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders. Special meetings of the Board of Directors may be called, orally or in writing, by the Board of Directors, by the Chairman of the Board or by the President designating the time, date and place thereof. 9. Notice of Meetings. Notice of the time, date and place of all ------------------ special meetings of the Board of Directors shall be given to each Director by the Clerk or Assistant Clerk, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by facsimile sent to his business or home address, at least twenty-four hours in advance of the meeting, or by written notice mailed to his business or home address at least forty-eight hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. 10. Quorum. At any meeting of the Board of Directors, a majority of ------ the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice. 11. Action at Meeting. At any meeting of the Board of Directors at ----------------- which a quorum is present, a majority of the Directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Articles of Organization or by these By-laws. 12. Presence Through Communications Equipment. Unless otherwise ----------------------------------------- provided by law or the Articles of Organization, members of the Board of Directors may participate in a meeting of the Board of Directors by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting. 13. Action by Consent. Unless the Articles of Organization ----------------- otherwise provide, any action by the Board of Directors may be taken without a meeting if all the Directors consent to the action in writing and the written consents are filed with the records of the meetings of the Board of Directors. Such consents shall be treated for all purposes as a vote at a meeting of the Board of Directors. 10 14. Nominating Committee. The Board of Directors shall establish and -------------------- at all times maintain a Nominating Committee consisting of the Chairman of the Board and two other Directors selected by the Chairman of the Board. The duties and responsibilities of the Nominating Committee shall be to select and nominate candidates for election as Directors of the Corporation. 15. Other Committees. In addition to the Nominating Committee ---------------- provided for in Article III, Section 14 of these By-laws, the Board of Directors, by vote of a majority of the Directors then in office, may elect from its number an Executive Committee or other committees and may delegate thereto some or all of its powers except those which by law, by the Articles of Organization, or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors by vote of a majority of the Directors then in office may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors. The Board of Directors shall have power to rescind any action of any committee, but no such rescission shall have retroactive effect. ARTICLE III ----------- Officers -------- 1. Enumeration. The officers of the Corporation shall consist of a ----------- Chairman of the Board, a President, a Treasurer, a Clerk, and such other officers, including a Chairman of the Board or one or more Vice Presidents, Assistant Treasurers or Assistant Clerks, as the Board of Directors may determine. 2. Election. The Chairman of the Board, President, Treasurer and -------- Clerk shall be elected annually by the Board of Directors at its first meeting following the annual meeting of stockholders. Other officers may be chosen by the Board of Directors at such meeting or at any other meeting. 3. Qualification. No officer need be a Director of the Corporation ------------- except for the Chairman of the Board. Any two or more offices may be held by any person. The Clerk shall be a resident of Massachusetts unless the Corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Board of Directors to give bond for the faithful performance of his duties in such amount and with such sureties as the Board of Directors may determine. 11 4. Tenure. Except as otherwise provided by law, by the Articles of ------ Organization or by these By-laws, the Chairman of the Board, the President, Treasurer and Clerk shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their respective successors are chosen and qualified; and all other officers shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until their successors are chosen and qualified, or for such shorter term as the Board of Directors may fix at the time such officers are chosen. 5. Resignation. Any officer may resign by delivering his written ----------- resignation to the Corporation at its principal office, to the Chairman of the Board or to the President or Clerk, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. 6. Removal. The Board of Directors may remove any officer with or ------- without cause by a vote of a majority of the entire number of Directors then in office; provided, that an officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors. 7. Vacancies. Any vacancy in any office may be filled for the --------- unexpired portion of the term by the Board of Directors. The Board of Directors shall elect a successor if the office of Chairman of the Board, President, Treasurer or Clerk becomes vacant and may elect a successor if any other office becomes vacant. 8. Chairman of the Board. The Chairman of the Board shall preside --------------------- at all meetings of the Stockholders and of the Board of Directors. Unless the Board of Directors shall otherwise determine, the Chairman of the Board shall be the Chief Executive Officer and general manager of the Corporation, shall in general supervise and control all of the business and affairs of the Corporation, and shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. 9. President and Vice Presidents. The President shall, in the ----------------------------- absence of the Chairman of the Board preside, when present, at all meetings of stockholders and, if the Chairman of the Board is absent, at meetings of the Board of Directors. The President shall exercise and perform such other powers and duties as the Board of Directors or these By-laws may designate. Any Vice President shall have such powers and shall perform such duties as the Board of Directors may from time to time designate. 10. Chief Financial Officer, Treasurer and Assistant Treasurers. The ----------------------------------------------------------- Chief Financial Officer or the Treasurer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept 12 accurate books of account. Such officer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors may from time to time designate. 11. Clerk and Assistant Clerks. The Clerk shall keep a record of the -------------------------- meetings of stockholders. In case a Clerk is not elected or is absent, the Clerk or an Assistant Clerk shall keep a record of the meetings of the Board of Directors. In the absence of the Clerk from any meeting of stockholders, an Assistant Clerk if one be elected, otherwise a Temporary Clerk designated by the person presiding at the meeting, shall perform the duties of the Clerk. 12. Other Powers and Duties. Subject to these By-laws, each officer ----------------------- of the Corporation shall have in addition to, and to the extent not inconsistent with, the duties and powers specifically set forth in these By-laws, such duties and powers as are customarily incident to his office, and such duties and powers as may be designated from time to time by the Board of Directors. ARTICLE IV ---------- Capital Stock ------------- 1. Certificates of Stock. The Board of Directors may provide by --------------------- resolution that some or all of any or all classes and series of shares shall be uncertificated shares. Unless such a resolution has been adopted, each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer. Such signatures may be facsimile if the certificate is signed by a transfer agent, or by a registrar, other than a Director, officer or employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. 2. Transfers. Subject to any restrictions on transfer, shares of --------- stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such 13 proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. 3. Record Holders. Except as may be otherwise required by law, by -------------- the Articles of Organization or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws. It shall be the duty of each stockholder to notify the Corporation of his post office address. 4. Record Date. The Board of Directors may fix in advance a time of ----------- not more than sixty days preceding the date of any meeting of stockholders, or the date for the payment of any dividend or the making of any distribution to stockholders, or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the Corporation after the record date. Without fixing such record date the Board of Directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed, (a) the record date for determining stockholders having the right to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, and (b) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto. 5. Replacement of Certificates. In case of the alleged loss, --------------------------- destruction or mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe. 6. Issuance of Capital Stock. The Board of Directors shall have the ------------------------- authority to issue or reserve for issue from time to time the whole or any part of the capital stock of the Corporation which may be authorized from time to time, to such persons or organizations, for such consideration, whether cash, property, services or expenses, and on such terms as the Board of Directors may determine, including without limitation the granting of options, warrants, or conversion or other rights to subscribe to said capital stock. The Board of Directors may delegate some or all of its authority under this Section 6 to one or more committees of Directors. 14 ARTICLE V --------- Indemnification --------------- 1. Actions, Suits and Proceedings. The Corporation shall indemnify ------------------------------ each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was, or has agreed to become, a Director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a Director or officer of, or in a similar capacity with, another organization or in any capacity with respect to any employee benefit plan of the Corporation or any subsidiary of the Corporation (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted to be taken in such capacity, against all expenses (including reasonable attorneys' fees), judgments and fines incurred by him or on his behalf in connection with such action, suit, proceeding or investigation, and any appeal therefrom, unless the Indemnitee shall be finally adjudicated in such action, suit, proceeding or investigation, not to have acted in good faith in the reasonable belief that his action was in the best interests of the Corporation or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. Notwithstanding anything to the contrary in this Article V, except as set forth in Section 7 of this Article V, the Corporation shall not indemnify an Indemnitee seeking indemnification in connection with an action, suit, proceeding or investigation (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. 2. Employees and Agents. The Corporation may, at the discretion of -------------------- the Board of Directors, indemnify employees and agents of the Corporation as if they were included in Section 1 of this Article V. 3. Settlements. The right to indemnification conferred in this ----------- Article V shall include the right to be paid by the Corporation for amounts paid in settlement of any such action, suit, proceeding or investigation and any appeal therefrom, and all expenses (including reasonable attorneys' fees) incurred in connection with such settlement, pursuant to a consent decree or otherwise, unless and to the extent it is determined pursuant to Section 6 of this Article V that the Indemnitee did not act in good faith in the reasonable belief that his or her action was in the best interests of the Corporation or, to the extent such matter relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. 4. Notification and Defense of Claim. As a condition precedent to --------------------------------- his or her right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving such Indemnitee or with respect to which indemnity will or could be sought. With respect to any action, suit, proceeding or 15 investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such claim, other than as provided below in this Section 4 of this Article V. The Indemnitee shall have the right to employ his of her own counsel in connection with such claim, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article V. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. 5. Advance of Expenses. Subject to the provisions of Section 6 of ------------------- this Article V, in the event that the Corporation does not assume the defense, or unless and until the Corporation assumes the defense, pursuant to Section 4 of this Article V of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article V, any expenses (including reasonable attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter, provided, however, that the payment of such expenses incurred by an Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article V. Such undertaking may be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. Procedure for Indemnification. In order to obtain ----------------------------- indemnification or advancement of expenses pursuant to Sections 1, 3 or 5 of this Article V, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such indemnification pursuant to Section 1 of this Article V shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless a court of competent jurisdiction finally adjudicates that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1 of this 16 Article V. Any such indemnification pursuant to Section 3 of this Article V or advancement of expenses pursuant to Section 5 of this Article V shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless the Corporation determines, by clear and convincing evidence, within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Sections 1 or 3 of this Article V, as the case may be. Such determination by the Corporation shall be made in each instance by (a) a majority vote of a quorum of the Directors of the Corporation, (b) a majority vote of a quorum of the outstanding shares of stock of all classes entitled to vote for Directors, voting as a single class, which quorum shall consist of stockholders who are not at that time parties to the action, suit, proceeding or investigation in question, or (c) independent legal counsel (who may be regular legal counsel to the Corporation). 7. Remedies. The right to indemnification or advances as granted by -------- this Article V shall be enforceable by the Indemnitee in any court of competent jurisdiction if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within the 60-day period referred to above in Section 6 of this Article V. Unless otherwise provided by law, the Corporation shall have the burden of proving that the Indemnitee is not entitled to indemnification or advancement of expenses under this Article V. Neither the failure of the Corporation to have made a determination prior to the commencement of any such action by the Indemnitee that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this Article V that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. Subsequent Amendment. No amendment, termination or repeal of -------------------- this Article V or of the relevant provisions of Chapter 156B of the Massachusetts General Laws or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 9. Other Rights. The indemnification and advancement of expenses ------------ provided by this Article V shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or Directors or otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a Director or officer, and shall inure to the benefit of the estate, heirs, executors, personal representatives and administrators of the Indemnitee. Nothing contained in this Article V shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers 17 and Directors providing indemnification rights and procedures different from those set forth in this Article V. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors pursuant to Section 2 of this Article V or otherwise, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article V. 10. Partial Indemnification. If an Indemnitee is entitled under any ----------------------- provision of this Article V to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by such Indemnitee or on such Indemnitee's behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including reasonable attorneys' fees), judgments, fines or amounts paid in settlement to which such Indemnitee is entitled. 11. Insurance. The Corporation may purchase and maintain insurance, --------- at its expense, to protect itself and any Director, officer, employee or agent of the Corporation, any subsidiary, another organization or employee benefit plan against any expense, liability or loss incurred by him of her in any such capacity, or arising out of his of her status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Chapter 156B of the Massachusetts General Laws. 12. Merger or Consolidation. If the Corporation is merged into or ----------------------- consolidated with another corporation and the Corporation is not the surviving corporation, the surviving Corporation shall assume the obligations of the Corporation under this Article V with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring at or prior to the date of such merger or consolidation. 13. Savings Clause. If this Article V or any portion hereof shall be -------------- invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including reasonable attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article V that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. Subsequent Legislation. If the Massachusetts General Laws are ---------------------- amended after adoption of this Article V to expand further the indemnification permitted to Indemnities, then the Corporation shall indemnify such persons to the fullest extent permitted by the Massachusetts General Laws, as so amended. 18 ARTICLE VI ---------- Miscellaneous Provisions ------------------------ 1. Fiscal Year. Except as otherwise determined by the Board of ----------- Directors, the fiscal year of the Corporation shall be the year ending on the Saturday nearest January 31 of each year. 2. Seal. The Board of Directors shall have power to adopt and ---- alter the seal of the Corporation. 3. Execution of Instruments. All deeds, leases, transfers, ------------------------ contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without Director action, may be executed on behalf of the Corporation by the Chairman of the Board, the President, any Vice President or the Treasurer except as the Board of Directors may generally or in particular cases otherwise determine. 4. Voting of Securities. Unless otherwise provided by the Board of -------------------- Directors, the President or Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation. 5. Resident Agent. The Board of Directors may appoint a resident -------------- agent upon whom legal process may be served in any action or proceeding against the Corporation. Said resident agent shall be either an individual who is a resident of and has a business address in Massachusetts, a corporation organized under the laws of Massachusetts, or a corporation organized under the laws of any other state of the United States, which has qualified to do business in, and has an office in, Massachusetts. 6. Corporate Records. The original, or attested copies, of the ----------------- Articles of Organization, By-laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the Corporation, or at an office of its transfer agent, Clerk or resident agent, and shall be open at all reasonable times to the inspection of any stockholder for any proper purpose, but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the Corporation. 19 7. Articles of Organization. All references in these By-laws to the ------------------------ Articles of Organization shall be deemed to refer to the Amended and Restated Articles of Organization of the Corporation, as amended and in effect from time to time. 8. Amendment --------- (a) Amendment by Directors. Except with respect to any provisions of ---------------------- these By-laws which by law, the Articles of Organization or these By-laws require action by the stockholders, these By-Laws may be amended or repealed by the affirmative vote of a majority of the Directors then in office. Not later than the time of giving notice of the annual meeting of stockholders next following the amending or repealing by the Directors of any By-law, notice thereof stating the substance of such change shall be given to all stockholders entitled to vote on amending the By-laws. (b) Amendment by Stockholders. These By-laws may be amended or ------------------------- repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class. Notwithstanding the foregoing, no shareholder approval shall be required unless mandated by the Articles of Organization, these By-laws, or other applicable law. 20 EX-3.5 9 CERTIFICATE OF INCORPORATION Exhibit 3.5 CERTIFICATE OF INCORPORATION OF New Horizons of Yonkers, Inc. * * * * * 1. The name of the corporation is New Horizons of Yonkers, Inc. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The total number of shares of stock which the corporation shall have authority to issue is One Thousand (1,000); all of such shares shall be without par value. 5. The name and mailing address of the sole incorporator is as follows:
NAME MAILING ADDRESS ---- --------------- Bruce L. Dove One Bradlees Circle Braintree, MA 02184
6. The corporation is to have perpetual existence. 1 7. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to make, alter or repeal the by-laws of the corporation. 8. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. 9. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 10. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. 2 I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 6th day of October, 1992. /s/ Bruce L. Dove --------------------------- Bruce L. Dove, Incorporator 3 EX-3.6 10 BY-LAWS OF NEW HORIZONS OF YONKERS, INC. Exhibit 3.6 New Horizons of Yonkers, Inc. * * * * * B Y - L A W S * * * * * ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held at any place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at the principal executive office of the corporation such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 1 Section 2. Annual meetings of stockholders, commencing with the year 1993, shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by 2 the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than 10 nor more than 60 days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as 3 originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of 4 outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than 1 nor more than 10. The first board shall consist of 2 directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in 5 the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the 6 stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president on one day notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board of directors, a majority shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. 7 Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. 8 In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation) adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation 9 expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS Section 14. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. 10 ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary and a treasurer. The board of directors 11 may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the 12 corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when 13 required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. 14 Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. 15 ARTICLE VI GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. 16 CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporation seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. The corporation shall indemnify its officers, directors, employees and agents to the extent permitted by the General Corporation Law of Delaware. ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the 17 board of directors by the certificate of incorporation at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. 18 EX-4.1 11 SPECIMEN CERTIFICATE FOR SHARES OF COMMON STOCK EXHIBIT 4.1 BRADLEES NUMBER SHARES BRADLEES, INC. INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR IN BOSTON, MA OR NEW YORK, NY CERTAIN DEFINITIONS AND TRANSFER RESTRICTIONS COMMON STOCK - -------------------------------------------------------------------------------- THIS IS TO CERTIFY THAT CUSIP 104499 20 7 IS THE OWNER OF - -------------------------------------------------------------------------------- FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF BRADLEES, INC. (hereinafter called the "Corporation") transferable on the books of the Corporation by the holder of record hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed or assigned. This Certificate and the shares represented hereby are issued and held subject to the laws of the Commonwealth of Massachusetts and the Amended and Restated Articles of Organization and Amended and Restated Bylaws of the Corporation, each as from time to time amended (copies of which are on file with the Corporation), to all of which the holder, by acceptance hereof, assents. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. IN WITNESS WHEREOF, Bradlees, Inc. has caused this Certificate to be executed by the facsimile signatures of its duly authorized officers and sealed with the facsimile seal of the Corporation. Dated /s/ Paul R. McKelvey /s/ Peter Thorner __________________________ --------------------------- TREASURER CHAIRMAN OF THE BOARD COUNTERSIGNED AND REGISTERED: BankBoston, N.A. TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE [SEAL OF BRADLEES, INC. APPEARS HERE] BRADLEES, INC. The Corporation has more than one class of stock authorized to be issued. The Corporation will furnish without charge to each stockholder upon written request a copy of the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class of stock (and any series thereof) authorized to be issued by the Corporation as set forth in the Amended and Restated Articles of Organization and amendments thereto filed with the Secretary of State of the Commonwealth of Massachusetts. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as through they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties UNIF GIFT MIN ACT--....... Custodian............... JT TEN -- as joint tenants with right - (Cust) (Minor) or survivorship and not as under Uniform Gifts to Minors tenants in common Act.......................................... (State)
Additional abbreviations may also be used through not in the above list. For Value Received, ____________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - --------------------------------------- - --------------------------------------- ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ __________________________________________________________________________Shares of the common shares represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said shares on the books of the within named Corporation with full power or substitution in the premises. Dated___________________ ______________________________________________________________________ NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: __________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO SEC RULE 17Ad-15. EX-10.1 12 REGISTRATION RIGHTS AGREEMENT Exhibit 10.1 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement (this "Agreement") is entered into as of February 2, 1999 by and between Bradlees, Inc., a Massachusetts corporation ("BI"), Bradlees Stores, Inc., a Massachusetts corporation ("BSI" and, collectively with BI, the "Companies") and each of the parties executing a signature page hereto (each a "Holder" and collectively the "Holders"). WHEREAS, the Holders are to receive, either directly pursuant to the Plan of Reorganization of BI and BSI or as a result of the Holders' ownership of participation interests in claims resulting in the issuance of such securities, a number of shares of common stock, $.01 par value (together with any additional shares of Common Stock that may be issued upon the conversion of the Notes (as defined below), the "Common Stock") of BI and certain 9% Convertible Notes, due 2004, of BSI (the "Notes"), issued in connection with the Plan of Reorganization of BI and BSI on the date prescribed therein (the "Effective Date") without registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the exemption under Section 1145 of the Bankruptcy Code from the registration requirements of Section 5 of the Securities Act. WHEREAS, the Holders may, as a result of the amount of Common Stock and/or Notes they hold, be restricted under applicable securities laws in their ability to freely transfer or resell the shares of Common Stock or Notes held by them absent the registration of such transfer or resale of such securities under the Securities Act. NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Registration of Securities. -------------------------- (a) Filing of Registration Statement. As of or prior to the Effective -------------------------------- Date, the Companies shall cause to be filed a registration statement (the "Registration Statement") under Rule 415 promulgated under the Securities Act relating to the sale by such Holders of their shares of Common Stock and their Notes (the "Registered Securities") in accordance with the terms hereof. Thereupon, the Companies shall use their best efforts to cause such Registration Statement to be filed and declared effective by the Securities and Exchange Commission (the "SEC") for all Registered Securities as soon as practicable thereafter, but in any event prior to the Effective Date. The Companies agree, subject to the provisions of Sections 2, 5, 6 and 7 hereof, to use their best efforts to maintain the continuous effectiveness of the Registration Statement, and to update and correct the information contained in the Registration Statement, until the date on which no Holder holds 10% or more of the BI's outstanding Common Stock, provided that if one or more Holders hold less than 10% of BI's outstanding Common Stock but greater than 5% of BI's outstanding Common Stock, such Holder or Holders may request that the Companies continue to attempt to maintain the effectiveness of the Registration Statement at the expense of such Holder or Holders as provided in Section 3. (b) Conditions to Companies' Obligations. The Companies shall have no ------------------------------------ obligation to a Holder under Section 1(a) unless such Holder provides to the Companies all of the information regarding the Holders and their affiliates reasonably required to be included in the Registration Statement for it to be complete. 2. Registration Procedures. ----------------------- (a) The Companies shall notify each Holder of the effectiveness of the Registration Statement and shall furnish to each such Holder such number of copies of the Registration Statement (including any amendments, supplements and exhibits), the prospectus contained therein, any documents incorporated by reference in the Registration Statement and such other documents as such Holder may reasonably request in order to facilitate its sale of the Registered Securities in the manner described in the Registration Statement. (b) The Companies shall prepare and file with the SEC from time to time such amendments and supplements to the Registration Statement and prospectus used in connection therewith as may be necessary to keep the Registration Statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all the Registered Securities until the date on which the Registration Statement ceases to be effective in accordance with the terms of Section 1. The Companies shall promptly respond to all comments from the SEC regarding the Registration Statement and any amendments and/or supplements thereto. Upon twenty (20) business days' written notice from any Holder, the Companies shall file any supplement or post- effective amendment to the Registration Statement with respect to such Holder's interests in or plan of distribution of Registered Securities that is reasonably necessary to permit the sale of the Holder's Registered Securities pursuant to the Registration Statement. For so long as the Companies are obligated to maintain the effectiveness of the Registration Statement with respect to Registered Securities owned by any Holder under this Agreement, such Holder shall be afforded a reasonable opportunity to review the Registration Statement and any amendments and/or supplements thereto not less than 5 days prior to filing. (c) The Companies shall notify each Holder of any request by the SEC for amendments or supplements to the Registration Statement or the prospectus related thereto or for additional information. In addition, the Companies shall notify each such Holder of the filing of the Registration Statement, any prospectus supplement related thereto or any post-effective amendment to the Registration Statement and the effectiveness of any post-effective amendment. (d) The Companies represent and warrant to the Holders that, upon the effectiveness of the Registration Statement, the prospectus included in the Registration Statement shall not include an untrue statement of a material fact or omit to state a material fact 2 required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. For so long as the Registration Statement remains effective, the Companies shall promptly notify each Holder of the happening of any event as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In such event and subject to Sections 2(b), 6 and 7 of this Agreement, the Companies shall prepare and furnish to each such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of Registered Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. (e) Subject to the conditions set forth in this Agreement, the Companies shall, upon the reasonable request of any Holder, file such documents as may be necessary to register or qualify the Registered Securities under the state securities or "Blue Sky" laws of such states as any Holder requesting registration may reasonably request, and the Companies shall use their best efforts to cause such filings to become qualified; provided, however, that -------- ------- neither of the Companies shall be obligated to qualify as a foreign corporation to do business under the laws of any such state in which it is not then qualified or to file any general consent to service of process in any such state. Once qualified, the Companies shall use their best efforts to keep such filings qualified until the earlier of (a) such time as all of the Registered Securities have been disposed of in accordance with the intended methods of disposition by the Holder as set forth in the Registration Statement, (b) in the case of a particular state, a Holder has notified the Companies that it no longer requires qualified filing in such state in accordance with its original request for filing or (c) the date on which the Registration Statement ceases to be effective with the SEC. The Companies shall promptly notify each Holder requesting registration of, and confirm in writing, the receipt by the Companies of any notification with respect to the suspension of the qualification of the Registered Shares for sale under the securities or "Blue Sky" laws of any jurisdiction or the initiation or threat of any proceeding for such purpose, and shall use their best efforts to cause the termination of any such suspension or proceeding. (f) BI will use its best efforts to cause the listing of the Common Stock on the NASDAQ National Market System ("NASDAQ") and prepare any related filings necessary to maintain such listing. 3 3. Expenses. -------- (a) Subject to the provisions of Section 3(b), the Companies shall bear all expenses incurred in connection with the registration of the Registered Securities until such time as no Holder holds 10% or more of the outstanding Common Stock of BI. Such expenses shall include, without limitation, all printing, legal and accounting expenses incurred by the Companies and all registration and filing fees imposed by the SEC or the principal national securities exchange or national market system on which the Registered Securities are then traded or quoted (the "Registration Expenses"). The Holders shall be responsible for any brokerage or underwriting commissions and taxes of any kind (including, without limitation, transfer taxes) with respect to any disposition, sale or transfer of Registered Securities and for any legal and other expenses specifically incurred by them in connection with the Registration Statement. (b) After such time as no Holder holds 10% or more of the outstanding Common Stock of BI, in the event that one or more Holders hold less than 10% of the BI's outstanding Common Stock but greater than 5% of the BI's outstanding Common Stock, such Holder or Holders may request that the Companies continue to maintain the effectiveness of the Registration Statement, provided that such Holder or Holders bear all of the Registration Expenses associated with such maintenance of the effectiveness of the Registration Statement. (c) For the purposes of Section 1(a) and this Section 3, Holders that would constitute a group for the purposes of Section 13(d) of the Securities Exchange Act of l934, as amended, shall be aggregated to determine whether the 5% or 10% ownership levels referred therein are met. 4. Indemnification by the Companies. Each of the Companies jointly and -------------------------------- severally agrees to indemnify each of the Holders and their respective officers, directors, employees, agents, representatives, partners and affiliates, and each person or entity, if any, that controls a Holder within the meaning of the Securities Act, and each other person or entity, if any, subject to liability because of his, her or its connection with a Holder, and any underwriter and any person who controls the underwriter within the meaning of the Securities Act (an "Indemnitee") against any and all losses, claims, damages, actions, liabilities, costs and expenses (including without limitation reasonable attorneys' fees, expenses and disbursements documented in writing), joint or several, arising out of or based upon any untrue or alleged untrue statement of material fact contained in the Registration Statement or any prospectus contained therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as and to the extent that such statement or omission arose out of or was based upon information regarding the Indemnitee or its plan of distribution which was furnished to the Companies in writing by the Indemnitee for use therein, provided, further that the Companies shall not be liable to any person who participates as an underwriter in the offering or sale of Registered Securities or any other person, if any, who controls such underwriter within the meaning of the Securities Act, in any 4 such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in such Registration Statement, final prospectus, amendment or supplement in reliance upon and in conformity with information furnished to the Companies for use in connection with the Registration Statement or the prospectus contained therein by such Indemnitee or (ii) such Indemnitee's failure to send or give a copy of the prospectus, amendment or supplement furnished to it by the Companies at or prior to the time such action is required by the Securities Act to the person claiming an untrue statement or alleged untrue statement or omission or alleged omission if such statement or omission was corrected in such prospectus, amendment or supplement. The obligations of the Companies under this Section 4 shall survive the completion of any offering of Registered Securities pursuant to the Registration Statement and shall survive the termination of this Agreement. 5. Covenants of Holders. Each of the Holders hereby severally and not -------------------- jointly agrees (a) to cooperate with the Companies and to furnish to the Companies all such information in connection with the preparation of the Registration Statement as the Companies may reasonably request, (b) to the extent required by the Securities Act, to deliver or cause delivery of the prospectus contained in the Registration Statement to any purchaser of the securities covered by the Registration Statement from the Holder, (c) to promptly notify the Companies of any sale of Registered Securities by such Holder that results in such Holder holding less than either 10% or 5% of BI's outstanding Common Stock and upon any change in the information regarding such Holder in the Registration Statement that would require amendment of the Registration Statement and (d) to indemnify the Companies, their respective officers, directors, employees, agents, representatives and affiliates, and each person, if any, who controls either of the Companies within the meaning of the Securities Act, and each other person, if any, subject to liability because of his connection with the Companies, against any and all losses, claims, damages, actions, liabilities, costs and expenses arising out of or based upon (i) any untrue statement or alleged untrue statement of material fact contained in either the Registration Statement or the prospectus contained therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, if and to the extent that such statement or omission was based upon information regarding the Holder or its plan of distribution which was furnished to the Companies in writing by the Holder for use therein, or (ii) the failure by the Holder to deliver or cause to be delivered the prospectus contained in the Registration Statement (as amended or supplemented, if applicable) furnished by the Companies to the Holder to any purchaser of the Securities covered by the Registration Statement from the Holder. Notwithstanding the foregoing, the total amount for which a Holder shall be liable under this Section 5 shall not in any event exceed the aggregate proceeds received by him or it from the sale of the Holder's Registered Securities in such registration. The obligations of the Holders under this Section 5 shall survive the completion of any offering of Registered Securities pursuant to the Registration Statement and shall survive the termination of this Agreement. 5 6. Suspension of Registration Requirement. -------------------------------------- (a) The Companies shall promptly notify each Holder requesting registration of, and confirm in writing, the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or the threat of or initiation of any proceedings for that purpose. The Companies shall use their best efforts to prevent the issuance of or to obtain the withdrawal of any SEC order suspending the effectiveness of the Registration Statement at the earliest possible time. (b) Notwithstanding anything to the contrary set forth in this Agreement, the Companies' obligation under this Agreement to use their best efforts to amend or supplement the Registration Statement shall be suspended in the event of the occurrence of an event that would require additional disclosure of material information by the Companies in the Registration Statement and the Board of Directors of the Companies in good faith determine that the disclosure relating to such event or pending transaction would have a material adverse effect upon the Companies (such circumstances being hereinafter referred to as a "Suspension Event"), but such suspension shall continue only for so long as such event or pending transaction is continuing and the Companies shall use their best efforts to cause any such suspension to terminate at the earliest possible date. In any event, the Companies agree not to exercise the rights set forth in this Section 7(b) more than three times in any twelve month period, one period which shall not exceed thirty (30) days and two periods each of which shall not exceed fifteen (15) days; provided that, in only the first twelve month period following the date of this Agreement, the Companies shall be entitled to exercise the rights set forth in this Section 7(b) for one additional period of fifteen (15) days, and provided further that no two such Suspension Event periods in any twelve month period shall relate to the same circumstances. (c) Each holder of Registered Securities agrees if requested by the managing underwriter or underwriters in a fixed price, firm commitment underwritten offering by either of the Companies of any of its securities (an "Offering"), not to effect any public sale or distribution of any of the Registered Securities, during the 5-day period prior to, and during the 10-day period (or such longer period as may be required by the managing underwriter or underwriters) beginning on, the date of pricing of each Offering, to the extent timely notified in writing by the Companies or the managing underwriters. 7. Black-Out Period. Following the effectiveness of the Registration ---------------- Statement, the Holders agree that they will not effect any sales of the Registered Securities pursuant to the Registration Statement at any time after they have received notice from the Companies to suspend sales (i) as a result of the occurrence or existence of any Suspension Event, (ii) pursuant to Section 6(c) hereof as a result of any Offering for the 15-day period referred to in Section 6(c), or (iii) so that the Companies may correct or update the Registration Statement or such filing pursuant to Section 2(c) or 2(d) of this Agreement. The Holder may recommence effecting sales of the Registered Securities pursuant to the Registration Statement following 6 further notice to such effect from the Companies as soon as practicable after the conclusion of any such Suspension Event or Offering. 8. Remedies. -------- (a) In the event that the Registration Statement has not been declared effective on or prior to the Effective Date, then the Companies shall pay in cash to each Holder, on the request of such Holder, a default payment equal to one-thirtieth (1/30) of one percent (1%) for each day of the first 30- day period or portion thereof and one-thirtieth (1/30) of two percent (2%) for each day of each subsequent 30-day period or portion thereof, beginning on the 1st day after the Effective Date, of (a) the outstanding principal amount of the Notes held by such Holder, together with any accrued and unpaid interest thereon (the "Note Amount"); and (b) the Fair Market Value of the shares of Common Stock held by such Holder. The "Fair Market Value" shall be (i) the average of the closing or last sale price of the Common Stock on NASDAQ reported for the thirty (30) business days immediately prior to the date that the relevant 30-day period commenced, or (ii) if the Common Stock is not then traded on NASDAQ but is traded on the over-the-counter market or other similar market, then the average of the closing bid and asked prices on such market reported for the thirty (30) business days immediately prior to the date that the relevant 30-day period commenced, or (iii) if the Common Stock is not traded on either the NASDAQ or an over-the-counter market, the price determined in good faith by BI's Board of Directors. (b) In the event that the Companies fail, refuse or for any other reason are unable to cause the Registered Securities covered by the Registration Statement to be listed on NASDAQ at all times during the period ("Listing Period") from the Effective Date until the date the Registration Statement is no longer required to be effective with respect to such Holder's Registered Securities pursuant to Section 1(a) or 1(b) hereunder, then the Companies shall pay in cash to each Holder, at the request of such Holder, a default payment at a rate equal to one-thirtieth (1/30) of one percent (1%) for each day of the first 30-day period (or portion thereof), and equal to one-thirtieth (1/30) of two percent (2%) for each subsequent day during the Listing Period from and after such failure, refusal or inability to so list the Registered Securities until the Registered Securities are so listed, of (a) as to the Notes held by such Holder, the Note Amount and of (b) as to the shares of Common Stock held by such Holder, the Fair Market Value of such shares. (c) In the event that any Holder's ability to sell Registered Securities under the Registration Statement is suspended more than three times in any twelve month period, one period which shall not exceed thirty (30) days and two periods each which shall not exceed fifteen (15) days, provided that, in only the first twelve month period following the date of this Agreement, the Companies shall be entitled to exercise the rights set forth in this Section 7(b) for one additional period of fifteen (15) days, and provided further that no two such Suspension Event periods in any twelve month period shall relate to the same circumstances (any such period, a "Suspension Grace Period"), including without limitation by reason of a suspension of trading of the Common Stock on NASDAQ, any suspension or stop order with 7 respect to the Registration Statement or the fact that an event has occurred as a result of which the prospectus (including any supplements thereto) included in such Registration Statement then in effect includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein no misleading in light of the circumstances then existing, or is undeliverable for any other reason, then, commencing with the expiration of the Suspension Grace Period, the Company shall pay in cash to each Holder a default payment at a rate equal to one-thirtieth (1/30) of one percent (1%) for each day of the first 30-day period (or portion thereof), and equal to one-thirtieth (1/30) of two percent (2%) for each subsequent day, of the Note Amount for the Notes held by such Holder and of the Fair Market Value of the shares of Common Stock held by such Holder. (d) In the event that the Company does not have a sufficient number of shares of Common Stock available to satisfy BI's obligations to any Holder upon receipt of a Conversion Notice (as defined in the Note) or is otherwise unable or unwilling to issue such shares of Common Stock (each, a "Conversion Deficiency") in accordance with the terms of the Note for any reason after receipt of a Conversion Notice, then the Companies shall pay in cash to each Holder a default payment at a rate equal to one-thirtieth (1/30) of one percent (1%) for each day of the first 30-day period (or portion thereof), and equal to one-thirtieth (1/30) of two percent (2%) for each subsequent day, of the Note Amount for the Notes held by such Holder, commencing on the date that BI fails or refuses to issue the shares of Common Stock in accordance with the Note. (e) Notwithstanding the foregoing, in no event shall the Companies be liable for any default payments which arise hereunder solely as a result of the actions (or inactions) of the SEC, any other governmental agency, or NASDAQ with respect to the Common Stock or the Notes. (f) The Companies acknowledge that any failure, refusal or inability by the Companies to perform the obligations described in the foregoing paragraphs (a) through (d) will cause the Holders to suffer damages in an amount that will be difficult to ascertain, including without limitation damages resulting from the loss of liquidity in the Registered Securities and the additional investment risk in holding the Registered Securities. Accordingly, the parties agree, after consulting with counsel, that it is appropriate to include in this Agreement the foregoing provisions for default adjustments in order to compensate the Holders for such damages. (g) The default adjustments and payments provided for above are in addition to and not in lieu or limitation of any other rights the Holders may have at law, in equity or under the terms of the Note and any other relevant agreements, or this Agreement, including without limitation the rights to specific performance. Each Holder shall be entitled to specific performance of any and all obligations of the Companies in connection with the registration rights of the Holders hereunder. 8 9. Contribution. If the indemnification provided for in Sections 4 and 5 ------------ is unavailable to an indemnified party with respect to any losses, claims, damages, actions, liabilities, costs or expenses referred to therein or is insufficient to hold the indemnified party harmless as contemplated therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, actions, liabilities, costs or expenses in such proportion as is appropriate to reflect the relative fault of the Companies, on the one hand, and the Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, actions, liabilities, costs or expenses as well as any other relevant equitable considerations. The relative fault of the Companies, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other factors, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Companies or by the Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, however, that in no event shall the obligation of any indemnifying - -------- ------- party to contribute under this Section 9 exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under Sections 4 or 5 hereof had been available under the circumstances. The Companies and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. No indemnified party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation. The obligation of the parties under this Section 9 shall survive the completion of any offering of Registered Securities pursuant to the Registration Statement and the termination of this Agreement. 10. Certificates. All certificates evidencing shares of Common Stock and ------------ the Notes issued to the Holders shall be delivered free of any legends or stop transfer restrictions. 11. Amendments and Waivers. The provisions of this Agreement may not be ---------------------- amended, modified or supplemented without the prior written consent of each of the Companies and each Holder that holds in excess of 5% of the outstanding shares of Common Stock or principal amount of the Notes, provided that each Holder shall receive prompt notice of such amendment or modification. 12. Notices. Except as set forth below, all notices and other ------- communications provided for or permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telex or telecopier, registered or certified mail (return 9 receipt requested), postage prepaid or courier or overnight delivery service to the Companies at the following addresses and to the Holder at the address set forth on his or her signature page to this Agreement (or at such other address for any party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof), and further provided that in case of notifications to amend the Registration Statement pursuant to Sections 2(b) or 2(c) or notifications pursuant to Sections 2(e) or 5, the sender must confirm such notice in writing by overnight express delivery: If to BI or BSI: Bradlees, Inc. Bradlees Stores, Inc. One Bradlees Circle Braintree, MA 02184 Attn: Peter Thorner, Chief Executive Officer David Schmitt, Senior Vice President and General Counsel Telephone: (781) 380-3000 Telecopy: (781) 380-8096 With a copy to: Goodwin, Procter & Hoar LLP Exchange Place Boston, MA 02109 Attn: Raymond C. Zemlin, P.C. Telephone: (617) 570-1000 Telecopy: (617) 523-1231 13. Successors and Assigns. This Agreement shall be binding upon and ---------------------- inure to the benefit of the successors and assigns of the Companies. This Agreement may not be assigned by any Holder other than as permitted by Section 16 and any attempted assignment hereof by any Holder other than as permitted by Section 16 will be void and of no effect and shall terminate all obligations of the Companies hereunder with respect to such Holder. 14. Information by Holders. Each Holder shall furnish to the Companies ---------------------- such information regarding such Holder and the distribution and/or sale proposed by such Holder as the Companies may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. If necessary for the Holder to effect such disposition and/or sale covering the Registered Securities, the intended method or methods of disposition and/or sale of such securities as so provided by such Holder shall be included without alteration in the Registration Statement and shall not be changed without written consent of such Holder. 15. Replacement Certificates. The certificate(s) representing the shares ------------------------ of Common Stock held by any Holder may be exchanged by such Holder at any time and from time to time 10 for certificates with different denominations representing an equal aggregate number of shares of Common Stock, as reasonably requested by such Holder upon surrendering the same. No service charge will be made for such registration or transfer or exchange. 16. Transfer or Assignment. Except as otherwise provided herein, this ---------------------- Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The rights granted to the Holders by the Companies under this Agreement may only be transferred or assigned (in whole or in part) to a transferee or assignee of Registered Securities that receives an amount of Registered Securities equal to at least 50,000 shares of Common Stock of BI (or, in the case of Notes after February 2, 2000, which are convertible into at least 50,000 shares of Common Stock of BI; or in the case of the Notes prior to February 2, 2000, a principal amount of Notes equal to $250,000); provided that the Companies must be given written notice by such Holder at the time of or within a reasonable time after said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further that the transferee or assignee of such rights agrees in writing to be bound by the registration provisions of this Agreement. 17. Miscellaneous. ------------- (a) Remedies. The Companies and the Holders acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions thereof, in addition to any other remedy to which any of them may be entitled by law or equity. (b) Jurisdiction. The Companies and each of the Holders (i) hereby irrevocably submit to the exclusive jurisdiction of the United States District Court, the Massachusetts State Courts and other courts of the United States sitting in Boston, Massachusetts for the purposes of any suit, action or proceeding arising out of or relating to this Agreement and (ii) hereby waive, and agree not to assert in any such suit action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. The Companies and each of the Holders consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agree that such service shall constitute good and sufficient serve of process and notice thereof. Nothing in this paragraph shall affect or limit any right to serve process in any other manner permitted by law. (c) Waivers. No waiver by any party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a 11 continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. (d) Severability. The parties acknowledge and agree that the Holders are not agents, affiliates or partners of each other, that all representations, warranties, covenants and agreements of the Holders hereunder are several and not joint, that no Holder shall have any responsibility or liability for the representations, warrants, agreements, acts or omissions of any other Holder, and that any rights granted to "Holders" hereunder shall be enforceable by each Holder hereunder. (e) Titles. The titles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement. (f) No Strict Construction. The language used in this Agreement will be deemed to be the language chose by the parties to express their mutual intent, and no rule of strict consideration will be applied against any party. (g) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY. 18. Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 19. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of The Commonwealth of Massachusetts applicable to contracts made and to be performed wholly within said Commonwealth. 20. Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. 21. Entire Agreement. This Agreement is intended by the parties as a ---------------- final expression of their agreement and intended to be the complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein, with respect to such subject matter. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 12 [Remainder of Page Intentionally Left Blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. BRADLEES, INC. /s/ ---------------------------------------------- Name: Title: BRADLEES STORES, INC. /s/ ---------------------------------------------- Name: Title: 13 Registration Rights Agreement Holder Signature Page HOLDER /s/ ---------------------------------------------- Name: Address for Notice: ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- 14 EX-10.41 13 REVOLVING CREDIT AND GUARANTY AGREEMENT Exhibit 10.41 [EXECUTION COPY] ================================================================================ REVOLVING CREDIT AND GUARANTY AGREEMENT ================================================================================ Among BRADLEES STORES, INC., as Borrower, ----------- BRADLEES, INC., and EACH OF THE SUBSIDIARIES OF THE BORROWER OR BRADLEES, INC., NAMED HEREIN, each as a Guarantor, ------------------- THE LENDERS PARTY HERETO, BANKBOSTON, N.A., as Administrative Agent, as Issuing Bank and as Tranche B Agent, --------------------------------------------------------------- BANKBOSTON RETAIL FINANCE, INC., as Collateral Agent, ------------------- THE CIT GROUP/BUSINESS CREDIT INC. and CONGRESS FINANCIAL CORPORATION (NEW ENGLAND), each as Co-Agent ---------------- ================================================================================ Dated as of February 2, 1999 ================================================================================ TABLE OF CONTENTS
PAGE INTRODUCTORY STATEMENT............................................................................... 1 I. DEFINITIONS..................................................................................... 2 SECTION 1.01. Defined Terms................................................................... 2 SECTION 1.02. Terms Generally................................................................. 25 II. AMOUNT AND TERMS OF CREDIT...................................................................... 25 SECTION 2.01. Commitment of the Lenders....................................................... 25 SECTION 2.02. Letters of Credit............................................................... 27 SECTION 2.03. Making of Loans................................................................. 30 SECTION 2.04. Notes; Repayment of Loans....................................................... 32 SECTION 2.05. Interest on Loans............................................................... 33 SECTION 2.06. Default Interest................................................................ 34 SECTION 2.07. Optional Termination or Reduction of Commitments................................ 34 SECTION 2.08. Alternate Rate of Interest...................................................... 35 SECTION 2.09. Refinancing of Loans............................................................ 35 SECTION 2.10. Mandatory Prepayment; Commitment Termination; Cash Collateral................... 36 SECTION 2.11. Optional Prepayment of Loans; Reimbursement of Lenders.......................... 37 SECTION 2.12. Maintenance of Loan Account; Statements of Account.............................. 39 SECTION 2.13. Cash Receipts................................................................... 39 SECTION 2.14. Application of Payments......................................................... 41 SECTION 2.15. Increased Costs................................................................. 42 SECTION 2.16. Change in Legality.............................................................. 43 SECTION 2.17. Payments; No Setoff............................................................. 44 SECTION 2.18. Taxes........................................................................... 44 SECTION 2.19. Certain Fees.................................................................... 47 SECTION 2.20. Unused Commitment Fee........................................................... 47 SECTION 2.21. Letter of Credit Fees........................................................... 48 SECTION 2.22. Nature of Fees.................................................................. 48 SECTION 2.23. Security Interest in Collateral................................................. 48 SECTION 2.24. Right of Set-Off................................................................ 48 SECTION 2.25. Security Interest in Bank Accounts.............................................. 49 SECTION 2.26. Payment of Obligations.......................................................... 49 III. REPRESENTATIONS AND WARRANTIES.................................................................. 49 SECTION 3.01. Organization and Authority...................................................... 49 SECTION 3.02. Due Execution................................................................... 50 SECTION 3.03. Statements Made................................................................. 50 SECTION 3.04. Ownership....................................................................... 50 SECTION 3.05. Financial Statements and Bankruptcy Court Filings............................... 50 SECTION 3.06. Liens........................................................................... 51 SECTION 3.07. Compliance with Law............................................................. 52 SECTION 3.08. Insurance....................................................................... 52 SECTION 3.09. The Confirmation Order.......................................................... 53 SECTION 3.10. Use of Proceeds................................................................. 53
SECTION 3.11. Store Locations; Bank Accounts; Inventory................................................. 54 SECTION 3.12. Litigation and Claims..................................................................... 54 SECTION 3.13. Material Adverse Change................................................................... 55 SECTION 3.14. Payment of Obligations.................................................................... 55 SECTION 3.15. Taxes and Tax Returns..................................................................... 55 SECTION 3.16. Franchises, Licenses, Permits, Leases, Patents, Copyrights, Trademarks and Trade Names.... 55 SECTION 3.17. Labor Matters............................................................................. 56 SECTION 3.18. ERISA..................................................................................... 56 SECTION 3.19. Accounts Receivable Financing............................................................. 57 SECTION 3.20. Investment Company: Holding Company....................................................... 57 SECTION 3.21. Year 2000................................................................................. 58 IV. CONDITIONS OF LENDING..................................................................................... 58 SECTION 4.01. Conditions Precedent to Initial Loans and Initial Letters of Credit....................... 58 SECTION 4.02. Conditions Precedent to Each Tranche A Loan and Each Letter of Credit..................... 65 SECTION 4.03. Conditions Precedent to Each Tranche B Loan............................................... 66 V. AFFIRMATIVE COVENANTS..................................................................................... 67 SECTION 5.01. Financial Statements, Reports, etc........................................................ 67 SECTION 5.02. Corporate Existence....................................................................... 69 SECTION 5.03. Insurance................................................................................. 69 SECTION 5.04. Obligations and Taxes..................................................................... 70 SECTION 5.05. Notice of Event of Default, etc........................................................... 71 SECTION 5.06. Borrowing Base Certificate................................................................ 71 SECTION 5.07. Access to Books and Records; Inspections.................................................. 71 SECTION 5.08. Fees...................................................................................... 72 SECTION 5.09. Projections; Business Plan................................................................ 72 SECTION 5.10. ERISA..................................................................................... 72 SECTION 5.11. Environmental and Other Matters........................................................... 72 SECTION 5.12. Maintain Cash Concentration System........................................................ 73 SECTION 5.13. Maintain Security Interest................................................................ 73 SECTION 5.14. Collateral Access Agreements.............................................................. 73 SECTION 5.15. Inventory................................................................................. 74 SECTION 5.16. Further Assurances........................................................................ 74 SECTION 5.17. Use of Proceeds........................................................................... 74 SECTION 5.18. Permitted Note Debt and Trade Lien Debt................................................... 74 SECTION 5.19. Yonkers................................................................................... 74 SECTION 5.20. Mortgagee Waivers......................................................................... 74 VI. NEGATIVE COVENANTS........................................................................................ 75 SECTION 6.01. Liens..................................................................................... 75 SECTION 6.02. Merger, etc............................................................................... 75 SECTION 6.03. Indebtedness.............................................................................. 75 SECTION 6.04. Capital Expenditures...................................................................... 76 SECTION 6.05. EBITDA.................................................................................... 76 SECTION 6.06. Accounts Payable to Inventory Ratio....................................................... 76 SECTION 6.07. Debt Coverage Ratio....................................................................... 77
SECTION 6.08. Guarantees and Other Liabilities.............................. 77 SECTION 6.09. Dividends; Capital Stock...................................... 77 SECTION 6.10. Transactions with Affiliates.................................. 77 SECTION 6.11. Investments, Loans and Advances............................... 78 SECTION 6.12. Disposition of Assets......................................... 78 SECTION 6.13. Nature of Business............................................ 78 SECTION 6.14. Conflicting Agreements or Actions............................. 78 SECTION 6.15. Prepayments and Amendment of Debt Documents................... 79 SECTION 6.16. Amendments to Credit Plan Agreement........................... 80 VII. EVENTS OF DEFAULT.............................................................. 80 SECTION 7.01. Events of Default............................................. 80 SECTION 7.02. Events of Super-Default....................................... 84 SECTION 7.03. When Continuing............................................... 85 VIII. THE AGENTS.................................................................... 85 SECTION 8.01. Administration by Administrative Agent........................ 85 SECTION 8.02. The Collateral Agent.......................................... 86 SECTION 8.03. Advances and Payments......................................... 86 SECTION 8.04. Sharing of Excess Payments.................................... 86 SECTION 8.05. Agreement of Required Lenders................................. 87 SECTION 8.06. Liability of Agents........................................... 88 SECTION 8.07. Reimbursement and Indemnification............................. 88 SECTION 8.08. Rights of Agents.............................................. 89 SECTION 8.09. Independent Lenders and Issuing Bank.......................... 89 SECTION 8.10. Notice of Transfer............................................ 89 SECTION 8.11. Successor Administrative Agent and Tranche B Agent............ 89 SECTION 8.12. Reports and Financial Statements.............................. 90 IX. GUARANTY........................................................................ 90 SECTION 9.01. Guaranty...................................................... 90 SECTION 9.02. No Impairment of Guaranty..................................... 92 SECTION 9.03. Subrogation................................................... 92 SECTION 9.04. Credit Agreement.............................................. 92 SECTION 9.05. Maximum Guaranteed Amount..................................... 92 SECTION 9.06. Release of Yonkers Guarantee and Liens........................ 92 X. MISCELLANEOUS.................................................................... 93 SECTION 10.01. Notices...................................................... 93 SECTION 10.02. Survival of Agreement, Representations and Warranties, etc... 93 SECTION 10.03. Successors and Assigns....................................... 93 SECTION 10.04. Confidentiality.............................................. 97 SECTION 10.05. Expenses; Documentary Taxes.................................. 97 SECTION 10.06. Indemnity.................................................... 98 SECTION 10.07. CHOICE OF LAW................................................ 98 SECTION 10.08. No Waiver.................................................... 98 SECTION 10.09. Extension of Maturity........................................ 98 SECTION 10.10. Amendments, etc.............................................. 99 SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER........................... 100 SECTION 10.12. Severability................................................. 101
SECTION 10.13. Headings..................................................... 101 SECTION 10.14. Execution in Counterparts.................................... 101 SECTION 10.15. Prior Agreements............................................. 101 SECTION 10.16. Further Assurances........................................... 102 SECTION 10.17. Master Lease Agreement....................................... 102 SECTION 10.18. WAIVER OF JURY TRIAL......................................... 102
ANNEXES Annex A Commitment Amounts EXHIBITS Exhibit A-1 Form of Borrowing Base Certificate (Weekly) Exhibit A-2 Form of Borrowing Base Certificate (Monthly) Exhibit B-1 Form of Tranche A Note Exhibit B-2 Form of Agent Advance Note Exhibit B-3 Form of Tranche B Note Exhibit C-1 Form of Confirmation Order Exhibit C-2 Form of Yonkers Confirmation Order Exhibit D-1 Form of Opinion of Dewey Ballantine LLP Exhibit D-2 Form of Opinion of Borrower's Massachusetts Counsel Exhibit D-3 Form of Opinion of Borrower's Connecticut Counsel Exhibit D-4 Form of Opinion of Borrower's New Jersey Counsel Exhibit E Form of Security Agreement Exhibit F Form of Trademark Security Agreement Exhibit G BTM Stipulation Exhibit H Form of Compliance Certificate SCHEDULES Schedule 1.01(a) Additional Collateral Schedule 1.01(b) Actuarial Methods and Assumptions Schedule 2.02(i) Existing Letters of Credit Schedule 2.13(a) Cash Deposit Procedures (Depository Accounts) Schedule 2.13(e) Coin Orders Accounts Procedures Schedule 3.01 Jurisdictions of Qualification Schedule 3.04 Subsidiaries Schedule 3.10 Sources and Uses of Funds Schedule 3.11(a) Location of Stores, Warehouses and Distribution Centers (Inventory Locations) Schedule 3.11(b) Bank Accounts and Cash Baskets Schedule 3.11(c) Assets of Guarantors Schedule 3.12 Claims and Pending Litigation Schedule 3.18 ERISA Plans Schedule 4.01(bb) Closing Documents List ATTACHMENTS Attachment I Terms of CAP Notes Attachment II Terms of Cure Notes Attachment III Terms of New Notes Attachment IV Terms of Trade Lien REVOLVING CREDIT AND GUARANTY AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement"), dated as of February 2, --------- 1999, among reorganized BRADLEES STORES, INC., a Massachusetts corporation (the "Borrower"), reorganized BRADLEES, INC., a Massachusetts corporation ("BI"), and -------- -- each of the other guarantors listed in Schedule 3.04 (together with BI, each a "Guarantor" and collectively, the "Guarantors"), the Lenders named on Annex A - ---------- ---------- hereto and each other Person from time to time party hereto as a Lender, BANKBOSTON, N.A., a national banking association ("BBNA"), as the issuer of ---- Letters of Credit (in such capacity, together with any successor issuer of Letters of Credit hereunder, the "Issuing Bank"), as administrative agent for ------------ the Issuing Bank, the Collateral Agent, the Tranche B Agent and the Lenders (in such capacity, the "Administrative Agent"), and as agent for the Tranche B -------------------- Lenders (in such capacity, the "Tranche B Agent"), BANKBOSTON RETAIL FINANCE, --------------- INC., a subsidiary of BBNA ("BBRF"), as collateral agent (in such capacity, the ---- "Collateral Agent"), and THE CIT GROUP/BUSINESS CREDIT, INC. and CONGRESS ---------------- FINANCIAL CORPORATION (NEW ENGLAND), each as co-agents (collectively, the "Co- --- Agents"). - ------ INTRODUCTORY STATEMENT On June 23, 1995, Bradlees Stores, Inc., Bradlees, Inc., and certain affiliated entities (collectively, the "Debtors") filed voluntary petitions with ------- the Bankruptcy Court, each initiating a case under Chapter 11 of the Bankruptcy Code (the cases of the Debtors, each a "Case" and collectively, the "Cases"), ---- ----- and have continued in the possession of their assets and in the management of their businesses pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The Debtors currently are parties to a $250,000,000 debtor-in-possession Revolving Credit and Guaranty Agreement (as amended, the "Existing Credit Facility"), ------------------------ dated as of December 23, 1997, with certain of the Lenders, the Issuing Bank, the Administrative Agent, the Co-Agents and the Collateral Agent. On January 27, 1999 (the "Confirmation Date"), the Bankruptcy Court ----------------- confirmed the Debtors' Second Amended Joint Plan of Reorganization of Bradlees Stores, Inc. and Affiliates Under Chapter 11 of the Bankruptcy Code (as amended with the written consent of the Administrative Agent, the "Confirmed Plan"). As -------------- part of the implementation of the Confirmed Plan, the Debtors on behalf of the Borrower have applied to the Lenders and the Issuing Bank for a revolving credit and letter of credit facility in an aggregate principal amount not to exceed $270,000,000, all of the Borrower's obligations under which are to be guaranteed by the Guarantors and secured by substantially all assets (other than Real Property (as defined below)) of the Borrower and the Guarantors (other than the Yonkers Common Stock Collateral). The extensions of credit hereunder will be used, first, to repay in full all amounts outstanding under the Existing Credit Facility and thereafter to provide working capital for and to finance Inventory purchases by the Borrower and otherwise for general corporate purposes. Accordingly, the parties hereto hereby agree as follows: I. DEFINITIONS SECTION 1.01. DEFINED TERMS. ------------- As used in this Agreement, the following terms shall have the meanings specified below: "ABR Loan" shall mean any Tranche A Loan bearing interest at a rate -------- determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Accounts Payable" shall mean amounts owing by the Borrower on open account ---------------- to creditors for purchases of goods and services, determined on a consolidated basis pursuant to GAAP. "Additional Collateral" shall mean the Borrower's leasehold interest in --------------------- those of its leases listed on Schedule 1.01(a) and any replacements of such leases as provided in the New Notes Indenture (provided that any such replacements shall not cause the aggregate appraised value of the Additional Collateral to exceed $10,500,000, subject to adjustments deemed appropriate by the Administrative Agent). "Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar Borrowing ------------------- for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the quotient of (a) the LIBOR Rate in effect for such Interest Period divided by (b) a percentage (expressed as a decimal) equal to 100% minus Statutory Reserves. "Administrative Agent" shall have the meaning set forth in the first -------------------- paragraph of this Agreement. "Affiliate" shall mean, as to any Person, any other Person which, directly --------- or indirectly, is in control of, is controlled by, or is under common control with such Person. For purposes of this definition, a Person (a "Controlled ---------- Person") shall be deemed to be "controlled by" another Person (a "Controlling - ------ ----------- Person") if the Controlling Person possesses, directly or indirectly, power to - ------ direct or cause the direction of the management and policies of the Controlled Person whether by contract or otherwise. "Agent Advance" shall mean a Tranche A Loan or a Tranche B Loan made by the ------------- Administrative Agent to the Borrower pursuant to Section 2.03(c) hereof. "Agents" shall mean, collectively, the Administrative Agent, the Collateral ------ Agent and the Tranche B Agent. "Agreement" shall mean this Revolving Credit and Guaranty Agreement, as the --------- same may from time to time be amended, modified or supplemented. "Alternate Base Rate" shall mean, for any day, the higher of (a) the annual ------------------- rate of interest then most recently announced by BBNA at its head office in Boston, Massachusetts as its "Base 2 Rate" and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% (0.50%) per annum. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations thereof in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in BBNA's Base Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in BBNA's Base Rate or the Federal Funds Effective Rate, respectively. "Amounts" shall have the meaning set forth in Section 2.18(a). ------- "Appraised Value" shall have the meaning set forth in the definition of --------------- "Loan to Value Ratio." "Assignment and Acceptance" shall mean an assignment and acceptance entered ------------------------- into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in a form supplied by the Administrative Agent. "Bankruptcy Code" shall mean The Bankruptcy Reform Act of 1978, codified as --------------- 11 U.S.C. Section 101 et seq., as heretofore and hereafter amended from time to time, and any successor act or statute. "Bankruptcy Court" shall mean the United States Bankruptcy Court for the ---------------- Southern District of New York, or any other court having jurisdiction over the Cases. "Base Advance Rate" shall have the meaning set forth in the definition of ----------------- "Borrowing Base." "BBNA" shall have the meaning set forth in the first paragraph of this ---- Agreement. "BBNA Concentration Account" shall have the meaning set forth in Section -------------------------- 2.13(a). "BBNA Disbursement Accounts" shall have the meaning set forth in Section -------------------------- 2.13(d). "BBRF" shall have the meaning set forth in the first paragraph of this ---- Agreement. "BI" shall have the meaning set forth in the first paragraph of this -- Agreement. "Blocked Account Agreements" has the meaning set forth in Section 2.13(a). -------------------------- "Blocked Account Banks" shall mean the banks with whom the Borrower has --------------------- entered into Blocked Account Agreements. "Blocked Accounts" shall have the meaning set forth in Section 2.13(a). ---------------- 3 "Board" shall mean the Board of Governors of the Federal Reserve System of ----- the United States. "Borrowing" shall mean the incurrence of Loans of a single Type made from --------- all the Tranche A Lenders or Tranche B Lenders, as the case may be, on a single date and having, in the case of Eurodollar Loans, a single Interest Period (with any ABR Loan made pursuant to Section 2.16 being considered a part of the related Borrowing of Eurodollar Loans). "Borrowing Base" shall mean, on any day, an amount equal to (a) 80% of the -------------- then Loan Value of the then Eligible Receivables, plus (b) 72% (the "Base ---- ---- Advance Rate") of the then Loan Value of Eligible Inventory plus (without - ------------ duplication) 72% of the lesser of (i) the then Loan Value of Eligible LC Inventory and (ii) the then applicable Eligible LC Inventory Sublimit (provided -------- that, in no event shall the calculation under this clause (b) result in a Loan to Value Ratio in excess of 80%), plus (c) the Overadvance Amount, if any, minus ---- ----- (d) the then amount of all Borrowing Base Reserves. "Borrowing Base Certificate" shall mean a certificate substantially in the -------------------------- form of Exhibit A-1 or, in the case of the first Borrowing Base Certificate that is delivered after the close of each of the Borrower's fiscal months, Exhibit A- 2 (in each case with such changes therein as may be required by the Administrative Agent to reflect the components of, and reserves against, the Borrowing Base and the Tranche B Borrowing Base as provided for hereunder from time to time), executed and certified by a Financial Officer of the Borrower, which shall include appropriate exhibits and schedules as referred to therein. "Borrowing Base Reserves" shall mean such reserves against the Borrowing ----------------------- Base and the Tranche B Borrowing Base as the Administrative Agent from time to time may elect (with the consent of the Tranche B Agent), in its reasonable discretion and on seven (7) days' notice to the Borrower, to apply for purposes of determining the Borrowing Base and the Tranche B Borrowing Base on account of any matter, contingency or risk which the Administrative Agent may in good faith deem potentially material to the prospect of payment of the Credit Extensions, including (by way solely of illustration and without in any manner limiting the Administrative Agent's right to apply a reserve on account of any other matter, contingency or risk, whether similar or not) such items as the Customer Credits Reserve. "Breakage Costs" shall have the meaning set forth in Section 2.11(b). -------------- "BRS" shall mean BancBoston Robertson Stephens (f/k/a BancBoston Securities --- Inc.). "Business Day" shall mean any day other than a Saturday, Sunday or other ------------ day on which banks in the State of New York or the Commonwealth of Massachusetts are required or permitted to close (and, for a Letter of Credit, other than a day on which the bank issuing such Letter of Credit is closed); provided, -------- however, that when used in connection with a Eurodollar Loan, the term "Business - ------- Day" shall also exclude any day on which banks are not open for dealings in dollar deposits on the London interbank market. 4 "Business Plan" shall mean a three year business plan prepared by the ------------- Borrower on or about September 1998 setting forth the business objectives for the Credit Parties for the 1998, 1999 and 2000 fiscal years, which plan includes, among other things: for the first fiscal year, a monthly, and for the following two fiscal years, a yearly (i) balance sheet, (ii) income statement, and (iii) statement of cash flows. "CAP Notes" shall mean the Borrower's notes (i) in an aggregate principal --------- amount not to exceed $628,000 in favor of the holder of the Class BSI-CAP Claim and (ii) with terms as set forth on Attachment I hereto and incorporated herein ------------ and otherwise in form and substance reasonably satisfactory to the Administrative Agent. "Capital Expenditures" shall mean, for any period, the aggregate of all -------------------- expenditures (whether paid in cash or accrued as liabilities during such period and excluding that portion of Capitalized Leases which is capitalized on the consolidated balance sheet of the Credit Parties by the Credit Parties during such period that, in conformity with GAAP, are required to be included in or reflected by the property, plant, equipment or intangibles or similar fixed asset accounts reflected in the consolidated balance sheet of the Credit Parties net of cash amounts received during such period in reimbursement of Capital Expenditures made by the Credit Parties, excluding interest capitalized during construction, by the Credit Parties during such period that, in conformity with GAAP, are required to be included in or reflected by the property, plant, equipment or intangibles or similar fixed asset accounts reflected in the consolidated balance sheet of the Credit Parties (including equipment which is purchased simultaneously with the trade-in of existing equipment owned by the Borrower or any of the other Credit Parties to the extent of the gross amount of such purchase price less the book value of the equipment being traded in at such time), but excluding expenditures made in connection with the replacement or restoration of assets to the extent reimbursed or financed from insurance proceeds paid on account of the loss of or the damage to the assets being replaced or restored, or from awards of compensation arising from the taking by condemnation or eminent domain of such assets being replaced. "Capitalized Lease" shall mean, as applied to any Person, any lease of ----------------- property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Cases" shall have the meaning set forth in the introductory statement of ----- this Agreement. "Cash Collateral Account" shall mean an interest-bearing account ----------------------- established by the Borrower with the Administrative Agent at BBNA under the sole and exclusive dominion and control of the Administrative Agent at the office of BBNA at 100 Federal Street, Boston, Massachusetts 02110 designated as the "Bradlees Stores, Inc., Cash Collateral Account" that shall be used solely for the purposes set forth in Sections 2.02, 2.10(a) and 2.14. "Cash Receipts" shall have the meaning set forth in Section 2.13(a). ------------- 5 "Change of Control" shall mean one or more of the following events: (a) a ----------------- Person or group of Persons (within the meaning of Rule 13d-S under the Securities Exchange Act of 1934, as amended) (other than Gabriel and Elliott and their respective Affiliates) shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become the direct or indirect beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of BI representing more than 30% (or, in the case only of direct purchasers from Gabriel or Elliott of shares of voting securities of BI owned by Gabriel or Elliott on the Plan Effective Date, 50%) of the combined voting power of the outstanding voting securities for the election of the directors or shall have the right to elect a majority of the Board of Directors of BI; or (b) less than a majority of the members of BI's Board of Directors then in office shall be persons who either (i) were serving as directors on the Plan Effective Date or (ii) were nominated as directors and approved by the vote of the majority of the directors who are directors referred to in clause (i) above or this clause (ii). "Class BSI-CAP Claim" shall have the meaning set forth in the Confirmed ------------------- Plan. "Closing Date" shall mean the date on which this Agreement has been ------------ executed and the conditions precedent to the making of the initial Loans set forth in Sections 4.01 and 4.02 have been satisfied or waived in writing by the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Required Lenders and the Required Tranche B Lenders, which date shall occur on or within one (1) Business Day after the Plan Effective Date (provided that all conditions precedent set forth in Sections 4.01 and 4.02 have been satisfied or waived as provided above). "Closing Documents List" shall mean the list of required closing documents ---------------------- attached hereto as Schedule 4.01(bb). "Co-Agents" shall have the meaning set forth in the first paragraph of this --------- Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any ---- regulation promulgated thereunder. "Coin Orders Accounts" shall have the meaning set forth in Section 2.13(e). -------------------- "Collateral" shall mean any and all assets, properties, and rights of the ---------- Credit Parties pledged from time to time pursuant hereto or to the Security Documents as security for the Obligations, which shall include, without limitation, substantially all existing and after-acquired assets, properties and rights of the Credit Parties (other than Real Property and the Yonkers Common Stock Collateral) and all proceeds thereof. "Collateral Access Agreements" shall mean any landlord waivers, mortgagee ---------------------------- waivers, bailee letters or any similar acknowledgment agreements of any warehouseman or processor in possession of Inventory of the Borrower or any other Credit Party, in form and substance reasonably satisfactory to the Collateral Agent. 6 "Collateral Agent" shall have the meaning set forth in the first paragraph ---------------- of this Agreement. "Commitment" shall mean, with respect to each Lender, the aggregate ---------- commitment of such Lender hereunder (for both Tranche A Loans and Tranche B Loans) in the amount set forth opposite its name on Annex A hereto or as may subsequently be set forth in the Register from time to time, as the same may be reduced from time to time pursuant to Section 2.07. "Commitment Fee" shall have the meaning set forth in Section 2.20. -------------- "Commitment Percentage" shall mean at any time, with respect to each --------------------- Lender, the percentage obtained by dividing the aggregate of its Tranche A Commitment and its Tranche B Commitment at such time by the Total Commitment at such time. "Confirmation Date" shall have the meaning set forth in the introductory ----------------- statement of this Agreement. "Confirmation Order" shall mean an order of the Bankruptcy Court confirming ------------------ the Confirmed Plan (other than with respect to Yonkers) pursuant to sections 1128 and 1129 of the Bankruptcy Code. "Confirmed Plan" shall have the meaning set forth in the introductory -------------- statement of this Agreement. "Consent Fee" shall have the meaning set forth in subsection 4.01(k). ----------- "Credit Card Obligor" shall mean any of Chase Merchant Services, L.L.C., ------------------- Novus Services, Inc., American Express Travel Related Services Company, Inc., Citibank (South Dakota), N.A. and Citicorp Retail Services, Inc., and any other Person acceptable to the Administrative Agent in its sole discretion, provided that each of the above entities and each such other Person has executed and delivered to the Administrative Agent a Payment Direction Agreement with respect to the Receivables due to the Borrower from such Obligor. "Credit Extensions" shall be equal, as of any day, to the sum of (a) the ----------------- principal balance of all Loans then outstanding, and (b) the then amount of the Letter of Credit Outstandings. "Credit Parties" shall mean the Borrower, the Guarantors and any other -------------- Subsidiary of BI or the Borrower that becomes a party to any Loan Document. "Credit Plan Agreement" shall mean that certain Credit Plan Agreement dated --------------------- as of July 31, 1998, among Bradlees Stores, Inc., Bradlees, Inc., and Citibank (South Dakota), N.A. "Cure Notes" shall mean the Borrower's notes (i) in an aggregate principal ---------- amount not to exceed $3,500,000 in favor of non-Debtor parties to executory contracts that are to be assumed pursuant to the Confirmed Plan for the purpose of paying "cure amounts" as required by Section 7 365 of the Bankruptcy Code and (ii) with terms as set forth on Attachment II ------------- hereto and incorporated herein and otherwise in form and substance reasonably satisfactory to the Administrative Agent. "Customer Credits Reserve" shall mean a reserve established by the ------------------------ Administrative Agent from time to time in an amount equal to the sum of (i) fifty percent (50%) of the dollar value of gift certificates outstanding and (ii) fifty percent (50%) of the dollar value of customer merchandise credits. "Debtors" shall have the meaning set forth in the introductory statement of ------- this Agreement. "Default" shall mean any event which, upon the giving of any notice and/or ------- the lapse of any period of time expressly set forth in Section 7.01, 7.02 or 7.03, would constitute an Event of Default or Event of Super-Default, as applicable. "Dollars" and "$" shall mean lawful money of the United States of America. ------- - "Dostra" shall mean reorganized Dostra Realty Co., Inc., a Massachusetts ------ corporation. "EBITDA" shall mean, for any period, all as determined in accordance with ------ GAAP, the net income (or net loss) of the Borrower for such period, plus (to the ---- extent taken into account in determining such net income or net loss) (a) the sum of (i) depreciation expense, (ii) amortization expense, (iii) provision for LIFO adjustment for Inventory valuation, (iv) net total Federal, state and local income tax expense, (v) gross interest expense for such period less gross interest income for such period, (vi) any non-recurring charge or restructuring charge which in accordance with GAAP is excluded from operating income, (vii) the cumulative effect of any change in accounting principles, (viii) extraordinary losses and (ix) "Chapter 11 expenses" (or "administrative costs reflecting Chapter 11 expenses") as shown on the Borrower's statement of income for such period, minus (b) extraordinary gains, and plus (c) the amount of cash ----- ---- received (and minus the amount of cash expended) in such period in respect of any amount which, under clause (vi) above, was taken into account in determining EBITDA for such or any prior period. "Eligible Assignee" shall mean (a) a commercial bank having total assets in ----------------- excess of $500,000,000, (b) a finance company, insurance company or other financial institution (in each case with total assets in excess of $200,000,000) or fund (with total assets in excess of $50,000,000) reasonably acceptable to the Administrative Agent which in the ordinary course of business extends credit or purchases debt of the type evidenced by the Notes and whose becoming an assignee would not constitute a prohibited transaction under Section 4975 of ERISA, and (c) any other financial institution, fund or other Person reasonably satisfactory to the Administrative Agent and approved by the Borrower, which approval shall not be unreasonably withheld or delayed, and which approval shall not be required upon the occurrence and during the continuance of an Event of Default or an Event of Super-Default. 8 "Eligible Inventory" shall mean, as of the date of determination thereof, ------------------ items of Inventory of the Borrower that are finished goods, merchantable and readily saleable to the public in the ordinary course and goods ("L/C Goods") as --------- to which a documentary Letter of Credit has been issued and which, if in the possession of the Borrower, would be treated as the Borrower's Inventory hereunder, but only if such goods have been consigned to the Issuing Bank or the Borrower (along with delivery to the Issuing Bank or the Borrower, as applicable, of the documents of title with respect thereto), in each case deemed by the Administrative Agent in its reasonable discretion to be eligible for inclusion in the calculation of the Borrowing Base and the Tranche B Borrowing Base. Without limiting the foregoing, unless otherwise approved in writing by the Administrative Agent, none of the following shall be deemed to be Eligible Inventory, and Eligible Inventory shall be reduced by the following: (a) Inventory (other than L/C Goods) that is not owned solely by the Borrower or with respect to which the Borrower does not have good, valid and marketable title, free and clear of any Lien (other than (i) Liens granted to the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, pursuant to the Loan Documents, (ii) Permitted Liens and (iii) the Trade Lien (it being understood that only the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, shall have a first-priority Lien on such Inventory)); (b) Inventory that is not located on, or in transit directly to, property leased by the Borrower or in a contract warehouse or other third party location, in each case, located in the United States and segregated or otherwise separately identifiable from goods of others, if any, stored on the premises; (c) Inventory that is not reflected in the Borrower's stock ledger report, warehouse status report or the "in-transit" account in the general ledger; (d) Inventory that has been returned or rejected by any of the Borrower's customers and which is damaged or defective or to be returned to vendor; (e) Inventory not held for resale in the ordinary course, including samples, publicity, display or demonstration Inventory, packaway Inventory, and piece goods; (f) consigned and leased Inventory; (g) special order Inventory; (h) supplies and packing or shipping materials; (i) Inventory in which the Collateral Agent does not have a first- priority perfected security interest pursuant to the Security Agreement or which is not in transit to a location where the Collateral Agent will immediately have such a first-priority perfected security interest therein; and 9 (j) Inventory reserves that may be required by the Administrative Agent (with the consent of the Tranche B Agent) in the exercise of its reasonable discretion and on 7 days' notice to the Borrower based on a change in the value of the Inventory as determined by the Administrative Agent in its reasonable discretion (including, by way of example, a Shrink Reserve, inventory obsolescence, seasonality, imbalance, change in Inventory character, composition or mix, change in mark-down practices both permanent and point of sale and change in retail mark-on or mark-up practices). "Eligible LC Inventory" shall mean, as of the date of determination --------------------- thereof, documentary Letters of Credit (i) that have been issued with an expiry date within 75 days of such date of determination, (ii) that have been issued for the acquisition by the Borrower of Inventory which would otherwise be Eligible Inventory if owned by the Borrower, and (iii) that may include Letters of Credit issued as described in the third paragraph of the Introductory Statement above, so long as such Letter of Credit would otherwise satisfy the requirements hereof. "Eligible LC Inventory Sublimit" shall mean, for any fiscal month of the ------------------------------ Borrower, the dollar amount set forth opposite such fiscal month below:
Month Eligible LC Inventory Sublimit ----- ----------------------------- January $20,000,000 February $20,000,000 March $20,000,000 April $24,000,000 May $33,000,000 June $34,000,000 July $35,000,000 August $38,000,000 September $30,000,000 October $20,000,000 November $20,000,000 December $20,000,000
"Eligible Receivables" shall mean, as of the date of determination thereof, -------------------- Receivables of the Borrower payable in Dollars and deemed by the Administrative Agent in its reasonable discretion (with the consent of the Tranche B Agent, which consent shall not be unreasonably withheld) to be eligible for inclusion in the calculation of the Borrowing Base. Without limiting the foregoing, unless otherwise approved in writing by the Administrative Agent, none of the following shall be deemed to be Eligible Receivables: (a) Receivables that have been outstanding for more than 5 Business Days from the due date; 10 (b) Receivables not owned solely by the Borrower or with respect to which the Borrower does not have good, valid and marketable title thereto, free and clear of any Lien (other than (i) Liens granted to the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, pursuant to the Loan Documents and (ii) Permitted Liens (it being understood that only the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, shall have a first-priority Lien on such Receivables)); (c) Receivables which the Administrative Agent determines in its reasonable discretion (with the consent of the Tranche B Agent) to be uncertain of collection; and (d) with respect to Receivables created under the Credit Plan Agreement, a notice of termination has been delivered thereunder. "Elliott" shall mean, collectively, Elliott Associates, L.P. and Westgate ------- International, L.P. "Environmental Lien" shall mean a Lien in favor of any Governmental ------------------ Authority for (i) any liability under federal or state environmental laws or regulations, or (ii) damages arising from or costs incurred by such Governmental Authority in response to a release or threatened release of a hazardous or toxic waste, substance or constituent, or other substance into the environment. "Equity Interests" shall mean any and all shares, interests, participations ---------------- or other equivalents (however designated) of capital stock in a corporation and all warrants or options to purchase any of the foregoing. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as ----- amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" shall mean any trade or business (whether or not --------------- incorporated) which is a member of a group of which the Borrower is a member and which is under common control within the meaning of Section 414(b) or (c) of the Code and the regulations promulgated and rulings issued thereunder. "Escrow Proceeds" shall have the meaning set forth in Section 2.13(c). --------------- "Eurocurrency Liabilities" shall have the meaning assigned thereto in ------------------------ Regulation D issued by the Board, as in effect from time to time. "Eurodollar Applicable Margin" shall mean 2.25% per annum. ---------------------------- "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar -------------------- Loans. "Eurodollar Interest Rate" shall have the meaning set forth in Section ------------------------ 2.05(b). "Eurodollar Loan" shall mean any Tranche A Loan bearing interest at a rate --------------- determined by reference to the Adjusted LIBOR Rate in accordance with the provisions of Article II. 11 "Event of Default" shall have the meaning set forth in Section 7.01. ---------------- "Event of Super-Default" shall have the meaning set forth in Section 7.02. ---------------------- "Existing Credit Facility" shall have the meaning set forth in the ------------------------ introductory statement of this Agreement. "Existing Eurodollar Loans" shall have the meaning set forth in subsection ------------------------- 2.03(e). "Federal Funds Effective Rate" shall mean, for any day, the rate per annum ---------------------------- equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three funds brokers of recognized standing selected by the Administrative Agent. "Fee Letters" shall mean the Tranche A Fee Letter and the Tranche B Fee ----------- Letter. "Fees" shall collectively mean the Commitment Fees, the Letter of Credit ---- Fees, the Consent Fee, the fees and charges described in Section 2.02(c) and the fees referred to in Section 2.19. "Filing Date" shall mean June 23, 1995. ----------- "Financial Officer" shall mean the Chief Executive Officer, the Chief ----------------- Financial Officer, the Vice President Controller or the Treasurer of the Borrower. "GAAP" shall mean generally accepted accounting principles applied on a ---- basis consistent with those used in preparing the financial statements referred to in Section 3.05. "Gabriel" shall mean Gabriel Capital L.P. ------- "Governmental Authority" shall mean any Federal, state, municipal or other ---------------------- governmental department, commission, board, bureau, agency or instrumentality or any court, in each case whether of the United States or any foreign jurisdiction. "Guarantors" shall have the meaning set forth in the first paragraph of ---------- this Agreement. "Indebtedness" shall mean, at any time and with respect to any Person, (i) ------------ all indebtedness of such Person for borrowed money, (ii) all indebtedness of such Person for the deferred purchase price of property or services (other than property, including inventory, and services purchased, and expense accruals and deferred compensation items arising, in the ordinary course of business), (iii) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments (other than performance, surety and appeal bonds arising in the ordinary course of business), (iv) all indebtedness of such Person created or arising under 12 any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) all obligations of such Person under leases which have been or should be, in accordance with GAAP, recorded as capital leases, to the extent required to be so recorded, (vi) all reimbursement, payment or similar obligations of such Person, contingent or otherwise, under acceptance, letter of credit or similar facilities, (vii) all Indebtedness referred to in clauses (i) through (vi) above guaranteed directly or indirectly by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (A) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (B) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss in respect of such Indebtedness, (C) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (D) otherwise to assure a creditor against loss in respect of such Indebtedness, and (viii) all Indebtedness referred to in clauses (i) through (vii) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in any property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. "Indenture Security Agreement" shall mean the "Security Agreement" as ---------------------------- defined in the New Notes Indenture. "Insufficiency" shall mean, with respect to any Plan, the amount, if any, ------------- of its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of ERISA. "Interest Coverage Ratio" shall mean, for each fiscal quarter of the ----------------------- Borrower, the ratio of the Borrower's (a) EBITDA less Capital Expenditures to ---- (b) cash Interest Expense, for the 12-month period ending on the last day of such fiscal quarter. "Interest Expense" shall mean interest expense as determined in accordance ---------------- with GAAP. "Interest Payment Date" shall mean (i) as to any Eurodollar Loan having an --------------------- Interest Period of 1, 2 or 3 months, the last day of such Interest Period and (ii) as to all ABR Loans and Prime Plus Loans outstanding at any time during any month, the first Business Day of the next succeeding month. "Interest Period" shall mean, as to any Borrowing of Eurodollar Loans, the --------------- period commencing on and including the date of such Borrowing (including as a result of a refinancing of ABR Loans) or on the last day of the preceding Interest Period applicable to such Borrowing and ending on and excluding the numerically corresponding day (or if there is no corresponding day, the last day) in the calendar month that is 1, 2 or 3 months thereafter, as the Borrower may elect in the related notice delivered pursuant to Sections 2.03(b) or 2.09; provided, however, that (i) if any Interest Period would end on a day which - -------- ------- shall not be a Business Day, such Interest 13 Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (ii) no Interest Period shall end later than the Termination Date. "Interest Rate Agreement" shall mean any interest rate protection ----------------------- agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement between BBNA or any of its Affiliates, on the one hand, and the Borrower or any other Credit Party, on the other hand. "Inventory" shall mean all goods, wares and merchandise owned and held for --------- sale by the Borrower. "Investments" shall have the meaning set forth in Section 6.11. ----------- "Issuing Bank" shall have the meaning set forth in the first paragraph of ------------ this Agreement. "Lenders" shall mean the Persons identified on Annex A hereto and each ------- assignee that becomes a party to this Agreement as set forth in Section 10.03(b). "Letter of Credit" shall mean a letter of credit that is (i) issued for ---------------- account of the Borrower, (ii) a standby or documentary letter of credit, (iii) issued in connection with the purchase of Inventory by the Borrower and for other purposes for which the Borrower has historically obtained letters of credit, or for any other purpose that is reasonably acceptable to the Administrative Agent (including, without limitation, the Letters of Credit issued as described in the third paragraph of the Introductory Statement above), and (iv) in form and substance reasonably satisfactory to the Issuing Bank. "Letter of Credit Fees" shall mean the fees payable in respect of Letters --------------------- of Credit pursuant to Section 2.21. "Letter of Credit Outstandings" shall mean, at any time, the sum of (a) ----------------------------- with respect to Letters of Credit outstanding at such time, the aggregate maximum amount that then is or at any time thereafter may become available for drawing or payment thereunder plus (b) all amounts theretofore drawn or paid ---- under Letters of Credit for which the Issuing Bank has not then been reimbursed. "LIBOR Rate" shall mean, for any Interest Period for any Eurodollar ---------- Borrowing, the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits approximately equal in principal amount to such Eurodollar Borrowing and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. 14 "Lien" shall mean any mortgage, pledge, security interest, encumbrance, ---- lien or charge of any kind whatsoever (including any conditional sale or other title retention agreement or any lease in the nature thereof). "Loan Account" shall have the meaning set forth in Section 2.12(a). ------------ "Loan Documents" shall mean this Agreement, the Notes, the Letters of -------------- Credit, the Fee Letters, all Borrowing Base Certificates, the Blocked Account Agreements, the Collateral Access Agreements, the Payment Direction Agreements, the Subsidiary Guaranty, the Security Documents and any other instrument or agreement executed and delivered in connection herewith or therewith. "Loan to Value Ratio" shall mean (i) when used in connection with the ------------------- definition of "Borrowing Base," the ratio expressed as a percentage of (A) the Base Advance Rate to (B) the net appraised liquidation value at cost of the Borrower's Inventory (expressed as a percentage of the cost value of such Inventory), as determined from time to time by the Administrative Agent in accordance with its standard procedures and with the assistance of an independent appraiser (the "Appraised Value"), (ii) when used in connection with --------------- the definition of "Overadvance Amount," the ratio expressed as a percentage of (A) the sum of the Base Advance Rate and the Overadvance Rate to (B) the Appraised Value and (iii) when used in connection with the definition of "Tranche B Inventory Advance Rate," the ratio expressed as a percentage of (A) the sum of the Base Advance Rate, the Overadvance Rate and the Tranche B Inventory Advance Rate to (B) the Appraised Value. "Loan Value" shall mean the amount determined by the Administrative Agent ---------- from time to time, in its reasonable discretion and consistent with the Administrative Agent's usual business practices and policies for similar borrowers similarly situated, as an appropriate estimate of the value of Eligible Receivables, Eligible LC Inventory (which shall not exceed the amount that may be drawn under such Letters of Credit), and Eligible Inventory (which determination shall take into account the following factors, among others: (i) the cost thereof, (a) as determined under the retail method of accounting as reflected in the Borrower's stock ledger (the cost value of the Inventory in the stock ledger will be adjusted based upon the lowest ticketed retail price at which such Inventory is offered to the public, after all permanent mark-downs (whether or not such price is then reflected on the Borrower's accounting system)) or, (b) with respect to warehouse and in-transit inventory, determined under the cost method of accounting, (ii) the first-in, first-out accounting valuation method, (iii) the Borrower's accounting practices, known to the Administrative Agent and in effect on the date hereof, and (iv) excluding any capitalization costs or other non-purchase price charges (other than "freight- in"), such as intracompany freight, used in the Borrower's calculation of cost of goods sold. "Loans" shall mean all loans (including, without limitation, Agent ----- Advances) at any time made to the Borrower or for account of the Borrower pursuant to this Agreement, whether constituting Tranche A Loans or Tranche B Loans. 15 "Master Lease Agreement" shall mean that certain Master Lease Agreement, ---------------------- dated as of December 8, 1998, as amended, between BankBoston Leasing, Inc., as lessor, and Bradlees Stores, Inc., as lessee. "Maturity Date" shall mean the earlier to occur of (a) three years from the ------------- Closing Date or (b) December 23, 2001. "Mortgagee" has the meaning set forth in Section 4.01(ee). --------- "Mortgagee Waivers" has the meaning set forth in Section 4.01(ee). ----------------- "Multiemployer Plan" shall mean a "multiemployer plan" as defined in ------------------ Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" shall mean a Single Employer Plan, which (i) is ---------------------- maintained for employees of the Borrower or an ERISA Affiliate and at least one Person other than the Borrower and its ERISA Affiliates or (ii) was so maintained and in respect of which the Borrower or an ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such Plan has been or were to be terminated. "New Notes" shall mean the Borrower's notes (i) in an aggregate principal --------- amount not to exceed $40,000,000 in favor of (A) the banks and other financial institutions (the "Pre-Petition Revolver Bank Group") holding pre-petition -------------------------------- claims under that certain Credit Agreement, dated as of March 3, 1993, as amended, among Bradlees, Inc., the Pre-Petition Revolver Bank Group and Bankers Trust Company, as agent, (B) the banks and other financial institutions holding pre-petition claims under the SPE Documents (as defined in the Confirmed Plan) and (C) the holders of YON-GEN Claims, BRU-GEN Claims and WES-GEN Claims (each as defined in the Confirmed Plan) and (ii) with terms as set forth on Attachment ---------- III hereto and incorporated herein and otherwise in form and substance - --- reasonably satisfactory to the Administrative Agent. "New Notes Indenture" shall mean that certain Indenture, dated as of ------------------- February 2, 1999, between Bradlees Stores, Inc. as Issuer, Bradlees, Inc. as Guarantor, New Horizons of Yonkers, Inc., as Guarantor and IBJ Whitehall Bank & Trust Company, as Trustee. "Noncompliance Notice" shall have the meaning set forth in Section 2.03(c). -------------------- "Non-U.S. Lender" shall have the meaning set forth in Section 2.18(f). --------------- "Notes" shall mean the Tranche A Notes and the Tranche B Notes. ----- "Obligations" shall mean (a) the due and punctual payment of principal of ----------- and interest on the Loans and the Notes and the reimbursement of all amounts drawn under Letters of Credit, (b) the due and punctual payment of the Fees and all other present and future, fixed or contingent, 16 monetary obligations of the Borrower and the other Credit Parties to the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co- Agents and the Administrative Agent under the Loan Documents, (c) the due and punctual payment of any obligations of the Borrower or the other Credit Parties to the Other Transactions Counterparties in accordance with, and in connection with, the Master Lease Agreement and any Interest Rate Agreements, and (d) any other obligations of the Borrower or any other Credit Party to any Other Transactions Counterparty. "Other Taxes" shall have the meaning set forth in Section 2.18(b). ----------- "Other Transactions Counterparties" shall mean BBNA and its Affiliates. --------------------------------- "Overadvance Amount" shall mean on any day from and including March 1 ------------------ through and including December 15 of any year, up to 5% (the "Overadvance Rate") ---------------- of the then Loan Value of the then Eligible Inventory plus (without duplication) ---- 5% of the then Loan Value of the then Eligible LC Inventory; provided, that (i) -------- in connection with determining the Borrowing Base, the Overadvance Rate and the Base Advance Rate, when combined, shall not result in Tranche A Loans being made against greater than 77% of the Loan Value of Eligible Inventory and Eligible LC Inventory, taken as a whole (but without duplication) and (ii) in no event shall the application of the Overadvance Amount to the Borrowing Base result in a Loan to Value Ratio in excess of 85%. "Overadvance Margin" shall mean (i) .50% per annum for any month in which ------------------ the Borrower has any Loans outstanding by utilizing the Overadvance Amount under the Borrowing Base or (ii) at all other times, zero. "Overadvance Rate" shall have the meaning set forth in the definition of ---------------- "Overadvance Amount." "Payment Direction Agreement" shall mean an agreement among the Borrower, --------------------------- the Administrative Agent and each Credit Card Obligor, in form and substance satisfactory to the Administrative Agent, providing for the direct payment to the BBNA Concentration Account of all amounts due to the Borrower from such Credit Card Obligor "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any ---- successor agency or entity performing substantially the same functions. "Pension Plan" shall mean a defined benefit pension or retirement plan ------------ which meets and is subject to the requirements of Section 401(a) of the Code. "Permissible Collateral" shall mean Yonkers' interests in the real property ---------------------- and improvements (but not including any Inventory or other personal property) located at the site of the Bradlees store located in Yonkers, New York (the "Yonkers Leased Property"), and the proceeds of any disposition of the - ------------------------ foregoing. 17 "Permitted Investments" shall mean: --------------------- (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case payable in Dollars and maturing within twelve months from the date of acquisition thereof; (b) investments in certificates of deposit, banker's acceptances and time deposits (including Eurodollar time deposits) payable in Dollars and maturing within six months from the date of acquisition thereof issued or guaranteed by or placed with (i) any domestic office of the Administrative Agent or (ii) any domestic office of any other commercial bank of recognized standing organized under the laws of the United States of America or any State thereof that has a combined capital and surplus and undivided profits of not less than $250,000,000 and is the principal banking Subsidiary of a bank holding company having a long-term unsecured debt rating of at least "A" or the equivalent thereof from Standard & Poor's Corporation or at least "P-2" or the equivalent thereof from Moody's Investors Service, Inc.; (c) investments in commercial paper payable in Dollars and maturing within six months from the date of acquisition thereof and issued by (i) the holding company of the Administrative Agent or (ii) the holding company of any other commercial bank of recognized standing organized under the laws of the United States of America or any State thereof that has (A) a combined capital and surplus in excess of $250,000,000 and (B) commercial paper rated at least "A" or the equivalent thereof from Standard & Poor's Corporation or of at least "P-2" or the equivalent thereof from Moody's Investors Service, Inc.; (d) investments in repurchase obligations payable in Dollars with a term of not more than seven days for underlying securities of the types described in clause (a) above entered into with any office of a bank or trust company meeting the qualifications specified in clause (b) above; (e) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (a) through (d) above; and (f) to the extent owned on the Closing Date, investments in the capital stock or partnership interests of any direct or indirect subsidiary of the Borrower. "Permitted Liens" shall mean (i) Liens imposed by law (other than --------------- Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens (other than Environmental Liens and any Lien imposed under ERISA) imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate 18 proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with GAAP; (iii) Liens (other than any Lien imposed under ERISA) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (iv) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded) which do not interfere materially with the ordinary conduct of the business of the Borrower or any Guarantor, as the case may be, and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Borrower or any Guarantor, as the case may be; (v) purchase money Liens (a) existing on the Closing Date upon or in any property (other than Inventory) acquired or held in the ordinary course of business to secure the purchase price of such property and (b) to secure Indebtedness permitted by Section 6.03(ii) and solely for the purpose of financing the acquisition of such property and (vi) extensions, renewals or replacements of any Lien referred to in paragraphs (i) through (v) above; provided that the principal amount of the obligation -------- secured thereby is not increased and that any such extension, renewal or replacement is limited to the property originally encumbered thereby. "Permitted Note Debt" shall mean indebtedness outstanding under the New ------------------- Notes, the Cure Notes and the CAP Notes. "Person" shall mean any natural person, corporation, partnership, limited ------ liability company, trust, joint venture, association, company, estate, unincorporated organization or government or any agency or political subdivision thereof. "Plan" shall mean any Single Employer Plan or Multiemployer Plan. ---- "Plan Effective Date" shall have the meaning set forth in Section 4.01(e). ------------------- "Prime Plus Loan" shall mean any Tranche B Loan bearing interest at the --------------- rate set forth in Sections 2.05(c) or 2.06, as applicable. "Qualified Plan" shall mean a pension plan (as defined in Section 3(2) of -------------- ERISA) intended to be tax-qualified under Section 401(a) of the Code and which the Borrower or any ERISA Affiliate sponsors, maintains, or to which it makes or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding period covering at least five (5) plan years, but excluding any Multiemployer Plan." "Real Property" shall mean all interests of the Borrower and the other ------------- Credit Parties, as applicable, in their respective owned or leased real property. 19 "Receivables" shall mean, with respect to any Credit Card Obligor, the ----------- indebtedness of such Credit Card Obligor to the Borrower under a charge account agreement arising from a sale of merchandise or services by the Borrower. "Register" shall have the meaning set forth in Section 10.03(d). -------- "Required Lenders" shall mean, at any time, Lenders having Loans ---------------- outstanding representing at least 51% of the total Loans outstanding; provided, -------- however, that if no Loans are outstanding, Required Lenders shall be those - ------- Lenders having Commitments representing at least 51% of the Total Commitment (without giving effect to any termination of all of the Commitments pursuant to Article VII). "Required Supermajority Lenders" shall mean, at any time, Lenders having ------------------------------ Loans outstanding representing at least 66/2//3% of the total Loans outstanding; provided, however, that if no Loans are outstanding, Required Supermajority - -------- ------- Lenders shall be those Lenders having Commitments representing at least 66/2//3% of the Total Commitment (without giving effect to any termination of all of the Commitments pursuant to Article VII). "Required Tranche A Lenders" shall mean, at any time, Tranche A Lenders -------------------------- having Tranche A Loans outstanding representing at least 51% of the total Tranche A Loans outstanding; provided, however, that if no Tranche A Loans are -------- ------- outstanding, Required Tranche A Lenders shall be those Tranche A Lenders having Tranche A Commitments representing at least 51% of the aggregate Tranche A Commitments (without giving effect to any termination of all of the Tranche A Commitments pursuant to Article VII). "Required Tranche B Lenders" shall mean, at any time, Tranche B Lenders -------------------------- having Tranche B Loans outstanding representing at least 51% of the total Tranche B Loans outstanding; provided, however, that if no Tranche B Loans are -------- ------- outstanding, Required Tranche B Lenders shall be those Tranche B Lenders having Tranche B Commitments representing at least 51% of the aggregate Tranche B Commitments (without giving effect to any termination of all of the Tranche B Commitments pursuant to Article VII). "Secured Parties" shall mean, collectively, the Lenders, the Issuing Bank, --------------- the Agents, the Co-Agents and the Other Transactions Counterparties and a "Secured Party" shall mean any of the foregoing. ------------- "Security Agreement" shall have the meaning set forth in Section 4.01(f). ------------------ "Security Documents" shall mean the Security Agreement, the Trademark ------------------ Security Agreement and each other document executed in connection with the grant by the Borrower and each other Credit Party of a security interest in the Collateral to the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties. "Settlement Date" shall have the meaning set forth in Section 2.03(d). --------------- 20 "SG&A Expenses" shall mean selling, general and administrative expenses, as ------------- determined in accordance with GAAP. "Shrink Reserve" shall mean, as of the date of any determination thereof, -------------- (A) the positive result, if any, of subtracting (i) the shrinkage percentage reserve then maintained by the Borrower in its stock ledger from (ii) shrinkage (book to physical differences), calculated as a percentage of cumulative net sales since the last physical inventory, for the Borrower's most recent physical inventory with respect to Inventory located at stores and distribution centers, multiplied by (B) cumulative sales since the last physical adjustment by the - ------------- Borrower. "Single Employer Plan" shall mean a single employer plan, as defined in -------------------- Section 4001(a)(15) of ERISA, (A) which the Borrower or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or, within the five years prior to the Closing Date, maintained, administered, contributed to or was required to contribute to, or under which the Borrower or any ERISA Affiliate may incur any liability and (B) which covers any employee or former employee of the Borrower or any ERISA Affiliate (with respect to their relationship with such entities). "Specified Location Sales" shall have the meaning set forth in Section ------------------------ 2.13(c). "Statutory Reserves" shall mean, on any date, the percentage (expressed as ------------------ a decimal) established by the Board and any other banking authority which is the then stated maximum rate for all reserves (including but not limited to any emergency, supplemental or other marginal reserve requirements) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency Liabilities (or any successor category of liabilities under Regulation D issued by the Board, as in effect from time to time). Such reserve percentages shall include, without limitation, those imposed pursuant to said Regulation. The Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in such percentage. "Subsidiary" shall mean, with respect to any Person (herein referred to as ---------- the "parent"), any corporation, association or other business entity (whether now existing or hereafter organized) of which at least a majority of the securities or other ownership interests having ordinary voting power for the election of directors is, at the time as of which any determination is being made, owned or controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Tax Payment Plan" shall have the meaning set forth in Section 4.01(c). ---------------- "Tax Refund Account" shall have the meaning set forth in Section 2.13(c). ------------------ "Taxes" shall have the meaning set forth in Section 2.18(a). ----- "Termination Date" shall mean the earliest to occur of (i) the Maturity ---------------- Date and (ii) the date on which the maturity of the Tranche A Loans or the Tranche B Loans is accelerated and the 21 commitments of the Tranche A Lenders or the Tranche B Lenders, as applicable, are terminated in accordance with Section 7.01 or Section 7.02, as applicable. "Termination Event" shall mean (i) with respect to a Single Employer Plan ----------------- or a Multiple Employer Plan, a "reportable event", as such term is described in Section 4043 of ERISA and the regulations issued thereunder (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC under Section 4043 of ERISA or such regulations) or an event described in Section 4068 of ERISA excluding events described in Section 4043(c)(9) of ERISA or 29 CFR 4043.29 or 4043.35, (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan year in which it was a "substantial employer", as such term is defined in Section 4001(c) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, or (iii) providing notice of intent to terminate a Plan pursuant to Section 4041(c) of ERISA or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan, or (vi) a failure by the Borrower or any ERISA Affiliate to make required contributions to a Plan, or (vii) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate, or (viii) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Single Employer Plan, or (ix) the Borrower or any ERISA Affiliate engages in a nonexempt prohibited transaction or otherwise becomes liable with respect to a nonexempt prohibited transaction, the consequences of which, in the aggregate, could reasonably have a material adverse effect on the financial condition, operations, business, properties or assets of the Borrower and the Guarantors, taken as a whole, or (x) a violation of the applicable requirements of Section 404 or 405 of ERISA or the exclusive benefit rule under Section 401(a) of the Code by the Borrower or any ERISA Affiliate with respect to any Single Employer Plan for which the Borrower or any of its Subsidiaries may be liable, the consequences of which, in the aggregate, could reasonably have a material adverse effect on the financial condition, operations, business, properties or assets of the Borrower and the Guarantors, taken as a whole, or (xi) any other event or condition which would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of or the appointment of a trustee to administer, any Plan, or the imposition of any liability under Title IV of ERISA (other than for the payment of premiums to the PBGC). "Total Commitment" shall mean, at any time, the sum of the Commitments at ---------------- such time. "Trademark Security Agreement" shall have the meaning set forth in Section ---------------------------- 4.01(h). "Trade Debt" shall mean amounts owed by the Borrower to trade vendors in ---------- connection with the purchase by the Borrower of Inventory in the ordinary course of business. "Trade Lien" shall mean a second-priority Lien on the Borrower's Inventory ---------- to secure certain Trade Debt incurred subsequent to the Plan Effective Date, such Lien to (i) be expressly 22 subordinated to the Liens granted in favor of the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, pursuant to the Loan Documents, (ii) have terms as set forth on Attachment IV hereto and ------------- incorporated herein and (iii) otherwise be in form and substance reasonably satisfactory to the Administrative Agent. "Tranche A Commitment" shall mean, with respect to each Lender, the -------------------- commitment of such Lender hereunder set forth as its Tranche A Commitment opposite its name on Annex A hereto or as may subsequently be set forth in the Register from time to time, as the same may be reduced from time to time pursuant to Section 2.07. "Tranche A Commitment Percentage" shall mean at any time, with respect to ------------------------------- each Lender, the percentage obtained by dividing its Tranche A Commitment at such time by all Tranche A Commitments at such time. "Tranche A Credit Extensions" shall be equal, as of any day, to the sum of --------------------------- (a) the principal balance of all Tranche A Loans then outstanding and (b) the then amount of the Letter of Credit Outstandings. "Tranche A Fee Letter" shall mean that certain agent's fee letter, dated -------------------- December 23, 1997, between the Borrower, as debtor and debtor-in-possession, and the Administrative Agent. "Tranche A Lender" shall mean each Lender having a Tranche A Commitment as ---------------- set forth on Annex A hereto or in the Assignment and Acceptance by which it becomes a Lender. "Tranche A Loans" shall mean all loans at any time made by any Tranche A --------------- Lenders pursuant to Section 2.01(a), Section 2.02(d) or Section 2.03(c). "Tranche A Notes" shall mean the promissory notes of the Borrower (i) --------------- substantially in the form of Exhibit B- 1, each payable to the order of a Tranche A Lender, evidencing the Tranche A Loans and (ii) substantially in the form of Exhibit B-2, payable to the Administrative Agent, evidencing the Agent Advances. "Tranche B Availability Amount" shall have the meaning set forth in Section ----------------------------- 2.01(b)(1). "Tranche B Borrowing Base" shall mean, on any day, an amount equal to the ------------------------ Tranche B Inventory Advance Rate multiplied by the then Loan Value of Eligible Inventory plus (without duplication) the Tranche B Inventory Advance Rate ---- multiplied by the lesser of (i) the then Loan Value of Eligible LC Inventory and (ii) the then applicable Eligible LC Inventory Sublimit. "Tranche B Cancellation Date" shall have the meaning set forth in Section --------------------------- 2.07(b). "Tranche B Commitment" shall mean, with respect to each Lender, the -------------------- commitment of such Lender hereunder set forth as its Tranche B Commitment opposite its name on Annex A hereto or as may subsequently be set forth in the Register from time to time, as the same may be reduced from time to time pursuant to Section 2.07. 23 "Tranche B Commitment Percentage" shall mean at any time, with respect to ------------------------------- each Lender, the percentage obtained by dividing its Tranche B Commitment at such time by all Tranche B Commitments at such time. "Tranche B Default Notice" shall have the meaning set forth in Section ------------------------ 7.02. "Tranche B Fee Letter" shall mean that certain agent's fee letter, dated -------------------- December 16, 1998 between the Borrower, as debtor and debtor-in-possession, and the Tranche B Agent. "Tranche B Inventory Advance Rate" shall mean, on any day, (a) between July -------------------------------- 1 and September 30 of each year, 7% and (b) at all other times, 8%; provided -------- that, the Tranche B Inventory Advance Rate shall be subject to periodic adjustment by the Administrative Agent (based on periodic appraisals or otherwise) in order to ensure that the aggregate of all Credit Extensions (Tranche A and Tranche B) outstanding on any date will not exceed 93% of the Loan to Value Ratio on such date. "Tranche B Lender" shall mean each Lender having a Tranche B Commitment as ---------------- set forth on Annex A hereto or in the Assignment and Acceptance by which it becomes a Lender. "Tranche B Loans" shall mean all loans at any time made by any Tranche B --------------- Lender pursuant to Section 2.01(b). "Tranche B Notes" shall mean the promissory notes of the Borrower, --------------- substantially in the form of Exhibit B-3, each payable to the order of a Tranche B Lender, evidencing the Tranche B Loans. "Tranche B Termination Date" shall mean the earlier date to occur of (i) -------------------------- the Termination Date, (ii) the Tranche B Cancellation Date and (iii) the date on which the maturity of the Tranche B Loans is accelerated and the commitments of the Tranche B Lenders are terminated in accordance with Section 7.02. "Transferee" shall have the meaning set forth in Section 2.18(a). ---------- "Type" when used in respect of any Loan or Borrowing shall refer to the ---- rate of interest by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. "Unfunded Pension Liabilities" shall mean the "amount of unfunded benefit ---------------------------- liabilities" of a Single Employer Plan, as defined in Section 4001(a)(18) of ERISA but, utilizing, for purposes of calculating the value of such liabilities, the actuarial methods and assumptions set forth on Schedule 1.1(b) hereto used in Table 4 to the actuarial report for The Bradlees Stores, Inc. Retirement Plan for the Plan year ending January 31, 1998, or such other assumptions as to which the Administrative Agent agrees in writing, such agreement not to be unreasonably withheld. 24 "Unused Tranche A Commitment" shall mean, on any day, (a) the then --------------------------- aggregate amount of the Tranche A Commitments minus (b) the sum of (i) the ----- principal amount of Tranche A Loans then outstanding and (ii) the then Letter of Credit Outstandings. "Withdrawal Liability" shall have the meaning set forth under Part I of -------------------- Subtitle E of Title IV of ERISA. "Yonkers" shall mean New Horizons of Yonkers, Inc., a Delaware corporation, ------- as debtor-and debtor-in-possession. "Yonkers Leased Property" shall have the meaning set forth in the ----------------------- definition of Permissible Collateral. "Yonkers Location Sale" shall have the meaning set forth in Section --------------------- 2.13(c). "Yonkers Common Stock Collateral" shall mean the Borrower's interest in all ------------------------------- of the issued and outstanding common stock of New Horizons of Yonkers, Inc. "Yonkers Confirmation Order" shall mean an order of the Bankruptcy Court -------------------------- confirming the Confirmed Plan with respect to Yonkers pursuant to Sections 1128 and 1129 of the Bankruptcy Code. SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall --------------- apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that for purposes of -------- ------- determining compliance with any covenant set forth in Article VI, such terms shall be construed in accordance with GAAP as in effect on the date of this Agreement applied on a basis consistent with the application used in the Borrower's audited financial statements for the fiscal year ended on February 1, 1997. II. AMOUNT AND TERMS OF CREDIT SECTION 2.01. COMMITMENT OF THE LENDERS. ------------------------- (a) Each Tranche A Lender severally and not jointly with any other Lender agrees, upon the terms and subject to the conditions herein set forth, to extend credit to the Borrower on a revolving basis, in the form of Tranche A Credit Extensions and in an amount equal to such Tranche A Lender's Tranche A Commitment Percentage thereof, subject to the following limitations: 25 (1) The aggregate outstanding amount of the Tranche A Credit Extensions and Agent Advances shall not at any time exceed the lower of (i) $250,000,000 or any lesser amount to which the Tranche A Commitments have then been reduced by the Borrower pursuant to Section 2.07, and (ii) the then amount of the Borrowing Base, plus the aggregate amount of cash then held in the Cash Collateral Account pursuant to Sections 2.02, 2.10(a) and 2.14(a) (item "fourth"). (2) No Tranche A Lender shall be obligated to issue any Letter of Credit, and Letters of Credit shall be available from the Issuing Bank, subject to the ratable participation of all Tranche A Lenders, as set forth in Section 2.02. The Borrower will not at any time permit the aggregate Letter of Credit Outstandings to exceed $125,000,000. (3) Subject to all of the other provisions of this Agreement, Tranche A Loans that are repaid may be reborrowed prior to the Termination Date. No new Tranche A Credit Extension, however, shall be made to the Borrower after the Termination Date. (b) Each Tranche B Lender severally and not jointly with any other Lender agrees, upon the terms and subject to the conditions herein set forth, to make loans to the Borrower on a revolving basis (subject to clause (4) below), in the form of Tranche B Loans and in an amount equal to such Tranche B Lender's Tranche B Commitment Percentage thereof, subject to the following limitations: (1) The aggregate outstanding amount of the Tranche B Loans shall not at any time exceed the lower of (i) $20,000,000 or any lesser amount to which the Tranche B Commitments have then been reduced by the Borrower pursuant to Section 2.07 and (ii) the then amount of the Tranche B Borrowing Base (such lower amount, the "Tranche B Availability Amount"). ----------------------------- (2) The Tranche B Lenders shall not make Tranche B Loans to the Borrower under Section 2.01(b) if, on the date the Borrower requests such Tranche B Loan, amounts are available to be borrowed by the Borrower under the Borrowing Base as calculated in accordance with Section 2.01(a)(1) unless the Borrower is not entitled to borrow such amounts because an Event of Default which is not also an Event of Super-Default has occurred and is continuing (subject, however, to clause (3) below). (3) During the period beginning on the date of the occurrence of an Event of Default and ending on the date that is ten (10) Business Days thereafter, if during such period an Event of Super-Default has not occurred, the aggregate amount of Tranche B Loans made during such period shall not exceed the lower of (i) $5,000,000 and (ii) the Tranche B Availability Amount. In the event such Event of Default is not waived within such ten Business Day period, the Tranche B Lenders shall no longer be obligated to make Tranche B Loans under this Agreement. 26 (4) Subject to Section 2.07(b), so long as any Tranche A Loans remain outstanding, no Tranche B Loans may be repaid and any such repayments will be applied as provided in Section 2.11(a)(1). (5) Subject to the other provisions of this Agreement, Tranche B Loans that are repaid may be reborrowed prior to the Tranche B Termination Date (subject to the other provisions of this Section 2.01(b)). No new Tranche B Loans, however, shall be made to the Borrower after the Tranche B Termination Date. (c) Each Borrowing of Tranche A Loans (other than Agent Advances) shall be made by the Tranche A Lenders pro rata in accordance with their --- ---- respective Tranche A Commitments, and each Borrowing of Tranche B Loans shall be made by the Tranche B Lenders pro rata in accordance with their respective --- ---- Tranche B Commitments. The failure of any Lender to make any Loan shall neither relieve any other Lender of its obligation to fund its Loan in accordance with the provisions of this Agreement nor increase the obligation of any such other Lender. SECTION 2.02. LETTERS OF CREDIT. ----------------- (a) Upon the terms and subject to the conditions herein set forth, the Borrower may request the Issuing Bank, at any time and from time to time after the date hereof and prior to the Termination Date, to issue, and subject to the terms and conditions contained herein, the Issuing Bank shall issue, for the account of the Borrower one or more Letters of Credit; provided that no -------- Letter of Credit shall be issued if after giving effect to such issuance (i) the aggregate Letter of Credit Outstandings shall exceed $125,000,000, or (ii) the aggregate Tranche A Credit Extensions would exceed the limitation set forth in Section 2.01(a)(1); and provided, further, that no Letter of Credit shall be -------- ------- issued if the Issuing Bank shall have received notice from the Administrative Agent or the Required Tranche A Lenders that the conditions to such issuance have not been met. (b) No Letter of Credit shall have an Expiry Date later than the 90th day after the Maturity Date. In the case of each Letter of Credit issued with an expiry date later than the Termination Date, the Borrower shall, on or prior to the Termination Date, either (i) cause such Letter of Credit to be returned to the Issuing Bank undrawn and marked "canceled" and otherwise discharged in a manner satisfactory to the Issuing Bank or (ii) if the Borrower is unable to return and discharge such Letter of Credit, either (x) provide a "back-to-back" letter of credit issued by a bank and on terms in form and substance satisfactory to the Issuing Bank and the Administrative Agent (in their sole and absolute discretion), in an amount equal to 105% of the undrawn amount of such Letter of Credit or (y) deposit cash in the Cash Collateral Account in an amount equal to 105% of the undrawn amount under such Letter of Credit. (c) The Borrower shall pay to the Administrative Agent, for the account of the Issuing Bank and in addition to all Letter of Credit Fees provided for in Section 2.21, a fronting fee equal to 0.125% per annum of the average daily balance of the maximum amount that at any 27 time is available for drawing or payment under each Letter of Credit, payable quarterly in arrears, as well as such fees and charges in connection with the issuance, negotiation, settlement, amendment and processing of each Letter of Credit issued by the Issuing Bank as are customarily imposed by the Issuing Bank from time to time in connection with letter of credit transactions. (d) Drafts drawn under each Letter of Credit shall be reimbursed by the Borrower in Dollars not later than the first Business Day following the date of draw and shall bear interest from the date of draw until the first Business Day following the date of draw at a rate per annum equal to the Alternate Base Rate and thereafter until reimbursed in full at a rate per annum equal to the Alternate Base Rate plus 2.00% per annum (computed on the basis of the actual ---- number of days elapsed over any year of 360 days). The Borrower shall effect such reimbursement (x) if such draw occurs prior to the Termination Date (or the earlier date of termination of the Tranche A Commitments), through a Borrowing of Tranche A Loans without the satisfaction of the conditions precedent set forth in Section 4.02, or (y) if such draw occurs on or after the Termination Date (or the earlier date of termination of the Tranche A Commitments), in cash. Each Tranche A Lender agrees to fund its Tranche A Commitment Percentage of the Tranche A Loans described in clause (x) of the preceding sentence notwithstanding a failure to satisfy the applicable lending conditions thereto or the provisions of Sections 2.01 and 2.02 or the occurrence of the Termination Date. (e) Immediately upon the issuance of any Letter of Credit by the Issuing Bank, the Issuing Bank shall be deemed to have sold to each Tranche A Lender and each such Tranche A Lender shall be deemed unconditionally and irrevocably to have purchased from the Issuing Bank, without recourse or warranty, an undivided interest and participation, to the extent of such Tranche A Lender's Tranche A Commitment Percentage, in such Letter of Credit, each drawing thereunder and the obligations of the Borrower and the other Credit Parties under this Agreement and the other Loan Documents with respect thereto. Upon any change in the Tranche A Commitments pursuant to Section 10.03, it is hereby agreed that with respect to all Letter of Credit Outstandings, there shall be an automatic adjustment to the participations hereby created to reflect the new Tranche A Commitment Percentages of the assigning and assignee Tranche A Lenders. Any action taken or omitted by the Issuing Bank under or in connection with a Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not create for the Issuing Bank any resulting liability to any Tranche A Lender. (f) In the event that the Issuing Bank makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to the Issuing Bank pursuant to this Section 2.02, the Issuing Bank shall promptly notify the Administrative Agent, which shall promptly notify each Tranche A Lender of such failure, and each Tranche A Lender shall promptly and unconditionally pay to the Administrative Agent for the account of the Issuing Bank the amount of such Tranche A Lender's Tranche A Commitment Percentage of such unreimbursed payment in Dollars and in same day funds. If the Issuing Bank so notifies the Administrative Agent, and the Administrative Agent so notifies the Tranche A Lenders prior to 11:00 a.m., Boston time, on any Business Day, each such Tranche A Lender shall make available to the Issuing Bank such Tranche A Lender's Tranche A Commitment Percentage of the amount 28 of such payment on such Business Day in same day funds. If and to the extent such Tranche A Lender shall not have so made its Tranche A Commitment Percentage of the amount of such payment available to the Issuing Bank, such Tranche A Lender agrees to pay to the Issuing Bank, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent for the account of the Issuing Bank at the Federal Funds Effective Rate. The failure of any Tranche A Lender to make available to the Issuing Bank its Tranche A Commitment Percentage of any payment under any Letter of Credit shall neither relieve any Tranche A Lender of its obligation hereunder to make available to the Issuing Bank its Tranche A Commitment Percentage of any payment under any Letter of Credit on the date required, as specified above, nor increase the obligation of such other Tranche A Lender. Whenever any Tranche A Lender has made payments to the Issuing Bank in respect of any reimbursement obligation for any Letter of Credit, such Tranche A Lender shall be entitled to share ratably, based on its Tranche A Commitment Percentage, in all payments and collections thereafter received on account of such reimbursement obligation. (g) Whenever the Borrower desires that the Issuing Bank issue a Letter of Credit, it shall give to the Issuing Bank at least two Business Days' prior written (including telegraphic, telex, facsimile or cable communication) notice (or such shorter period as may be agreed upon in writing by the Issuing Bank and the Borrower) specifying the date on which the proposed Letter of Credit is to be issued (which shall be a Business Day), the stated amount of the Letter of Credit so requested, the expiration date of such Letter of Credit, the name and address of the beneficiary thereof, and the provisions thereof. (h) The obligations of the Borrower to reimburse the Issuing Bank for drawings made under any Letter of Credit shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation (it being understood that any such payment by the Borrower shall be without prejudice to, and shall not constitute a waiver of, any rights the Borrower might have or might acquire as a result of the payment by the Issuing Bank of any draft or the reimbursement by the Borrower thereof): (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, setoff, defense or other right which the Borrower or any Guarantor may have at any time against a beneficiary of any Letter of Credit or against any of the Lenders, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction; (iii) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the Issuing Bank of any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit; (v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (vi) the fact that any Event of Default shall have occurred and be continuing. (i) The Borrower hereby assumes and ratifies the obligations of Bradlees Stores, Inc., as debtor-in-possession under or in connection with all letters of credit issued and outstanding under the Existing Credit Facility that are not canceled in connection with the 29 repayment and termination of the Existing Credit Facility (the "Existing Letters of Credit"). Such Existing Letters of Credit shall be deemed to be Letters of Credit issued under this Agreement and the Borrower shall be liable with respect to such Existing Letters of Credit under this Section 2.02 as if such Existing Letters of Credit were issued hereunder. All Existing Letters of Credit are listed on Schedule 2.02(i) hereto. SECTION 2.03. MAKING OF LOANS. --------------- (a) Except as set forth in Section 2.09, Tranche A Loans by the Tranche A Lenders shall be either ABR Loans or (so long as no Event of Default has occurred and is continuing and the making of Eurodollar Loans by any Tranche A Lender is not illegal or impractical) Eurodollar Loans as the Borrower may request subject to and in accordance with this Section 2.03. All Tranche B Loans shall be Prime Plus Loans. All Loans made pursuant to the same Borrowing shall, unless otherwise specifically provided herein, be Loans of the same Type. Each Lender may fulfill its Commitment with respect to any Loan by causing any lending office of such Lender to make such Loan; but any such use of a lending office shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of the applicable Note. Each Lender shall, subject to its overall policy considerations, use reasonable efforts (but shall not be obligated) to select a lending office which will not result in the payment of increased costs by the Borrower pursuant to Section 2.15. Subject to the other provisions of this Section 2.03 and the provisions of Section 2.16, Borrowings of Loans of more than one Type may be incurred at the same time, but no more than five Borrowings of Eurodollar Loans may be outstanding at any time. (b) The Borrower shall give the Administrative Agent two business days' prior notice of each Borrowing of Eurodollar Loans and same-day notice of each Borrowing of ABR Loans or Prime Plus Loans, so long as notice is given prior to 12:00 Noon, Boston time. Such notice shall be irrevocable and (i) shall specify the amount of the proposed Borrowing (which shall not be less than $1,000,000 in the case of Eurodollar Loans) and the date thereof (which shall be a Business Day) and shall contain disbursement instructions and (ii) in connection with Borrowings of Tranche B Loans, shall certify that there are no amounts available to be borrowed by the Borrower under the Tranche A Commitment as calculated in accordance with Section 2.01(a)(1). Any such notice, to be effective, must be received by the Administrative Agent not later than 1:00 p.m., Boston time, on the second Business Day in the case of Eurodollar Loans and not later than 12:00 Noon, Boston time, on the same day in the case of ABR Loans and Prime Plus Loans, on which such Borrowing is to be made. Such notice shall specify whether the Borrowing then being requested is to be a Borrowing of ABR Loans, Prime Plus Loans or Eurodollar Loans and, if Eurodollar Loans, the Interest Period with respect thereto. If no election of Interest Period is specified in any such notice for a Borrowing of Eurodollar Loans, such notice shall be deemed a request for an Interest Period of one month. If no election is made as to the Type of Loan, such notice shall be deemed a request for Borrowing of ABR Loans in the case of Tranche A Loans (subject to Section 2.03(a)) and Prime Plus Loans in the case of Tranche B Loans. The Administrative Agent shall promptly notify each Lender of its proportionate share of such Borrowing, the date of such Borrowing, the Type of Borrowing being 30 requested and the Interest Period or Interest Periods applicable thereto, as appropriate. On the borrowing date specified in such notice, each Lender shall make its share of the Borrowing available at the office of the Administrative Agent at 100 Federal Street, Boston, Massachusetts 02110, no later than 3:00 p.m., Boston time, in immediately available funds. Upon receipt of the funds made available by the Lenders to fund any borrowing hereunder, the Administrative Agent shall disburse such funds in the manner specified in the notice of borrowing delivered by the Borrower and shall use reasonable efforts to make the funds so received from the Lenders available to the Borrower no later than 4:00 p.m., Boston time. (c) (i) The Administrative Agent is authorized by the Lenders, but is not obligated, to make Agent Advances up to $15,000,000 in the aggregate outstanding at any time, consisting only of Tranche A Loans (consisting of ABR Loans) or, if otherwise permitted under Section 2.01(b), Tranche B Loans, upon a notice of Borrowing received by the Administrative Agent (which notice, at the Administrative Agent's discretion, may be submitted prior to 12:00 Noon, Boston time, on the same day for which such Agent Advance is requested). Agent Advances of Tranche A Loans (together with all other Tranche A Credit Extensions) may not at any time cause the Borrower to be in violation of the provisions of Section 2.10(a) hereof. Agent Advances of Tranche B Loans (together with all other Tranche B Loans outstanding) may not at any time cause the Borrower to be in violation of the provisions of Section 2.10(b) hereof. Agent Advances shall be subject to periodic settlement with the Tranche A Lenders under the subsection (d) below. (ii) Agent Advances may be made only in the following circumstances: (A) for administrative convenience, the Administrative Agent may, but is not obligated to, make Agent Advances in reliance upon the Borrower's actual or deemed representations under Section 4.02 or 4.03, as applicable, that the applicable conditions for borrowing are satisfied or (B) if the conditions for borrowing under Section 4.02 or Section 4.03 (other than Section 4.03(d), with respect to Agent Advances of Tranche B Loans), as applicable, cannot be fulfilled, the Borrower shall give immediate notice thereof to the Administrative Agent (a "Noncompliance Notice"), and the Administrative Agent -------------------- may, but is not obligated to, continue to make Agent Advances for fifteen (15) Business Days from the date the Administrative Agent first receives such notice, or until sooner instructed by the Required Supermajority Lenders; provided that the Administrative Agent promptly provides each Lender with a copy of the Borrower's Noncompliance Notice. Notwithstanding the foregoing, no Agent Advances shall be made pursuant to this subsection (ii) that would cause the Borrower to be in violation of Section 2.10(a) or 2.10(b), as applicable. (d) (i) The amount of each Lender's Commitment Percentage of outstanding Loans (including Agent Advances) shall be computed weekly (or more frequently in the Administrative Agent's discretion) and shall be adjusted upward or downward based on all Loans (including Agent Advances) and repayments of Loans (including Agent Advances) received by the Administrative Agent as of 3:00 p.m., Boston time, on the first Business Day following the end of the period specified by the Administrative Agent (such date, the "Settlement Date"). --------------- 31 (ii) The Administrative Agent shall deliver to each of the Lenders promptly after the Settlement Date a summary statement of the amount of outstanding Loans (including Agent Advances) for the period and the amount of repayments received for the period. As reflected on the summary statement: (x) the Administrative Agent shall transfer to each Lender its applicable Commitment Percentage of repayments (after accounting for unreimbursed Agent Advances) and (y) each Lender shall transfer to the Administrative Agent (as provided below), or the Agent shall transfer to each Lender, such amounts as are necessary to insure that, after giving effect to all such transfers, the amount of Loans made by each Lender with respect to Loans (including Agent Advances) shall be equal to such Lender's applicable Commitment Percentage of Loans outstanding as of such Settlement Date. If the summary statement requires transfers to be made to the Administrative Agent by the Lenders and is received prior to 12:00 Noon, Boston time, on a Business Day, such transfers shall be made in immediately available funds no later than 3:00 p.m., Boston time, that day; and, if received after 12:00 Noon, Boston time, then no later than 3:00 p.m., Boston time, on the next Business Day. The obligation of each Lender to transfer such funds is irrevocable, unconditional and without recourse to or warranty by the Administrative Agent and, notwithstanding the foregoing, on the day that the Administrative Agent makes an Agent Advance hereunder, each Tranche A Lender shall be deemed to have made its Tranche A Commitment Percentage of such Agent Advance on such day. If and to the extent any Lender shall not have so made its transfer to the Administrative Agent, such Lender agrees to pay to the Administrative Agent, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Administrative Agent at the Federal Funds Effective Rate. (e) As an accommodation to the Borrower, to the extent any Eurodollar Loans (as defined in the Existing Credit Facility) are outstanding under the Existing Credit Facility on the Closing Date (the "Existing Eurodollar Loans"), ------------------------- such Existing Eurodollar Loans may be repaid with Eurodollar Loans under this Agreement (subject to all of the conditions precedent thereto set forth herein), and such Eurodollar Loans will have the identical Interest Periods (or remainder thereof) as the Interest Periods applicable to the corresponding Existing Eurodollar Loans and shall bear interest at per annum rates identical to the interest rates applicable to the corresponding Existing Eurodollar Loans under the Existing Credit Facility SECTION 2.04. NOTES; REPAYMENT OF LOANS. ------------------------- (a) The Tranche A Loans outstanding to each Tranche A Lender (and to the Administrative Agent, with respect to Agent Advances) shall be evidenced by a Tranche A Note duly executed on behalf of the Borrower, dated the Closing Date, in substantially the form attached hereto as Exhibit B-1 or B-2, as applicable, payable to the order of such Tranche A Lender (or the Administrative Agent, as applicable) in an aggregate principal amount equal to such Tranche A Lender's Tranche A Commitment (or, in the case of the Tranche A Note evidencing the Agent Advances, $15,000,000). The Tranche B Loans outstanding to each Tranche B Lender shall be evidenced by a Tranche B Note duly executed on behalf of the Borrower, dated the Closing Date, in substantially the form attached hereto as Exhibit B-3, 32 payable to the order of such Tranche B Lender in an aggregate principal amount equal to such Tranche B Lender's Tranche B Commitment. (b) The outstanding principal balance of all Tranche A Loans, as evidenced by such Tranche A Notes, shall be payable on the Termination Date (subject to earlier repayment as provided below), and the outstanding principal balance of all Tranche B Loans, as evidenced by such Tranche B Notes, shall be payable on the Tranche B Termination Date (subject to earlier repayment as provided below). Each Note shall bear interest from the date thereof on the outstanding principal balance thereof as set forth in this Article II. Each Lender is hereby authorized by the Borrower to endorse on a schedule attached to each Note delivered to such Lender (or on a continuation of such schedule attached to such Note and made a part thereof), or otherwise to record in such Lender's internal records, an appropriate notation evidencing the date and amount of each Loan from such Lender, each payment and prepayment of principal of any such Loan, each payment of interest on any such Loan and the other information provided for on such schedule; provided, however, that the failure -------- ------- of any Lender to make such a notation or any error therein shall not affect the obligation of the Borrower to repay the Loans made by such Lender in accordance with the terms of this Agreement and the applicable Notes. SECTION 2.05. INTEREST ON LOANS. ----------------- (a) Subject to Section 2.06, each ABR Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum that shall be equal to the then Alternate Base Rate, plus the Overadvance Margin. - ---- (b) Subject to Section 2.06, each Eurodollar Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal, during each Interest Period applicable thereto, to the Adjusted LIBOR Rate for such Interest Period, plus the Eurodollar ---- Applicable Margin, plus the Overadvance Margin (the "Eurodollar Interest Rate"); ---- ------------------------ provided that, after the first anniversary of the Closing Date, if the - -------- Borrower's Interest Coverage Ratio as measured at the end of any fiscal quarter is greater than or equal to 2.5:1, then each Eurodollar Loan outstanding during the following fiscal quarter shall bear interest during such fiscal quarter at a rate per annum equal to the applicable Eurodollar Interest Rate less 0.25%. ---- (c) Subject to Section 2.06, each Prime Plus Loan shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the Alternate Base Rate plus 7.00%. ---- (d) Accrued interest on all Loans shall be payable in arrears on each Interest Payment Date applicable thereto, at maturity (whether by acceleration or otherwise), after such maturity on demand and (with respect to Eurodollar Loans) upon any repayment or prepayment thereof (on the amount prepaid). (e) All outstanding Loans (other than Prime Plus Loans) that on any day are not, in accordance with the provisions of this Agreement, Eurodollar Loans shall, for such day, 33 constitute ABR Loans and, subject to Section 2.06, shall bear interest with reference to the Alternate Base Rate as set forth in Section 2.05(a). SECTION 2.06. DEFAULT INTEREST. Effective upon the occurrence of any ---------------- Event of Default and at all times thereafter while such Event of Default is continuing, interest shall accrue on all outstanding Tranche A Loans (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Alternate Base Rate plus 2.00% per annum, and such interest shall be payable on demand. ---- Effective upon the occurrence of any Event of Default or Event of Super-Default and at all times thereafter while such Event of Default or Event of Super- Default is continuing, interest shall accrue on all outstanding Tranche B Loans (after as well as before judgment) at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the Alternate Base Rate plus 9.00%, and such interest shall be payable on demand. ---- SECTION 2.07. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENTS. (a) Upon ------------------------------------------------ at least two Business Days' prior written notice to the Administrative Agent, the Borrower may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Commitments. Each such reduction shall be in the principal amount of $5,000,000 or any integral multiple thereof. Except as set forth in subsection (b) hereof, each such reduction or termination shall (i) reduce the Tranche A Commitment and the Tranche B Commitment on a pro rata -------- basis (ii) be applied ratably to the Commitment of each Tranche A Lender and Tranche B Lender and (iii) be irrevocable when given. At the effective time of each such reduction or termination, the Borrower shall pay to the Administrative Agent for application as provided herein (i) all Commitment Fees accrued on the amount of the Commitments so terminated or reduced through the date thereof, (ii) any amount by which the Credit Extensions outstanding on such date exceed the amount to which the applicable Commitments, as the case may be, are to be reduced effective on such date and (iii) all earned and unpaid Fees with respect to such Credit Extensions, in each case pro rata based on the amount prepaid. --- ---- (b) Notwithstanding subsection (a) above, the Borrower may permanently and irrevocably cancel all (but not less than all) of the Tranche B Commitments at any time if, immediately after giving effect to such cancellation and the repayment of all outstanding Tranche B Loans and all interest and Fees relating thereto, the Borrower establishes to the satisfaction of the Administrative Agent (based on the results of recent field examinations or otherwise) that the amount available to be borrowed under the Tranche A Commitments (as determined pursuant to Section 2.01(a)(1)) is not less than the amount set forth below opposite the Borrower's fiscal month in which such cancellation takes place: 34
Fiscal Month Required Excess Availability ------------ ---------------------------- February $39,000,000 March $46,000,000 April $49,000,000 May $48,000,000 June $36,000,000 July $38,000,000 August $31,000,000 September $34,000,000 October $47,000,000 November $43,000,000 December $47,000,000 January $46,000,000
At the effective time of such cancellation (the "Tranche B Cancellation Date"), --------------------------- the Borrower shall pay to the Administrative Agent for the account of the Tranche B Lenders (and notwithstanding the payment priority provisions of Sections 2.11(a)(1) or 2.14) the full amount of all outstanding Tranche B Loans, all accrued and unpaid interest relating thereto and all accrued and unpaid Fees relating to the Tranche B Loans. SECTION 2.08. ALTERNATE RATE OF INTEREST. In the event, and on each -------------------------- occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Loan the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower absent manifest error) that reasonable means do not exist for ascertaining the applicable Adjusted LIBOR Rate, the Administrative Agent shall, as soon as practicable thereafter, give written or telegraphic notice of such determination to the Borrower and the Lenders. After such notice shall have been given and until the circumstances giving rise to such notice no longer exist, any request by the Borrower for any funding as, continuation of or conversion into a Eurodollar Borrowing shall be deemed a request for a Borrowing of ABR Loans. SECTION 2.09. REFINANCING OF LOANS. The Borrower shall have the right at -------------------- any time, on two Business Days' prior irrevocable notice to the Administrative Agent (which notice, to be effective, must be received by the Administrative Agent not later than 1:00 p.m., Boston time, on the second Business Day preceding the date of any refinancing), (x) to refinance any outstanding Borrowing or Borrowings of Tranche A Loans of one Type (or a portion thereof) with a Borrowing of Tranche A Loans of the other Type or (y) to continue an outstanding Borrowing of Eurodollar Loans for an additional Interest Period, subject to the following: 35 (a) no Borrowing of Tranche A Loans may be refinanced into, or continued as, Eurodollar Loans at any time when an Event of Default has occurred and is continuing; (b) if less than a full Borrowing of Tranche A Loans is refinanced, such refinancing shall be made pro rata among the Tranche A Lenders, as --- ---- applicable, in accordance with the respective principal amounts of the Tranche A Loans comprising such Borrowing held by such Tranche A Lenders immediately prior to such refinancing; (c) the aggregate principal amount of Tranche A Loans being refinanced into or continued as Eurodollar Loans shall be at least $1,000,000; (d) each Tranche A Lender shall effect each refinancing by applying the proceeds of its new Eurodollar Loan or ABR Loan, as the case may be, to its Tranche A Loan being refinanced; (e) the Interest Period with respect to a Borrowing of Eurodollar Loans effected by a refinancing or in respect to the Borrowing of Eurodollar Loans being continued as Eurodollar Loans shall commence on the date of refinancing or the expiration of the current Interest Period applicable to such continuing Borrowing, as the case may be; (f) a Borrowing of Eurodollar Loans may be refinanced only on the last day of an Interest Period applicable thereto; (g) each request for a refinancing with a Borrowing of Eurodollar Loans which fails to state an applicable Interest Period shall be deemed to be a request for an Interest Period of one month; and (h) no more than five Borrowings of Eurodollar Loans may be outstanding at any time. If the Borrower does not give notice to refinance any Borrowing of Eurodollar Loans, or does not give notice to continue, or does not have the right to continue, any Borrowing as Eurodollar Loans, in each case as provided above, such Borrowing shall automatically be refinanced with a Borrowing of ABR Loans at the expiration of the then-current Interest Period. The Administrative Agent shall, after it receives notice from the Borrower, promptly give each Tranche A Lender notice of any refinancing, in whole or part, of any Tranche A Loan made by such Tranche A Lender. SECTION 2.10. MANDATORY PREPAYMENT; COMMITMENT TERMINATION; CASH -------------------------------------------------- COLLATERAL. The outstanding Obligations shall be subject to mandatory - ---------- prepayment as follows: (a) If at any time the amount of the Tranche A Credit Extensions exceeds the lower of (i) the then amount of the Tranche A Commitments and (ii) the then amount of 36 the Borrowing Base, plus the cash held in the Cash Collateral Account ---- pursuant to Sections 2.02 and 2.14, the Borrower will within one Business Day (A) prepay the Tranche A Loans in an amount necessary to eliminate such excess and (B) if, after giving effect to the prepayment in full of all outstanding Tranche A Loans such excess has not been eliminated, deposit cash into the Cash Collateral Account in an amount equal to 105% of the remaining amount of such excess. (b) If at any time the amount of the Tranche B Loans outstanding exceeds the lower of (i) the then amount of the Tranche B Commitments and (ii) the then amount of the Tranche B Borrowing Base, the Borrower will within one Business Day (A) prepay the Tranche A Loans in an amount necessary to eliminate such excess, (B) if, after giving effect to the prepayment in full of all outstanding Tranche A Loans such excess has not been eliminated, prepay the Tranche B Loans in an amount necessary to eliminate such excess and (C) if, after giving effect to the prepayment in full of all outstanding Tranche A Loans and Tranche B Loans such excess has not been eliminated, deposit cash into the Cash Collateral Account in an amount equal to 105% of the remaining amount of such excess. (c) Upon the Termination Date, the credit facility provided hereunder shall be terminated in full and the Borrower shall pay, in full and in cash, all outstanding Loans and all other outstanding Obligations, except that if any Letter of Credit then remains outstanding, the Borrower shall with respect to outstanding Letters of Credit comply with the provisions of Section 2.02(b) with respect thereto. SECTION 2.11. OPTIONAL PREPAYMENT OF LOANS; REIMBURSEMENT OF LENDERS. ------------------------------------------------------ (a) The Borrower shall have the right at any time and from time to time to prepay outstanding Loans in whole or in part, (x) with respect to Eurodollar Loans, upon at least two Business Days' prior written, telex or facsimile notice to the Administrative Agent prior to 1:00 p.m., Boston time, and (y) with respect to ABR Loans and Prime Plus Loans, on the same Business Day if written, telex or facsimile notice is received by the Administrative Agent prior to 3:00 p.m., Boston time, subject to the following limitations: (1) Subject to Section 2.07(b), all prepayments shall be paid to the Administrative Agent for application, first, to the prepayment of ----- outstanding Agent Advances, second, to the prepayment of outstanding ------ Tranche A Loans ratably in accordance with each Tranche A Lender's Tranche A Commitment Percentage, third, to the funding of a cash collateral deposit ----- in the Cash Collateral Account in an amount equal to 105% of all Letter of Credit Outstandings and fourth, to the prepayment of outstanding Tranche B ------ Loans ratably in accordance with each Tranche B Lender's Tranche B Commitment Percentage. (2) Subject to the foregoing, outstanding ABR Loans shall be prepaid before outstanding Eurodollar Loans are prepaid. Each partial prepayment of Eurodollar 37 Loans shall be in an integral multiple of $1,000,000. No prepayment of Eurodollar Loans shall be permitted pursuant to this Section 2.11(a) other than on the last day of an Interest Period applicable thereto, unless the Borrower simultaneously reimburses the Tranche A Lenders for all "Breakage Costs" (as defined below) associated therewith. No partial prepayment of a Borrowing of Eurodollar Loans shall result in the aggregate principal amount of the Eurodollar Loans remaining outstanding pursuant to such Borrowing being less than $1,000,000. (3) Each notice of prepayment shall specify the prepayment date, the principal amount and Type of the Loans to be prepaid and, in the case of Eurodollar Loans, the Borrowing or Borrowings pursuant to which such Loans were made. Each notice of prepayment shall be irrevocable and shall commit the Borrower to prepay such Loan by the amount and on the date stated therein. The Administrative Agent shall, promptly after receiving notice from the Borrower hereunder, notify each Lender of the principal amount and Type of the Loans held by such Lender which are to be prepaid, the prepayment date and the manner of application of the prepayment. (b) The Borrower shall reimburse each Tranche A Lender on demand for any loss incurred or to be incurred by it in the reemployment of the funds released (i) resulting from any prepayment (for any reason whatsoever, including, without limitation, refinancing with ABR Loans) of any Eurodollar Loan required or permitted under this Agreement, if such Tranche A Loan is prepaid other than on the last day of the Interest Period for such Tranche A Loan or (ii) in the event that after the Borrower delivers a notice of borrowing under Section 2.03 in respect of Eurodollar Loans, such Tranche A Loans are not made on the first day of the Interest Period specified in such notice of borrowing for any reason other than a breach by such Tranche A Lender of its obligations hereunder. Such loss shall be the amount as reasonably determined by such Tranche A Lender as the excess, if any, of (A) the amount of interest which would have accrued to such Tranche A Lender on the amount so paid or not borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Tranche A Loan, for the period from the date of such payment or failure to borrow to the last day (x) in the case of a payment or refinancing with ABR Loans other than on the last day of the Interest Period for such Tranche A Loan, of the then current Interest Period for such Tranche A Loan or (y) in the case of such failure to borrow, of the Interest Period for such Tranche A Loan which would have commenced on the date of such failure to borrow, over (B) the amount of interest which would have accrued to such Tranche A Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the London interbank market (collectively, "Breakage Costs"). Any Tranche A Lender -------------- demanding reimbursement for such loss shall deliver to the Borrower from time to time one or more certificates setting forth the amount of such loss as determined by such Tranche A Lender. (c) In the event the Borrower fails to prepay any Loan on the date specified in any prepayment notice delivered pursuant to Section 2.11(a), the Borrower on demand by any Lender shall pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any loss incurred by such Lender as a result of such failure to prepay, including, without limitation, any loss, cost or expenses incurred by reason of 38 the acquisition of deposits or other funds by such Lender to fulfill deposit obligations incurred in anticipation of such prepayment. Any Lender demanding such payment shall deliver to the Borrower from time to time one or more certificates setting forth the amount of such loss as determined by such Lender. (d) Whenever any partial prepayment of Loans are to be applied to Eurodollar Loans, such Eurodollar Loans shall be prepaid in the chronological order of their Interest Payment Dates. SECTION 2.12. MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF ACCOUNT. -------------------------------------------------- (a) The Administrative Agent shall maintain an account on its books in the name of the Borrower (the "Loan Account") in which the Borrower will be ------------ charged with (i) all Agent Advances and all loans and advances made by the Lenders to the Borrower or for the Borrower's account, including the Loans, (ii) all Letter of Credit reimbursement obligations, Fees and interest that have become payable as herein set forth, and (iii) if an Event of Default or an Event of Super-Default has occurred and is continuing, any and all other Obligations that have become payable. The charging of any Obligations to the Loan Account shall not excuse the Borrower from paying such Obligations in cash when due and shall not cure or waive any Default, Event of Default or Event of Super-Default that may have resulted from non-payment thereof or any right or remedy consequent thereon. (b) The Loan Account will be credited with all amounts received by the Administrative Agent from the Borrower or from others for the Borrower's account, including all amounts received in the BBNA Concentration Account from the Blocked Account Banks, and the amounts so credited shall be applied as set forth in Sections 2.14(a) and (b). In no event shall prior recourse to any deposit or other accounts, or any other assets, be a prerequisite to the Administrative Agent's right to demand payment of any Obligation upon its maturity. Further, the Administrative Agent shall have no obligation whatsoever to perform in any respect any of the Borrower's contracts or obligations relating to any of such accounts. After the end of each month, the Administrative Agent shall send to the Borrower a statement accounting for the charges, loans, advances and other transactions occurring among and between the Administrative Agent, the Lenders and the Borrower during that month. The monthly statements shall, absent manifest error, be an account stated, which is final, conclusive and binding on the Borrower. SECTION 2.13. CASH RECEIPTS. ------------- (a) On or prior to the Closing Date, the Borrower and the Administrative Agent shall have entered into agency agreements with the banks maintaining the deposit accounts identified on Schedule 3.11(b) (collectively, the "Blocked Accounts"), which agreements (the "Blocked Account Agreements") ---------------- -------------------------- shall be in form and substance satisfactory to the Administrative Agent and shall require, with respect to the deposit accounts identified on Schedule 3.11(b) as "depository accounts", the sweep on each Business Day (in accordance with the Borrower's customary cash deposit procedures outlined in Schedule 2.13(a) (as such 39 procedures may be amended from time to time with the consent of the Administrative Agent)) of all available cash receipts from the sale of Inventory and other assets, all collections of Receivables and other accounts, and all other cash payments received by the Borrower or any other Credit Party from any Person or from any source or on account of any sale or other transaction or event, except only the proceeds of the Loans (all such non-excluded cash receipts and collections, "Cash Receipts"), from Blocked Accounts to a ------------- concentration account maintained by the Collateral Agent at BBNA (the "BBNA ---- Concentration Account"). All Cash Receipts shall be deposited into a Blocked - --------------------- Account or the BBNA Concentration Account in accordance with the Borrower's customary cash deposit procedures outlined in Schedule 2.13(a). The Borrower shall accurately report to the Administrative Agent all amounts deposited in the Blocked Accounts to ensure the proper transfer of funds as set forth above. If at any time other than the times set forth above any cash or cash equivalents owned by the Borrower or any other Credit Party are deposited to any account, or held or invested in any manner, otherwise than in a Blocked Account that is subject to a Blocked Account Agreement, the Administrative Agent may require the Borrower to close such Blocked Account and have all funds therein transferred to an account maintained by the Administrative Agent at BBNA and all future deposits made to a Blocked Account which is subject to a Blocked Account Agreement. (b) The Borrower may request that the Administrative Agent close Blocked Accounts and/or open new Blocked Accounts (or, in either case, permit the Borrower to do so), subject to the execution and delivery to the Administrative Agent of appropriate Blocked Account Agreements (unless expressly waived by the Administrative Agent) consistent with the provisions of this Section 2.13 and otherwise satisfactory to the Administrative Agent. Unless consented to in writing by the Administrative Agent, the Borrower and the other Credit Parties may not maintain any bank accounts other than the ones expressly contemplated herein. (c) Notwithstanding anything contained herein to the contrary, so long as no default or event of default has occurred and is continuing under the Existing Credit Facility on the Closing Date, and all Obligations under the Existing Credit Facility have been paid in full, the Borrower may utilize up to $25,000,000 in proceeds, if any, remaining in the Tax Refund Account (as defined in the Existing Credit Facility) and from the Specified Location Sales (as defined in the Existing Credit Facility) (collectively, the "Escrow Proceeds"), --------------- other than the Yonkers Location Sale (as defined in the Existing Credit Facility) to pay on or after the Closing Date any costs directly associated with or claims payable under the Confirmed Plan; provided that such funds are held in -------- a segregated account at BBNA and subject to the Lien of the Collateral Agent until such application. (d) The Borrower may also maintain with the Administrative Agent at BBNA one or more disbursement accounts with a balance at any time not in excess of the amounts set forth on Schedule 2.13(a) (the "BBNA Disbursement Accounts") -------------------------- to be used by the Borrower for disbursements and payments (including payroll) in the ordinary course of business or as otherwise permitted hereunder; provided -------- that, upon the occurrence and during the continuance of an Event of Default or an Event of Super-Default, all amounts in such accounts may be swept by 40 the Administrative Agent into the BBNA Cash Concentration Account for application in accordance with Sections 2.14(a) and (b). (e) Notwithstanding the foregoing, the Borrower may maintain the bank accounts identified on Schedule 3.11(b) as "coin orders accounts" (the "Coin Orders Accounts") from which the Borrower shall be permitted (so long as no Default, Event of Default or Event of Super-Default has occurred and is continuing) to make cash withdrawals in accordance with its customary procedures as set forth on Schedule 2.13(e) in effect on the date hereof to fund the ordinary-course cash operating needs of its stores (such as change for registers and funds to cash employees' paychecks (otherwise commonly referred to as "coin orders")), provided that all such withdrawals are replaced in accordance with the Borrower's customary practices. Each Coin Orders Account (i) shall be subject to a blocked account agreement in form and substance satisfactory to the Administrative Agent which shall provide that any amounts in each such account in excess of the amounts set forth on Schedule 3.11(b) shall be transferred on each Business Day to the BBNA Concentration Account and (ii) may be funded with proceeds of Loans otherwise permitted to be made hereunder. (f) Notwithstanding anything in this Agreement to the contrary, the Borrower's failure to comply with the cash deposit and sweep requirements set forth in Section 2.13(a) due directly to earthquake, landslide, hurricane, tornado, fire, flood, material disruption in armored car service, blizzard, act of God or the public enemy, act of war, public disorder, rebellion, sabotage, revolution, epidemic, riot or quarantine shall not be an Event of Default or an Event of Super-Default hereunder unless such failure continues for 3 days. SECTION 2.14. APPLICATION OF PAYMENTS. ----------------------- (a) All amounts received in the BBNA Concentration Account from any source, including the Blocked Account Banks shall be credited to the Loan Account (effective as of the Business Day as of which the Administrative Agent determines in good faith that it has received, prior to 2:00 p.m., Boston time, immediately available funds therefor) and such credits shall be applied in the following order: first, to pay interest due and payable on Credit Extensions and ----- to pay Fees and expense reimbursements and indemnification then due and payable to the Administrative Agent, BRS, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders; second to repay outstanding ------- Agent Advances; third, to repay outstanding Tranche A Loans that are ABR Loans ----- and all outstanding reimbursement obligations for Letters of Credit; fourth, to ------ repay outstanding Tranche A Loans that are Eurodollar Loans and all LIBOR breakage losses due in respect of such repayment pursuant to Section 2.11(b) or, at the Borrower's option (if no Default or Event of Default has occurred and is then continuing), to fund a cash collateral deposit to the Cash Collateral Account sufficient to pay, and with direction to pay, all such outstanding Eurodollar Loans on the last day of the then-pending Interest Period therefor; fifth if any Default or Event of Default has occurred and is continuing, to fund - ----- a cash collateral deposit in the Cash Collateral Account in an amount equal to 105% of the aggregate maximum amount that then is or at any time may become available for drawing or payment under all outstanding Letters of Credit; provided, however, that if such Default or Event of - -------- ------- 41 Default shall be waived pursuant to the terms hereof, such cash collateral shall be released and applied pursuant to clauses sixth and seventh below or pursuant ----- ------- to Section 2.14(b), as the case may be; sixth, if all outstanding Tranche A ----- Credit Extensions have been repaid or secured by cash collateral deposits as set forth above, to repay outstanding Tranche B Loans; and seventh, to pay all other ------- Obligations that are then outstanding and payable. Any other amounts received by the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents or any Lender as contemplated by Section 2.17 shall also be applied in the order set forth above in this Section 2.14(a). (b) Any amounts received in the BBNA Concentration Account at any time when all of the applications set forth in Section 2.14(a) have been and remain fully funded shall be remitted to the Borrower, if and as the Borrower may request. (c) If any item deposited to the BBNA Concentration Account and credited to the Loan Account is dishonored or returned unpaid for any reason, whether or not such return is rightful or timely, the Administrative Agent shall have the right to reverse such credit and charge the amount of such item to the Loan Account and the Borrower shall indemnify the Administrative Agent, the Collateral Agent, the Issuing Bank, the Tranche B Agent, the Co-Agents and the Lenders against all claims and losses resulting from such dishonor or return. SECTION 2.15. INCREASED COSTS. --------------- (a) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Lender of the principal of or interest on any Loan made by such Lender or any fees or other amounts payable hereunder (other than changes in respect of Taxes, Other Taxes and taxes imposed on, or measured by, the net income or overall gross receipts (in lieu of net income) or franchise taxes of such Lender by the jurisdiction in which such Lender has its principal office or by any political subdivision or taxing authority therein), or shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by such Lender (except any such reserve requirement which is reflected in the Adjusted LIBOR Rate) or shall impose on such Lender or the London interbank market any other condition affecting this Agreement or the Eurodollar Loans made by such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Lender hereunder or under the Notes (whether of principal, interest or otherwise) by an amount deemed by such Lender to be material, then the Borrower will pay to such Lender in accordance with paragraph (c) below such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender shall have determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of the July 1988 report of the Basle 42 Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards", or the adoption or effectiveness after the date hereof of any law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any Lending office of such Lender) or any Lender's holding company with 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 such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement, the Loans made by such Lender pursuant hereto, such Lender's Commitment hereunder or the issuance of, or participation in, any Letter of Credit by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such adoption, change or compliance (taking into account such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company of any such reduction suffered. (c) A certificate of each Lender setting forth such amount or amounts as shall be necessary to compensate such Lender or its holding company as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay each Lender the amount shown as due on any such certificate delivered to it within 10 days after its receipt of the same. Any Lender receiving any such payment shall promptly make a refund thereof to the Borrower if the law, regulation, guideline or change in circumstances giving rise to such payment is subsequently deemed or held to be invalid or inapplicable. (d) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Lender's right to demand compensation with respect to such period or any other period. The protection of this Section 2.15 shall be available to each Lender regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. SECTION 2.16. CHANGE IN LEGALITY. ------------------ (a) Notwithstanding anything to the contrary contained elsewhere in this Agreement, if (x) any change in any law or regulation or in the interpretation thereof by any governmental authority charged with the administration thereof shall make it unlawful for a Lender to make or maintain a Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to a Eurodollar Loan or (y) at any time any Lender determines that the making or continuance of any of its Eurodollar Loans has become impracticable as a result of a 43 contingency occurring after the date hereof which adversely affects the London interbank market or the position of such Lender in the London interbank market, then, by written notice to the Borrower, such Lender may (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon any request by the Borrower for a Eurodollar Borrowing shall, as to such Lender only, be deemed a request for an ABR Loan unless such declaration shall be subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under clause (i) or (ii) of this paragraph (a), all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.16, a notice to the Borrower by any Lender pursuant to paragraph (a) above shall be effective, if lawful, and if any Eurodollar Loans shall then be outstanding, on the last day of the then- current Interest Period; and otherwise such notice shall be effective on the date of receipt by the Borrower. SECTION 2.17. PAYMENTS; NO SETOFF. (a) All payments received by the ------------------- Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents or any Lender for application to or on account of any of the Obligations, whether received as a deposit to the BBNA Concentration Account or as a payment made by the Borrower or any other Credit Party or from the enforcement of the Liens of the Collateral Agent on any property of the Borrower or any other Credit Party shall be applied in the order of priority set forth in Section 2.14(a) and shall be applied ratably to the payment of all outstanding Obligations within each category (first through seventh) set forth therein. All ----- ------- payments by the Borrower or any other Credit Party under this Agreement and under the Notes shall be (i) net of any tax applicable to the Borrower or Guarantor and (ii) made in Dollars in immediately available funds at the office of the Administrative Agent by 2:00 p.m., Boston time, on the date on which such payment shall be due. Interest in respect of any Loan hereunder shall accrue from and including the date of such Loan to but excluding the date on which such Loan is paid in full or converted to a Loan of a different Type. (b) All payments by the Borrower hereunder to or for the benefit of any Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent or the Administrative Agent shall be made without setoff, counterclaim or other defense. SECTION 2.18. TAXES. ----- (a) Any and all payments by the Borrower or any other Credit Party hereunder and under the Notes and the other Loan Documents shall be made free and clear of and without deduction or withholding for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) taxes imposed on or --------- 44 measured by the net income or overall gross receipts (if the overall gross receipts are used in lieu of net income of the Administrative Agent, the Collateral Agent, the Tranche B Agent or any Lender (or any transferee or assignee thereof, including a participation holder (any such entity being called a "Transferee")) and franchise taxes imposed on the Administrative Agent, the ---------- Collateral Agent, the Tranche B Agent or any Lender (or Transferee), in each instance if and to the extent imposed by the jurisdiction under the laws of which the Administrative Agent, the Collateral Agent, the Tranche B Agent or any such Lender (or Transferee) is organized or any political subdivision thereof or, in the case of each Lender (or a Transferee), by the jurisdiction in which its leading office with respect to the Loans is located or by any political subdivision or taxing authority therein and (ii) taxes, levies, imposts, deductions, charges or withholdings ("Amounts") that apply to payments hereunder or under the Notes to a Lender (or Transferee) in accordance with laws in effect on the later of the date of this Agreement and the date such Lender (or Transferee) becomes a Lender (or Transferee, as the case may be), but not excluding, with respect to such Lender (or Transferee), any increase in such Amounts solely as a result of any change in such laws occurring after such later date or any Amounts that would not have been imposed but for actions (other than actions contemplated by this Agreement or the Notes) taken by the Borrower after such later date (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Borrower or any other Credit Party shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable hereunder to the Lenders (or any Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent, (i) the sum payable shall be increased by the amount necessary so that after making all required deductions or withholding (including deductions or withholding applicable to additional sums payable under this Section 2.18) such Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions or withholding been made, (ii) the Borrower shall make such deductions or withholding and (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxing authority or other Governmental Authority in accordance with applicable law. (b) In addition, the Borrower agrees to pay to the relevant Governmental Authority in accordance with applicable laws any current or future stamp or documentary taxes or any other excise or property taxes, charges, assessments or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "Other Taxes"). ----------- (c) The Borrower will indemnify each Lender (or Transferee), the Collateral Agent, the Tranche B Agent and the Administrative Agent for the full amount of Taxes and Other Taxes paid by such Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant taxing authority or other Governmental Authority. A certificate as to the amount of such payment or liability prepared by a Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent, as 45 applicable, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date any Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent, as the case may be, makes written demand therefor. If any Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent receives a refund in respect of any Taxes or Other Taxes as to which it has been indemnified by the Borrower pursuant to this Section 2.18, it shall within 30 days after receipt of such refund, repay such refund to the Borrower to the extent such refund is, in the Borrower's sole judgment, attributable to amounts that have been paid by the Borrower under this Section 2.18 with respect to the Taxes or Other Taxes that give rise to such refund, net of all out-of-pocket expenses of such Lender (or Transferee). Collateral Agent, Tranche B Agent or Administrative Agent and with any interest thereon that is received by the Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent as part of the refund; provided that the -------- Borrower, upon the request of such Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent agrees to return such refund (plus penalties, interest or other charges) to such Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent in the event such Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent is required to repay such refund and such additions thereto to the relevant Governmental Authority. Nothing contained in this Section 2.18 shall require any Lender (or Transferee), the Collateral Agent, the Tranche B Agent or the Administrative Agent to make available to the Borrower any of its tax returns (or any other information relating to its taxes that it deems to be confidential). (d) Within 30 days after the date of any payment of Taxes or Other Taxes by the Borrower to the relevant Governmental Authority, the Borrower will furnish to the Administrative Agent, at its address referred to on the signature pages hereof, the original or a certified copy of a receipt issued by the Governmental Authority evidencing payment thereof. (e) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.18 shall survive the payment in full of the principal of and interest on all Loans made hereunder. (f) Each Lender (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "Non-U.S. Lender") shall, if legally able to do so, deliver to the --------------- Borrower such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto in order to be entitled to an exemption from or a reduction in United States withholding taxes, including without limitation (A) in the case of a Non-U.S. Lender claiming exemption from United States Federal withholding tax under Code Section 871(h) or 881(c) with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto, together with a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code) or (B) Internal Revenue Service Form 4224 or any subsequent version thereof or successor thereto, establishing 46 that such payment is not subject to United States Federal withholding tax under the Code because such payment is effectively connected with the conduct by such Lender (or Transferee) of a trade or business in the United States or (C) Internal Revenue Service Form 1001 or any subsequent version thereof or successor thereto, establishing that such payment is totally exempt from United States Federal withholding tax or subject to a reduced rate of such tax under a provision of an applicable tax treaty. Unless the Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that such payments hereunder or under the Notes are not subject to United States Federal withholding tax or are subject to such tax at a rate reduced by an applicable tax treaty, the Borrower or the Administrative Agent shall withhold taxes from such payments at the applicable statutory rate. Such forms and certifications shall be delivered by each Non-U.S. Lender claiming an exemption from or reduction in applicable United States Federal withholding tax (i) on or before the date it becomes a party to this Agreement or, in the case of a Transferee, on or before the date it becomes a Transferee, and (ii) promptly upon the obsolescence or invalidity of any form so delivered by such Non-U.S. Lender. (g) The Borrower shall not be required to pay any additional amounts to any Lender (or Transferee) in respect of United States Federal withholding tax pursuant to Section 2.18(a) if the obligation to pay such additional amounts would not have arisen but for a failure by such Lender (or Transferee) to comply with the provisions of Section 2.18(f). (h) Any Lender (or Transferee) claiming any additional amounts payable pursuant to this Section 2.18 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Borrower or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts that may thereafter accrue and would not, in the sole reasonable determination of such Lender or Transferee, be otherwise onerous to such Lender (or Transferee). SECTION 2.19. CERTAIN FEES. The Borrower shall pay to the Administrative ------------ Agent for the account of the Administrative Agent or BBNA, as applicable, the fees set forth in the Tranche A Fee Letter as and when payment of such fees is due as therein set forth. The Borrower shall pay to the Tranche B Agent, for the account of the Tranche B Agent or BBNA, as applicable, the fees set forth in the Tranche B Fee Letter, as and when payment of such fees is due as therein set forth. The Borrower hereby ratifies and affirms, and agrees that it is legally obligated to perform, all of the obligations of Bradlees Stores, Inc., as debtor and debtor-in-possession, under the Fee Letters. SECTION 2.20. UNUSED COMMITMENT FEE. The Borrower shall pay to the --------------------- Administrative Agent for the account of the Tranche A Lenders, based upon their pro rata share of the Tranche A Credit Extensions, a commitment fee (the - --- ---- "Commitment Fee") computed by applying 0.30% per annum (on the basis of actual -------------- days elapsed in a year of 360 days) to the average daily balance of the Unused Tranche A Commitment for each day commencing on and including the Closing Date and ending on but excluding the Termination Date; provided that, after the -------- first anniversary of the Closing Date, if the Borrower's Interest Coverage Ratio as 47 measured at the end of any fiscal quarter is greater than or equal to 2.5:1, then the Commitment Fee during the following fiscal quarter shall be computed by applying 0.25% per annum (on the basis of actual days elapsed in a year of 360 days) to the average daily balance of the Unused Tranche A Commitment for each day during such fiscal quarter. Except as otherwise provided herein, the Commitment Fee so accrued in any calendar month shall be payable on the first Business Day of the immediately succeeding calendar month, except that all Commitment Fees so accrued as of the Termination Date shall be payable on the Termination Date. SECTION 2.21. LETTER OF CREDIT FEES. The Borrower shall pay to the --------------------- Administrative Agent for the account of the Tranche A Lenders a letter of credit fee (the "Letter of Credit Fee") computed by applying 1.50% per annum (on the -------------------- basis of actual days elapsed in a year of 360 days) to the average daily balance of the maximum amount that at any time is available for drawing or payment under any and all outstanding Letters of Credit; provided that, after the first -------- anniversary of the Closing Date, if the Borrower's Interest Coverage Ratio as measured at the end of a fiscal quarter is greater than or equal to 2.5:1, then the Letter of Credit Fee for each Letter of Credit outstanding during the following fiscal quarter shall be computed by applying 1.25% per annum (on the basis of actual days elapsed in a year of 360 days) to the average daily balance of the maximum amount that at any time is available for drawing or payment under any and all such Outstanding Letters of Credit. The Letter of Credit Fee so accrued in any calendar month shall be payable on the first Business Day of the immediately succeeding calendar month, except that all Letter of Credit Fees so accrued as of the Termination Date shall be payable on the Termination Date. SECTION 2.22. NATURE OF FEES. All Fees shall be paid on the dates due, in -------------- immediately available funds, to the Administrative Agent for the respective accounts of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent and the Lenders, as provided herein and in the Fee Letters. Once paid, all fees shall be fully-earned and shall not be refundable under any circumstances. SECTION 2.23. SECURITY INTEREST IN COLLATERAL. To secure their Obligations ------------------------------- under this Agreement and the other Loan Documents, the Borrower and each Guarantor shall grant to the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, a first-priority security interest in all of the Collateral pursuant hereto and to the Security Documents. SECTION 2.24. RIGHT OF SET-OFF. ---------------- (a) Subject to the provisions of Article VII, upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, each Co-Agent and each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and each such Lender to or for the credit or the account of the Borrower or any Guarantor against any and all of the obligations of such 48 Borrower or Guarantor now or hereafter existing under the Loan Documents, irrespective of whether or not such Lender shall have made any demand under any Loan Document and although such obligations may be unmatured. The rights of each Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent, each Co- Agent and the Administrative Agent under this Section are in addition to other rights and remedies which such Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent, such Co-Agent and the Administrative Agent may have upon the occurrence and during the continuance of any Event of Default. (b) The provisions of Section 2.24(a) shall not qualify or limit the provisions of Sections 2.13 and 2.14. SECTION 2.25. SECURITY INTEREST IN BANK ACCOUNTS. The Borrower and the ---------------------------------- Guarantors hereby assign and pledge to the Administrative Agent, for its benefit and for the ratable benefit of the other Secured Parties, and hereby grant to the Administrative Agent, for its benefit and for the ratable benefit of the other Secured Parties, a first priority security interest, senior to all other Liens, if any, in all of the Borrower's and the Guarantors' right, title and interest in and to the Cash Collateral Account, the Loan Account, the BBNA Disbursement Accounts, the BBNA Concentration Account, any and all Blocked Accounts and all other deposit accounts, and all cash, checks, money orders, Permitted Investments and other cash equivalents of every type and description and all other items of value now or hereafter contained therein or in transit thereto, and any direct investment of the funds contained therein. The Administrative Agent shall have sole dominion and control over all such accounts. SECTION 2.26. PAYMENT OF OBLIGATIONS. Upon the maturity (whether by ---------------------- acceleration or otherwise) of any Loans, Letter of Credit reimbursement obligations or any other Obligations, the Lenders shall be entitled to immediate payment of such Loans, reimbursement obligations, liabilities and other Obligations. III. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to make Loans and participate in Letters of Credit and the Issuing Bank to issue Letters of Credit, the Borrower and each of the other Credit Parties jointly and severally represent and warrant as follows: SECTION 3.01. ORGANIZATION AND AUTHORITY. Each of the Borrower and the -------------------------- other Credit Parties (i) is a corporation duly organized and validly existing under the laws of the State of its incorporation and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the financial condition, operations, business, properties or assets of the Borrower and the other Credit Parties taken as a whole; (ii) has the requisite corporate power and authority to effect the transactions contemplated hereby, and by the other Loan Documents, and (iii) has all requisite corporate power and authority and the legal right to own, pledge, mortgage and operate its properties, and to conduct its business as now or currently proposed to be conducted. Schedule 49 3.01 lists all jurisdictions in which the Borrower and the other Credit Parties are qualified to do business as of the Closing Date. SECTION 3.02. DUE EXECUTION. The execution, delivery and performance by ------------- each of the Borrower and the other Credit Parties of each of the Loan Documents to which it is a party (including, without limitation, the borrowing of Loans under this Agreement and the use of the proceeds thereof) (i) are within the respective corporate powers of each of the Borrower and the Guarantors, have been duly authorized by all necessary corporate action, including the consent of shareholders where required, and do not (and will not) (A) contravene the charter or by-laws of any of the Borrower or the other Credit Parties, (B) violate any law (including, without limitation, the Securities Exchange Act of 1934, as amended) or regulation (including, without limitation, Regulations T, U or X of the Board), or any order or decree of any court or governmental instrumentality, (C) conflict with or result in a breach of, or constitute a default under, any material indenture, mortgage or deed of trust or any material lease, agreement or other instrument binding on the Borrower or the other Credit Parties or any of their properties, or (D) result in or require the creation or imposition of any Lien upon any of the property of any of the Borrower or the other Credit Parties, other than the Liens granted pursuant to this Agreement; and do not require the consent, authorization by or approval of or notice to or filing or registration with any Governmental Authority or any other Person. This Agreement has been duly executed and delivered by each of the Borrower and the Guarantors. This Agreement is, and each of the other Loan Documents to which the Borrower and each of the other Credit Parties is or will be a party, when delivered hereunder or thereunder, will be, a legal, valid and binding obligation of the Borrower and each other Credit Party, as the case may be, enforceable against the Borrower and the other Credit Parties, as the case may be, in accordance with its terms. SECTION 3.03. STATEMENTS MADE. The statements, written or oral, which have --------------- been made by the Borrower or any of the other Credit Parties to the Administrative Agent or to the Bankruptcy Court in connection with any Loan Document, and any financial statement delivered pursuant hereto or thereto (other than to the extent that any such statements constitute projections), taken as a whole and in light of the circumstances in which made, contain no untrue statement of a material fact and do not omit to state a material fact necessary to make such statements not misleading; and, to the extent that any such written statements constitute projections, such projections were prepared in good faith on the basis of assumptions, methods, data, tests and information believed by the Borrower or such other Credit Party to be valid and accurate at the time such projections were furnished to the Lenders. SECTION 3.04. OWNERSHIP. The Borrower is a wholly-owned Subsidiary of BI --------- and Yonkers is a wholly-owned subsidiary of the Borrower. The Borrower has no direct or indirect Subsidiaries other than Yonkers and BI has no direct or indirect Subsidiaries other than the Borrower and Yonkers. SECTION 3.05. FINANCIAL STATEMENTS AND BANKRUPTCY COURT FILINGS. ------------------------------------------------- 50 (a) The Borrower has furnished the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent and the Lenders with copies of (i) the audited consolidated financial statement and schedules of BI for the most recently completed fiscal year for which such statements are available and (ii) the unaudited consolidated financial statement and schedules of BI for the most recently completed fiscal quarter for which such statements are available. Such financial statements present fairly the financial condition and results of operations of BI, the Borrower and the other Credit Parties on a consolidated basis as of such dates and for such periods; such balance sheets and the notes thereto disclose all liabilities, direct or contingent, of BI, the Borrower and the other Credit Parties as of the dates thereof required to be disclosed by GAAP and such financial statements were prepared in a manner consistent with GAAP, subject (in the case of such fiscal quarter statement) to normal year end adjustments. No material adverse change in the financial condition, operations, business, properties or assets of the Borrower and the other Credit Parties, taken as a whole, has occurred from that set forth in BI's consolidated financial statements referenced in this Section 3.05. All other financial information required to be delivered by the Borrower under this Agreement (including, without limitation, all information delivered to the Administrative Agent to determine the Borrower's compliance with Sections 4.01(t) and (u)) are accurate in all respects. (b) The Borrower has furnished to the Administrative Agent and its counsel copies of all pleadings, motions, applications, judicial information, financial information and other documents filed by or on behalf of the Borrower or any of the other Credit Parties with the Bankruptcy Court in the Cases or distributed by or on behalf of the Borrower or any of the Guarantors to any official committee appointed in the Cases or served upon the Borrower or any Guarantor in any of the Cases. SECTION 3.06. LIENS. There are no Liens of any nature whatsoever on any ----- property of the Borrower or any other Credit Party (including, without limitation, the Collateral) except, (i) Permitted Liens, (ii) Liens granted in favor of the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, pursuant to the Loan Documents, (iii) Liens granted in favor of the Other Transactions Counterparties in connection with Interest Rate Agreements, the Master Lease Agreement and any other obligations owed by the Borrower or the other Credit Parties to the Other Transactions Counterparties, (iv) the Trade Lien, (v) Liens securing outstanding obligations of the Borrower under the New Notes and the CAP Notes; provided that, the Liens securing -------- obligations under the New Notes are secured only by the Permissible Collateral, the Additional Collateral and the Yonkers Common Stock Collateral (in each case, to the extent permitted by the terms of Attachment III hereto) and the Liens securing the obligations under the CAP Notes are secured only by a Lien on the CAP Collateral (as defined in Attachment I hereto) and (vi) Liens on any interests in Real Property securing Indebtedness permitted under Section 6.03(iii). Neither the Borrower nor any other Credit Party are parties to any contract, agreement, lease or instrument the performance of which, either unconditionally or upon the happening of an event, will result in or require the creation of a Lien on any property of the Borrower or any other Credit Party (other than as permitted by Section 6.01) or otherwise result in a violation of this Agreement. The Liens granted by the Borrower and the other Credit Parties in the Collateral pursuant to the Loan Documents are fully-perfected 51 first-priority security interests, subject only to Permitted Liens. Notwithstanding the foregoing, on the Closing Date, and after giving effect to the Confirmed Plan, there are no Liens on any of the Collateral other than as set forth in clauses (ii), (iii), (iv) and (v) above. SECTION 3.07. COMPLIANCE WITH LAW. ------------------- (a) The operations of the Borrower and each of the other Credit Parties are not in violation of any applicable federal, state or local environmental, health or safety statutes (including, without limitation, the Occupational Health and Safety Act), regulations, directions, ordinances, criteria or guidelines. (b) Neither the Borrower nor any of the other Credit Parties has received notice that any of the operations of the Borrower or any of the other Credit Parties is the subject of any judicial or administrative proceeding alleging the violation of any federal, state or local environmental, health or safety statute, regulation, direction, ordinance, criteria or guideline. (c) None of the operations of the Borrower or any of the other Credit Parties is the subject of any federal, state or local investigation involving allegations or potential allegations that the Borrower or any of the other Credit Parties disposed of any hazardous or toxic waste, substance or constituent or other pollutant, contaminant or substance (including, without limitation, petroleum) at any site that may require remedial action, or any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release or threatened release of any hazardous or toxic waste, substance or constituent, or other pollutant, contaminant or substance (including, without limitation, petroleum) into the environment. (d) Neither the Borrower nor any of the other Credit Parties has filed any notice under any federal, state or local law indicating past or present treatment, storage or disposal of a hazardous waste or reporting a spill or release or threatened release of a hazardous or toxic waste, substance or constituent, or other pollutant, contaminant or substance (including, without limitation, petroleum) into the environment. (e) Neither the Borrower nor any of the other Credit Parties has any contingent liability of which any of them has knowledge or reasonably should have knowledge in connection with any release or threatened release of any hazardous or toxic waste, substance or constituent, or other pollutant, contaminant or substance (including, without limitation, petroleum) into the environment, nor has the Borrower or any of the other Credit Parties received any notice, letter or other indication of potential liability arising from the disposal of any hazardous or toxic waste, substance or constituent or other pollutant, contaminant or substance (including, without limitation, petroleum) into the environment which, in any such case referred to in this Section or in the aggregate, could have a material adverse effect on the financial condition, operations, business, properties or assets of the Borrower and the other Credit Parties taken as a whole. SECTION 3.08. INSURANCE. All policies of insurance of any kind or nature --------- owned by or issued to the Borrower and the other Credit Parties, including, without limitation, policies 52 of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers' compensation, employee health and welfare, title, property and liability insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by companies of the size and character of the Borrower and the other Credit Parties. All liability policies of the Borrower name the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders as additional insureds and all casualty (property) policies name the Collateral Agent as loss payee. SECTION 3.09. THE CONFIRMATION ORDER. On the date of the making of the ---------------------- initial Loans or the issuance of the initial Letters of Credit hereunder, whichever first occurs, the Confirmed Plan shall be effective, all conditions to effectiveness of the Confirmed Plan have been satisfied (other than those conditions which have been expressly waived in accordance with Sections 10.02 and 10.03 of the Confirmed Plan by the parties named therein and which waiver or waivers have been consented to in writing by the Administrative Agent) and the Confirmation Order and the Yonkers Confirmation Order each will have been entered and will not have been stayed, amended (other than amendments deemed immaterial by the Administrative Agent), vacated, reversed or rescinded and the Bankruptcy Court's retention of jurisdiction, if any, under the Confirmation Order and the Yonkers Confirmation Order shall not govern the enforcement of this Agreement and the other Loan Documents or any rights or remedies relating thereto after the Plan Effective Date. On the date of the making of any Loan or the issuance of any Letter of Credit, (i) the Confirmed Plan will be effective and the Confirmation Order will have been entered and will not have been amended (other than amendments deemed immaterial by the Administrative Agent), stayed, vacated, reversed or rescinded and (ii) the Yonkers Confirmation Order will have been entered and will not have been amended, stayed, vacated, reversed or rescinded in any manner which, in the Administrative Agent's sole discretion, could have a material adverse effect on (a) the assets, liabilities, business, operations, condition (financial or otherwise) or prospects of the Borrower or any other Credit Party or (b) the enforceability of the rights and remedies of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders under the Loan Documents (including, without limitation, the Liens granted to the Collateral Agent, for its benefit and the benefit of the other Secured Parties, under the Loan Documents), or (c) the ability of the Borrower or the other Credit Parties to pay the Obligations when due and to perform their covenants and agreements under the Loan Documents. Upon the maturity (whether by the acceleration or otherwise) of any of the Obligations of the Borrower and the other Credit Parties hereunder and under the other Loan Documents, the Lenders shall, subject to the provisions of Article VII, be entitled to immediate payment of such obligations, and to enforce the remedies provided for hereunder and under the other Loan Documents. SECTION 3.10. USE OF PROCEEDS. The proceeds of the Loans will be used, --------------- first, to repay in full all loans, letter of credit liabilities and other obligations outstanding under or in respect of the Existing Credit Facility and, second, to make certain payments required under the Confirmed Plan not in excess of $8,000,000 in the aggregate as provided in the summary of sources and uses of funds set forth on Schedule 3.10 and to prepay up to the aggregate amount of 53 $6,000 to the holders of the New Notes, and thereafter will be used only to provide (i) working capital for and to finance Inventory purchases by the Borrower and otherwise for general corporate purposes of the Borrower and (ii) to prepay the Permitted Note Debt in accordance with Section 6.15. The Borrower will not use the proceeds of any Loans or any other property of the Borrower to make any intercompany or Affiliate advances (it being understood that proceeds of the Loans used for ordinary-course operating expenses of the Bradlees store located in Yonkers, New York (so long as such store remains open) will be deemed to be a permitted use of proceeds hereunder). SECTION 3.11. STORE LOCATIONS; BANK ACCOUNTS; INVENTORY. ----------------------------------------- (a) Set forth on Schedule 3.11(a) hereto is a complete and accurate list of the names and addresses of all the retail stores, warehouses and distribution centers operated by the Borrower on the Closing Date, which are all locations where any Inventory of the Borrower is maintained. (b) Set forth on Schedule 3.11(b) hereto is a complete and accurate list of all bank accounts, money market accounts and other deposit or investment accounts for cash, cash equivalents or investments maintained by the Borrower or any other Credit Party or in which the Borrower or any Credit Party has any interest. (c) No Credit Party other than the Borrower owns any Inventory or operates any retail stores, warehouses or distribution centers. No Credit Party other than the Borrower owns any other material assets other than as set forth on Schedule 3.11(c) (which schedule also sets forth the Borrower's good faith estimate of the book value of such assets). (d) The assets of the Borrower (including, without limitation, the Inventory and the Receivables) are substantially in the amounts and of the quality previously represented to the Administrative Agent in the most recent Borrowing Base Certificate delivered to the Administrative Agent. SECTION 3.12. LITIGATION AND CLAIMS. --------------------- (a) Except as set forth on Schedule 3.12, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower or the other Credit Parties, threatened against or affecting the Borrower or the other Credit Parties or any of its properties, including (without limitation) the Inventory, before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that is (i) not fully reserved for under the Confirmed Plan and (ii) reasonably likely to be determined adversely to the Borrower or the other Credit Parties and, if so determined adversely to the Borrower or the other Credit Parties would have a material adverse effect on the financial condition, business, properties, operations or assets of the Borrower and the other Credit Parties, taken as a whole or the prospects for repayment in full of the Obligations. 54 (b) There are no pre-petition or administrative claims or Liens other than those contemplated by the Confirmed Plan to survive the Plan Effective Date and consented to by the Administrative Agent. SECTION 3.13. MATERIAL ADVERSE CHANGE. No event or series of events have ----------------------- occurred since the date of the Borrower's financial statements reflecting the Confirmed Plan that has or have materially and adversely affected (i) the assets, liabilities, business, operations, condition (financial or otherwise) or prospects of the Borrower or any other Credit Party or (ii) the enforceability of the rights and remedies of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders under the Loan Documents (including, without limitation, the Liens granted to the Collateral Agent, for its benefit and the benefit of the other Secured Parties, under the Loan Documents), or (iii) the ability of the Borrower or the Guarantors to pay the Obligations when due and to perform their covenants and agreements under the Loan Documents. SECTION 3.14. PAYMENT OF OBLIGATIONS. The Borrower and each other Credit ---------------------- Party have paid when due all rents under any unexpired leases to which the Borrower or any other Credit Party is party as lessee and all other material liabilities incurred by the Borrower or any other Credit Party (other than any such rents or liabilities the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or such other Credit Party, as the case may be). SECTION 3.15. TAXES AND TAX RETURNS. Except for those taxes agreed to be --------------------- paid or otherwise settled pursuant to the Tax Payment Plan, the Borrower and each other Credit Party has filed or caused to be filed all material tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any such taxes, assessments, fees or other charges the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Borrower or the other Credit Party, as the case may be). SECTION 3.16. FRANCHISES, LICENSES, PERMITS, LEASES, PATENTS, COPYRIGHTS, ----------------------------------------------------------- TRADEMARKS AND TRADE NAMES. The Borrower and each of the other Credit Parties - -------------------------- have obtained and hold in full force and effect, all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary or advisable for the operation of its businesses as presently conducted and as proposed to be conducted. Neither the Borrower nor any of the other Credit Parties is in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. The Borrower possesses or has the legal right to use such assets, licenses, patents, patent applications, copyrights, service marks, trademarks and trade names as are necessary or advisable to continue to conduct its present and proposed 55 business activities and such assets, licenses, patents, patent applications, copyrights, service marks, trademarks and trade names are valid and in full force and effect. SECTION 3.17. LABOR MATTERS. ------------- (a) There are no controversies pending or, to the best of the Borrower's knowledge after diligent inquiry, threatened between the Borrower or any of the other Credit Parties , on the one hand, and any of their respective employees, on the other hand, which could have a material adverse effect on the financial condition, operations, business, properties or assets of the Borrower and the other Credit Parties taken as a whole. (b) Neither the Borrower nor any of the other Credit Parties is engaged in any unfair labor practice. There is (i) no unfair labor practice complaint pending against the Borrower or any of the other Credit Parties or, to the best knowledge of the Borrower, threatened against any of them, before the National Labor Relations Board, and no grievance or significant arbitration proceeding arising out of or under collective bargaining agreements is so pending against the Borrower or any of the other Credit Parties or, to the best knowledge of the Borrower, threatened against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against either of the Borrower or any of the other Credit Parties or, to the best knowledge of the Borrower, threatened against any of them and (iii) no union representation question with respect to the employees of the Borrower or any other Credit Parties and no union organizing activities. SECTION 3.18. ERISA. None of the Borrower, any other Credit Party or any ----- ERISA Affiliate maintains or contributes to any Plan other than those listed on Schedule 3.18. Each Plan has been and is being maintained and funded in accordance with its terms and in compliance with all provisions of ERISA and the Code applicable thereto. The Borrower, each of the other Credit Parties and each ERISA Affiliate have fulfilled all obligations related to the minimum funding standards of ERISA and the Code for each Plan, are in compliance with the currently applicable provisions of ERISA and of the Code and have not incurred any liability (other than routine liability for premiums) under Title IV of ERISA. No Termination Event has occurred nor has any other event occurred that may result in a Termination Event. No event or events have occurred in connection with which the Borrower, any of its Subsidiaries, any ERISA Affiliate, any fiduciary of a Plan or any Plan, directly or indirectly, could be subject to any liability, individually or in the aggregate, under ERISA, the Code or any other requirement of law or under any agreement, instrument, statute, rule of law or regulation pursuant to or under which any such entity has agreed to indemnify or is required to indemnify any person against liability incurred under, or for a violation or failure to satisfy the requirements of, any such statute, regulation or order. The Borrower has delivered or caused to be delivered to the Administrative Agent: (i) a copy of each Plan (or, where any such plan is not in writing, a complete description thereof) (and, if applicable, related trust agreements or other funding instruments) and all amendments thereto, all written interpretations thereof and written descriptions thereof that have been distributed to employees or former employees of the Borrower or the other Credit Parties; (ii) the most recent determination letter issued by the Internal Revenue Service with respect to each Plan; (iii) for the three most recent plan years, 56 Annual Reports on Form 5500 Series required to be filed with any governmental agency for each Plan; (iv) all actuarial reports prepared for the last three plan years for each Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount of the most recent annual contributions required to be made by the Borrower or any ERISA Affiliate to each such plan and copies of the collective bargaining agreements requiring such contributions; (vi) any information that has been provided to the Borrower or any ERISA Affiliate regarding withdrawal liability under any Multiemployer Plan; (vii) the aggregate amount of the most recent annual payments made to former employees of the Borrower or any ERISA Affiliate under any retiree health Plan; (viii) each Single Employer Plan has been determined by the IRS to qualify under Section 401 of the Code, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the Code, and to the best knowledge of the Borrower nothing has occurred which would cause the loss of such qualification or tax-exempt status; (ix) except as set forth on Schedule -------- 3.18, no Single Employer Plan has any material Unfunded Pension Liability as to - ---- which the Borrower is or may be liable; (x) the Borrower and each ERISA Affiliate have complied in all material respects with the notice and continuation coverage requirements of Section 4980B of the Code; and (xi) there are no pending or, to the best knowledge of the Borrower, threatened claims, actions or lawsuits, other than routine claims for benefits in the usual and ordinary course, asserted or instituted against (1) any Single Employer Plan maintained or sponsored by the Borrower, (2) the Borrower or any ERISA Affiliate with respect to any Single Employer Plan, or (3) any other fiduciary with respect to any Single Employer Plan for which the Borrower may be directly or indirectly liable, through indemnification obligations or otherwise. SECTION 3.19. ACCOUNTS RECEIVABLE FINANCING. Neither the Borrower nor any ----------------------------- of the other Credit Parties is party to any accounts receivable financing arrangements whereby sales of Inventory are conducted through the use of an in- store credit card or through the use of a credit card offered by a third party lender (it being understood that the acceptance by the Borrower of credit cards issued by Visa, Mastercard or similar processors that does not entail an extension of credit by the Borrower to its own customers (and is non-recourse to the Borrower other than, with respect to accounts financed under the Credit Plan Agreement, to the limited extent set forth therein) shall not be deemed to constitute such an accounts receivable financing arrangement, even if the Borrower's name or imprint appears on such Visa, Mastercard or similar credit cards). SECTION 3.20. INVESTMENT COMPANY: HOLDING COMPANY. Neither the Borrower ----------------------------------- nor any of the other Credit Parties is (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a Subsidiary company of a holding company, or an Affiliate of a holding company or of a Subsidiary company of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or the other Loan Documents or to perform its obligations hereunder or thereunder. 57 SECTION 3.21. YEAR 2000. Any reprogramming required to permit the proper --------- functioning, in and following the year 2000, of (a) BI's and its Subsidiaries' computer systems and (b) equipment containing embedded microchips and testing of all such systems and equipment, as so reprogrammed, will be completed by November 1, 1999. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of BI and its Subsidiaries in effect as of the date hereof are, and with ordinary course upgrading and maintenance will continue to be for the term of this Agreement, sufficient to permit BI and its Subsidiaries to reasonably conduct their business and to continue to render reports to the Agents and the Lenders as required hereunder without resulting in a material adverse effect on the financial condition, business, properties, operations or assets of BI and its Subsidiaries, taken as a whole, or the prospects for repayment in full of the Obligations. BI and its Subsidiaries have and will use reasonable efforts to obtain assurances from their material vendors and entities whose systems interface with those of BI and its Subsidiaries that such vendors and entities are taking all necessary steps to insure that their respective systems will be properly functioning in and following the year 2000. IV. CONDITIONS OF LENDING SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL LOANS AND INITIAL LETTERS OF ------------------------------------------------------------ CREDIT. The obligation of the Lenders to make the initial Loans or the Issuing - ------ Bank to issue the initial Letters of Credit, whichever may occur first, is subject to the following conditions precedent: (a) Supporting Documents. The Administrative Agent shall have -------------------- received for the Borrower and each of the other Credit Parties: (i) a copy of such entity's certificate of incorporation, as amended, certified as of the Closing Date by the Secretary of State of the state of its incorporation or a senior officer of such entity; (ii) a certificate of such Secretary of State, dated as of the Closing Date, as to the good standing of that entity and as to the charter documents on file in the office of such Secretary of State; (iii) a certificate of the Secretary or an Assistant Secretary of that entity dated the date of the initial Loans or the initial Letter of Credit hereunder, whichever first occurs, and certifying (A) that attached thereto is a true and complete copy of the by-laws of that entity as in effect on the date of such certification, (B) that attached thereto is a true and complete copy of resolutions adopted by the Board of Directors of that entity authorizing the Borrowings and Letter of Credit extensions hereunder, the execution, delivery and performance in accordance with their respective terms of this Agreement, the Notes to be executed by it, the Loan Documents and any other documents required or contemplated hereunder or thereunder and the granting of the security interest in 58 the Cash Collateral Account contemplated hereby, (C) that the certificate of incorporation of that entity has not been amended since the date of the last amendment thereto indicated on the certificate of the Secretary of State furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer of that entity executing this Agreement, the Notes to be executed by it and the Loan Documents or any other document delivered by it in connection herewith or therewith (such certificate to contain a certification by another officer of that entity as to the incumbency and signature of the officer signing the certificate referred to in this clause (iii)); (iv) a certificate of the Secretary of State of each state where each such entity is qualified to do business, dated as of a recent date as to the good standing of that entity in such state; (v) a duly-executed compliance certificate in the form attached as Exhibit H; and (vi) all certificates and filings evidencing and effectuating that portion of the Combination Transaction to occur on or about the Plan Effective Date, including, without limitation, file-stamped copies of certificates of merger for all Subsidiaries of BI or the Borrower (including, without limitation, Dostra) contemplated by the Confirmed Plan to be merged with BI or the Borrower on or about the Plan Effective Date. (b) Notes. On or before the date of the initial Loans or the ----- issuance of the initial Letter of Credit hereunder, whichever first occurs, the Administrative Agent shall have received Notes executed on behalf of the Borrower, dated the Closing Date, payable to the order of (i) each of the Tranche A Lenders, in the form of Exhibit B-1, in an amount equal to such Tranche A Lender's Tranche A Commitment, and in the form of Exhibit B-2, in an amount equal to $15,000,000 to be delivered to the Administrative Agent for the Agent Advances, and (ii) each of the Tranche B Lenders, in the form of Exhibit B-3, in an amount equal to such Tranche B Lender's Tranche B Commitment. (c) The Confirmed Plan. Any immaterial amendments (in the opinion of ------------------ the Administrative Agent) to the Confirmed Plan shall be satisfactory to the Administrative Agent and any material amendments (in the opinion of the Administrative Agent) to the Confirmed Plan shall be satisfactory to the Required Lenders. The Confirmed Plan shall provide, among other things, that all claims of the creditors (including trade creditors) of the Borrower and the other Credit Parties which arose, or are deemed to have arisen, prior to the Filing Date shall be either (i) Indebtedness governed by the Tax Payment Plan described below, (ii) converted into Equity Interests of BI (including without limitation, stock options and warrants convertible into capital stock of BI), (iii) exchanged for the CAP Notes, the Cure Notes or the New Notes or (iv) repaid in cash as set forth in the Confirmed Plan. The terms of all Equity Interests (including, without limitation, all preferred stock issued or to be issued (if any) by the Borrower related to 59 the Confirmed Plan) and indebtedness of the Borrower and the other Credit Parties to be outstanding after giving effect to the Confirmed Plan shall be reasonably satisfactory in all respects to the Administrative Agent, provided, -------- that any pre-petition tax claims (up to $3,400,000 in the aggregate) may be paid subsequent to the Plan Effective Date pursuant to a payment plan (the "Tax --- Payment Plan") on the terms set forth in the Confirmed Plan (except as provided - ------------ in Section 6.15 hereof) and as is otherwise reasonably satisfactory to the Administrative Agent. (d) The Confirmation Orders. At the time of the making of the ----------------------- initial Loans or at the time of the issuance of the initial Letter of Credit, whichever first occurs, the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent and the Lenders shall have received a certified copy of (i) the Confirmation Order in the form attached hereto as Exhibit C-1 and (ii) the Yonkers Confirmation Order in the form attached hereto as Exhibit C-2 and the Confirmation Order and the Yonkers Confirmation Order shall each be reasonably satisfactory to the Required Lenders. The Confirmation Order shall not have been reversed, modified, vacated, rescinded or amended (other than amendments deemed immaterial by the Administrative Agent) and shall not be stayed or subject to a motion to stay and, unless otherwise agreed by the Administrative Agent, all appeal periods relating to the Confirmation Order shall have expired, and no appeals from the Confirmation Order shall be outstanding. The Yonkers Confirmation Order (i) shall not have been reversed, modified, vacated, rescinded or amended in any manner which, in the Administrative Agent's sole discretion, could have a material adverse effect on (a) the assets, liabilities, business, operations, condition (financial or otherwise) or prospects of the Borrower or any other Credit Party or (b) the enforceability of the rights and remedies of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders under the Loan Documents (including, without limitation, the Liens granted to the Collateral Agent, for its benefit and the benefit of the other Secured Parties, under the Loan Documents), or (c) the ability of the Borrower or the other Credit Parties to pay the Obligations when due and to perform their covenants and agreements under the Loan Documents and (ii) shall not be stayed or subject to a motion to stay and, unless otherwise agreed by the Administrative Agent, all appeal periods relating to the Yonkers Confirmation Order shall have expired, and no appeals from the Yonkers Confirmation Order shall be outstanding. Except as consented to by the Administrative Agent, the Bankruptcy Court's retention of jurisdiction under the Confirmation Order and the Yonkers Confirmation Order shall not govern the enforcement of this Agreement and the other Loan Documents or any rights or remedies relating thereto after the Plan Effective Date. The Administrative Agent shall be satisfied that the Bankruptcy Court has adequately addressed Yonkers' status as a debtor-in-possession after the Closing Date and Yonkers' execution, delivery and performance, as a debtor-in-possession, of the Loan Documents to which it is a party. (e) Plan Effective Date. All conditions precedent to the ------------------- confirmation of the Confirmed Plan and to the Effective Date (as defined in the Confirmed Plan) (the "Plan Effective Date") shall have been met (or the waiver ------------------- thereof in accordance with Sections 10.02 and 10.03 of the Confirmed Plan by the parties named therein shall have been consented to in writing by the Administrative Agent) and the Plan Effective Date and substantial consummation of the Confirmed Reorganization shall have occurred (including, without limitation, the Combination 60 Transaction (as defined in the Confirmed Plan), other than with respect to Yonkers) or shall be scheduled to occur but for the making of the initial Loan hereunder. (f) Security Agreement. The Borrower and each Guarantor shall have ------------------ duly executed and delivered to the Collateral Agent a Security Agreement in substantially the form of Exhibit E (the "Security Agreement"). ------------------ (g) [Reserved]. --------- (h) Trademark Security Agreement. The Borrower and each applicable ---------------------------- Guarantor shall have duly executed and delivered to the Collateral Agent a Trademark Security Agreement in substantially the form of Exhibit E (the "Trademark Security Agreement"). - ----------------------------- (i) Business Plan. The Borrower shall have delivered to the ------------- Administrative Agent at least sixty (60) days prior to the Plan Effective Date the Business Plan in form and substance satisfactory to the Administrative Agent. (j) Opinions of Counsel. The Administrative Agent, the Issuing Bank, ------------------- the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders shall have received the favorable written opinion of (i) Dewey Ballantine LLP, counsel to the Credit Parties, substantially in the form attached as Exhibit D-1, (ii) counsel to the Credit Parties reasonably satisfactory to the Administrative Agent in the states of Massachusetts, Connecticut and New Jersey, substantially in the forms attached as Exhibits D-2, D-3 and D-4, respectively and (iii) such other counsel as may be requested by the Administrative Agent, in each case dated the date of the initial Loans or the issuance of the initial Letter of Credit, whichever first occurs. (k) Payment of Fees. Concurrent with the initial Borrowing, the --------------- Borrower shall have paid (i) to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent and the Lenders, as applicable, the then unpaid balance of all accrued and unpaid Fees owed under and pursuant to this Agreement and the Fee Letters referred to in Section 2.19 and (ii) to the Administrative Agent, for the pro rata benefit of the Tranche A Lenders, the "Second Consent Fee" referred to and as defined in the Second Consent to Modification of Commitment Letter between the Lenders and the Borrower dated December 16, 1998 (the "Consent Fee"). ----------- (l) Corporate and Judicial Proceedings. All corporate and judicial ---------------------------------- proceedings and all instruments and agreements in connection with the transactions among the Credit Parties, the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders contemplated by this Agreement shall be reasonably satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all documents and papers, including records of corporate and judicial proceedings, which the Administrative Agent may have reasonably requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate, governmental or judicial authorities. 61 (m) Lien Searches. On or before the Closing Date, the Administrative ------------- Agent shall have received the results of UCC-1 and other Lien searches conducted in State and county levels in jurisdictions in which the Credit Parties conduct business and in the United States Patent and Trademark Office, which searches shall reflect the absence of Liens on the assets (including Inventory and Receivables) of the Credit Parties, other than (i) Permitted Liens, Liens permitted under Section 6.01 or Liens for which duly-completed and executed termination statements and releases reasonably satisfactory to the Administrative Agent have been tendered prior to or concurrently with the initial Credit Extension and (ii) Liens which have been duly terminated no later than the Closing Date by an order of the Bankruptcy Court in form and substance reasonably satisfactory to the Administrative Agent. (n) Filings. All filings and other actions required to create and ------- perfect a first priority security interest in favor of the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, on all Collateral owned or to be owned by the Credit Parties shall have been duly made or taken. (o) Environmental Compliance. The Credit Parties shall have granted ------------------------ the Administrative Agent access to and the right to inspect all reports, audits and other internal information of the Credit Parties relating to environmental matters, and any third party verification of certain matters relating to compliance with environmental laws and regulations requested by the Administrative Agent, and the Administrative Agent shall be satisfied that the Credit Parties are in compliance in all material respects with all applicable environmental laws and regulations and be satisfied with the costs of maintaining such compliance. (p) Accounts Receivable Financing. Neither the Borrower nor any of ----------------------------- the Credit Parties shall be party to any accounts receivable financing arrangements whereby sales of Inventory are conducted through the use of an in- store credit card or through the use of a credit card offered by a third party lender (it being understood that the acceptance by the Borrower of credit cards issued by Visa, Mastercard or similar processors that does not entail an extension of credit by the Borrower to its own customers (and is non-recourse to the Borrower (other than, with respect to accounts financed under the Credit Plan Agreement, to the limited extent set forth therein)) shall not be deemed to constitute such an accounts receivable financing arrangement, even if the Borrower's name or imprint appears on such Visa, Mastercard or similar credit cards). (q) Cash Management System. The cash management system required to ---------------------- be maintained as of the date hereof pursuant to Sections 2.13 and 2.14 shall be in place in all material respects, as determined by the Administrative Agent in its sole and absolute discretion. (r) Existing Credit Facility. There shall exist no defaults, events ------------------------ of defaults or prospective defaults (based on projections provided by the Borrower) under the Existing Credit Facility and all principal, interest, fees, and any other obligations under the Existing Facility shall have been, or on the Closing Date will be, paid in full. 62 (s) Accounts Payable. All undisputed Accounts Payable outstanding at ---------------- the time of the Closing Date shall be reasonably paid to date within the terms of the applicable Accounts Payable, as agreed to by the Borrower. (t) EBITDA. The Borrower's EBITDA (after cash restructuring costs ------ (but excluding up to $3,500,000 of cash restructuring costs incurred in the twelve month period ending on the Closing Date and excluding that portion of EBITDA attributable to the Bradlees stores located in Yonkers, New York and at Union Square in New York, New York) for the 12-month period ending on the last day of the month immediately preceding the month in which the Closing Date occurs shall not be less than $30,000,000 (after adding back to EBITDA (to the extent not already done so) up to $4,400,000 of SG&A Expenses relating to emergence and other bonuses actually incurred by the Borrower in connection with the Confirmed Plan). (u) Excess Availability. As measured on the Closing Date, the ------------------- aggregate amount of Tranche A Loans available to be borrowed by the Borrower under Section 2.01(a)(1) plus the amount of Tranche B Loans available to be borrowed by the Borrower under Section 2.01(b)(1) (after giving effect to the repayment of all amounts outstanding under the Existing Credit Facility and all cash payments required under the Confirmed Plan, whether made (or required to be made) prior to, on or after the Closing Date (other than payments to be made pursuant to the Tax Payment Plan)) shall not be less than the amount specified opposite the Borrower's fiscal month in which the Closing Date is to take place. Fiscal Month Required Excess Availability ------------ ---------------------------- February $35,000,000 March $40,000,000 April $39,000,000 May $40,000,000 June $25,000,000 July $25,000,000 August $36,000,000 September $37,000,000 October $35,000,000 November $35,000,000 December $38,000,000 January $37,000,000 (v) Consents and Approvals. The Administrative Agent shall be ---------------------- satisfied in its sole discretion that all insurance, Blocked Account Agreements, Payment Direction Agreements and other consents and approvals required or necessary hereunder have been received and are in full force and effect. 63 (w) Other Information. On or before the Closing Date, the ----------------- Administrative Agent shall have received an inventory analysis conducted by an inventory liquidation analysis firm retained by the Collateral Agent and a follow up review of the Borrower's books and records conducted by a commercial financial audit firm retained by the Collateral Agent and such other information (financial or otherwise) as it may have reasonably requested. (x) No Material Adverse Change. No event or series of events shall -------------------------- have occurred at any time after November 2, 1997, which the Required Lenders in good faith determine to constitute a material adverse change in (i) the assets, liabilities, business, operations, condition (financial or otherwise) or prospects of the Borrower or any other Credit Party, or (ii) the enforceability of the Liens, rights and remedies of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders under the Loan Documents, (iii) the ability of the Borrower or the other Credit Parties to pay the Obligations when due and to perform their covenants and agreements under the Loan Documents, or (iv) the value of the assets of the Borrower and the other Credit Parties. (y) Insurance. The Collateral Agent shall be reasonably satisfied --------- with the public liability insurance, third party property damage insurance and casualty insurance required to be maintained by the Borrower pursuant to Section 5.03 of this Agreement and the Borrower shall have delivered to the Collateral Agent all documentation required in connection with such insurance. (z) Collateral Access Agreements. (i) The Borrower shall have ---------------------------- delivered to the Collateral Agent Collateral Access Agreements duly-executed by the Borrower and/or the applicable Credit Party or Credit Parties and each of the landlords and mortgagees of the Borrower's warehouses located in Braintree, Massachusetts and Edison, New Jersey; (ii) the Administrative Agent shall be satisfied in its sole discretion that the Borrower shall have used its best efforts to obtain and deliver to the Collateral Agent Collateral Access Agreements duly-executed by the Borrower and/or the applicable Credit Party or Credit Parties and each of the landlords and mortgagees of the Borrower's retail locations in the Commonwealth of Pennsylvania; and (iii) the Administrative Agent shall be satisfied in its sole discretion that the Borrower shall have used all reasonable efforts to obtain and deliver to the Collateral Agent Collateral Access Agreements duly-executed by the Borrower and/or the applicable Credit Party or Credit Parties and each of the landlords and mortgagees of each of its retail locations in the State of New Jersey. (aa) Litigation. As of the Plan Effective Date, the Administrative ---------- Agent shall be reasonably satisfied that no litigation commenced or threatened against the Borrower and its Affiliates could have a material adverse effect on the Borrower's or any other Credit Party's financial condition, operations, assets or ability to repay the Loans and other Obligations under this Agreement and the other Loan Documents. (bb) Other Closing Documents. The Administrative Agent shall have ----------------------- received all other documents, certificates and instruments required to be delivered to it pursuant to this 64 Agreement and on the Closing Documents List (including, without limitation, executed copies of this Agreement, all other Loan Documents, a Borrowing Base Certificate and certified copies of all documents evidencing or relating to the New Notes, the CAP Notes, the Cure Notes, the Tax Payment Plan, the New Warrants (as defined in the Confirmed Plan) and the Combination Transaction (as defined in the Confirmed Plan)) and all such documents shall be satisfactory in form and substance to the Administrative Agent. (cc) Other Financial Requirements. The financial condition, capital ---------------------------- structure, liabilities and financial projections, including, without limitation, cash flow, of the Borrower shall be reasonably satisfactory to the Administrative Agent in all respects. (dd) Closing Date. The initial Credit Extension hereunder shall occur ------------ no later than one (1) Business Day after the Plan Effective Date. (ee) Additional Collateral and Permissible Collateral. The ------------------------------------------------ Administrative Agent shall be satisfied in its sole discretion with the identity of each lease included in the Additional Collateral on the Effective Date. The Administrative Agent shall have received and approved an appraisal of the Additional Collateral conducted by Cushman & Wakefield, Inc., which appraisal shall determine the aggregate value of the Additional Collateral to be not in excess of $10,500,000, subject to adjustments deemed appropriate by the Administrative Agent. The Administrative Agent shall have received, with respect to each lease included in the Additional Collateral and the Permissible Collateral, a mortgagee's waiver and consent in form and substance satisfactory to the Collateral Agent, duly-executed by the Borrower, the Collateral Agent and the entity acting as mortgagee (the "Mortgagee") on behalf of the holders of the --------- New Notes (collectively, the "Mortgagee Waivers"). ----------------- SECTION 4.02. CONDITIONS PRECEDENT TO EACH TRANCHE A LOAN AND EACH LETTER ----------------------------------------------------------- OF CREDIT. The obligation of the Tranche A Lenders to make each Tranche A Loan - --------- and of the Issuing Bank to issue each Letter of Credit, including the initial Loan and the initial Letter of Credit, is subject to the following conditions precedent: (a) Notice. The Administrative Agent shall have received a notice ------ with respect to such borrowing or issuance, as the case may be, as required by Article II. (b) Representations and Warranties. All representations and ------------------------------ warranties contained in this Agreement and the other Loan Documents or otherwise made in writing in connection herewith or therewith shall be true and correct in all material respects on and as of the date of each Borrowing or the issuance of each Letter of Credit hereunder with the same effect as if made on and as of such date, other than representations and warranties that relate solely to an earlier date. (c) No Default. On the date of each Borrowing hereunder and the ---------- issuance of each Letter of Credit, the Borrower and the other Credit Parties shall be in compliance with all of the terms and provisions set forth herein and in the other Loan Documents to be observed or performed and no Default or Event of Default shall have occurred and be continuing. 65 (d) Borrowing Base Certificate. The Administrative Agent shall have -------------------------- received the timely delivery of the most recently required Borrowing Base Certificate within three (3) Business Days following the end of each business week (ending on the Saturday of such week), with each such Borrowing Base Certificate including schedules as required by the Collateral Agent. (e) Payment of Fees. The Borrower shall have paid to the --------------- Administrative Agent the then unpaid balance of all accrued and unpaid Fees then payable under and pursuant to this Agreement and the Fee Letters. The request by the Borrower for, and the acceptance by the Borrower of, each extension of credit hereunder shall be deemed to be a representation and warranty by the Borrower that the conditions specified in this Section 4.02 have been satisfied at that time and that after giving effect to such extension of credit the Borrower shall continue to be in compliance with the Borrowing Base and the Tranche B Borrowing Base. SECTION 4.03. CONDITIONS PRECEDENT TO EACH TRANCHE B LOAN. The obligation ------------------------------------------- of the Tranche B Lenders to make each Tranche B Loan is subject to the following conditions precedent: (a) Notice. The Administrative Agent shall have received a notice ------ with respect to such borrowing or issuance, as the case may be, as required by Article II. (b) No Super-Default. On the date of each Borrowing hereunder, no ---------------- Event of Super-Default shall have occurred and be continuing. (c) Borrowing Base Certificate. The Administrative Agent shall have -------------------------- received the timely delivery of the most recently required Borrowing Base Certificate within three (3) Business Days following the end of each business week (ending on the Saturday of such week), with each such Borrowing Base Certificate including schedules as required by the Collateral Agent. (d) Tranche A Availability. At the time of the requested Borrowing, ---------------------- no amounts shall be available for borrowing under the Tranche A Commitments as calculated in accordance with Section 2.01(a)(1). (e) Payment of Fees. The Borrower shall have paid to the --------------- Administrative Agent the then unpaid balance of all accrued and unpaid Fees then payable under and pursuant to this Agreement and the Fee Letters. The request by the Borrower for, and the acceptance by the Borrower of, each extension of credit hereunder shall be deemed to be a representation and warranty by the Borrower that (a) at the time of the requested Borrowing, no amounts are available for borrowing under the Tranche A Commitments as calculated in accordance with Section 2.01(a)(1) and (b) after giving effect to 66 such extension of credit the Borrower shall continue to be in compliance with the Borrowing Base and the Tranche B Borrowing Base. V. AFFIRMATIVE COVENANTS From the date hereof and for so long as any Commitment shall be in effect or any Loan, Letter of Credit or other Obligation shall remain outstanding (unless such Letter of Credit is fully collateralized to the satisfaction of the Administrative Agent), the Borrower and each of the other Credit Parties agree that the Borrower and each other Credit Party will: SECTION 5.01. FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the ---------------------------------- Borrower and the other Credit Parties, (i) deliver to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent and each of the Lenders: (a) Within 90 days after the end of each fiscal year of BI, BI's consolidated and the Borrower's consolidated balance sheet and related statement of income and cash flows, showing the financial condition of BI, the Borrower and the other Credit Parties on a consolidated basis and the Borrower on a consolidated basis as of the close of such fiscal year and the results of their respective operations during such year, to be audited by Arthur Andersen or other independent public accountants of recognized national standing acceptable to the Required Lenders and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) and to be certified by a Financial Officer of the Borrower to the effect that such consolidated financial statements fairly present the financial condition and results of operations of BI, the Borrower and the other Credit Parties on a consolidated basis and the Borrower on a consolidated in accordance with GAAP consistently applied; (b) Within 45 days after the end of the first three fiscal quarters of BI (commencing with the fiscal quarter ending on or about January 30, 1999) and within 60 days after the end of the fourth fiscal quarter of each fiscal year of BI, BI's consolidated and the Borrower's consolidated balance sheets and related statements of income and cash flows, showing the financial condition of BI, the Borrower, and the other Credit Parties on a consolidated basis and the Borrower on a consolidated basis as of the close of such fiscal quarter and the results of their respective operations during such fiscal quarter and the then elapsed portion of the fiscal year, each certified by a Financial Officer as fairly presenting the financial condition and results of operations of BI, the Borrower and the other Credit Parties on a consolidated basis and the Borrower on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments; (c) Concurrently with any delivery of financial statements under (a) or (b) above, a certificate of the accounting firm or a Financial Officer, as the case may be, opining on or certifying such statements (i) certifying that no Default or Event of Default has occurred, or, if such a Default or Event of Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto and (ii) setting forth 67 computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the provisions of Sections 6.04, 6.05, 6.06 and 6.07 hereof; (d) Within 30 days of the end of each fiscal month of BI (commencing with the fiscal month ending on or about January 30, 1999) (or 45 days with respect to the fiscal month ending at the end of each fiscal quarter of BI), the unaudited monthly income statement, balance sheet and cash flow report of BI, the Borrower and the other Credit Parties on a consolidated basis and the Borrower on a consolidated basis as of the close of such fiscal month and the results of their respective operations during such fiscal period and the then elapsed portion of the fiscal year (and such other cash flow reports and operating statements as the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent or any Lender may reasonably request), all certified by a Financial Officer as fairly presenting the results of operations of BI, the Borrower and the other Credit Parties on a consolidated basis and the Borrower on a consolidated basis, subject to normal year-end audit adjustments; (e) To the extent not otherwise required under this Section 5.01, those additional reports listed on Schedule 5.01(e) hereto; (f) Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by it with the Securities and Exchange Commission, or any governmental authority succeeding to any of or all the functions of said commission, or with any national securities exchange, as the case may be; (g) As soon as available and in any event (A) within 30 days after the Borrower or any of its ERISA Affiliates knows or has reason to know that any Termination Event described in clause (i) of the definition of Termination Event with respect to any Single Employer Plan of the Borrower or such ERISA Affiliate has occurred and (B) within 10 days after the Borrower or any of its ERISA Affiliates knows or has reason to know that any other Termination Event with respect to any such Plan has occurred, a statement of a Financial Officer describing such Termination Event and the action, if any, which the Borrower or such ERISA Affiliate proposes to take with respect thereto; (h) Promptly and in any event within 10 days after receipt thereof by the Borrower or any of its ERISA Affiliates from the PBGC copies of each notice received by the Borrower or any such ERISA Affiliate of the PBGC's intention to terminate any Single Employer Plan of the Borrower or such ERISA Affiliate or to have a trustee appointed to administer any such Plan; (i) Promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Single Employer Plan of the Borrower or any of its ERISA Affiliates; (j) Within 10 days after notice is given or required to be given to the PBGC under Section 302(f)(4)(A) of ERISA of the failure of the Borrower or any of its ERISA 68 Affiliates to make timely payments to a Plan, a copy of any such notice filed and a statement of a Financial Officer of the Borrower setting forth (A) sufficient information necessary to determine the amount of the lien under Section 302(f)(3), (B) the reason for the failure to make the required payments and (C) the action, if any, which the Borrower or any of its ERISA Affiliates proposed to take with respect thereto; (k) Promptly and in any event within 10 days after receipt thereof by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor, a copy of each notice received by the Borrower or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability by a Multiemployer Plan, (B) the determination that a Multiemployer Plan is, or is expected to be, in reorganization within the meaning of Title IV of ERISA, (C) the termination of a Multiemployer Plan within the meaning of Title IV of ERISA, or (D) the amount of liability incurred, or which may be incurred, by the Borrower or any ERISA Affiliate in connection with any event described in clause (A), (B) or (C) above; and (l) Promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Borrower or any other Credit Party, or compliance with the terms of any material loan or financing agreements as the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent or any Lender may reasonably request. (m) Furnish to the Administrative Agent and its counsel promptly after the same is available, copies of all pleadings, motions, applications, judicial information, financial information and other documents filed by or on behalf of the Borrower or any of the other Credit Parties with the Bankruptcy Court or any other court of competent jurisdiction. (n) At least 15 days prior thereto, provide the Administrative Agent with written notice of the closing of any store (it being understood that the Borrower may only close stores as permitted by Section 6.13(c)). (o) At least 5 days prior thereto, provide the Administrative Agent with the identity of any lease to be included in the Additional Collateral after the Closing Date, as well as a certification of the appraised value thereof. SECTION 5.02. CORPORATE EXISTENCE. Do or cause to be done and cause each ------------------- of the other Credit Parties to do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence, material rights, licenses, permits and franchises and comply in all material respects with all laws and regulations applicable to it; provided that nothing -------- in this Section 5.02 shall prohibit any Credit Party from being merged into the Borrower in accordance with Section 6.02 of this Agreement. SECTION 5.03. INSURANCE. --------- (a) Keep its insurable properties (including, without limitation, the Collateral) insured at all times, against such casualty risks, including fire and other risks insured against by 69 extended coverage, as is customary with companies of the same or similar size in the same or similar businesses in amounts and coverages reasonably satisfactory to the Collateral Agent in its sole discretion. Such casualty insurance policies shall name the Collateral Agent as loss payee and shall contain such other provisions as the Collateral Agent may reasonably require to fully protect the Collateral Agent's interest in the Collateral and to any payments to be made under such policies in excess of $25,000 per occurrence. The Borrower shall diligently file and prosecute its claim or claims for any award or payment in connection with any casualty loss and the Borrower shall deposit in the BBNA Concentration Account, promptly upon receipt thereof, any and all insurance proceeds and payments by the Borrower on account of any such casualty loss. After the occurrence and during the continuance of an Event of Default, (i) no settlement on account of any such casualty loss shall be made without the consent of the Lenders and (ii) the Collateral Agent may participate in any such proceedings and the Borrower shall deliver to the Collateral Agent such documents as may be requested by the Collateral Agent to permit such participation and shall consult with the Collateral Agent, its attorneys and agents in the making and prosecution of such claim or claims. The Borrower hereby irrevocably authorizes and appoints the Collateral Agent its attorney-in- fact, after the occurrence and during the continuance of an Event of Default, to collect and receive any such award or payment and to file and prosecute such claim or claims, which power of attorney shall be irrevocable and shall be deemed to be coupled with an interest, and the Borrower shall, upon demand of the Collateral Agent, make, execute and deliver any and all assignments and other instruments sufficient for the purpose of assigning any such award or payment to the Collateral Agent for the benefit of the Lenders, free and clear of any encumbrances of any kind or nature whatsoever. (b) Maintain in full force and effect public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any properties owned, occupied or controlled by the Borrower or any Subsidiary, as the case may be, in such amounts and with such deductibles as are customary with companies of the same or similar size in the same or similar businesses and in the same geographic area in amounts and coverages reasonably satisfactory to the Collateral Agent in its sole discretion. (c) Maintain such other insurance as may be required by law. (d) Maintain the Administrative Agent, the Issuing Bank, the Collateral Agent, the Co-Agents, the Tranche B Agent, BRS and the Lenders as additional insureds on all liability policies of the Borrower and the other Credit Parties. SECTION 5.04. OBLIGATIONS AND TAXES. With respect to the Borrower and each --------------------- other Credit Party, pay all its material obligations in accordance with their terms and pay and discharge promptly all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become in default, as well as all material lawful claims for labor, materials and supplies or otherwise which, if unpaid, might become a Lien or charge upon such properties or any part thereof; provided, however, that the Borrower and each other Credit Party shall -------- ------- not be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim 70 so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings (if the Borrower and the other Credit Parties shall have set aside on their books adequate reserves therefor). SECTION 5.05. NOTICE OF EVENT OF DEFAULT, ETC. Promptly give to the ------------------------------- Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent and each Lender notice in writing of (i) any Default, Event of Default, Event of Super-Default, (ii) any threatened or pending litigation that could reasonably be expected to have a material adverse effect on the Borrower if adversely determined or (iii) any termination or likely termination (in the Borrower's reasonable judgment) of any lease with respect to any location listed on Schedule 3.11(a). SECTION 5.06. BORROWING BASE CERTIFICATE. Furnish to the Administrative -------------------------- Agent as soon as available and in any event on or before Thursday of each week a Borrowing Base Certificate for the week ending on the immediately preceding Saturday, substantially in the form of Exhibit A-1 or A-2, as the case may be. SECTION 5.07. ACCESS TO BOOKS AND RECORDS; INSPECTIONS. ---------------------------------------- (a) Maintain or cause to be maintained at all times true and complete books and records of the financial operations of the Borrower and the other Credit Parties. (b) Provide the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Lenders and their representatives access to all such books and records (to the extent not covered by a legal privilege and if any such materials are so privileged, subject to the Administrative Agent's ability to discuss with the Borrower, the other Credit Parties and their professional advisors the matters contained in such privileged materials and otherwise be satisfied with respect thereto, as determined by the Administrative Agent) during regular business hours, in order that they may examine and make abstracts or copies from such books, accounts, records and other papers (including, but not limited to, pertaining to Inventory included in the Borrowing Base and the Tranche B Borrowing Base and Receivables included in the Borrowing Base) for the purpose of verifying the accuracy of any information delivered by the Borrower or any other Credit Party to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent or the Lenders pursuant to this Agreement or for any other purpose reasonably related to this Agreement. (c) At any reasonable time and from time to time during regular business hours, permit the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent, any Lender or any representatives of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or any such Lender (including, without limitation, examiners, appraisers and consultants) thereof to visit and/or inspect the properties and assets (whether owned, leased or rented), systems and procedures (including those relating to cash management) of the Borrower and the other Credit Parties, to conduct Collateral examinations and verify the components of the Borrowing Base and the 71 Tranche B Borrowing Base and to discuss the assets, liabilities, business, operations, systems, procedures, conditions or prospects of the Borrower or any other Credit Party with its directors, officers, employees, advisors and consultants. (d) Permit the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, any Lender or any representatives thereof to discuss directly with the Borrower's independent certified public accountants the business, financial condition and other affairs of the Borrower. SECTION 5.08. FEES. In addition to the other Fees and expenses due ---- hereunder, pay on demand all reasonable fees and expenses of any consultants, appraisers and advisors retained by any of the Agents in connection herewith or any other Loan Document. SECTION 5.09. PROJECTIONS; BUSINESS PLAN. As soon as practicable, but in -------------------------- no event later than 60 days prior to each fiscal year end, furnish to the Administrative Agent the Borrower's preliminary business plan and financial projections for the 12-month fiscal period ending on or about January 31 in the next succeeding year (with the corresponding final business plan to follow within 30 days after the end of such fiscal year), in each case in form and substance satisfactory to the Administrative Agent, and make a Financial Officer available to meet and discuss the same with the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders. At any time that the Borrower believes the assumptions, assertions or other information set forth in the Business Plan are no longer accurate or are outdated, as soon as practicable thereafter, the Borrower shall deliver a revised business plan for the remainder of such 12-month fiscal period. SECTION 5.10. ERISA. The Borrower shall establish, maintain and operate ----- all Plans to comply in all material respects with the provisions of ERISA, the Code, and all other requirements of Law, other than to the extent that the Borrower is in good faith contesting by appropriate proceedings and with adequate reserves the validity or application of any such provision, law, rule, regulation or interpretation. SECTION 5.11. ENVIRONMENTAL AND OTHER MATTERS. The Borrower and the other ------------------------------- Credit Parties will conduct their businesses so as to comply in all material respects with all applicable federal, state and local laws, regulations, directions, ordinances, criteria and guidelines, including, without limitation, environmental, land use, occupational safety and health laws, regulations, directions, ordinances, criteria, guidelines, requirements and permits in all jurisdictions in which any of them is or may at any time be doing business, except to the extent that the Borrower or any of the other Credit Parties are contesting, in good faith by appropriate legal proceedings, any such law, regulation, direction, ordinance, criteria, guideline or interpretation thereof or application thereof; provided, further, that the Borrower and each of the -------- ------- other Credit Parties shall comply with the order of any court or other Governmental Authority relating to such laws unless the Borrower or such other Credit Party shall currently be prosecuting an appeal or proceedings for review and shall have secured a stay of enforcement or execution postponing enforcement or execution pending such appeal or proceedings for review. 72 The Borrower shall promptly take all actions necessary to prevent the imposition of any Liens on any of its properties arising out of or related to any environmental matters or otherwise. At the request of the Administrative Agent, and at the sole cost and expense of the Borrower, the Borrower shall provide the Administrative Agent with any additional information or reports relating to environmental matters and any potential related liability resulting therefrom as the Administrative Agent may reasonably request. In addition, the Borrower shall provide the Administrative Agent, at the Borrower's sole cost and expense, with copies of any environmental audits, surveys or reports conducted in connection with the purchase or sale by the Borrower of any real property. SECTION 5.12. MAINTAIN CASH CONCENTRATION SYSTEM. Maintain the BBNA ---------------------------------- Concentration Account and otherwise comply with the provisions of Section 2.13 of this Agreement. SECTION 5.13. MAINTAIN SECURITY INTEREST. Execute, acknowledge and -------------------------- deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise reasonably deemed by the Collateral Agent necessary or desirable for the continued validity, perfection and first-priority status of the Liens on the Collateral covered thereby. If at any time following the Closing Date the Borrower or any other Credit Party shall acquire property of any nature whatsoever (other than Real Property) which is intended to be by the terms of the applicable Security Documents and is not otherwise subject to the Lien created by such Security Documents, as soon as possible and in no event later than ten (10) days after the relevant acquisition date, the Borrower or such other Credit Party shall grant to the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties, a first priority Lien on such property as collateral security for the Obligations pursuant to documentation reasonably satisfactory in form and substance to the Collateral Agent. SECTION 5.14. COLLATERAL ACCESS AGREEMENTS. Until such time as the ---------------------------- Administrative Agent otherwise notifies the Borrower in writing, obtain and deliver as soon as practicable to the Collateral Agent Collateral Access Agreements duly-executed by the Borrower and/or the applicable Credit Party or Credit Parties and each of the landlords and mortgagees of each location where the Borrower maintains any Inventory. In furtherance of the foregoing, the Borrower and/or the applicable Credit Party or Credit Parties shall, to the satisfaction of the Administrative Agent in its sole discretion, (a) continue to use (i) their best efforts to obtain Collateral Access Agreements with respect to the Borrower's retail locations in the Commonwealth of Pennsylvania, and (ii) their reasonable efforts to obtain Collateral Access Agreements with respect to the Borrower's retail locations in the State of New Jersey and (b) use their best efforts to obtain Collateral Access Agreements from the landlords of each leased property included in the Additional Collateral and the Permissible Collateral. 73 SECTION 5.15. INVENTORY. Cause all Inventory to be (i) located at such --------- places, (ii) in such amounts and (iii) of the quality and value represented to the Collateral Agent by the Borrower on or about the Closing Date. SECTION 5.16. FURTHER ASSURANCES. Take all such further actions and ------------------ execute all such further documents and instruments as the Administrative Agent, the Collateral Agent or Tranche B Agent may at any time reasonably determine in its sole discretion to be necessary or desirable to further carry out and consummate the transactions contemplated by this Agreement and the other Loan Documents, to cause the execution, delivery and performance of this Agreement and the other Loan Documents to be duly authorized and to perfect or protect the Liens (and the priority status thereof) of the Collateral Agent in the Collateral. SECTION 5.17. USE OF PROCEEDS. Use the proceeds of the Loans only to, --------------- first, repay in full all loans, letter of credit liabilities and other obligations outstanding under or in respect of the Existing Credit Facility and, second, make certain payments required under the Confirmed Plan not in excess of $8,000,000 in the aggregate as provided in the summary of sources and uses of funds set forth on Schedule 3.10 and to prepay up to the aggregate amount of $6,000 to the holders of the New Notes, and, thereafter, (i) provide working capital for and finance Inventory purchases by the Borrower and otherwise for general corporate purposes of the Borrower and (ii) prepay the Permitted Note Debt in accordance with Section 6.15. The Borrower will not use the proceeds of any Loans or any other property of the Borrower to make any intercompany or Affiliate advances (it being understood that proceeds of the Loans used for ordinary-course operating expenses of the Bradlees store located in Yonkers, New York (so long as such store remains open) will be deemed to be a permitted use of proceeds hereunder). SECTION 5.18. PERMITTED NOTE DEBT AND TRADE LIEN DEBT. (a) Ensure that at --------------------------------------- all times the terms of the Permitted Note Debt and the Trade Lien Debt comply with the respective provisions of this Agreement (including any Attachments hereto) and (b) upon receipt of notice of a default or event of default, or an event which is reasonably likely to result in a default or an event of default, under the documents governing any Permitted Note Debt or the Trade Lien, immediately deliver to the Administrative Agent notice thereof. SECTION 5.19. YONKERS. On the Yonkers Effective Date (as defined in the ------- Confirmed Plan), cause Yonkers to consummate a Combination Transaction (as defined in the Confirmed Plan) in a manner acceptable to the Administrative Agent. If at any time the provisions of the Yonkers Confirmation Order authorizing Yonkers to enter into the Loan Documents to which it is a party is reversed or vacated, or modified or amended in a manner deemed unacceptable by the Administrative Agent, use its best efforts to obtain promptly from the Bankruptcy Court an order authorizing Yonkers to enter into the Loan Documents to which it is a party nunc pro tunc to the Closing Date. SECTION 5.20. MORTGAGEE WAIVERS. (a) Within 10 Business Days of such ----------------- delivery (unless extended by the Collateral Agent) cause each Mortgagee Waiver delivered to the 74 Collateral Agent hereunder to be properly recorded in the real estate records of the appropriate jurisdiction. (b) If so instructed by the Collateral Agent following a default by the Borrower under the New Notes Indenture, within 90 days of such instruction, either (at the option of the Collateral Agent) (i) transfer all Inventory, equipment and other Collateral from one or more of the Bradlees store locations included in the Permissible Collateral or the Additional Collateral to another existing warehouse or store location at which the Collateral Agent has a first- priority perfected security interest with respect to Collateral located at such warehouse or store or (ii) conduct a going-out-of-business or other sale or disposition of such Collateral at any or all such Permissible Collateral or Additional Collateral locations (with respect to any transferred Collateral, to the extent local law permits such sale), all in compliance with the relevant lease and Mortgagee Waiver and as instructed by the Collateral Agent. VI. NEGATIVE COVENANTS From the date hereof and for so long as any Commitment shall be in effect or any Loan, Letter of Credit, or other Obligation shall remain outstanding (unless such Letter of Credit is fully collateralized to the satisfaction of the Administrative Agent) the Borrower and each of the other Credit Parties agree that the Borrower and each of the other Credit Parties will not: SECTION 6.01. LIENS. Incur, create, assume or suffer to exist any Lien on ----- any property of the Borrower or the other Credit Parties whether now owned or hereafter acquired by the Borrower, other than (i) Permitted Liens; (ii) Liens in favor of the Collateral Agent, for its benefit and the ratable benefit of the other Secured Parties pursuant to the Loan Documents; (iii) Liens granted in favor of the Other Transactions Counterparties in connection with Interest Rate Agreements, the Master Lease Agreement and any other obligations owed by the Borrower or the other Credit Parties to the Other Transactions Counterparties; (iv) Liens on any interests in Real Property securing Indebtedness permitted under Section 6.03(iii); (v) the Trade Lien; or (vi) Liens securing outstanding obligations of the Borrower under the New Notes and the CAP Notes; provided, -------- that the Liens securing obligations under the New Notes shall be secured only by the Permissible Collateral, the Additional Collateral and the Yonkers Common Stock Collateral (in each case, to the extent permitted by the terms of Attachment III hereto) and the Liens securing the obligations under the CAP Notes shall be secured only by a Lien on the CAP Collateral (as defined in Attachment I hereto). SECTION 6.02. MERGER, ETC. Consolidate or merge with or into another ----------- Person (other than with Subsidiaries or BI so long as the Borrower is the surviving entity) or enter into any stock or asset acquisitions. SECTION 6.03. INDEBTEDNESS. Contract, create, incur, assume or suffer to ------------ exist any Indebtedness, except for (i) Indebtedness arising under this Agreement or any other Loan Document; (ii) Indebtedness secured by purchase money Liens and Capitalized Leases in an aggregate amount not to exceed $10,000,000 incurred after the Closing Date; (iii) Indebtedness 75 secured by any interests in Real Property owned or leased by the Borrower or any other Credit Party that is non-recourse to the Borrower and the other Credit Parties and is otherwise on terms and conditions reasonably satisfactory to the Administrative Agent and the proceeds of which are deposited in the BBNA Concentration Account for application to the Obligations in accordance with Section 2.14; (iv) Permitted Note Debt; (vi) Indebtedness arising under Interest Rate Agreements; and (v) any pre-petition tax claims (up to $3,400,000 in the aggregate) to be paid subsequent to the Plan Effective Date pursuant to the Tax Payment Plan. SECTION 6.04. CAPITAL EXPENDITURES. Make Capital Expenditures in any -------------------- fiscal year in excess of $20,000,000; provided, that, (i) up to $5,000,000 of such $20,000,000 amount not expended in any fiscal year may be carried over for expenditure in the immediately following fiscal year and (ii) so long as no Default or Event of Default is then continuing, if, as of the end of the Borrower's fiscal year, the Borrower's EBITDA for the previous 12-month period exceeds $40,000,000, the Borrower may increase its Capital Expenditures above $20,000,000 for the next fiscal year by the lesser of (x) 50% of the EBITDA in excess of $40,000,000, and (y) $10,000,000. SECTION 6.05. EBITDA. Permit EBITDA (after cash restructuring costs and ------ after adding back to EBITDA (to the extent not already done so) up to $4,400,000 of SG&A Expenses relating to emergence and other bonuses actually incurred by the Borrower in connection with the Confirmed Plan) for the 12-month period ending on or about the date set forth below to be less than the amount specified opposite such date: Fiscal Quarter of the Borrower Ending Rolling EBITDA ------------------------------------- -------------- on or about January 31, 1999 $17,500,000 on or about April 30, 1999 $20,000,000 on or about July 31, 1999 $22,500,000 on or about October 31, 1999 $27,500,000 on or about January 31, 2000 $30,000,000 and each fiscal quarter thereafter SECTION 6.06. ACCOUNTS PAYABLE TO INVENTORY RATIO. Permit the ratio of the ----------------------------------- amount of Accounts Payable to the value of Inventory of the Borrower (valued on a first in - first out basis at the lower of cost or market calculated on the retail method in accordance with GAAP and shown on the Borrower's financial statements), expressed as a percentage, at the end of each month in any year set forth below to be less than the percentage specified opposite such month: Month Minimum Percentage ----- ------------------ January 37.0% February 40.0% March 40.0% April 40.0% 76 May 40.0% June 40.0% July 40.0% August 42.5% September 42.5% October 42.5% November 42.5% December 40.0% SECTION 6.07. DEBT COVERAGE RATIO. For the fiscal quarter of the Borrower ------------------- ending on or about January 31, 2001 and each fiscal quarter thereafter, permit the Borrower's ratio of (a) EBITDA less Capital Expenditures and cash payments ---- for taxes to (b) cash Interest Expense plus principal payments on any ---- Indebtedness, for the 12-month period ending on the last day of such fiscal quarter to be less than 1.00:1. SECTION 6.08. GUARANTEES AND OTHER LIABILITIES. Purchase or repurchase -------------------------------- (or agree, contingently or otherwise, so to do) the Indebtedness of, or assume, guarantee (directly or indirectly or by an instrument having the effect of assuring another's payment or performance of any obligation or capability of so doing, or otherwise), endorse or otherwise become liable, directly or indirectly, in connection with the obligations, stock or dividends of any Person, or permit any Subsidiary or Guarantor to do so, except for (i) the Guaranty of the Guarantors hereunder, (ii) the unsecured subordinated guaranty by BI of the Borrower's obligations under the New Notes, as set forth on Attachment III hereto and (iii) the subordinated guaranty by Yonkers of the Borrower's obligations under the New Notes, as set forth on Attachment III hereto. SECTION 6.09. DIVIDENDS; CAPITAL STOCK. Declare or pay, directly or ------------------------ indirectly, any dividends or make any other distribution or payment (by way of repurchase or otherwise), whether in cash, property, securities or a combination thereof, with respect to (whether by reduction of capital or otherwise) any shares of capital stock (or any options, warrants, rights or other equity securities or agreements relating to any capital stock), or set apart any sum for the aforesaid purposes; provided that any Subsidiary of the Borrower may pay -------- dividends to the Borrower. SECTION 6.10. TRANSACTIONS WITH AFFILIATES. Sell or transfer any property ---------------------------- or assets to, or otherwise engage in any other transactions with, any of its shareholders or Affiliates, except that the Borrower or any other Credit Party may engage in any of the foregoing transactions in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such other Credit Party than could be obtained on an arm's-length basis from unrelated third parties and which are consistent with past practices. Notwithstanding the foregoing, the Borrower may not transfer any assets to any other Credit Party except for proceeds of the loans to the extent provided in Section 3.10. 77 SECTION 6.11. INVESTMENTS, LOANS AND ADVANCES. Purchase, hold or acquire ------------------------------- any capital stock, evidences of indebtedness or other securities of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other Person (all of the foregoing, "Investments"), except for (i) ownership of the capital stock of the Borrower by ----------- BI and each of the Guarantors listed on Schedule 3.04 (other than BI) and Yonkers by the Borrower, (ii) relocation or similar type loans or advances to new employees not in excess of $750,000 in the aggregate during the term of this Agreement and (iii) Permitted Investments (provided the Collateral Agent has a perfected first-priority security interest therein for its benefit and the ratable benefit of the other Secured Parties). SECTION 6.12. DISPOSITION OF ASSETS. Sell or otherwise dispose of any --------------------- assets (including, without limitation, the capital stock of any Subsidiary), except for (a) sales of Inventory in arm's-length transactions in the ordinary course of business and (b) so long as no Default or Event of Default has occurred or is continuing or would occur after giving effect to such sale or disposition, (i) sales of Inventory, furniture, fixtures and equipment located in the retail stores permitted to be closed under Section 6.13(c) that are closed or otherwise disposed of, (ii) the sale of obsolete or worn out equipment disposed of in the ordinary course of business, and (iii) the sale or other transfer of Real Property, the proceeds of which are deposited in the BBNA Concentration Account for application to the Obligations in accordance with Section 2.14; provided that the following shall not be deemed prohibited by this Agreement: (i) the return to vendors of out-of-season, defective, damaged or nonconforming Inventory or negotiated returns for credit and (ii) the sale of Permissible Collateral, provided that the proceeds from such sale are promptly either (A) used to repay the amounts outstanding under the New Notes or (B) deposited in a Blocked Account or the BBNA Concentration Account for application to the Obligations in accordance with Section 2.14. SECTION 6.13. NATURE OF BUSINESS. ------------------ (a) Modify or alter in any material manner the nature and type of its business as conducted at the Closing Date or the manner in which such business is conducted. (b) Change, in any material respect, any of its inventory or sales accounting, invoicing or billing practices or management information or reporting systems except for the change of the Borrower's Inventory tracking and accounting system reasonably satisfactory to the Administrative Agent (provided -------- that, after such change, the Borrower continues to use accounting and tracking methodologies consistent with those currently used by the Borrower). (c) Close more than 5 retail stores, except as projected in the Confirmed Plan and/or the Business Plan and except as set forth in subsection 7.01(k). (d) Move Inventory from other than the locations listed on Schedule 3.11(a). SECTION 6.14. CONFLICTING AGREEMENTS OR ACTIONS. Enter into any --------------------------------- stipulation or agreement, take any action, or request or permit any other Person to take any action which does or could conflict or materially interfere with any of the rights, privileges, benefits or remedies of 78 the Administrative Agent, the Co-Agents, the Tranche B Agent, the Issuing Bank, the Collateral Agent, or any of the Lenders under any of the Loan Documents, or materially diminish or impair the practical realization of any such right, privilege, benefit or remedy. SECTION 6.15. PREPAYMENTS AND AMENDMENT OF DEBT DOCUMENTS. (a) Make any ------------------------------------------- optional payment or prepayment on or redemption or purchase of, or deliver any funds to any trustee for the prepayment, redemption or defeasance of, any Permitted Note Debt or any Indebtedness governed by the Tax Payment Plan (other than as expressly permitted under Sections 3.10 and 5.17 hereof) or (b) amend, modify or change, or consent or agree to any amendment, modification or change to any of the material terms of any documents governing the Permitted Note Debt, the Trade Lien or the Tax Payment Plan (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon). Notwithstanding anything to the contrary in clause (a) of this Section 6.15 and provided that no Default or Event of Default has then occurred and is continuing, the Borrower may prepay any amounts outstanding (i) under the CAP Notes and Cure Notes with the prior written consent of the Administrative Agent, such consent not to be unreasonably withheld and (ii) under the New Notes in accordance with the terms of such New Notes and the documents governing such New Notes, each as in effect on the Closing Date, (1) with the proceeds from the sale of the Permissible Collateral or the sale of the Additional Collateral (if such sale is consented to in writing by the Administrative Agent), (2) with the proceeds of any equity offering by BI consummated after the Plan Effective Date, or (3) with other funds if, with respect to this clause (3), immediately after giving effect to such prepayment, the amount available to be borrowed by the Borrower under Section 2.0l(a)(1) (after accounting for the payment by the Borrower of all of its other due and payable payment obligations whether or not actually paid) is not less than the amount set forth below opposite the Borrower's fiscal month in which such prepayment takes place: 79
Fiscal Month Required Excess Availability ------------ ---------------------------- February $39,000,000 March $46,000,000 April $49,000,000 May $48,000,000 June $36,000,000 July $38,000,000 August $31,000,000 September $34,000,000 October $47,000,000 November $43,000,000 December $47,000,000 January $46,000,000
The Borrower shall provide the Administrative Agent with written notice at least twenty and not more than forty-five days in advance of its intention to prepay any of the CAP Notes, the Cure Notes and the New Notes and, with respect to any prepayment of the New Notes pursuant to clause (ii)(3) above, written calculations demonstrating the Borrower's compliance with the provisions thereof. (b) Notwithstanding the foregoing, indebtedness of the Borrower under the New Notes may be converted into common stock of BI as provided in the Indenture. SECTION 6.16. AMENDMENTS TO CREDIT PLAN AGREEMENT. Enter into or agree to ----------------------------------- any amendment to or other modification of the Credit Plan Agreement or any other documents or instruments (including, without limitation, UCC-1 financing statements) executed in connection therewith without the prior written consent of the Administrative Agent, such consent not to be unreasonably withheld. VII. EVENTS OF DEFAULT SECTION 7.01. EVENTS OF DEFAULT. If any of the following events (each, an ----------------- "Event of Default") occurs: ---------------- (a) any material representation or warranty made by the Borrower or any other Credit Party in this Agreement or in any other Loan Document or in connection with this Agreement or with the execution and delivery of the Notes or the credit extensions hereunder or any material statement or representation made in any report, financial statement, certificate or other document furnished by the Borrower or any other Credit Party to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent or any of the Lenders under or in connection with this Agreement or any other Loan Document, shall prove to have been false or misleading in any material respect when made or delivered; or 80 (b) default shall be made in the payment of any (i) Fees or interest on the Loans when due, and such default shall continue unremedied for more than three (3) Business Days or (ii) principal of the Loans or other amounts payable by the Borrower hereunder (including, without limitation, reimbursement obligations or cash collateralization in respect of Letters of Credit), when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; or (c) default shall be made by the Borrower or any other Credit Party in the due observance or performance of any covenant, condition or agreement contained in Article VI hereof; or (d) default shall be made by the Borrower or any other Credit Party in the due observance or performance of any other covenant, condition or agreement to be observed or performed pursuant to the terms of this Agreement or any of the other Loan Documents and, with respect to Sections 5.01, 5.02 or 5.10, such default shall continue unremedied for more than five (5) Business Days; or (e) dissolution, liquidation, winding up or cessation of the Borrower's or any other Credit Party's businesses, or the failure of the Borrower or any other Credit Party to meet its debts as they mature, or the calling of one or more meetings of the Borrower's or any other Credit Party's major creditors for purposes of obtaining a moratorium on payment or a compromise of the Borrower's or any other Credit Party's debts; or (f) the insolvency of the Borrower or any other Credit Party or the commencement on or after the Closing Date by or against the Borrower or any other Credit Party of any bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceedings under any federal or state law and, in the event any such proceeding is commenced against the Borrower or any other Credit Party, such proceeding is not dismissed within thirty (30) days; or (g) the loss by the Borrower or any other Credit Party of any lease, permit, franchise or agreement, the loss of which could reasonably be expected to have a material adverse effect on the financial condition, operations or assets of the Borrower or the other Credit Parties, or their ability to repay the Obligations or of the Collateral Agent to realize on the Collateral; or (h) failure of Peter Thorner or some other person reasonably acceptable to the Administrative Agent, to participate in the affairs of the Borrower and the other Credit Parties as Chairman of the Board of Directors and Chief Executive Officer with no diminution in the present responsibilities and authority related to this executive management position; or (i) (A) the occurrence of a default or event of default (in each case without regard to any applicable grace periods) which permits, or could permit, the acceleration of the maturity of, or the exercise of any other remedies under (a) the Master Lease Agreement or any Interest Rate Agreement or (b) any note, agreement or instrument evidencing (1) the New Notes or the Tax Payment Plan or (2) any other Indebtedness of the Borrower or any of the other Credit 81 Parties, and the aggregate principal amount of all such Indebtedness included in this clause (3) with respect to which such a default or an event of default has occurred, or the maturity of which is permitted to be accelerated, exceeds $10,000,000 or (B) at any time more than 20 leases of the Borrower's retail locations or warehouses have been declared to be terminated by the landlords thereunder and such terminations have not been withdrawn, settled or otherwise adjudicated in favor of the Borrower; or (j) (A) any material provision of any Loan Document shall, for any reason, cease to be valid and binding on the Borrower or any of the other Credit Parties; provided, that, with respect to Yonkers only, such occurrence that is caused by any of the circumstances set forth in the second sentence of Section 5.19 shall not be an Event of Default hereunder so long as the Credit Parties comply with the provisions of such sentence or (B) any Lien granted to the Collateral Agent under any Loan Document shall cease to be a first-priority perfected Lien (subject only to Permitted Liens), or, in the case of (A) or (B) the Borrower or any of the other Credit Parties shall so assert in any pleading filed in any court; or (k) greater than fifty percent (50%) of the Borrower's stores close (temporarily or otherwise) for more than seven (7) consecutive days, unless such closures are covered by business interruption insurance; or (l) any one or more judgments or orders as to a liability or debt for the payment of money (not covered by insurance and workers' compensation payments) in excess of $5,000,000 in the aggregate shall be rendered against the Borrower or any of the other Credit Parties and either (i) enforcement proceedings shall have been commenced and shall be continuing by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal, payment or otherwise, shall not be in effect; or (m) any non-monetary judgment or order shall be rendered against the Borrower or any of the other Credit Parties which does or would reasonably be expected to (i) cause a material adverse change in the financial condition, business, operations or assets of the Borrower and the other Credit Parties taken as a whole on a consolidated basis, (ii) have a material adverse effect on the ability of the Borrower or any of the other Credit Parties to perform their respective obligations under any Loan Document, or (iii) have a material adverse effect on the Collateral or on the rights and remedies of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co- Agents or any Lender under any Loan Document, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (n) (i) The Borrower or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under a Multiemployer Plan; (ii) the Borrower or any ERISA Affiliate shall fail to satisfy, after application of any applicable grace periods, its contribution requirements 82 under Section 412(c)(11) of the Code, whether or not it has sought a waiver under Section 412(d) of the Code; (iii) in the case of a Termination Event involving the withdrawal from a Single Employer Plan of a "substantial employer" (as defined in Section 4001(a)(2) or Section 4062(e) of ERISA), the withdrawing employer's proportionate share of that Plan's Unfunded Pension Liabilities is more than $5,000,000; (iv) in the case of a Termination Event involving the complete or partial withdrawal from a Multiemployer Plan, the withdrawing employer has incurred a withdrawal liability in an aggregate amount exceeding $5,000,000; (v) there occurs a Termination Event described in clauses (ix) or (x) of the definition of Termination Event; (vi) in the case of a Termination Event not described in clause (iii), (iv) or (v), the Unfunded Pension Liabilities of the relevant Plan or Plans exceed $5,000,000; or (vii) a Qualified Plan shall lose its qualification, and with respect to such loss of qualification, the Borrower or any ERISA Affiliate can reasonably be expected to be required to pay (for additional taxes, payments to or on behalf of Plan participants, or otherwise) an aggregate amount exceeding $5,000,000; or (o) it shall be determined (whether by the Bankruptcy Court or by any other judicial or administrative forum) that the Borrower is liable for the payment of claims arising out of any failure to comply (or to have complied) with applicable environmental laws or regulations the payment of which will have a material adverse effect on the financial condition, business, properties, operations or assets of the Borrower or the Borrower and/or the Guarantors, taken as a whole; or (p) the occurrence of a Change of Control; or (q) the Confirmation Order or the Yonkers Confirmation Order is reversed, vacated, rescinded, modified or amended (except as expressly provided in Section 3.09 and subsection 4.01(d) or, with respect to the Yonkers Confirmation Order, if the Borrower complies with the provisions of the second sentence of Section 5.19), then, and in every such event and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Tranche A Lenders shall, by notice (a "Default Notice") to the Borrower take one -------------- or more of the following actions, at the same or different times: (i) terminate forthwith all obligations of the Tranche A Lenders and the Issuing Bank to extend credit under this Agreement, including any and all obligations to make Tranche A Loans or to issue Letters of Credit; (ii) declare the Loans then outstanding to be forthwith due and payable (such declaration to be consented to in advance by the Required Supermajority Lenders if at such time any Tranche B Loans are outstanding and the Tranche B Lenders have not at such time exercised their remedies under clauses (ii) or (iv) of the last paragraph of Section 7.02 hereof), whereupon the principal of all outstanding Loans together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower and the other Credit Parties, anything contained herein or in any other Loan Document to the contrary notwithstanding; (iii) require the Borrower and the other Credit Parties to deposit in the Cash Collateral Account, no later than the first Business Day after such 83 Default Notice is given, cash in an amount equal to the sum of 105% of the aggregate amounts that then are or thereafter may become available for drawing or payment under all outstanding Letters of Credit and (without limiting or restricting any application permitted under Sections 2.13 and 2.14) to the extent the Borrower and the other Credit Parties shall fail to furnish such funds as demanded by the Administrative Agent, the Administrative Agent shall be authorized to debit the accounts of the Borrower and the other Credit Parties maintained with the Administrative Agent in such amount; (iv) set-off amounts in the Cash Collateral Account or any other accounts maintained by the Administrative Agent and apply such amounts to the obligations of the Borrower and the other Credit Parties hereunder and in the other Loan Documents in connection with the Loans as provided in Section 2.17(a) (but this clause (iv) shall not limit or restrict any application permitted under Sections 2.13 and 2.14); (v) instruct the Collateral Agent to exercise its remedies under the Security Documents (including, without limitation, foreclosure upon and taking possession of the Collateral), such instruction to be consented to in advance by the Required Supermajority Lenders if at such time any Tranche B Loans are outstanding and the Tranche B Lenders have not at such time exercised their remedies under clauses (ii) or (iv) of the last paragraph of Section 7.02 hereof, and (vi) exercise any and all other remedies under the Loan Documents and applicable law available to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Co-Agents and the Lenders. SECTION 7.02. EVENTS OF SUPER-DEFAULT. If any of the following events ----------------------- (each, an "Event of Super-Default") occurs: ---------------------- (a) any of the representations and warranties set forth in Sections 3.01, 3.03, 3.04, 3.09, 3.11(d) or 3.13 prove to have been false or misleading in any material respect when made or delivered; or (b) default shall be made by the Borrower or any other Credit Party in the due observance or performance of any covenant, condition or agreement set forth in Sections 5.02, 5.06, 5.07, 5.12, 5.13, 5.15, 6.02, 6.09, 6.10, 6.12 or 6.13(c) or (d) hereof and, with respect to Section 5.02, such default shall continue unremedied for more than five (5) Business Days and, with respect to Section 5.06, such default shall continue unremedied for more than two (2) Business Days; or (c) any Event of Default set forth in Sections 7.01 (b), (e), (f), (j), (p) or (q); or (d) failure of the Borrower or the other Credit Parties to comply with Sections 6 or 11 of the Security Agreement; or (d) acceleration of the Tranche A Loans pursuant to clause (ii) in the last paragraph of Section 7.01; or (e) any other Event of Default that continues unwaived for ten (10) Business Days; 84 then, and in every such event and at any time thereafter during the continuance of any such event, the Administrative Agent may, and at the request of the Required Tranche B Lenders shall, by notice (a "Tranche B Default Notice") to ------------------------ the Borrower take one or more of the following actions, at the same or different times: (i) terminate forthwith all obligations of the Tranche B Lenders to extend credit under this Agreement, including any and all obligations to make Tranche B Loans; (ii) provided that either (A) the Tranche A Loans have been declared due and payable pursuant to Section 7.01 or (B) 30 days have elapsed since the occurrence of the Event of Super-Default, declare the Tranche B Loans then outstanding to be forthwith due and payable, whereupon the principal of all outstanding Tranche B Loans together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Borrower accrued hereunder and under any other Loan Document shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by the Borrower and the other Credit Parties, anything contained herein or in any other Loan Document to the contrary notwithstanding; (iii) set-off amounts in the Cash Collateral Account or any other accounts maintained by the Administrative Agent and apply such amounts to the obligations of the Borrower and the other Credit Parties hereunder and in the other Loan Documents in connection with the Tranche B Loans as provided in Section 2.17(a) (but this clause (iii) shall not limit or restrict any application permitted under Sections 2.13 and 2.14); (iv) provided that either (A) the Tranche A Loans have been declared due and payable pursuant to Section 7.01 or (B) 30 days have elapsed since the occurrence of the Event of Super- Default, instruct the Collateral Agent to exercise its remedies under the Security Documents (including, without limitation, foreclosure upon and taking possession of the Collateral) and (v) exercise any and all other remedies under the Loan Documents and applicable law available to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders. SECTION 7.03. WHEN CONTINUING. For all purposes under this Agreement, --------------- each Default and Event of Default that has occurred shall be deemed to be continuing at all times thereafter unless it either (a) is cured or corrected to the reasonable written satisfaction of the Required Tranche A Lenders or (b) is waived in writing by the Required Tranche A Lenders. For all purposes under this Agreement, each Event of Super-Default that has occurred shall be deemed to be continuing at all times thereafter unless it either (a) is cured or corrected to the reasonable written satisfaction of the Required Tranche B Lenders or (b) is waived in writing by the Required Tranche B Lenders. VIII. THE AGENTS SECTION 8.01. ADMINISTRATION BY ADMINISTRATIVE AGENT. The general -------------------------------------- administration of the Loan Documents shall be by the Administrative Agent. The Lenders, the Collateral Agent, the Tranche B Agent and the Issuing Bank each hereby irrevocably authorizes the Administrative Agent (i) to enter into the Loan Documents to which it is a party and (ii) at its discretion, to take or refrain from taking such actions as agent on its behalf and to exercise or refrain from exercising such powers under the Loan Documents and the Notes as are delegated by the terms hereof or thereof, as appropriate, together with all powers reasonably incidental 85 thereto. The Administrative Agent shall have no duties or responsibilities except as set forth in this Agreement and the remaining Loan Documents. SECTION 8.02. THE COLLATERAL AGENT. Each Lender, the Administrative -------------------- Agent, the Tranche B Agent, the Co-Agents and the Issuing Bank hereby irrevocably (i) designate BBRF as Collateral Agent under this Agreement and the other Loan Documents, (ii) authorize the Collateral Agent to enter into the Collateral Documents and the other Loan Documents to which it is a party and to perform its duties and obligations thereunder and (iii) agree and consent to all of the provisions of the Security Agreement. All Collateral shall be held or administered by the Collateral Agent (or its duly-appointed agent) for its benefit and for the ratable benefit of the other Secured Parties. Any proceeds received by the Collateral Agent from the foreclosure, sale, lease or other disposition of any of the Collateral and any other proceeds received pursuant to the terms of the Security Documents or the other Loan Documents shall be paid over to the Administrative Agent for application as provided in Sections 2.14(a) and (b). SECTION 8.03. ADVANCES AND PAYMENTS. --------------------- (a) On the date of each Loan, the Administrative Agent shall be authorized (but not obligated) to advance, for the account of each of the Lenders, the amount of the Loan to be made by it in accordance with its Commitment hereunder. Should the Administrative Agent do so, each of the Lenders agrees forthwith to reimburse the Administrative Agent in immediately available funds for the amount so advanced on its behalf by the Administrative Agent, together with interest at the Federal Funds Effective Rate if not so reimbursed on the date due from and including such date but not including the date of reimbursement. (b) Any amounts received by the Administrative Agent in connection with this Agreement or the other Loan Documents (other than amounts to which the Administrative Agent is entitled pursuant to Sections 2.19, 5.08, 8.07, 10.05 and 10.06), the application of which is not otherwise provided for in this Agreement shall be applied in the order of priority set forth in Sections 2.14(a) and (b). All amounts to be paid to a Lender, the Collateral Agent, the Tranche B Agent, either Co-Agent or the Issuing Bank by the Administrative Agent shall be credited to that Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank, as applicable, after collection by the Administrative Agent, in immediately available funds either by wire transfer or deposit in the correspondent account of that Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank with the Administrative Agent, as such Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank and the Administrative Agent shall from time to time agree. SECTION 8.04. SHARING OF EXCESS PAYMENTS. Each of the Lenders, the -------------------------- Collateral Agent, the Tranche B Agent, each Co-Agent and the Issuing Bank agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower or any other Credit Party, including, but not limited to, a secured claim under Section 506 of the Bankruptcy Code or other security or interest arising from, or in lieu of, such secured claim and received by such Lender, the Collateral Agent, the Tranche B Agent, such Co- Agent or the Issuing Bank 86 under any applicable bankruptcy, insolvency or other similar law, or otherwise, obtain payment in respect of its Obligations owed it (an "excess payment") as a -------------- result of which Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank has received payment of any Loans or other Obligations outstanding to it in excess of the amount that it would have received if all payments at any time applied to the Loans and other Obligations had been applied in the order of priority set forth in Section 2.14, then such Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank shall promptly purchase at par (and shall be deemed to have thereupon purchased) from the other Lenders, the Collateral Agent, the Tranche B Agent, each Co-Agent and the Issuing Bank, as applicable, a participation in the Loans and Obligations outstanding to such other Persons, in an amount determined by the Administrative Agent in good faith as the amount necessary to ensure that the economic benefit of such excess payment is reallocated in such manner as to cause such excess payment and all other payments at any time applied to the Loans and other Obligations to be effectively applied in the order of priority set forth in Section 2.14 and, within Tranche A and Tranche B, to each lender pro rata in --- ---- proportion to its Tranche A Commitment and Tranche B Commitment, respectively; provided, that if any such excess payment is thereafter recovered or otherwise - -------- set aside such purchase of participations shall be correspondingly rescinded (without interest). The Borrower and each other Credit Party expressly consents to the foregoing arrangements and agrees that any Lender, the Collateral Agent, the Tranche B Agent, any Co-Agent or the Issuing Bank holding (or deemed to be holding) a participation in any Loan or other Obligation may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower or such other Credit Party to such Lender, the Collateral Agent, the Tranche B Agent, such Co-Agent or the Issuing Bank as fully as if such Lender, the Collateral Agent, the Tranche B Agent, such Co- Agent or the Issuing Bank held a Note and was the original obligee thereon, in the amount of such participation. SECTION 8.05. AGREEMENT OF REQUIRED LENDERS. (i) Upon any occasion ----------------------------- requiring or permitting an approval, consent, waiver, election or other action on the part of only the Required Tranche A Lenders, action shall be taken by the Agents for and on behalf or for the benefit of all Lenders upon the direction of the Required Tranche A Lenders, and any such action shall be binding on all Lenders, (ii) upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of only the Required Tranche B Lenders, action shall be taken by the Agents for and on behalf or for the benefit of all Lenders upon the direction of the Required Tranche B Lenders, and any such action shall be binding on all Lenders, (iii) upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of only the Required Lenders, action shall be taken by the Agents for and on behalf or for the benefit of all Lenders upon the direction of the Required Lenders, and any such action shall be binding on all Lenders, and (iv) upon any occasion requiring or permitting an approval, consent, waiver, election or other action on the part of the Required Supermajority Lenders, action shall be taken by the Agents for and on behalf or for the benefit of all Lenders upon the direction of the Required Supermajority Lenders, and any such action shall be binding on all Lenders. No amendment, modification, consent, or waiver shall be effective except in accordance with the provisions of Section 10.10. 87 SECTION 8.06. LIABILITY OF AGENTS. ------------------- (a) Each of the Agents, when acting on behalf of the Lenders and the Issuing Bank, may execute any of its respective duties under this Agreement by or through any of its respective officers, agents and employees, and none of the Agents nor their respective directors, officers, agents or employees shall be liable to the Lenders, the Co-Agents or the Issuing Bank or any of them for any action taken or omitted to be taken in good faith, or be responsible to the Lenders, the Co-Agents or the Issuing Bank or to any of them for the consequences of any oversight or error of judgment, or for any loss, except to the extent of any liability imposed by law by reason of such Agent's own gross negligence or willful misconduct. The Agents and their respective directors, officers, agents and employees shall in no event be liable to the Lenders, the Co-Agents or the Issuing Bank or to any of them for any action taken or omitted to be taken by them pursuant to instructions received by them from the Required Lenders, Required Tranche A Lenders, Required Tranche B Lenders or Required Supermajority Lenders, as applicable, or in reliance upon the advice of counsel selected by it. Without limiting the foregoing, none of the Agents, nor any of their respective directors, officers, employees, or agents shall be responsible to any Lender, the Co-Agents or the Issuing Bank for the due execution, validity, genuineness, effectiveness, sufficiency, or enforceability of, or for any statement, warranty or representation in, this Agreement, any Loan Document or any related agreement, document or order, or shall be required to ascertain or to make any inquiry concerning the performance or observance by the Borrower or any other Credit Party of any of the terms, conditions, covenants, or agreements of this Agreement or any of the Loan Documents. (b) None of the Agents nor any of their respective directors, officers, employees, or agents shall have any responsibility to the Borrower or the other Credit Parties on account of the failure or delay in performance or breach by any Lender, either Co-Agent or the Issuing Bank or by the Borrower or the other Credit Parties of any of their respective obligations under this Agreement or the Notes or any of the Loan Documents or in connection herewith or therewith. (c) The Administrative Agent, the Tranche B Agent and the Collateral Agent, in such capacities hereunder, shall be entitled to rely on any communication, instrument, or document reasonably believed by such person to be genuine or correct and to have been signed or sent by a person or persons believed by such person to be the proper person or persons, and, such person shall be entitled to rely on advice of legal counsel, independent public accountants, and other professional advisers and experts selected by such person. SECTION 8.07. REIMBURSEMENT AND INDEMNIFICATION. Each Lender agrees (i) to --------------------------------- reimburse (x) each Agent for such Lender's Commitment Percentage of any expenses and fees incurred by such Agent for the benefit of the Lenders, the Co-Agents or the Issuing Bank under this Agreement, the Notes and any of the Loan Documents, including, without limitation, counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, the Co-Agents or the Issuing Bank, and any other expense incurred in connection with 88 the operations or enforcement thereof not reimbursed by the Borrower or the other Credit Parties and (y) each Agent for such Lender's Commitment Percentage of any expenses of such Agent incurred for the benefit of the Lenders, the Co- Agents or the Issuing Bank that the Borrower has agreed to reimburse pursuant to Section 10.05 and has failed to so reimburse and (ii) to indemnify and hold harmless the Agents and any of their directors, officers, employees, or agents, on demand, in the amount of such Lender's Commitment Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses, or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against it or any of them in any way relating to or arising out of this Agreement, the Notes or any of the Loan Documents or any action taken or omitted by it or any of them under this Agreement, the Notes or any of the Loan Documents to the extent not reimbursed by the Borrower or the other Credit Parties (except such as shall result from their respective gross negligence or willful misconduct). SECTION 8.08. RIGHTS OF AGENTS. It is understood and agreed that each of ---------------- BBNA and BBRF shall have the same rights and powers hereunder (including the right to give such instructions) as the other Lenders and may exercise such rights and powers, as well as its rights and powers under other agreements and instruments to which it is or may be party, and engage in other transactions with the Borrower or any other Credit Party, as though it were not the Administrative Agent, the Tranche B Agent or the Collateral Agent, respectively, of the Lenders under this Agreement. SECTION 8.09. INDEPENDENT LENDERS AND ISSUING BANK. The Lenders and the ------------------------------------ Issuing Bank each acknowledges that it has decided to enter into this Agreement and to make the Loans or issue the Letters of Credit hereunder based on its own analysis of the transactions contemplated hereby and of the creditworthiness of the Borrower and the other Credit Parties and agrees that the Agents shall bear no responsibility therefor. SECTION 8.10. NOTICE OF TRANSFER. The Agents may deem and treat a Lender ------------------ party to this Agreement as the owner of such Lender's portion of the Loans for all purposes, unless and until, and except to the extent, an Assignment and Acceptance shall have become effective as set forth in Section 10.03(b). SECTION 8.11. SUCCESSOR ADMINISTRATIVE AGENT AND TRANCHE B AGENT. The -------------------------------------------------- Administrative Agent and the Tranche B Agent may resign at any time by giving five (5) Business Days' written notice thereof to the Lenders, the Issuing Bank, the other Agents and the Borrower. Upon any such resignation of the Administrative Agent, the Required Lenders shall have the right to appoint a successor Administrative Agent, which shall be reasonably satisfactory to the Borrower, and, upon any such resignation of the Tranche B Agent, the Required Tranche B Lenders shall have the right to appoint a successor Tranche B Agent, which shall be reasonably satisfactory to the Borrower. If no successor Administrative Agent or Tranche B Agent, as the case may be, shall have been so appointed by the Required Lenders or the Required Tranche B Lenders, as applicable, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation, the retiring Agent may, 89 on behalf of the Lenders, the other Agents and the Issuing Bank, appoint a successor Administrative Agent or Tranche B Agent, as the case may be, which shall be (i) a commercial bank (or affiliate thereof) organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of a least $100,000,000, (ii) or a Lender capable of complying with all of the duties of the Administrative Agent (and the Issuing Bank) or the Tranche B Agent, as the case may be, hereunder (in the opinion of the retiring Agent and as certified to the Lenders in writing by such successor Agent) which, in the case of (i) and (ii) above, so long as there is no Default, Event of Default or Event of Super-Default, shall be reasonably satisfactory to the Borrower. Upon the acceptance of any appointment as Administrative Agent or Tranche B Agent hereunder by a successor Administrative Agent or Tranche B Agent, as the case may be, such successor Administrative Agent or Tranche B Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as such Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was such Agent under this Agreement. Upon the effectiveness of the Administrative Agent's resignation hereunder, it shall be deemed to have resigned as Issuing Bank as well, with the Required Tranche A Lenders to appoint a successor Issuing Bank from among the successor Administrative Agent and the Lenders; provided that arrangements satisfactory to the replaced Issuing Bank -------- are made with respect to Letters of Credit issued by the Issuing Bank and outstanding as of the date of its resignation hereunder. SECTION 8.12. REPORTS AND FINANCIAL STATEMENTS. Promptly after receipt -------------------------------- thereof from the Borrower, the Administrative Agent shall remit to each Lender, the Collateral Agent, the Tranche B Agent and the Issuing Bank copies of all financial statements and reports required to be delivered by the Borrower hereunder. IX. GUARANTY SECTION 9.01. GUARANTY. -------- (a) Each of the Guarantors unconditionally and irrevocably guarantees the due and punctual payment and performance by the Borrower of the Obligations. Each of the Guarantors further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and it will remain bound upon this guaranty notwithstanding any extension or renewal of any of the Obligations. The Obligations of the Guarantors shall be joint and several. (b) Each of the Guarantors waives presentation to, demand for payment from and protest to the Borrower or any other Guarantor, and also waives notice of protest for nonpayment. The obligations of the Guarantors hereunder shall not be affected by (i) the failure of the Administrative Agent, the Collateral Agent, the Issuing Bank, the Tranche B Agent, either Co-Agent or a Lender to assert any claim or demand or to enforce any right or remedy against 90 the Borrower or any other Guarantor under the provisions of this Agreement or any other Loan Document or otherwise; (ii) any extension or renewal of any provision hereof or thereof; (iii) any rescission, waiver, compromise, acceleration, amendment or modification of any of the terms or provisions of any of the Loan Documents; (iv) the release, exchange, waiver or foreclosure of any security held by the Administrative Agent or the Collateral Agent for the Obligations or any of them; (v) the failure of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or a Lender to exercise any right or remedy against any other Guarantor; (vi) the release or substitution of any Guarantor or any other guarantor or (vii) any bankruptcy, insolvency, reorganization, arrangement, adjustment, composition, liquidation or the like of the Borrower or any Guarantor including, but not limited to, (x) any Guaranteed Party's election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, (y) any borrowing or grant of a Lien by the Borrower or any Guarantor as debtor-in-possession, under Section 364 of the Bankruptcy Code, or (z) the disallowance of all or any portion of any Guaranteed Party's claim(s) for repayment of the Obligations under Section 502 of the Bankruptcy Code. (c) Each of the Guarantors further agrees that this guaranty constitutes a guaranty of performance and of payment when due and not just of collection, and waives any right to require that any resort be had by the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or a Lender to any security held for payment of the Obligations or to any balance of any deposit, account or credit on the books of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or a Lender in favor of the Borrower or any other Guarantor, or to any other Person. (d) Each of the Guarantors hereby waives any defense that it might have based on a failure to remain informed of the financial condition of the Borrower and of any other Guarantor and any circumstances affecting the ability of the Borrower to perform under this Agreement. (e) Each Guarantor's guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the obligations, the Notes or any other instrument evidencing any Obligations, or by the existence, validity, enforceability, perfection, or extent of any collateral therefor or by any other circumstance relating to the obligations which might otherwise constitute a defense to this Guaranty. None of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or any of the Lenders makes any representation or warranty in respect to any such circumstances or shall have any duty or responsibility whatsoever to any Guarantor in respect of the management and maintenance of the obligations. (f) Subject to the provisions of Article VII, upon the Obligations becoming due and payable (by acceleration or otherwise), the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Administrative Agent shall be entitled to immediate payment of such obligations by the Guarantors upon written demand by the Administrative Agent. 91 SECTION 9.02. NO IMPAIRMENT OF GUARANTY. The obligations of the ------------------------- Guarantors hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or set-off, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality or unenforceability of the obligations. Without limiting the generality of the foregoing, the obligations of the Guarantors hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or a Lender to assert any claim or demand or to enforce any remedy under this Agreement or any other agreement, by any waiver or modification of any provision thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Guarantors or would otherwise operate as a discharge of the Guarantors as a matter of law, unless and until the obligations are paid in full. SECTION 9.03. SUBROGATION. Upon payment by any Guarantor of any sums to ----------- the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or a Lender hereunder, all rights of such Guarantor against the Borrower arising as a result thereof by way of right of subrogation or otherwise, shall in all respects be subordinate and junior in right of payment to the prior final and indefeasible payment in full of all the Obligations. If any amount shall be paid to such Guarantor for the account of the Borrower, such amount shall be held in trust for the benefit of the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders and shall forthwith be paid to the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders to be credited and applied to the Obligations, whether matured or unmatured. SECTION 9.04. CREDIT AGREEMENT. Each of the Guarantors acknowledges that ---------------- it has read the Loan Documents and agrees to perform and observe all of the terms and provisions herein and therein applicable thereto. SECTION 9.05. MAXIMUM GUARANTEED AMOUNT. Notwithstanding any other ------------------------- of this Guaranty to the contrary, if the obligations of any Guarantor hereunder would otherwise be held or determined by a court of competent jurisdiction in any action or proceeding involving any state corporate law or any state or Federal bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other law affecting the rights of creditors generally, to be void, invalid or unenforceable to any extent on account of the amount of such Guarantor's liability under this Guaranty, then notwithstanding any other provision of this Guaranty to the contrary, the amount of such liability shall, without any further action by such Guarantor or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable as determined in such action or proceeding. SECTION 9.06. RELEASE OF YONKERS GUARANTEE AND LIENS. -------------------------------------- Upon the transfer of ownership of the Yonkers Common Stock Collateral from the Borrower to any other Person 92 (other than another Credit Party) pursuant to, and in compliance with, the Indenture or the Indenture Security Agreement, the guaranty of Yonkers hereunder and the Liens granted by Yonkers under the Security Agreement each shall be released and Yonkers shall have no further obligations hereunder or under the other Loan Documents (other than indemnity and expense claims arising prior to the date of such release). X. MISCELLANEOUS SECTION 10.01. NOTICES. Notices and other communications provided for ------- herein shall be in writing (including telegraphic, telex, facsimile or cable communication) and shall be mailed, telegraphed, telexed, telecopied, transmitted, cabled or delivered to the Borrower or any other Credit Party at One Bradlees Circle, P.O. Box 9051, Braintree, MA 02185-9051, Attention: Chief Financial Officer (telecopy number: (781) 380-8096), and to a Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent or the Administrative Agent to it at its address set forth on the signature pages of this Agreement, or such other address as such party may from time to time designate by giving written notice to the other parties hereunder. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the fifth Business Day after the date when sent by registered or certified mail, postage prepaid, return receipt requested, if by mail; or when delivered to the telegraph company, charges prepaid, if by telegram; or when receipt is acknowledged, if by any telegraphic communications or facsimile equipment of the sender; in each case addressed to such party as provided in this Section 10.01 or in accordance with the latest unrevoked written direction from such party; provided, however, that in the case of notices to the Administrative Agent - -------- ------- notices pursuant to the preceding sentence and pursuant to Article II shall be effective only when received by the Administrative Agent. Copies of all notices and other communications given to the Borrower shall go to Dewey Ballantine, 1301 Avenue of the Americas, New York, New York 10019, Attn: Stuart Hirshfield, Esq. SECTION 10.02. SURVIVAL OF AGREEMENT, REPRESENTATIONS AND WARRANTIES, ETC. ----------------------------------------------------------- All warranties, representations and covenants made by the Borrower or any other Credit Party herein or in any certificate or other instrument delivered by it or on its behalf in connection with this Agreement shall be considered to have been relied upon by the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Administrative Agent and shall survive the making of the Loans and the issuance of Letters of Credit herein contemplated and the issuance and delivery of the Notes and the Letters of Credit, regardless of any investigation made by any Lender, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co-Agent and the Administrative Agent or on its behalf and shall continue in full force and effect so long as any amount due or to become due hereunder is outstanding and unpaid and so long as the Commitments have not been terminated. All statements in any such certificate or other instrument shall constitute representations and warranties by the Borrower and the other Credit Parties hereunder with respect to the Borrower and the other Credit Parties. SECTION 10.03. SUCCESSORS AND ASSIGNS. ---------------------- 93 (a) This Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders and their respective successors and assigns. Neither the Borrower nor any of the other Credit Parties may assign or transfer any of their rights or obligations hereunder without the prior written consent of all of the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Administrative Agent. Each Lender may sell participations to any Person in all or part of any Loan, or all or part of its Note or Commitment, in which event, without limiting the foregoing, the provisions of Section 2.15 and 2.18 shall inure to the benefit of each purchaser of a participation (provided that such -------- participant shall look solely to the seller of such participation for such benefits and the Borrower's and the Guarantors' liability, if any, under Sections 2.15 and 2.18 shall not be increased as a result of the sale of any such participation) and the treatment of payments pursuant to Section 2.17, shall be determined as if such Lender had not sold such participation. In the event any Lender shall sell any participation, such Lender shall retain the sole right and responsibility to enforce the obligations of the Borrower and each of the other Credit Parties relating to the Loans, including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement other than amendments, modifications or waivers which (i) reduce any Fees payable hereunder to the Lenders, (ii) reduce the amount of any scheduled principal payment on any Loan or reduce the principal amount of any Loan or the rate of interest payable hereunder, (iii) extend the maturity of the Borrower's obligations hereunder or (iv) release a material portion of the Collateral in a manner not expressly permitted under the Loan Documents without the benefit of such amendment, modification or waiver. The sale of any such participation, shall not alter the rights and obligations of the Lender selling such participation hereunder with respect to the Borrower. (b) Each Lender may assign to one or more Lenders or Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including, without limitation, all or a portion of its Tranche A Commitment or all or a portion of its Tranche B Commitment, or both of them, together with the same portion of the related Loans at the time owing to it and the related Notes held be it); provided, however, that (i) other than in the -------- ------- case of an assignment to an Affiliate of the assignor Lender, or to another Lender, the Administrative Agent and the Issuing Bank must give their prior written consent, which consent will not be unreasonably withheld, (ii) the aggregate amount of the Commitment and/or Loans held by each of the assigning and assignee Lenders subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent and after giving effect to such assignment) shall, unless otherwise agreed to in writing by the Borrower (so long as there is no Event of Default) and the Administrative Agent, in no event be less than $7,500,000, in the case of Tranche A Loans, or $5,000,000, in the case of Tranche B Loans (unless the assigning Lender assigns its entire remaining Commitment, in which case such assigning Lender's Commitment shall be $0), and (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register (as defined below), an Assignment and Acceptance with blanks appropriately completed, together with any Note subject to such assignment and a processing and recordation fee of $3,000. Upon such execution, delivery, acceptance and recording, from and 94 after the effective date specified in each Assignment and Acceptance, which effective date shall be within ten Business Days after the execution thereof (unless otherwise agreed to in writing by the Administrative Agent), (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) the Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). The Borrower shall have no liability for the $3,000 processing and recordation fee, but shall be responsible for its own expenses and the expenses of the Administrative Agent. Notwithstanding the foregoing, unless and until an Event of Default has occurred, BBNA and BBRF agree to hold, between them, Commitments totaling at least $25,000,000 in the aggregate; provided that, if BBNA and BBRF's combined Commitment or, if greater, -------- the aggregate amount of their Loans outstanding, is reduced below the lesser of (x) 2.5% of the then Total Commitments or total Loans outstanding, as applicable or (y) $5,000,000 after the occurrence of an Event of Default, BBNA will, upon the request of the Required Lenders, resign as Administrative Agent hereunder pursuant to Section 8.10. (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, such Lender assignor makes no representation or warranty and assumes no responsibility with respect to any statements warranties or representations made in or in connection with this Agreement or any of the other Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any of the other Loan Documents; (ii) such Lender assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any other Credit Party or the performance or observance by the Borrower or any other Credit Party of any of its obligations under this Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement and the other Loan Documents, together with copies of the financial statements referred to in Section 3.04 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such Lender assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms thereto, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all obligations that by the terms of this Agreement are required to be performed by it as a Lender. 95 (d) The Administrative Agent shall maintain at its office a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Loans owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the other Credit Parties, the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co- Agents and the Lenders shall treat each Person the name of which is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee thereunder together with any Note subject to such assignment and the fee payable in respect thereto, the Administrative Agent shall, if such Assignment and Acceptance has been completed with blanks appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt written notice thereof to the Borrower (together with a copy thereof). Within five Business Days after receipt of notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note a new Note to the order of such assignee in an amount equal to the Commitment and/or Loans assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained Commitments and/or Loans hereunder, a new Note to the order of the assigning Lender in an amount equal to the Commitment and/or Loans retained by it hereunder. Such new Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the surrendered Note. Thereafter, such surrendered Note shall be marked canceled and returned to the Borrower. (f) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 10.03, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or any of the other Credit Parties furnished to such Lender by or on behalf of the Borrower or any of the other Credit Parties; provided that prior to any such disclosure, each such assignee -------- or participant or proposed assignee or participant shall agree in writing to be bound by the provisions of Section 10.04. (g) The Borrower hereby agrees to actively assist and cooperate with the Administrative Agent in the Administrative Agent's efforts to sell participations herein (as set forth in Section 10.03(a)) and assign to one or more Lenders or Eligible Assignees a portion of its interests, rights and obligations as a Lender under this Agreement (as set forth in Section 10.03(b)). 96 (h) Notwithstanding the provisions of this Section 10.03, each Lender may at any time pledge or assign its interest in any Loans or other Obligations to any Reserve Bank in the Federal Reserve System. SECTION 10.04. CONFIDENTIALITY. Each Lender agrees to keep, and to cause --------------- its agents, attorneys and financial advisors to keep, any information delivered or made available by the Borrower or any of the other Credit Parties to it confidential from anyone other than persons employed or retained by such Lender who are or are expected to become engaged in evaluating, approving, structuring or administering the Loans; provided that nothing herein shall prevent any -------- Lender from disclosing such information (i) to any other Lender, (ii) to any other person if reasonably incidental to the administration of the Loans, (iii) upon the order of any court or administrative agency, (iv) upon the request or demand of any regulatory agency or authority, (v) which has been publicly disclosed other than as a result of a disclosure by the Administrative Agent or any Lender which is not permitted by this Agreement, (vi) in connection with any litigation to which the Administrative Agent, the Collateral Agent, the Tranche B Agent, any Lender, the Issuing Bank, either Co-Agent or their respective Affiliates may be a party, (vii) to the extent reasonably required in connection with the exercise of any remedy hereunder, (viii) to such Lender's legal counsel and independent auditors, (ix) to any actual or proposed participant or assignee of all or part of its rights hereunder subject to the proviso in Section 10.03(f) and (x) to the extent required by law. SECTION 10.05. EXPENSES; DOCUMENTARY TAXES. Whether or not the --------------------------- transactions hereby contemplated shall be consummated, the Borrower and the other Credit Parties jointly and severally agree to pay (A) all reasonable out- of-pocket expenses incurred by the Administrative Agent, the Collateral Agent and the Tranche B Agent (including but not limited to the reasonable fees and disbursements of Latham & Watkins, special counsel for the Administrative Agent, the Collateral Agent and the Tranche B Agent, and any other replacement counsel that the Administrative Agent, the Collateral Agent and the Tranche B Agent shall retain) in connection with the preparation, execution, delivery and administration of this Agreement, the Notes and the other Loan Documents, the making of the Loans and the issuance of the Letters of Credit, and the syndication of the transactions contemplated hereby, (B) the reasonable costs, fees and expenses of the Administrative Agent, the Collateral Agent and the Tranche B Agent (including but not limited to the reasonable fees and disbursements of internal and third-party consultants and auditors) in connection with their periodic field audits and appraisals, and monitoring and valuation of Collateral (including, without limitation, Inventory and Receivables), (C) reasonable syndication expenses of the Administrative Agent, and (D) all reasonable out-of-pocket expenses incurred by the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Administrative Agent in the enforcement or protection of the rights of any one or more of the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents or the Administrative Agent in connection with this Agreement, the Notes or the other Loan Documents, including but not limited to the reasonable fees and disbursements of any one or more counsel for the Lenders, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co- Agents or the Administrative Agent incurred in the protection, enforcement and foreclosure of their Liens on the Collateral and of the Collateral Agent in the creation and 97 maintenance of the perfection of such Liens. Such payments shall be made on the Closing Date and thereafter on demand. Whether or not the transactions hereby contemplated shall be consummated, the Borrower and the other Credit Parties agree to reimburse the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders for the Fees and expenses required by the Fee Letters and the reimbursement provisions thereof are hereby incorporated herein by reference. The obligations of the Borrower and the other Credit Parties under this Section 10.05 shall survive the termination of this Agreement and/or the payment of the Loans and/or the reimbursement of the Letters of Credit. The fees and expenses payable hereunder are in addition to those payable by the Borrower or the other Credit Parties under any other Loan Document. SECTION 10.06. INDEMNITY. The Borrower and each of the other Credit Parties --------- jointly and severally agree to defend, indemnify and hold harmless the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, BRS, BBNA, BBRF, the Co-Agents and each Lender and their respective Affiliates and each of their respective directors, officers, employees, attorneys, partners, beneficiaries, trustees and agents (each an "Indemnified ----------- Party") from and against any and all losses, claims, damages, liabilities, costs - ----- and expenses (whether or not suit is brought) incurred by such Indemnified Party arising out of claims made by any Person in any way relating to the transactions contemplated hereby or by the other Loan Documents or any litigation, investigation or proceeding related hereto or thereto but excluding therefrom, in the case of an Indemnified Party, all losses, claims, damages, liabilities, costs and expenses arising out of or resulting from conduct to the extent determined by final order of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnified Party. SECTION 10.07. CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN ------------- DOCUMENTS SHALL IN ALL RESPECTS BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. SECTION 10.08. NO WAIVER. No failure on the part of the Administrative --------- Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, either Co- Agent or any of the Lenders to exercise, and no delay in exercising, any right, power or remedy hereunder or under the Notes or any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law. SECTION 10.09. EXTENSION OF MATURITY. Except as otherwise set forth in the --------------------- definition of "Interest Period," if any payment of principal of or interest on the Notes or any other amount due hereunder becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, in the case of principal, interest shall be payable thereon at the rate herein specified during such extension. 98 SECTION 10.10. AMENDMENTS, ETC. ---------------- (a) No modification, amendment or waiver of any provision of this Agreement, the Notes or any Security Document, and no consent to any departure by the Borrower or any other Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (or with respect to the Security Documents, by the Collateral Agent with the consent of the Required Lenders), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given; provided, however, that: - -------- ------- (1) No such modification, amendment or waiver shall without the written consent of all of the Lenders (i) amend or modify any provision of this Agreement which provides for the unanimous consent or approval of the Lenders, (ii) amend this Section 10.10, the definition of Required Lenders, Required Tranche A Lenders, Required Tranche B Lenders or Required Supermajority Lenders, (iii) release any material portion of the Collateral from the Lien of the Loan Documents (except in connection with permitted asset dispositions under Section 6.12), (iv) amend Section 6.01 so as to permit any Lien on any assets of the Borrower or the other Credit Parties not otherwise permitted on the Closing Date, (v) increase the Commitment of a Lender (it being understood that a waiver of an Event of Default shall not constitute an increase in the Commitment of a Lender), (vi) reduce the principal amount of any Loan or the rate of interest payable thereon, (vii) extend any date for the payment of interest hereunder, (viii) reduce any Fees payable hereunder, (ix) extend the Maturity Date, (x) increase advance rates above the level in effect on the Closing Date, (xi) increase the Overadvance Amount, (xii) permit the sale of a material portion of the assets of the Borrower and the other Credit Parties (except as expressly permitted under Section 6.12) or (xiii) subordinate the Indebtedness hereunder, or the Liens granted hereunder or under the other Loan Documents, to any other Indebtedness or Lien, as the case may be. (2) No such amendment, modification or waiver may adversely affect the rights and obligations of the Administrative Agent, the Collateral Agent, the Tranche B Agent, either Co-Agent or the Issuing Bank hereunder without its prior written consent. (3) No such modification, amendment or waiver shall without the written consent of the Required Tranche B Lenders (i) increase the interest rate on the Tranche A Loans by more than one percentage point above the rate of interest applicable on the Closing Date (provided, however, that if the interest rate on Tranche A Loans is increased by one percentage point or less the interest rate on Tranche B Loans shall be increased by the same amount), (ii) accelerate the principal or interest payment or maturity dates of the Tranche A Loans (other than in connection with an acceleration of the Loans in connection with an Event of Default), (iii) reduce the Tranche A Commitment, reduce the advance rates applicable to the Tranche A Loans or otherwise adjust the Borrowing Base in any manner that has the effect of reducing the amount available to be borrowed under the Tranche A Commitment so long as any amounts are 99 available to be borrowed under the Tranche B Commitment, (iv) waive or amend any of the conditions precedent set forth in Sections 4.01 or 4.03, (v) waive any Event of Super-Default or amend any provision of Article VII or (vi) create any additional Event of Default which is not also an Event of Super-Default. (4) No notice to or demand on the Borrower or any Credit Party shall entitle the Borrower or any other Credit Party to any other or further notice or demand in the same, similar or other circumstances. Each holder of a Note shall be bound by any amendment, modification, waiver or consent authorized as provided herein, whether or not a Note shall have been marked to indicate such amendment, modification, waiver or consent and any consent by a Lender, or any holder of a Note, shall bind any Person subsequently acquiring a Note, whether or not a Note is so marked. No amendment to this Agreement shall be effective against the Borrower or any other Credit Party unless signed by the Borrower or such other Credit Party, as the case may be. (b) Notwithstanding anything to the contrary contained in Section 10.10(a), in the event that the Borrower requests that this Agreement be modified, amended or waived in a manner which would require the unanimous consent of all of the Lenders and such amendment is approved by the Required Tranche A Lenders and the Required Tranche B Lenders, but not unanimously by the Lenders, the Borrower, the Required Tranche A Lenders and the Required Tranche B Lenders shall be permitted to amend this Agreement without the consent of the Lender or Lenders which did not agree to the modification or amendment requested by the Borrower (such Lender or Lenders, collectively the "Minority Lenders") to ---------------- provide for (w) the termination of the Commitment of each of the Minority Lenders, (x) the addition to this Agreement of one or more other financial institutions (each of which shall be an Eligible Assignee), or an increase in the Commitment of one or more of the Required Tranche A Lenders or Required Tranche B Lenders, so that the aggregate Tranche A Commitments and the aggregate Tranche B Commitments after giving effect to such amendment shall be in the same amount as the aggregate Tranche A Commitments and the aggregate Tranche B Commitments, respectively, immediately before giving effect to such amendment, (y) if any Loans are outstanding at the time of such amendment, the making of such additional Loans by such new or increasing Lender or Lenders, as the case may be, as may be necessary to repay in full the outstanding Loans of the Minority Lenders immediately before giving effect to such amendment and (z) such other modifications to this Agreement as may be appropriate. SECTION 10.11. SUBMISSION TO JURISDICTION; WAIVER. THE BORROWER AND EACH ---------------------------------- OF THE OTHER CREDIT PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY: (a) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW 100 YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND APPELLATE COURTS FROM ANY THEREOF; (b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; (c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE BORROWER OR SUCH OTHER CREDIT PARTY AT ITS ADDRESS SET FORTH IN SECTION 10.1 OR AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; AND (d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. SECTION 10.12. SEVERABILITY. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. If this Agreement or any other Loan Document is deemed invalid or unenforceable with respect to any Credit Party which is a party hereto or thereto, such Loan Document and all other Loan Documents shall remain valid and enforceable with respect to all other Credit Parties hereto or thereto, as the case may be. SECTION 10.13. HEADINGS. Section headings used herein are for convenience -------- only and are not to affect the construction of or be taken into consideration in interpreting this Agreement. SECTION 10.14. EXECUTION IN COUNTERPARTS. This Agreement may be executed ------------------------- in any number of counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same instrument. SECTION 10.15. PRIOR AGREEMENTS. This Agreement and the other Loan ---------------- Documents represent the entire agreement of the parties with regard to the subject matter hereof and thereof and the terms of any letters and other documentation entered into between the Borrower or any other Credit Party and any Lender, the Issuing Bank, the Collateral Agent, the Co-Agents or the Administrative Agent prior to the execution of this Agreement which relate to Loans or Letters of Credit to be made or issued hereunder shall be replaced by the terms of this Agreement. 101 SECTION 10.16. FURTHER ASSURANCES. Whenever and so often as reasonably ------------------ requested by the Administrative Agent, the Collateral Agent or the Tranche B Agent, the Borrower and the other Credit Parties will promptly execute and deliver or cause to be executed and delivered all such other and further instruments, documents or assurances, and promptly do or cause to be done all such other and further things as may be necessary and reasonably required in order to further and more fully vest in the Administrative Agent, the Issuing Bank, the Collateral Agent, the Tranche B Agent, the Co-Agents and the Lenders, as applicable, all rights, Liens, interests, powers, benefits, privileges and advantages conferred or intended to be conferred by this Agreement and the other Loan Documents. SECTION 10.17. MASTER LEASE AGREEMENT. The Borrower hereby ratifies and ---------------------- affirms, and agrees that it is legally obligated to perform, all of the obligations of Bradlees Stores, Inc., as debtor and debtor-in-possession, under the Master Lease Agreement. SECTION 10.18. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE OTHER -------------------- CREDIT PARTIES, THE ADMINISTRATIVE AGENT, THE ISSUING BANK, THE COLLATERAL AGENT, THE TRANCHE B AGENT, THE CO-AGENTS AND EACH LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. [SIGNATURE PAGES FOLLOW] 102 IN WITNESS WHEREOF, the parties hereto have caused this Revolving Credit and Guaranty Agreement to be duly executed as of the day and the year first, written. BRADLEES STORES, INC., as Borrower By:_______________________________ Name: Title: [SIGNATURES CONTINUED ON NEXT PAGE] 103 GUARANTORS: BRADLEES, INC., as a Guarantor By:_______________________________ Name: Title: NEW HORIZONS OF YONKERS, INC., as a debtor and debtor-in-possession, as a Guarantor By:_______________________________ Name: Title: [SIGNATURES CONTINUED ON NEXT PAGE] 104 BANKBOSTON, N.A., as Administrative Agent, as Tranche B Agent, as Issuing Bank and as a Lender By:_______________________________ Name: Title: Address: 100 Federal Street, 9th Floor Boston, MA 02110 Telephone: (617) 434-4113 Telecopy: (617) 434-4339 [SIGNATURES CONTINUED ON NEXT PAGE] 105 BANKBOSTON RETAIL FINANCE, INC., as Collateral Agent By:_______________________________ Name: Title: Address: 40 Broad Street, 10th Floor Boston, MA 02109 Telephone: (617) 434-4113 Telecopy: (617) 434-4339 [SIGNATURES CONTINUED ON NEXT PAGE] 106 THE CIT GROUP/BUSINESS CREDIT, INC., as Co-Agent and as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 107 CONGRESS FINANCIAL CORPORATION (NEW ENGLAND), as Co-Agent and as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 108 NATIONAL CITY COMMERCIAL FINANCE, INC., as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 109 GREEN TREE FINANCIAL SERVICING CORPORATION, as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 110 FOOTHILL CAPITAL CORPORATION, as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 111 HELLER FINANCIAL, INC. as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 112 FIRSTRUST BANK, as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 113 JACKSON NATIONAL LIFE INSURANCE COMPANY, as a Lender By:_______________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 114 FREMONT FINANCIAL CORPORATION, as a Lender By:_____________________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 115 LASALLE BUSINESS CREDIT, INC., as a Lender By:_____________________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 116 GENERAL ELECTRIC CAPITAL CORPORATION, as a Lender By:_____________________________________ Name: Title: Address: [SIGNATURES CONTINUED ON NEXT PAGE] 117 FINOVA CAPITAL CORPORATION, as a Lender By:_____________________________________ Name: Title: Address: 118 ANNEX A TO REVOLVING CREDIT AND GUARANTY AGREEMENT ------------------ ANNEX A to REVOLVING CREDIT AND GUARANTY AGREEMENT DATED AS OF ________, 1999
- ----------------------------------------------------------------------------------------------------------------------------------- TRANCHE A Tranche A TRANCHE B TRANCHE B AGGREGATE NAME OF COMMITMENT COMMITMENT COMMITMENT COMMITMENT AGGREGATE COMMITMENT LENDER AMOUNT PERCENTAGE AMOUNT PERCENTAGE COMMITMENT PERCENTAGE - ----------------------------------------------------------------------------------------------------------------------------------- BankBoston, N.A. $ 28,000,000 11% $6,666,666.67 33.3334% $34,666,666.67 12.84% The CIT Group/Business Credit, Inc. $ 25,000,000 10% __ __ $ 25,000,000 9.26% Congress Financial Corporation (New England) $ 40,000,000 16% __ __ $ 40,000,000 14.81% FirstTrust Bank $ 10,000,000 4% __ __ $ 10,000,000 3.70% Jackson National Life Insurance Company $ 15,000,000 6% $6,666,666.66 33.3333% $21,666,666.66 8.02% Green Tree Financial $ 20,000,000 8% __ __ $ 20,000,000 7.41% Heller Financial, Inc. $ 20,000,000 8% __ __ $ 20,000,000 7.41% Fremont Financial Corporation $ 10,000,000 4% __ __ $ 10,000,000 3.70% Foothill Capital Corporation $ 15,000,000 6% __ __ $ 15,000,000 5.56% National City Commercial Finance, Inc. $ 15,000,000 6% __ __ $ 15,000,000 5.56% Finova Capital Corporation $ 12,000,000 5% $6,666,666.67 33.3334 $18,666,666.67 6.91% LaSalle National Bank $ 20,000,000 8% __ __ $ 20,000,000 7.41% General Electric Capital Corporation $ 20,000,000 8% __ __ $ 20,000,000 7.41% ------------ --- -------------- ----- Total $250,000,000 100% $ 20,000,000 100% $ 270,000,000 100%
119 Attachment I to Credit Agreement ---------------- TERMS OF CAP NOTES ------------------ Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement to which this Attachment I is attached (the "Agreement"). --------- Issuer: The Borrower. Holder: The Holder of the Class BSI-CAP Claim. Maximum Aggregate Principal Amount: $628,000.00. Maximum Interest Rate: 9% per annum. Minimum Term: Three years. Principal Repayment: Principal to be repaid in 12 equal quarterly installments commencing 3 months after the Plan Effective Date. Interest Payments: Accrued interest to be paid on each principal payment date. Collateral: The Borrower's obligations under the CAP Notes may be secured by a first lien on the property (the "CAP --- Collateral") on which BTM Capital Corporation held a ---------- valid first priority security interest as of the Confirmation Date pursuant to the BTM Stipulation (as defined in the Confirmed Plan and attached to the Agreement as Exhibit G). Default and Acceleration: No cross-default or cross-acceleration rights to the Agreement. 120 Attachment II to Credit Agreement ---------------- TERMS OF CURE NOTES ------------------- Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement to which this Attachment II is attached (the "Agreement"). --------- Issuer: The Borrower. Holders: Non-Debtor parties to executory contracts that are to be, or have been, assumed pursuant to the Confirmed Plan for the purpose of paying "cure amounts" as required by Section 365 of the Bankruptcy Code. Maximum Aggregate Principal Amount: $3,500,000.00. Maximum Interest Rate: 9% per annum. Minimum Term: Three years. Principal Repayment: Principal to be repaid in 12 equal quarterly installments commencing 3 months after the Plan Effective Date. Interest Payments: Accrued interest to be paid on each principal payment date. Collateral: None. Default and Acceleration: No cross-default or cross-acceleration rights to the Agreement. 121 Attachment III to Credit Agreement ---------------- TERMS OF NEW NOTES ------------------ Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement to which this Attachment III is attached (the "Agreement"). --------- Issuer: The Borrower. Holders: (i) The Banks and other financial institutions (the "Pre-Petition Revolver Bank Group") holding pre- -------------------------------- petition claims against the Debtors under that certain Credit Agreement among BI, the Pre-Petition Revolver Bank Group and Bankers Trust Company, as agent, dated as of March 3, 1993, as amended, (ii) the banks and other financial institutions holding pre-petition claims under the SPE Documents (as defined in the Confirmed Plan) and (iii) the holders of YON-GEN Claims, BRU-GEN Claims and WES-GEN Claims (each as defined in the Confirmed Plan). Guarantors: (i) BI, on an unsecured basis and expressly subordinate to the guaranty by BI of the Obligations of the Borrower under the Agreement and otherwise reasonably satisfactory in form and substance to the Administrative Agent and (ii) Yonkers, secured only by the Yonkers Leased Property and expressly subordinate to the guaranty by Yonkers of the Obligations of the Borrower under the Agreement and otherwise reasonably satisfactory in form and substance to the Administrative Agent. Maximum Aggregate Principal Amount: $40,000,000.00. Maximum Interest Rate: 9% per annum. Minimum Term: Five years. Principal Repayment: None prior to maturity, except as permitted under Section 6.15 of the Agreement. Interest Payments: Accrued interest to be paid semi-annually on January 1 and July 1 of each year, and upon final payment in full of principal. 122 Collateral: The Borrower's obligations under the New Notes may be secured by a first lien on the Permissible Collateral, the Additional Collateral and the Yonkers Common Stock Collateral; provided, however, that the Trustee for the Holders has executed and delivered to the Collateral Agent Mortgagee Waivers with respect to each location included in the Permissible Collateral and the Additional Collateral in form and substance satisfactory to the Collateral Agent. In the event the Net Proceeds (as defined in the Confirmed Plan) from the sale or assignment of the Union Square Lease (as defined in the Confirmed Plan) do not exceed $15,000,000, the Additional Collateral shall secure Indebtedness under the New Notes in an amount not to exceed the sum of (A) the lesser of (i) the difference between $17,500,000 and the amount of such Net Proceeds or (ii) $10,500,000 (such lesser amount, the "Differential Amount") plus (B) an amount of interest that would accrue on a principal amount of the New Notes then outstanding equal to the Differential Amount from the date of such disposition to the date of calculation of such payment pursuant to the terms of the New Notes Indenture (but excluding any period for which interest has in fact been paid under the New Notes). In addition, the lien on the Additional Collateral shall not be permitted unless the holder thereof has entered into with the Borrower and the Collateral Agent a mortgagee's waiver and consent with respect to each location comprising the Additional Collateral in form and substance satisfactory to the Collateral Agent. Release of Collateral: In the event the Net Proceeds from the sale or assignment of the Union Square Lease exceed $15,000,000, the Additional Collateral shall no longer secure the Borrower's obligations under the New Notes and the lien thereon shall be promptly released by the holder thereof. Conversion: New Notes convertible into common stock of BI on terms reasonably acceptable to the Administrative Agent. Registration Rights: As described in the Confirmed Plan. Default and Acceleration: No cross-default or cross-acceleration rights to the Agreement. 123 Attachment IV to Credit Agreement ---------------- Terms of Trade Lien ------------------- Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement to which this Attachment IV is attached (the "Agreement"). --------- Debtor: The Borrower. Secured Party: A collateral agent for the benefit of trade vendors who provide retail merchandise to the Borrower after the Plan Effective Date or trade vendors who have provided retail merchandise to the Borrower before the Plan Effective Date who were not paid therefor as of the Plan Effective Date. Collateral: Inventory of the Borrower (and no other assets). Priority: The Trade Lien shall be expressly subordinate to the Lien granted to the Collateral Agent under the Security Agreement, for its benefit and the ratable benefit of the other Secured Parties, securing the Obligations and shall provide that the holders of the Trade Lien shall have no right to exercise or enforce any rights with respect to the Trade Lien or the Inventory (or to consent to or approve any such exercise or enforcement by the Collateral Agent), or to receive any payment from the proceeds of the Inventory, unless and until the Obligations are finally and indefeasibly paid in full. The other terms of such subordination shall be satisfactory to the Collateral Agent in all respects. Term: The Trade Lien shall be automatically released upon the earliest to occur of (i) two years after the Plan Effective Date, (ii) the date on which the ratio of the amount of Accounts Payable of the Borrower to the amount of Inventory of the Borrower, computed on a cost basis, for any rolling three- month period is more than five percentage points less than such ratio on a comparable store basis for the same period in the prior year, (iii) the consummation of a transaction pursuant to which the Borrower or BI merges or otherwise combines with another company or companies, (iv) as to any individual trade vendor that has provided retail merchandise during the pendency of the Case, at such time as such vendor fails to provide retail merchandise to the Borrower on terms which are at 124 least as favorable to the Borrower as the credit terms under which such vendor provided retail merchandise to the Borrower in the year prior to the Plan Effective Date and (v) as to any individual trade vendor that initially provides retail merchandise to the Borrower after the Plan Effective Date, at such time as such vendor fails to provide retail merchandise to the Borrower on terms which are as least as favorable to the Borrower as the initial credit terms under which such vendor first provided retail merchandise to the Borrower. The Administrative Agent shall have access to all information necessary to determine if the trade vendors are providing sufficient credit support, as determined by the formulas set forth in clauses (ii) and (iv) above, and shall have the authority to execute and file all documents necessary to effectuate any such release. Default and Acceleration: No cross-default or cross-acceleration rights to the Agreement. Other Intercreditor Provisions: The holders of the Trade Lien shall have no right to consent to or approve any amendments, modifications, refinancings or other changes to this Agreement or any other Loan Document, including, without limitation, increases in advance rates, interest rates and principal amount and the creation or elimination of any reserves or categories of ineligible Inventory. 125 EX-10.44 14 VENDOR LIEN AGREEMENT Exhibit 10.44 ================================================================================ COLLATERAL TRUST AGREEMENT dated as of ________, 1999 between BRADLEES STORES, INC., and M.J. SHERMAN & ASSOCIATES, INC., as Trustee ================================================================================ TABLE OF CONTENTS ----------------- Page ---- ARTICLE 1. DEFINITIONS................................................... 3 SECTION 1.01 Certain Defined Terms.................................. 3 SECTION 1.02 Certain References..................................... 6 ARTICLE 2. ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY OF COLLATERAL DOCUMENTS AND SUBORDINATION AGREEMENT.................................... 6 SECTION 2.01 Acceptance of Trust.................................... 6 SECTION 2.02 Execution and Delivery of Collateral Documents......... 6 SECTION 2.03 Execution and Delivery of Intercreditor Agreement...... 7 ARTICLE 3. DEFAULT NOTICE; RIGHTS AND REMEDIES........................... 7 SECTION 3.01 Events of Default...................................... 7 SECTION 3.02 Action Upon Receipt of Default Notice.................. 8 SECTION 3.03 Remedies Generally..................................... 8 SECTION 3.04 Appointment of a Receiver.............................. 9 SECTION 3.05 Exercise of Powers..................................... 9 SECTION 3.06 Remedies Not Exclusive................................. 9 SECTION 3.07 Limitation on Rights and Remedies in Respect of Collateral............................................. 10 SECTION 3.08 Right to Initiate Judicial Proceedings, Etc. .......... 10 SECTION 3.09 Limitation on Trustee's Duties in Respect of Collateral............................................. 10 SECTION 3.10 Limitation by Law...................................... 10 ARTICLE 4. DIRECTION BY TRADE COMMITTEE.................................. 11 SECTION 4.01 Direction by Trade Committee........................... 11 ARTICLE 5. NOTICE TO TRADE VENDORS....................................... 11 SECTION 5.01 Notice to Trade Vendors................................ 11 ARTICLE 6. PROCEEDS ACCOUNT.............................................. 12 SECTION 6.01 The Proceeds Account................................... 12 SECTION 6.02 Control of Proceeds Account............................ 13 SECTION 6.03 Investment of Funds Deposited in Proceeds Account...... 13 ARTICLE 7. APPLICATION OF PROCEEDS....................................... 13 SECTION 7.01 Application of Proceeds................................ 13 SECTION 7.02 Distribution of Proceeds............................... 14 i ARTICLE 8. ABSOLUTE RIGHTS OF TRADE VENDORS.............................. 14 SECTION 8.01 Absolute Rights of Trade Vendors....................... 14 ARTICLE 9. AGREEMENTS WITH THE TRUSTEE................................... 15 SECTION 9.01 (a) Information as to Trade Vendors................... 15 (b) Confidentiality................................... 15 SECTION 9.02 Compensation and Expenses.............................. 16 SECTION 9.03 Stamp and Other Similar Taxes.......................... 16 SECTION 9.04 Filing Fees, Excise Taxes, Etc. ....................... 16 SECTION 9.05 Indemnification........................................ 16 SECTION 9.06 Further Assurances..................................... 17 SECTION 9.07 Notification of Event of Default Under Credit Agreement.............................................. 18 ARTICLE 10. THE TRUSTEE................................................... 18 SECTION 10.01 Exculpatory Provisions................................. 18 SECTION 10.02 Delegation of Duties................................... 19 SECTION 10.03 Reliance by Trustee.................................... 19 SECTION 10.04 Limitations on Duties of Trustee....................... 19 SECTION 10.05 Moneys to be Held in Trust............................. 20 SECTION 10.06 Resignation & Removal of Trustee....................... 20 SECTION 10.07 Trustee Appointed Attorney-In-Fact..................... 21 SECTION 10.08 Reasonable Care........................................ 21 ARTICLE 11. MISCELLANEOUS................................................. 22 SECTION 11.01 Amendment or Waiver.................................... 22 SECTION 11.02 Subordination Agreement................................ 22 SECTION 11.03 Notices................................................ 23 SECTION 11.04 Headings............................................... 23 SECTION 11.05 Severability........................................... 23 SECTION 11.06 Claims Against Trustee................................. 24 SECTION 11.07 Binding Effect......................................... 24 SECTION 11.08 Governing Law.......................................... 24 SECTION 11.09 Counterparts........................................... 24 SECTION 11.10 Termination............................................ 24 SECTION 11.11 Termination Notice; Effect of Termination.............. 25 SECTION 11.12 Conflicts.............................................. 26 ii EXHIBITS -------- EXHIBIT A Default Notice EXHIBIT B Individual Trade Vendor Notice EXHIBIT C Public Trade Vendor Notice iii COLLATERAL TRUST AGREEMENT This COLLATERAL TRUST AGREEMENT ("Agreement") is dated as of ________, --------- 1999 and is entered into between BRADLEES STORES, INC., a Massachusetts corporation, with an office at One Bradlees Circle, Braintree, Massachusetts 02184 (the "Company") and M.J. SHERMAN & ASSOCIATES, INC., a New York ------- corporation, with an office at 333 East 68th Street, New York, New York 10021 as trustee (the "Trustee"). Initially capitalized terms used and not otherwise ------- defined herein shall have the meanings set forth in Article 1 hereof. RECITALS A. On June 23, 1995 the Company, its direct and indirect parent companies and each of its five subsidiaries (collectively, the "Debtors") filed ------- a voluntary petition for relief under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), which were jointly administered by the Bankruptcy Court as - ----------------- Case Nos. 95B 42777 through 95B 42784 (BRL) (collectively, the "Chapter 11 ---------- Cases"). B. On January __, 1999 the Bankruptcy Court entered an order confirming the Debtors' Second Amended Joint Plan of Reorganization dated January __, 1999 (as so confirmed, the "Plan"). ---- C. The Company has entered into, or is about to enter into, a Revolving Credit and Guaranty Agreement with, among others, the banks and other financial institutions from time to time party thereto (collectively, the "Lenders"), BankBoston, N.A., as Issuing Bank (the "Issuing Bank") and as - -------- ------------ Administrative Agent (the "Administrative Agent") and as Tranche B Agent (the -------------------- "Tranche B Agent"), BankBoston Retail Finance, Inc. ("BBRF"), as Collateral - ---------------- ---- Agent (the "Collateral Agent"), and The CIT Group/Business Credit, Inc. and ---------------- Congress Financial Corporation (New England), each as Co-Agents (together with the Administrative Agent, the Tranche B Agent and the Collateral Agent, the "Agents") (as the same may from time to time hereafter be amended, modified, - ------- supplemented, amended and restated, refinanced or replaced, the "BankBoston ---------- Credit Agreement"), pursuant to which the Lenders have made and shall hereafter - ---------------- make loans and other financial accommodations to the Company to facilitate consummation of the Plan and provide working capital to the Company. D. It is important to the success of the Company's business that, from and after consummation of the Plan on or about the date hereof, the Company's Trade Vendors (as defined below) sell and deliver goods needed by the Company, and on credit terms, that will contribute to the Company's ability to successfully operate its business. E. In order to induce the Trade Vendors to continue to extend terms to the Company and to continue to deliver to the Company the goods it needs to operate its business, and in accordance with the provisions of the Plan, the Company, as security for prompt payment and performance of the Trade Obligations (as defined below) and the other Obligations (as ----- defined below), has executed and delivered to the Trustee the Inventory Security Agreement (as defined below), pursuant to which the Company has granted to the Trustee, for the benefit of the Trade Vendors, liens upon and security interests in all of the Company's now existing and hereafter acquired inventory as more fully described in the Inventory Security Agreement (the "Collateral"), subject ---------- and subordinate to the senior liens therein of the Agent and the Lenders. F. The Trustee's and the Trade Vendors' rights and remedies with respect to the Collateral, and the Trustee's exercise of rights and remedies in respect of the Inventory Security Agreement are subject in all respects and at all times to the terms of the Subordination Agreement, dated as of the date hereof (as the same may hereafter from time to time be amended, modified, supplemented, amended and restated or replaced, the "Subordination Agreement") ----------------------- between BBRF, as Collateral Agent for itself and the other Secured Parties (as defined in the BankBoston Credit Agreement), and the Trustee. G. This Agreement is intended to establish a trust under which (i) the Inventory Security Agreement, (ii) all cash and non-cash proceeds (including, without limitation, insurance proceeds) arising from the liquidation of the Collateral from and after the date on which all "Obligations" under, and as defined in, the BankBoston Credit Agreement (the "Senior Obligations") have ------------------ been accelerated and the Senior Obligations have been paid in full as a result of the occurrence of an event of default thereunder (the "Proceeds") and (iii) -------- the Proceeds Account (as defined below; and the right, title and interest of the Trustee in and to the Collateral Documents, the Collateral, the Proceeds and the Proceeds Account being herein collectively referred to as the "Trust Estate") ------------ will be held by the Trustee in trust for, and for the benefit of, the Trade Vendors who have not been paid in full for goods delivered to the Company at any time during the pendency of the Chapter 11 Cases and/or at any time from and after the Effective Date of, and as defined in, the Plan and prior to the termination of this Agreement (the "Effective Trade Lien Period"). --------------------------- H. This Agreement is further intended to set forth the terms and conditions upon which the Trust Estate will be administered by the Trustee, the rights and remedies of the Trade Vendors with respect to the Trust Estate and certain other related matters. DECLARATION OF TRUST NOW, THEREFORE, in order to induce the Trade Vendors to provide retail merchandise to the Company on credit terms which are at least as favorable to the Company as the credit terms provided to the Company prior to the Effective Date (as defined below) or, in the case of Trade Vendors that initially provide retail merchandise after the Effective Date, on credit terms which are at least as favorable to the Company as the credit terms initially provided by such Trade Vendors to the Company, and to secure payment to such Trade Vendors of amounts owed by the Company to the Trade Vendors in the amount of the unpaid invoiced cost of goods sold and delivered to the Company by the Trade Vendors at any time during the Effective Trade Lien Period (subject at all times to the terms and conditions of the Subordination 2 Agreement), as shown from time to time on the books and records of the Company or as otherwise determined in accordance with the procedures set forth herein (the "Trade Obligations"), and in consideration of the premises and the mutual ----------------- agreements set forth herein, the Company hereby confirms that it has caused the Collateral Documents (as defined below) to be executed and delivered to the Trustee, and the Trustee does hereby declare that it holds and will hold the Collateral Documents as trustee in trust under this Agreement, and the Company does hereby consent thereto. TO HAVE AND TO HOLD, the Trust Estate unto the Trustee and its successors in trust under this Agreement and unto its assigns and the assigns of its successors in trust forever or until terminated in accordance with the terms hereof; IN TRUST NEVERTHELESS, under and subject to the terms and conditions set forth herein for the benefit of the Trade Vendors and for the enforcement of the payment of the Trade Obligations and the other Obligations (as defined below), and for the performance of and compliance with the covenants and conditions of this Agreement and the Collateral Documents (subject in each case to the terms and conditions of the Subordination Agreement). ARTICLE 1. DEFINITIONS SECTION 1.01 Certain Defined Terms. The following terms shall have --------------------- the following meanings as used herein (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" has the meaning set forth in the preamble to this --------- Agreement. "Authorized Officer" means the Chairman, the President, any Vice ------------------ President, the Secretary or the Treasurer of a Person or any other officer designated as an "Authorized Officer" by the Board of Directors (or equivalent governing body) of such Person and shall include, with respect to the Trade Committee, the counsel to the Trade Committee. "BankBoston" has the meaning set forth in Paragraph C of the Recitals ---------- to this Agreement. "BankBoston Credit Agreement" has the meaning set forth in Paragraph --------------------------- C of the Recitals to this Agreement. "Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C. --------------- (S)(S) 101 et seq., as amended. -- --- 3 "Bankruptcy Court" has the meaning set forth in Paragraph A of the ---------------- Recitals to this Agreement. "Business Day" means a day other than a Saturday, Sunday or other day ------------ on which national banks are required or authorized by law to close. "Chapter 11 Cases" has the meaning set forth in Paragraph A of the ---------------- Recitals to this Agreement. "Collateral" has the meaning set forth in Paragraph E of the Recitals ---------- to this Agreement. "Collateral Agent" has the meaning set forth in the BankBoston Credit ---------------- Agreement. "Collateral Documents" means, collectively, the Inventory Security -------------------- Agreement, all UCC-1 financing statements now or hereafter executed by the Company, as debtor, in favor of the Trustee, as secured party, and all other documents and agreements at any time executed with or in favor of the Trustee as security for the Obligations, in each case in form and substance satisfactory to the Collateral Agent and the Company, as the same may now exist or may from time to time hereafter be (to the extent not prohibited by or inconsistent with the terms and conditions of the Subordination Agreement) amended, modified, supplemented, amended and restated, or replaced. "Company" has the meaning set forth in the preamble to this Agreement. ------- "Default Notice" has the meaning set forth in Section 3.01. -------------- "Effective Date" has the meaning set forth in the Plan. -------------- "Effective Trade Lien Period" has the meaning set forth in Paragraph G --------------------------- of the Recitals to this Agreement. "Event of Default" has the meaning set forth in Section 3.01(a). ---------------- "Individual Trade Vendor Notice" has the meaning set forth in ------------------------------ Section 5.01. "Inventory Security Agreement" means the Inventory Security Agreement, ---------------------------- dated as of the date hereof, executed by the Company, as debtor, in favor of Trustee, as secured party, as the same may from time to time hereafter be (to the extent not prohibited by or inconsistent with the terms and conditions of the Subordination Agreement) amended, supplemented, modified, amended and restated or replaced. "Lenders" has the meanings set forth in the BankBoston Credit ------- Agreement. 4 "Obligations" means, at any time, the Trade Obligations, costs of ----------- collection with respect thereto, the reasonable fees and expenses of the Trustee hereunder and under the Collateral Documents, including the reasonable fees and disbursements of counsel to the Trustee, and any indemnity obligations of the Company to the Trustee. "Permitted Investments" means (a) marketable securities issued or --------------------- directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than three months from the date of acquisition, (b) time deposits and certificates of deposit of, or money market or similar accounts with, any domestic commercial bank of recognized standing having capital and surplus in excess of U.S. $100,000,000 and a Keefe Bank Watch Rating of C or better, with maturities of not more than three months from the date of acquisition, (c) commercial paper rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in each case maturing within three months after the date of acquisition, (d) repurchase obligations with a term of not more than thirty days for underlying securities of the types described in clauses (a), (b) and (c) entered into with any bank meeting the qualifications specified in clause (b) above or with a securities dealer acceptable to the Trustee. "Person" means an individual, a partnership, a corporation, a business ------ trust, a joint stock company, a limited liability company, a trust, an unincorporated association, a joint venture, a governmental entity or another entity of whatever nature. "Plan" has the meaning set forth in Paragraph A of the Recitals to ---- this Agreement. "Proceeds" has the meaning set forth in Paragraph G of the Recitals to -------- this Agreement. "Proceeds Account" has the meaning set forth in Section 6.01. ---------------- "Public Trade Vendor Notice" has the meaning set forth in -------------------------- Section 5.01. "Senior Obligations" has the meaning set forth in Paragraph G of the ------------------ Recitals to this Agreement. "Subordination Agreement" has the meaning set forth in Paragraph F of ----------------------- the Recitals to this Agreement. "Trade Committee" means the Committee of one or more financial --------------- representatives appointed by the Creditors' Committee pursuant to Section 12.15 of the Plan, effective as of the Effective Date, to provide directions to the Trustee pursuant to this Agreement on behalf of the Trade Vendors. 5 "Trade Obligations" has the meaning set forth in the Declaration of ----------------- Trust made in the Recitals to this Agreement. "Trade Vendors" means trade vendors of the Company who have extended ------------- or who hereafter extend terms to the Company for or related to goods delivered to the Company for resale, other than on consignment. "Trade Vendor Information" has the meaning set forth in Section 9.01. ------------------------ "Trade Vendor Payable Amount" has the meaning set forth in --------------------------- Section 5.01. "Trust Estate" has the meaning set forth in Paragraph G of the ------------ Recitals to this Agreement. "Trustee" has the meaning set forth in the preamble to this Agreement. ------- SECTION 1.02 Certain References. The words "hereof", "herein" and ------------------ "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, schedule and exhibit references are to this Agreement unless otherwise specified. References to Persons include their respective permitted successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons. ARTICLE 2. ACCEPTANCE OF TRUST; EXECUTION AND DELIVERY OF COLLATERAL DOCUMENTS AND SUBORDINATION AGREEMENT SECTION 2.01 Acceptance of Trust. The Trustee, for itself and its ------------------- successors, hereby accepts the trust created by this Agreement upon the terms and conditions hereof. Further, the Trustee, for itself and its successors, does hereby declare that it will hold the Trust Estate for the benefit of the Trade Vendors upon the trusts herein set forth. SECTION 2.02 Execution and Delivery of Collateral Documents. On or ---------------------------------------------- about the date hereof the Company has executed in favor of and delivered to the Trustee, for the benefit of the Trade Vendors, the Inventory Security Agreement and UCC-1 financing statements executed by the Company, as debtor, in favor of the Trustee, as secured party, for filing in such jurisdictions as the Trustee deems necessary to perfect the security interests granted by the Company to the Trustee in the Collateral. The Trustee hereby acknowledges receipt of the Inventory Security Agreement and such UCC-1 financing statements and agrees to hold the same in trust and for the benefit of the Trade Vendors upon the terms and conditions set forth in this Agreement and in the Inventory Security Agreement and subject to the terms and conditions of the Subordination Agreement. 6 SECTION 2.03 Execution and Delivery of Subordination Agreement. On ------------------------------------------------- or about the date hereof, the Trustee has executed and delivered to the Collateral Agent the Subordination Agreement in the form approved, and as directed, by the Trade Committee. ARTICLE 3. DEFAULT NOTICE; TRUSTEE'S RIGHTS AND REMEDIES SECTION 3.01 Events of Default. ----------------- (a) Events of Default. The occurrence of any one or more of the ----------------- following events shall constitute an event of default (each, an "Event of Default") under this Agreement: (i) The occurrence of the termination in writing of the Company's right to receive loans, advances and other financial accommodations under the BankBoston Credit Agreement accompanied by the acceleration and written demand for payment in full of all Senior Obligations under the BankBoston Credit Agreement and provided that, subsequent to the occurrence of the foregoing, all Senior Obligations shall have been paid in full in cash; (ii) A case or proceeding under the Bankruptcy Code or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at law or in equity) is filed against the Company or all or any part of its properties and such petition or application is not dismissed within thirty (30) days after the date of its filing or the Company shall file any answer admitting or not contesting such petition or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; or (iii) A case or proceeding under the Bankruptcy Code or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at a law or equity) is filed by the Company or for all or any part of its property. 7 (b) Default Notice. If an Event of Default shall have occurred, the -------------- Trade Committee shall have the right to deliver to the Trustee at any time, at its option, a written notice ("Default Notice"), substantially in the form -------------- attached hereto as Exhibit A, stating that an Event of Default has occurred and --------- directing the Trustee to take such action as therein requested by the Trade Committee with respect to the Collateral Documents (subject to the terms and conditions of the Subordination Agreement) and the Collateral (which action may include, without limitation, subject to the terms and conditions of the Subordination Agreement, the institution of any remedies provided by any of the Collateral Documents, by law or by this Agreement). SECTION 3.02 Action Upon Receipt of Default Notice. Upon receipt ------------------------------------- of a Default Notice (or at such later time as shall be the first time when such action is not prohibited to be taken by the Subordination Agreement), the Trustee shall promptly take such action as is requested by the Trade Committee in such Default Notice or any notice supplemental thereto authorized, or as the Trustee shall deem necessary or appropriate in its sole discretion, to collect the then unpaid Obligations. SECTION 3.03 Remedies Generally. (a) Upon the occurrence of an ------------------ Event of Default, the Company shall be deemed to have, automatically, without any further act by the Company, irrevocably constituted and appointed the Trustee and any officer or agent of the Trustee with full power of substitution, as its true and lawful attorney-in-fact (subject, however, to the terms and conditions of the Subordination Agreement) with full power and authority in the name of the Company or its own name, from time to time in the Trustee's discretion for the purpose of carrying out the terms of the Collateral Documents, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes hereof and thereof and, without limiting the generality of the foregoing, hereby gives the Trustee the power and right on behalf of the Company, without notice to or assent by the Company, to do (to the extent permitted under the Collateral Documents and subject to the terms and conditions of the Subordination Agreement) the following: (i) to ask for, demand, sue for, collect, receive and give acquittance for any and all moneys due or to become due upon or by virtue hereof and thereof; (ii) to receive, take, endorse, assign and deliver any and all checks, notes, drafts, acceptances, documents and other negotiable and non- negotiable instruments and chattel paper taken or received by the Trustee in connection herewith and therewith; (iii) to commence, file, prosecute, defend, settle, compromise or adjust any claim, suit, action or proceeding with respect hereto and thereto or in connection herewith and therewith; 8 (iv) to sell, transfer, assign, lease or rent all or any portion of or otherwise deal in or with the Collateral or any part thereof as fully and effectually as if the Trustee were the absolute owner thereof; (v) to make demands, give consents and releases or partial releases, and to exercise any other rights contemplated or permitted by the Collateral Documents; and (vi) to do, at its option and at the expense and for the account of the Company, at any time and from time to time, all acts and things which it deems necessary to protect or preserve and to realize upon the Collateral. SECTION 3.04 Appointment of a Receiver. If a receiver of the ------------------------- Collateral shall be appointed in judicial proceedings, the Trustee may be appointed as such receiver. Notwithstanding the appointment of a receiver, the Trustee shall be entitled, subject to the terms of the Subordination Agreement, to retain possession and control of all cash held by or deposited with it or its agents in accordance with the terms of the Collateral Documents. SECTION 3.05 Exercise of Powers. Subject to the provisions of ------------------ Section 3.10, all of the powers, remedies and rights of the Trustee as set forth in this Agreement may be exercised by the Trustee in respect of the Collateral Documents and the Collateral as though set forth at length therein and all the rights, remedies and powers of the Trustee as set forth in the Collateral Documents may be exercised from time to time as herein and therein specified; provided, that, except as expressly set forth in the Subordination Agreement, - -------- ---- nothing in this Agreement shall be construed to impose a duty on the Trustee to take any action without first receiving direction from the Trade Committee to do the same. SECTION 3.06 Remedies Not Exclusive. (a) No remedy conferred upon ---------------------- or reserved to the Trustee herein or in the Collateral Documents is intended to be a limitation exclusive of any other remedy or remedies, but every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or in the Collateral Documents or now or hereafter existing at law or in equity or by statute. All rights and remedies of the Trustee shall be subject, however, to the terms and conditions of the Subordination Agreement. (b) No delay or omission of the Trustee to exercise any right, remedy or power accruing upon an Event of Default shall impair any such right, remedy or power or shall be construed to be a waiver of such Event of Default or any acquiescence therein; and every right, power and remedy given by this Agreement or the Collateral Documents to the Trustee may be exercised from time to time and as often as may be deemed expedient by the Trustee, subject to the terms and conditions of the Subordination Agreement. (c) The Company expressly agrees that all rights of action and rights to assert claims upon or under any Collateral Document may be enforced by the Trustee without the possession of any debt instrument or the production thereof in any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its name as Trustee and any recovery or judgment shall be held as part of the Trust Estate. 9 SECTION 3.07 Limitation on Rights and Remedies in Respect of ----------------------------------------------- Collateral. This Agreement does not enlarge or otherwise modify the rights that - ---------- the Trustee holds for the benefit of the Trade Vendors with respect to the Collateral under the Collateral Documents or under applicable law, and does not confer any additional such rights, but rather is intended to provide a mechanism for the Trustee, on behalf of the Trade Vendors, to enforce such rights. Without limiting the generality of the foregoing, nothing in this Agreement shall permit the Trustee to exercise any right or remedy with respect to the Collateral, except to the extent specifically provided under the Collateral Documents, but subject to the terms and conditions of the Subordination Agreement. SECTION 3.08 Right to Initiate Judicial Proceedings, Etc. Upon the -------------------------------------------- occurrence of an Event of Default, and subject in all events to the terms and conditions of the Subordination Agreement, (a) the Trustee shall have the right and power to institute and maintain such suits and proceedings as the Trustee may deem appropriate to protect and enforce the rights vested in the Trustee by this Agreement and the Collateral Documents, and (b) the Trustee may either proceed by suit or suits at law or in equity to enforce such rights and to foreclose upon the Collateral and to sell all or, from time to time, any of the Collateral under the judgment or decree of a court of competent jurisdiction; provided, that, nothing in this Agreement shall be construed to impose a duty on - -------- ---- the Trustee to take any discretionary action without first receiving direction from the Trade Committee to do the same. SECTION 3.09 Limitation on Trustee's Duties in Respect of -------------------------------------------- Collateral. Beyond the duties set forth in this Agreement, the Trustee shall not - ---------- have any duty to the Company or the Trade Committee as to any Collateral in the Trustee's possession or control or in the possession or control of any agent or nominee of it or as to any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except that the Trustee shall be liable for its failure to exercise reasonable care in the handling of moneys and securities actually received by it. SECTION 3.10 Limitation by Law. All rights, remedies and powers ----------------- provided to the Trustee by this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Agreement are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered, or filed under the provisions of any applicable law. 10 ARTICLE 4. DIRECTION BY TRADE COMMITTEE SECTION 4.01 Direction by Trade Committee. (a) Subject to Section ---------------------------- 3.10 and the terms and conditions of the Subordination Agreement, if an Event of Default shall have occurred and the Trustee shall have received a Default Notice with respect thereto: (i) in addition to taking such action as is required by Section 4.02, the Trustee shall take such other action as is necessary and appropriate for the performance of and compliance with the covenants and conditions of this Agreement as the Trade Committee shall request in writing; and (ii) the Trustee shall follow the written directions of the Trade Committee with respect to the time, method and place of taking any action required by the preceding paragraph (i), or, if no such direction is provided, then the Trustee may take such action in the manner it deems necessary and appropriate for the performance of and compliance with the covenants and conditions of this Agreement, provided that nothing in this -------- Agreement shall be construed to impose a duty on the Trustee to take any discretionary action without first receiving a direction from the Trade Committee to do the same. (b) Nothing in this Section 4.01 shall impair the right of the Trustee in its discretion to take or omit to take any action deemed proper by the Trustee and which action or omission is not inconsistent with the direction of the Trade Committee or the terms and conditions of the Subordination Agreement; provided, however, the Trustee shall not be under any obligation to -------- ------- take any action pursuant to any Collateral Documents without first being provided adequate security and indemnity by the Company against the costs, expenses and liabilities which may be incurred by it in complying with such direction (except any cost, expense or liability caused by its own gross negligence or willful misconduct or its failure to exercise reasonable care in the handling of moneys and securities actually received by it), including such reasonable advances for such cost and expenses as may be requested by the Trustee. ARTICLE 5. NOTICE TO TRADE VENDORS SECTION 5.01 Notice to Trade Vendors. ----------------------- (a) Promptly after receipt of a Default Notice from the Trade Committee pursuant to Section 3.01 and after receipt of Trade Vendor Information from the Company pursuant to Section 9.01, the Trustee shall mail a notice (the "Individual Trade Vendor Notice") in substantially the form attached hereto as ------------------------------ Exhibit B, to each of the Trade Vendors (i) notifying - --------- 11 each of them (x) that an Event of Default has occurred (y) that the Trustee's and the Trade Vendors' rights and remedies with respect to such Event of Default are limited by and subject to the terms and conditions of the Subordination Agreement, and as to any action taken by the Trustee with respect to the Security, and (ii) based upon the Trade Vendor Information most recently delivered by the Company to the Trustee pursuant to Section 9.01 hereof, advising each of them of the amount of the Trade Obligations owing to each of them, respectively, as of the date of such Individual Trade Vendor Notice (the "Trade Vendor Payable Amount"). The Individual Trade Vendor Notice shall further --------------------------- state that the Trade Vendor Payable Amount set forth therein shall be deemed correct and shall be the amount used by the Trustee in calculating the distributions to be made to the Trade Vendors pursuant to this Agreement, unless within twenty (20) days of the mailing of the Individual Trade Vendor Notice, a Trade Vendor shall provide to the Trustee and the Company contrary information as to the Trade Vendor Payable Amount owed to it, in which case, the Trustee shall reserve funds (to the extent available) in the Proceeds Account to provide for any disputed amount until such dispute is resolved by the parties thereto. (b) Substantially contemporaneously with the mailing of the Individual Trade Vendor Notices to the Trade Vendors in accordance with subsection 5.01 (a) above, the Trustee shall publish a notice (the "Public Trade Vendor Notice") in -------------------------- substantially the form attached hereto as Exhibit C, which (i) shall be --------- published once in The New York Times (National Edition), (ii) contains the same ------------------ information as is required to be contained in the Individual Trade Vendor Notice, (iii) states that if any Trade Vendor has not received an Individual Trade Vendor Notice, such Trade Vendor may notify the Trustee and the Company in writing of the amount of the Trade Obligations then due and owing to it and (iv) specifies a date, which shall be twenty (20) days after the date of first publication of the Public Trade Vendor Notice, on or before which any Trade Creditor who has not received an Individual Trade Vendor Notice shall, if it wishes to receive a distribution under this Agreement, notify the Trustee and the Company in writing of the amount of the Trade Obligations due and owing to such Trade Vendor. In the event the Company shall have provided to the Trustee contrary information with respect to any such Trade Vendor who delivers such notice in compliance with the Public Trade Vendor Notice, the Trustee shall reserve funds (to the extent available) in the Proceeds Account to provide for any disputed amount until such dispute is resolved by the parties thereto. ARTICLE 6. PROCEEDS ACCOUNT SECTION 6.01 The Proceeds Account. After receipt of a Default -------------------- Notice and until the Proceeds (if and when received) have been fully distributed in accordance with the terms of this Agreement and subject to the terms and conditions of the Subordination Agreement, the Trustee shall establish and maintain a bank account at a bank meeting the qualifications of a bank in which Permitted Investments may be made as provided for herein, which bank account shall be entitled the "Bradlees' Trade Vendor Account" (the "Proceeds Account"). ---------------- All Proceeds (if 12 and when received and subject to the terms and conditions of the Subordination Agreement) shall be promptly deposited in the Proceeds Account, held by the Trustee as part of the Trust Estate and distributed by the Trustee as soon as practicable thereafter in accordance with Section 7.01 and the other provisions of this Agreement. SECTION 6.02 Control of Proceeds Account. All right, title and --------------------------- interest in and to the Proceeds shall vest in the Trustee and funds on deposit in the Proceeds Account shall constitute part of the Trust Estate. The Proceeds Account shall be subject to the exclusive dominion and control of the Trustee. SECTION 6.03 Investment of Funds Deposited in Proceeds Account. To ------------------------------------------------- the extent the Proceeds are on deposit in the Proceeds Account in accordance with the terms of this Agreement, the Trustee shall invest and reinvest such funds solely in Permitted Investments. All such investments and the interest and income received thereon shall be held in the Proceeds Account as part of the Trust Estate. The Trustee shall have no responsibility for any loss resulting from a fluctuation in interest rates or the sale or other disposition of any Permitted Investment prior to its maturity date or otherwise. The Trustee shall have a reasonable period of time in which to reinvest the moneys on deposit in the Proceeds Account. In addition to the payment of expenses incurred by the Trustee pursuant to any other Section of this Agreement, the Trustee may deduct from the funds on deposit in the Proceeds Account all of the actual and reasonable costs and expenses that the Trustee may incur in connection with (a) the exercise or enforcement of any of the rights and remedies of the Trustee hereunder or under the Collateral Documents and (b) the custody or preservation of Trust Estate. ARTICLE 7. APPLICATION OF PROCEEDS SECTION 7.01 Application of Proceeds. Subject to the terms and ----------------------- conditions of the Subordination Agreement, all Proceeds and all other moneys in the Proceeds Account shall promptly be applied as follows: FIRST: To the payment of (i) compensation due and payable to the ----- Trustee for services hereunder pursuant to Section 9.02 hereof, and (ii) all costs, expenses and liabilities incurred by the Trustee in connection with the exercise or enforcement of the rights, duties and remedies of the Trustee under this Agreement and the Collateral Documents, including, without limitation, the reasonable fees and disbursements of counsel for the Trustee; SECOND: After payment in full of the outstanding obligations ------ described in subsection 7.01 FIRST, to the payment of all costs, expenses and liabilities incurred by the Trade Committee in connection with the exercise of its rights, duties or remedies under this Agreement, including, without limitation, the reasonable fees and disbursements of counsel for the Trade Committee; 13 THIRD: After payment in full of the outstanding obligations ----- described in subsection 7.01 SECOND, to the ratable payment of the Trade Obligations then due and owing to the Trade Vendors, as determined by the Trustee in accordance with Section 5 above; and FOURTH: After payment in full of all of the Trade Obligations ------ described in subsection 7.01 THIRD, to the Company or to its order, or as a court of competent jurisdiction may otherwise direct. SECTION 7.02 Distribution of Proceeds. All distributions required ------------------------ to be made hereunder to each of the Trade Vendors in respect of the Trade Obligations shall be made directly to each of the Trade Vendors, at the respective addresses for each of the Trade Vendors provided to the Trustee by the Company pursuant to Section 9.01 of this Agreement or at such other more current address of which the Trustee shall become aware. All such distributions shall be (subject to any decree of any court of competent jurisdiction) final. ARTICLE 8. ABSOLUTE RIGHTS OF TRADE VENDORS SECTION 8.01 Absolute Rights of Trade Vendors. Notwithstanding any -------------------------------- other provision of this Agreement or any provision of any of the Collateral Documents to the contrary, but subject in all events to the terms and conditions of the Subordination Agreement, the right of each Trade Vendor, which is absolute and unconditional, to receive payment of the Trade Obligations owed to such Trade Vendor on or after the due date thereof as set forth on the books and records of the Company, to institute suit for the enforcement of such payment on or after such due date, and to assert its position as a creditor in a case under the Bankruptcy Code in which the Company is a debtor, and the obligation of the Company, which is also absolute and unconditional, to pay the Trade Obligations owed to such Trade Vendor in accordance with the terms and conditions of the invoice(s) evidencing same, shall not be impaired or affected without the written consent of such Trade Vendor. In addition, every right of each Trade Vendor to receive payment or collateral security from sources other than the Trust Estate shall not be, and is not hereby, impaired or affected. Without limiting the generality of the foregoing, no Trade Vendor shall be hereby obligated to share with any other Trade Vendor any proceeds of such collateral security, any guaranty or right of setoff; nor shall any Trade Vendor's right to receive its ratable share of proceeds of the Trust Estate or any part thereof hereunder be diminished by or affected in any way by its right to receive proceeds of any such other collateral, set-off, payment upon a guaranty or payment from any other source. In no event shall any Trade Vendor have the right to receive more than the amount of Trade Obligations owed to such Trade Vendor. 14 ARTICLE 9. AGREEMENTS WITH THE TRUSTEE SECTION 9.0 (a) Information as to Trade Vendors. In connection with ------------------------------- the distributions to be made by the Trustee after the occurrence of an Event of Default pursuant to Section 7.01, the Company agrees that it shall promptly deliver, or cause to be delivered, to the Trustee, from time to time, upon the request of the Trustee or the Trade Committee, but not more than once each month, a list setting forth the following (the "Trade Vendor Information"): (i) ------------------------ the aggregate outstanding amount of the Trade Obligations, (ii) the names and addresses of all Trade Vendors, including the contact Person at each Trade Vendor, and the unpaid principal amount and all other unpaid amounts in respect of Trade Obligations known to the Company to be owing to each such Trade Vendor and (iii) such other information regarding the Trade Vendors and the Trade Obligations necessary to effectuate such distributions as the Trustee or the Trade Committee may reasonably request. Unless otherwise specified herein, the Trustee may for all purposes hereunder rely on such information provided by the Company unless (x) the Trustee shall have actual knowledge of any inaccuracy or (y) any Trade Vendor shall provide contrary information with respect to such Trade Vendor, in which case the Trustee shall proceed as set forth in Section 5.01. (b) Confidentiality. Except for (i) Trade Vendor Information --------------- furnished by the Company to the Trustee pursuant to Section 9.01 which is disclosed by the Trustee to the Trade Vendors in accordance with the terms of this Agreement, and (ii) Trade Vendor Information which is or hereafter becomes available to the public, the Trustee shall maintain the confidentiality of any Trade Vendor Information designated by the Company as confidential (the "Confidential Information") and the content of all such Confidential - ------------------------- Information, and shall not provide or reveal the Confidential Information or its content to any Trade Vendor or other Person without the express written consent of the Company. The Trustee shall not be permitted to use, and hereby agrees not to use, any such Confidential Information for any purpose other than to effectuate distributions of Proceeds of the Trust Estate to Trade Vendors pursuant to this Agreement. In the event that the Trustee is requested or required, by law or legal process, to disclose any of the Confidential Information, the Trustee shall immediately notify the Company of any such request, and, in any such event, the Company may seek and pursue any such action, including, without limitation, the commencement of judicial or administrative proceedings at law or in equity. In the event that, in the absence of a protective order or the receipt of a written waiver from the Company, the Trustee nonetheless, in the opinion of the Trustee's counsel, is compelled by law to disclose Confidential Information concerning the Company or else be liable for contempt or subject to other censure or penalty, the Trustee shall be permitted to disclose such information without liability under this Agreement only to the extent necessary to avoid such liability, censure or penalty. The Trustee acknowledges and agrees that the Company shall be entitled to enforce the provisions of this Section 9.01(b) by specific performance and injunctive relief in the event of any breach thereof by the Trustee, any Trade Vendor or any other Person. The Trustee's obligations under this Section 9.01(b) shall survive the termination of the other provisions of this Agreement. 15 SECTION 9.02 Compensation and Expenses. The Company agrees to pay ------------------------- to the Trustee and any successor trustee appointed hereunder, as applicable, from time to time upon demand, (i) reasonable compensation for the services of the Trustee hereunder and for administering the Trust Estate pursuant to a letter agreement, dated on or about the date hereof, between the Company and the Trustee, as amended, supplemented or otherwise modified from time to time and (ii) all the reasonable costs and expenses of the Trustee (including, without limitation, the reasonable fees and disbursements of counsel to the Trustee and such special counsel as the Trustee may from time to time elect to retain) (A) arising in connection with the preparation, execution, delivery, modification (as agreed to by the Company) and termination of this Agreement or the enforcement of any of the provisions hereof or any Collateral Document. including, without limitation, the maintenance and protection and continuation of the perfection of the Trustee's security interest in all of the Collateral in accordance with the Collateral Documents, or (B) from and after and during the continuance of an Event of Default, incurred or required to be advanced in connection with the administration of the Trust Estate, the sale or other disposition of the Collateral or any part thereof and the exercise, preservation, protection or defense of the Trustee's rights under this Agreement and under the Collateral Documents and in and to the Trust Estate. The Company's obligations incurred prior to termination of this Agreement under this Section 9.02 shall survive the termination of the other provisions of this Agreement. SECTION 9.03 Stamp and Other Similar Taxes. The Company agrees to ----------------------------- indemnify and hold harmless the Trustee from any present or future claim for liability for any stamp or other similar tax and any penalties or interest with respect thereto, which may be assessed, levied or collected by any jurisdiction in connection with this Agreement, the Collateral Documents or the Collateral. The obligations of the Company under this Section 9.03 shall survive the termination of the other provisions of this Agreement. SECTION 9.04 Filing Fees, Excise Taxes, Etc. The Company agrees to ------------------------------- pay or reimburse the Trustee for any and all amounts in respect of all search, filing, recording and registration fees, taxes, excise taxes and other similar imposts which may be payable or determined to be payable in respect of the execution, delivery, performance, enforcement and administration of this Agreement and the Collateral Documents. The obligations of the Company under this Section 9.04 shall survive the termination of the other provisions of this Agreement. SECTION 9.05 Indemnification. (a) In addition to, and not in --------------- limitation of the provisions of Section 9.02 hereof, from and after the occurrence and during the continuance of an Event of Default, the Company agrees to pay, indemnify, and hold harmless the Trustee and each of its agents from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgements, suits, costs, expenses and disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and 16 administration of this Agreement, the Collateral Documents and the Trust Estate, unless arising from the gross negligence or willful misconduct of the Trustee or such agents thereof as are seeking indemnification or the failure of the Trustee or any such agents to exercise reasonable care in the handling of moneys or securities actually received by the Trustee or any such agents. (b) From and after and during the continuance of an Event of Default, in any suit, proceeding or action brought by the Trustee under or with respect to any Collateral Document or any Collateral for any Obligations owing thereunder or secured thereby, or to enforce any provision thereof, the Company will save, indemnify and hold harmless the Trustee from and against all expense, loss or damage suffered by reason of any defense, set-off, counterclaim, recoupment or reduction of liability whatsoever of the obligee thereunder arising out of a breach by the Company of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing by the Company to or in favor of such obligee or its successors and all such obligations shall be and remain enforceable against and only against the Company and shall not be enforceable against the Trustee, except, that, the Company ------ ---- shall not have such indemnification obligation with respect to any such expense, loss or damage that is caused by the gross negligence or willful misconduct of the Trustee, or the failure of the Trustee to (i) exercise reasonable care in the handling of moneys and securities actually received by the Trustee or (ii) comply with the provisions of Section 9.01(b) of this Agreement. The agreements in this Section 9.05 shall survive the termination of the other provisions of this Agreement. SECTION 9.06 Further Assurances. (a) Each of the Company and the ------------------ Trustee agrees that it will promptly correct any defect or error that may be discovered in this Agreement or any Collateral Document or in the execution, acknowledgment or recordation thereof, as applicable. (b) The Company agrees that from time to time it will, promptly, upon reasonable request by the Trustee, and at its own expense, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all further financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances, and other instruments as the Trustee may reasonably request from time to time in order (i) to carry out more effectively the purposes of this Agreement and the Collateral Documents and (ii) to enable the Trustee to exercise and enforce is rights and remedies hereunder and under the Collateral Documents, (iii) to subject to the liens created by the Collateral Documents any of the properties, rights or interests of the Company covered or now or hereafter intended to be covered by the Collateral Documents, (iv) to perfect and maintain the validity, effectiveness and priority of the Collateral Documents and the liens intended to be created thereby, (v) to better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Trustee the rights granted or now or hereafter intended to be granted under the Collateral Documents or under any other instrument executed in connection therewith to which the Trustee is or may become a party, and (vi) to enable the Trustee to exercise and enforce its respective rights and remedies hereunder and under the Collateral Documents, provided, however, that this Section 9.06(b) -------- ------- shall not be construed to require the Company to grant any lien other than expressly provided for in the Plan and in this Agreement or affect the limitations or the rights of the Trustee under the Subordination Agreement. 17 (c) The Company hereby authorizes the Trustee to file one or more financing or continuation statements, and amendments thereto, relative to the Collateral without the signature of the Company where permitted by law. A carbon, photographic or other reproduction of the Inventory Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 9.07 Notification of Event of Default Under Credit --------------------------------------------- Agreement. The Company shall promptly notify the Trustee of the Company's - --------- receipt of (a) notice of the occurrence of an "Event of Default" under and as defined in the BankBoston Credit Agreement and/or (b) notice advising the Company of the Collateral Agent's and/or any Lender's intention to commence realization upon the "Collateral" (as defined in the BankBoston Credit Agreement), or any portion thereof, as a result of the occurrence of any such "Event of Default" under the BankBoston Credit Agreement. ARTICLE 10. THE TRUSTEE SECTION 10.01 Exculpatory Provisions. (a) The Trustee shall not be ---------------------- responsible in any manner whatsoever for the correctness of any recitals, statements, representations or warranties contained herein, all of which are made solely by the Company. The Trustee makes no representation as to the value or condition of the Trust Estate or any part thereof, or as to the title of the Company to the Collateral or as to the validity, execution (except the Trustee's own execution), enforceability, legality or sufficiency of this Agreement, any of the Collateral Documents or any of the Trade Obligations and, except as otherwise expressly provided for herein, the Trustee shall incur no liability or responsibility in respect of any such matters. The Trustee shall not be responsible for insuring the Trust Estate or the payment of any taxes, charges, assessments or liens upon the Trust Estate or otherwise as to the maintenance of the Trust Estate, except that in the event that the Trustee enters into possession of a part or all of the Trust Estate, the Trustee shall preserve the part in its possession. (b) The Trustee shall not be required to ascertain or inquire as to the performance by the Company of any of the covenants or agreements contained herein, any Collateral Document or with respect to any of the Trade Obligations. (c) The Trustee shall not be personally liable for any action taken or omitted to be taken by the Trustee in accordance with this Agreement or any Collateral Document, except for its own gross negligence or willful misconduct and its failure to exercise reasonable care in the handling of moneys or securities actually received by it. 18 SECTION 10.02 Delegation of Duties. The Trustee may execute any of -------------------- the trusts hereof and perform any duty hereunder either directly or by or through agents or attorneys-in-fact (which shall not include officers and employees of the Company or any affiliate of the Company). The Trustee shall not be responsible for the negligence or misconduct of any agents or attorneys- in-fact reasonably selected by it in good faith. SECTION 10.03 Reliance by Trustee. (a) Whenever in the ------------------- administration of the trusts of this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established in connection with the taking, suffering or omitting any action hereunder or under any Collateral Document unless otherwise provided herein or therein, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved or established by a certificate of an Authorized Officer of the Company or the Trade Committee delivered to the Trustee, and such certificate shall constitute a full warranty to the Trustee for any action taken, suffered or omitted in reliance thereon unless the Trustee shall have actual knowledge of an inaccuracy therein. (b) The Trustee may consult with independent counsel (subject to the provisions of Section 9.02 in respect of the Company's liability for the fees and expenses of such counsel) and any opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in accordance therewith unless the Trustee has actual knowledge of any invalidity or inaccuracy, or a reason to question the validity or accuracy, of such opinion or of any assumption expressed therein as the basis for such opinion. The Trustee shall have the right at any time to seek instructions concerning the administration of the Trust Estate from any court of competent jurisdiction. (c) The Trustee may rely, and shall be fully protected in acting, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, bond, or other paper or document which it reasonably believes to be genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies and telexes, to have been sent by the proper party or parties. In the absence of gross negligence or willful misconduct, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee that conform to the requirements of this Agreement. SECTION 10.04 Limitations on Duties of the Trustee. ------------------------------------ (a) The Trustee undertakes to perform only the duties expressly set forth herein. (b) The Trustee may exercise the rights and remedies granted to it by this Agreement and the Collateral Documents, but only pursuant to the terms hereof and thereof and subject to the terms of the Subordination Agreement, and the Trustee shall not be liable with respect to any action taken or omitted by it in accordance with the direction of the Trade Committee subject to the terms hereof, the Collateral Documents and the Subordination Agreement. 19 (c) Except as herein otherwise expressly provided, the Trustee shall not be under any obligation to take any action which is discretionary with the Trustee under the provisions hereof or any Collateral Documents, except upon the written request of the Trade Committee. Subject to the provisions of Section 9.01(b) of this Agreement, the Trustee shall make available for inspection and copying by the Trade Committee and each Trade Vendor, each certificate or other paper furnished to the Trustee by the Company, by the Trade Committee, by any Trade Vendor, or by any other Person, under or in respect of this Agreement, any Collateral Document, or any of the Trust Estate. SECTION 10.05 Moneys to Be Held in Trust. Subject to the terms and -------------------------- conditions of the Subordination Agreement, all Proceeds and other moneys and securities received by the Trustee under or pursuant to any provision of this Agreement or any Collateral Document shall be held in trust in accordance with the provisions of this Agreement and the Trustee shall exercise reasonable care in the handling of any such Proceeds, other moneys and securities actually received by it. SECTION 10.06 Resignation and Removal of Trustee. ---------------------------------- (a) The Trustee may at any time, by giving thirty (30) days prior written notice to the Company and the Trade Committee, resign and be discharged of the responsibilities hereby created, such resignation to become effective upon the appointment of a successor trustee by the Trade Committee and the acceptance of such appointment by such successor trustee. The Trustee may be removed at any time (with or without cause) and a successor trustee appointed by the Trade Committee, provided that the Trustee shall be entitled to its fees and -------- expenses to the date of removal. If no successor trustee shall be appointed and approved within thirty (30) days from the date of the giving of the aforesaid notice of resignation or within thirty (30) days from the date of such removal, the Trustee shall, or the Trade Committee may, apply to any court of competent jurisdiction to appoint a successor trustee to act until such time, if any, as a successor trustee shall have been appointed as above provided. Any successor trustee so appointed by such court shall immediately and without further act be superseded by any successor trustee appointed by the Trade Committee as above provided. (b) If at any time the Trustee shall become incapable of acting, or if at any time a vacancy shall occur in the office of the Trustee for any other cause, a successor trustee shall be appointed by the Trade Committee and the powers, duties, authority and title of the predecessor trustee terminated and cancelled without procuring the resignation of such predecessor trustee, and without any formality (except as may be required by applicable law) other than the appointment and designation of a successor trustee in writing, duly acknowledged, delivered to the predecessor trustee and the Company and filed for record in each public office, if any, in which this Agreement is required to be filed. (c) The appointment and designation referred to in Section 10.06(b) shall, after any required filing, be full evidence of the right and authority to make the same and this Agreement shall vest in such successor trustee, without any further act, deed or conveyance, all 20 of the estate and title of its predecessor, and upon such filing for record, if any, the successor trustee shall become fully vested with all the estates, properties, rights, remedies, trusts, duties, authority and title of its predecessor; but such predecessor shall, nevertheless, on the written request of the Trade Committee, the Company or its or their successor trustee, execute and deliver an instrument transferring to such successor all the estates, properties, rights, remedies, trusts, duties, authority and title of such predecessor hereunder and shall deliver all moneys and securities held by it to such successor trustee. If any deed, conveyance or other instrument in writing from the Company is required by any successor trustee for more fully and certainly vesting in such successor trustee or trustees the estate, properties, rights, powers, trusts, duties, authority and title vested or intended to be vested in the predecessor trustee, any and all such deeds, conveyances and other instruments in writing shall, on request of such successor trustee, be granted, acknowledged and delivered by the Company. (d) Any required filing for record of the instrument appointing a successor trustee as hereinabove provided shall be at the expense of the Company. The resignation of any trustee and the instrument or instruments removing any trustee, together with all other instruments, deeds and conveyances provided for in this Article 10 shall, if permitted by law, be forthwith recorded, registered and filed by and at the expense of the Company, wherever this Agreement is recorded, registered and filed. SECTION 10.07 Trustee Appointed Attorney-in-Fact. Upon the ---------------------------------- occurrence of an Event of Default, the Company shall thereupon be deemed to have automatically, without any further act by the Company, irrevocably constituted and appointed the Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full power and authority in the name of the Company or its own name and in the place and stead of the Company, from time to time at the direction of the Trade Committee, to take, subject to Section 4.01(b) and to the terms and conditions of the Subordination Agreement, any action and to execute any instrument which the Trade Committee may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Company representing payment, rents, issues or profits or other distribution in respect of the Collateral, or any part thereof and to give full discharge for the same. SECTION 10.08 Reasonable Care. The Trustee shall be deemed to have --------------- exercised reasonable care in the custody and preservation of the Trust Estate if the Trust Estate is accorded treatment substantially equal to that which the Trustee accords its own property and reasonable care is exercised by the Trustee in handling any moneys or securities in its possession, it being understood that the Trustee shall not have any responsibility for taking any steps to preserve rights against any parties with respect to the Collateral, except as expressly provided for by or in accordance with this Agreement. 21 ARTICLE 11. MISCELLANEOUS SECTION 11.01 Amendment or Waiver. (a) None of the terms and ------------------- conditions of this Agreement or any Collateral Document may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Company and the Trustee with the consent of the Trade Committee and provided that the terms and conditions of such writing are not prohibited or inconsistent with the terms and conditions of the Subordination Agreement. Any such amendment, waiver or modification shall be binding upon the Company, the Trade Committee, the Trade Vendors, and the Trustee and their respective successors and assigns. (b) Notwithstanding the provisions of subsection 11.01(a), the Trustee and the Company may, at any time and from time to time, without the consent of the Trade Committee, but subject to the prior written consent of the Collateral Agent, enter into one or more agreements supplemental hereto or to any Collateral Document, in form and substance satisfactory to the Trustee and the Collateral Agent (and which written consent thereto by the Collateral Agent shall not be unreasonably withheld or delayed, provided such agreements are not prohibited by or inconsistent with the terms and conditions of the Subordination Agreement or the BankBoston Credit Agreement), (i) to add to the covenants of the Company, for the benefit of the Trade Vendors, or to surrender any right or power herein conferred upon the Company, or (ii) to mortgage, pledge or grant a security interest in favor of the Trustee, as additional security for the Trade Obligations, any property or assets which are required to be mortgaged or pledged, or in which a security interest is required to be granted, to the Trustee pursuant to the Plan or the Collateral Documents. SECTION 11.02 Subordination Agreement. Notwithstanding any ----------------------- provision of this Agreement to the contrary: (a) the Trustee shall comply with the terms and conditions of the Subordination Agreement and any direction of the Collateral Agent given to the Trustee thereunder in accordance with the terms thereof and shall not require the consent of the Trade Committee or any Trade Vendor to comply with any provision of the Subordination Agreement; and (b) by their acceptance of the benefits hereof and of the Collateral Documents, the Trade Committee and the Trade Vendors agree, for the benefit of the Trustee and the Collateral Agent, (i) to the provisions of Section 11.02(a) above, (ii) to be bound by those provisions of the Subordination Agreement that are applicable to the security interest granted to the Trustee, for the benefit of the Trade Vendors, or are otherwise applicable to the Trade Vendors, and to take no action to cause the Trustee to breach any provisions of the Subordination Agreement, (iii) that they, individually or as a group, may not take any action with respect to the Collateral, any such action or assertion to be taken solely by the Trustee, subject at all times to the terms and conditions of the Subordination Agreement, (iv) to take such further action, at the 22 expense of the Company, as is reasonably required by the Collateral Agent and the Trustee to effectuate the provisions and intent of the Subordination Agreement, and (v) that in the event of any conflict between the provisions of this Agreement or any Collateral Document, on the one hand, and the Subordination Agreement, on the other hand, the provisions of the Subordination Agreement shall govern. SECTION 11.03 Notices. All notices, requests, demands and other ------- communications provided for or permitted hereunder shall, unless otherwise stated herein, be in writing (including telex and telecopy communications) and shall be sent by registered or certified mail, return receipt requested, telex, telecopier or hand delivery; (a) If to the Company, to One Bradlees Circle, Braintree, Massachusetts 02184, Attention: Chief Financial Officer and General Counsel, or at such other address as shall be designated by it in a written notice to the Trustee and the Trade Committee; (b) If to the Trustee, to its address at 333 East 68th Street, New York, New York 10021, Attention: Michael J. Sherman, or at such other address as shall designated by it in a written notice to the Company and the Trade Committee; (c) If to any Trade Vendor, to it at the address specified from time to time in the list provided by the Company to the Trustee pursuant to Section 9.01. (d) If to the Trade Committee, c/o Mattel Toys, 333 Continental Boulevard, El Segundo, California 90245-50212 Attention: Ms. Dorthy Fee, Assistant Controller, or at such other address as shall be designated by it in a written notice to the Company and the Trustee, with a copy delivered ----------- simultaneously therewith to: Otterbourg, Steindler, Houston & Rosen, P.C., 230 Park Avenue, New York, New York 10169 Attention: Glenn B. Rice, Esq., counsel to the Trade Committee, or at such other address as shall be designated by such firm to the Company and the Trustee. All such notices, requests, demands and communications shall be deemed to have been duly given or made, (i) when delivered by hand, immediately upon delivery (ii) five (5) Business Days after being deposited in the United States mail, postage prepared, (iii) when telexed, immediately upon sending, with answer back received, (iv) when telecopied, immediately upon sending, with receipt acknowledged or (v) one (1) Business Day after sending when deposited with a nationally recognized overnight courier service with instructions to deliver the next Business Day. SECTION 11.04 Headings. Section, subsection and other headings -------- used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. SECTION 11.05 Severability. Any provision of this Agreement which ------------ is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 23 SECTION 11.06 Claims Against Trustee. This Agreement is made for ---------------------- the benefit of the Trade Vendors, and the Trade Committee may from time to time enforce the rights of the Trade Vendors as explicit beneficiaries hereunder. Any claims or causes of action which the Trade Vendors or the Company shall have against the Trustee shall survive the termination of this Agreement and the termination of the Trust Estate hereunder. SECTION 11.07 Binding Effect. This Agreement shall be binding upon -------------- and inure to the benefit of each of the parties hereto and, additionally, shall inure to the benefit of the Trade Committee and its successors and assigns and the Trade Vendors and their respective successors and assigns and, subject to the rights of the Collateral Agent hereunder (if any) and under the Subordination Agreement, nothing herein is intended or shall be construed to give any other Person any right, remedy or claim under, to or in respect of this Agreement or the Trust Estate or any part thereof. In addition to and not in limitation of the foregoing, and notwithstanding anything to the contrary contained in this Agreement or in any Collateral Document, in the event any Trade Vendor at any time sells, assigns, pledges, disposes of or otherwise tranfers to any Person (a "Transferee") all or any portion of the Trade Obligations at any time owing to such Trade Vendor, the Transferee shall in no event be entitled to any of the rights and benefits of such Trade Vendor under this Agreement or under any Collateral Document, including, without limitation, with respect to the security interests granted by the Company to the Trustee in the Collateral, unless the Transferee shall have executed and delivered to the Collateral Agent, in form and substance satisfactory to the Collateral Agent, an assumption and ratification agreement, pursuant to which, among other things, the Transferee agrees that the rights and benefits it has acquired hereunder and under the Collateral Documents are subject to all of the terms and conditions of the Subordination Agreement and that the Transferee agrees to be bound by all of the terms and provisions of the Subordination Agreement to the extent applicable to Trade Vendors. SECTION 11.08 Governing Law. This Agreement and the rights and ------------- obligations hereunder of the Trade Committee and the Trade Vendors shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to the conflicts of laws principles of such State. SECTION 11.09 Counterparts. This Agreement may be executed in ------------ several counterparts, each of which when executed shall be an original and all of which taken together shall constitute one and the same instrument. SECTION 11.10 Termination. This Agreement and the Collateral ----------- Documents shall terminate upon the earliest to occur of: (a) midnight on that date that is two (2) years from the date hereof; 24 (b) at the sole option of the Company or the Collateral Agent on behalf of the Company, on such date on which the Company has delivered notice to the Trustee, the Trade Committee and all of the Trade Vendors that, with respect to the three (3)-fiscal month period most recently ended, the average of the Accounts Payable/Inventory Ratio (as hereinafter defined) measured on each of the three Measurement Dates (as hereinafter defined) in such three (3)-fiscal month period is more than five (5) percentage points less than such average ratio calculated in the same manner on a comparable store basis for the same three (3)-fiscal month period in the immediately preceding calendar year, all as determined in accordance with generally accepted accounting principles, consistently applied, and which notice to the Trustee and the Trade Committee shall be accompanied by such information as the Trustee and/or the Trade Committee shall reasonably request with respect to the Company's calculation of such ratios. For the purposes of this Section 11.10(b) (i), the "Accounts Payable/Inventory Ratio" is the ratio as of any Measurement Date of (x) the aggregate amount of all accounts payable of the Company as of such Measurement Date to (y) the value (computed on a cost basis) of all inventory owned by the Company as of such Measurement Date; and (ii) "Measurement Date" means and refers to the last day of each of the three (3)-fiscal months in any relevant three (3)-fiscal month period. (c) immediately upon the Company's consummation of a transaction pursuant to which Reorganized BI (as defined in the Plan) or the Company merges or consolidates with any other Person(s); (d) at the sole option of the Company, or the Collateral Agent on behalf of the Company, solely as to a Trade Vendor specifically identified in a notice delivered by the Company to the Trustee, the Trade Committee and such Trade Vendor as to whom the Company intends to terminate this Agreement pursuant to this subsection 11.10(d) (the "Terminated Trade Vendor"), (i) if such ----------------------- Terminated Trade Vendor commences selling its goods to the Company after the Effective Date (as defined in the Plan) on credit terms which are more restrictive than the most restrictive credit terms under which such Terminated Trade Vendor sold goods to the Company at any time during the twelve (12)-month period immediately preceding the Effective Date, or (ii) in the event such Terminated Trade Vendor did not sell any of its goods to the Company in the twelve (12)-month period immediately preceding the Effective Date, then if such Terminated Trade Vendor commences selling its goods to the Company on credit terms which are not as favorable as the credit terms made available by such Terminated Trade Vendor to the Company in connection with the goods first sold by such Terminated Trade Vendor to the Company after the Effective Date; and (e) after the occurrence of an Event of Default and the Trustee's exercise of its rights and remedies hereunder and under the Collateral Documents, (i) the sale or other disposition of all of the Collateral and the final disposition of all Proceeds or (ii) the indefeasible payment in full of the Obligations. SECTION 11.11 Termination Notice; Effect of Termination. ----------------------------------------- Notwithstanding anything to the contrary contained in Section 11.10, (a) if this Agreement is terminated pursuant to subsection 11.10(b) or (c), such termination shall not be effective until thirty (30) days after 25 the Company has given notice of such termination to the Trustee and has published notice of such termination, for the benefit of Trade Vendors generally, in the New York Times (National Edition), advising the Trade Vendors -------------- of its intent to terminate this Agreement as a result of its satisfaction of the conditions precedent to such termination set forth in such subsection 11.10(b) or (c) (as applicable) and (b) if the Agreement is terminated as to a Terminated Trade Vendor pursuant to subsection 11.10(d), such termination shall not be effective until the Company shall have delivered notice to the Trustee and the Terminated Trade Vendor(s) of the Company's exercise of its option pursuant to such subsection to terminate this Agreement as to such Terminated Trade Vendor(s), provided, however, that (i) in the case of termination of this -------- ------- Agreement pursuant to subsection 11.10 (a)(b), (c) or (e), no such termination shall relieve or discharge the Company of its duties, obligations or covenants under this Agreement or the other Collateral Documents until all Trade Obligations incurred prior to such termination and all other Obligations at any time incurred in connection with the collection of such Trade Obligations have been fully and finally discharged and paid, and the Trustee's liens upon and security interests in the Collateral and the rights and remedies of the Trustee under the Agreement, the other Collateral Documents and applicable law shall remain in full force and effect until all such Trade Obligations and other Obligations have been fully and finally paid, and (ii) in the case of termination of this Agreement as to a Terminated Trade Vendor pursuant to subsection 11.10(d), such termination shall be effective solely as to such Terminated Trade Vendor (and no other Trade Vendor) and solely with respect to any goods sold and delivered by such Terminated Trade Vendor subsequent to the date on which this Agreement has been terminated as to such Terminated Trade Vendor and such termination shall not otherwise limit, impair or affect in any manner whatsoever either (A) this Agreement and the Collateral Documents as to the Trustee and all other Trade Vendors (exclusive of such Terminated Trade Vendor) or (B) the rights of the Terminated Trade Vendor arising under this Agreement and the Collateral Documents prior to the effective date of the termination hereof as to such Terminated Trade Vendor. SECTION 11.12 Conflicts. In the event of any conflict between any --------- term or provision of this Agreement and any term or provision of any Collateral Document, the term or provision of this Agreement shall govern and control. IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. M.J. SHERMAN & ASSOCIATES, INC. as Trustee By: /s/ Oleg Ostrovsky ------------------------------- Name: Oleg Ostrovsky ----------------------------- Title: Vice President ----------------------------- 26 BRADLEES STORES, INC. By: /s/ Paul R. McKelvey ------------------------------- Name: Paul R. McKelvey ----------------------------- Title: Vice President-Treasurer ----------------------------- 27 EXHIBIT A --------- TRADE COMMITTEE OF BRADLEES STORES, INC. _________________________ ____________________________ ___________________________ DEFAULT NOTICE ______________, 1999 [200_] M.J. Sherman & Associates, Inc., Trustee 333 East 68th Street New York, New York 10021 Attn: Michael J. Sherman, President Gentlemen: Reference is made to the Collateral Trust Agreement, dated as of ________, 1999 between Bradlees Stores, Inc. and M.J. Sherman & Associates, as Trustee (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Trust Agreement"). Initially capitalized terms used and ----- --------- not otherwise defined herein shall have their respective meanings as set forth in the Trust Agreement. Pursuant to the terms of the Trust Agreement, the Trade Committee hereby notifies the Trustee that an Event of Default has occurred under the Trust Agreement and hereby irrevocably directs the Trustee, subject to the terms and conditions of the Subordination Agreement, to take such action as requested by the Trade Committee with respect to the Collateral Documents and the Collateral. Very truly yours, TRADE COMMITTEE OF BRADLEES STORES, INC. By: [____________________] By: --------------------------- Name: ------------------------- Title: ------------------------ cc: Bradlees Stores, Inc. Att: Chief Financial Officer 28 EXHIBIT B --------- TRADE COMMITTEE OF BRADLEES STORES, INC. _________________________ _____________________________ Attention: ______________ INDIVIDUAL TRADE VENDOR NOTICE ______________, 199_ [200_] [Name and Address of Individual Trade Vendor] Attn: [Contact Person] Gentlemen: Reference is made to the Collateral Trust Agreement, dated as of ________, 1999 between Bradlees Stores, Inc. and M.J. Sherman & Associates, as Trustee (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Trust Agreement"). Initially capitalized terms used and not --------------- otherwise defined herein shall have their respective meanings as set forth in the Trust Agreement. Pursuant to the terms of the Trust Agreement, the Trustee hereby (i) notifies you that (x) an Event of Default has occurred under the Trust Agreement, (y) the Trustee's and the Trade Vendors' rights and remedies with respect to such Event of Default are limited by and subject to the terms and conditions of the Subordination Agreement, and (z) the Trustee has taken the following action with respect to the Collateral and (ii) advises you that the books and records of the Company show that as of ___________, 19__ [200_] the unpaid amount of Trade Obligations due and payable to you is $_________ (the "Trade Vendor Payable Amount"). - ---------------------------- The Trade Vendor Payable Amount shall be deemed correct and shall be the amount used by the Trustee in calculating the distribution to be made to you pursuant to the Trust Agreement unless, within twenty (20) days of the mailing of this Individual Trade Vendor Notice, you shall provide to the Trustee and the Company contrary information as to the Trade Payable Amount owed to you, in which case, the Trustee shall reserve, to the extent available, funds in the Proceeds Account to provide for any disputed amount until such dispute is resolved. Very truly yours, M.J. SHERMAN & ASSOCIATES, INC., Trustee By: ----------------------------- Name: --------------------------- Title: -------------------------- 29 EXHIBIT C --------- [M.J. SHERMAN & ASSOCIATES, INC.] Trustee 333 East 68th Street New York, New York 10021 PUBLIC TRADE VENDOR NOTICE ______________, 199_ [200_] TO: THE TRADE VENDORS OF BRADLEES STORES, INC. Reference is made to the Collateral Trust Agreement, dated as of ________ __, 1999, between Bradlees Stores, Inc. and M.J. Sherman & Associates, as Trustee (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Trust Agreement"). Initially capitalized terms used and --------------- not otherwise defined herein shall have their respective meanings as set forth in the Trust Agreement. Pursuant to the terms of the Trust Agreement, the Trustee hereby (i) notifies you that (x) an Event of Default has occurred under the Trust Agreement, (y) the Trustee's and the Trade Vendors' rights and remedies with respect to such Event of Default are limited by and subject to the terms and conditions of the Subordination Agreement, and (z) the Trustee has [taken the following action with respect to the Collateral and (ii) advises you that if you have not received an Individual Trade Vendor Notice, then, if you wish to receive any distribution made under the Trust Agreement, you must, on or before ______________, 20 days after the date of the first publication of the Public Payment Notice, notify the Trustee and the Company in writing of the amount of Trade Obligations owed to you. In the event the Trustee and the Company shall have received contrary information from the Company as to the amount of Trade Obligations owed to you, the Trustee shall reserve, to the extent available, funds in the Proceeds Account to provide for any disputed amount until such dispute is resolved. Very truly yours, M.J. SHERMAN & ASSOCIATES, INC., Trustee By: ----------------------------- Name: --------------------------- Title: -------------------------- 30 EX-21 15 SUBSIDIARIES OF REGISTRANT Exhibit 21 List of Subsidiaries of Bradlees, Inc. Jurisdiction ------------ Name Of Incorporation - ---- ---------------- Bradlees Stores, Inc. Massachusetts New Horizons of Yonkers, Inc. Delaware EX-23.2 16 CONSENT OF ARTHUR ANDERSEN Exhibit 23.2 [AA Letterhead] Consent of Independent Public Accountants As independent public accountants, we hereby consent to the use of our report (and to all references to our Firm) included in or made part of this Registration Statement No. 333-66953. /s/ Arthur Andersen LLP New York, New York February 16, 1999 EX-23.3 17 CONSENT OF DELOITTE & TOUCHE Exhibit 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Post-Effective Amendment No. 1 to Registration Statement No. 333-66953 of Bradlees, Inc., Bradlees Stores, Inc. and New Horizons of Yonkers, Inc. of our report dated March 20, 1997 (February 16, 1999 with respect to Note 16) on Bradlees, Inc. consolidated financial statements (which expresses an unqualified opinion and includes explanatory paragraphs relating to (a) the Company's filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, and (b) the Company's 1996 and 1995 losses from operations and stockholders' deficiency, which raise substantial doubt about the Company's ability to continue as a going concern) appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Boston, Massachusetts February 16, 1999 -----END PRIVACY-ENHANCED MESSAGE-----