Form 10-Q
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 28, 2006

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 1-11084

KOHL’S CORPORATION

(Exact name of the registrant as specified in its charter)

 

WISCONSIN   39-1630919
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer Identification No.)
N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin   53051
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code (262) 703-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 Days. Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer  x                Accelerated filer  ¨                Non-accelerated filer  ¨

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: November 29, 2006 Common Stock, Par Value $0.01 per Share 327,021,240 shares outstanding.

 



Table of Contents

KOHL’S CORPORATION

INDEX

 

PART I    FINANCIAL INFORMATION   

Item 1

   Financial Statements:   
   Condensed Consolidated Balance Sheets at October 28, 2006, January 28, 2006, and October 29, 2005    3
   Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended October 28, 2006, and October 29, 2005    4
   Condensed Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended
October 28, 2006
   5
   Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 28, 2006, and
October 29, 2005
   6
   Notes to Condensed Consolidated Financial Statements    7-11

Item 2

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    12-22

Item 3

   Quantitative and Qualitative Disclosures about Market Risk    22

Item 4

   Controls and Procedures    22-23
PART II    OTHER INFORMATION   

Item 1A

   Risk Factors    23

Item 2

   Unregistered Sales of Equity Securities and Use of Proceeds    23
   Issuer Purchases of Securities    23-24

Item 6

   Exhibits    25
   Signatures    26

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

     October 28,
2006
    January 28,
2006
   October 29,
2005
     (Unaudited)     (Audited)    (Unaudited)
Assets        

Current assets:

       

Cash and cash equivalents

   $ 198,686     $ 126,839    $ 132,713

Short-term investments

     318,992       160,077      —  

Accounts receivable, net

     —         1,652,065      1,492,150

Merchandise inventories

     3,251,221       2,237,568      2,854,317

Deferred income taxes

     20,909       23,677      16,259

Other

     149,547       65,826      77,810
                     

Total current assets

     3,939,355       4,266,052      4,573,249

Property and equipment, net

     5,266,048       4,616,303      4,557,827

Favorable lease rights, net

     222,724       212,380      215,460

Goodwill

     9,338       9,338      9,338

Other assets

     57,224       48,965      48,353
                     

Total assets

   $ 9,494,689     $ 9,153,038    $ 9,404,227
                     
Liabilities and Shareholders’ Equity        

Current liabilities:

       

Accounts payable

   $ 1,642,435     $ 829,971    $ 1,330,384

Accrued liabilities

     744,499       641,635      577,296

Income taxes payable

     56,497       166,908      52,584

Short-term debt

     —         —        331,500

Current portion of long-term debt and capital leases

     8,809       107,941      105,875
                     

Total current liabilities

     2,452,240       1,746,455      2,397,639

Long-term debt and capital leases

     1,040,450       1,046,104      1,040,232

Deferred income taxes

     244,481       217,801      223,325

Other long-term liabilities

     228,236       185,340      179,765

Shareholders’ equity:

       

Common stock

     3,477       3,450      3,445

Paid-in capital

     1,698,770       1,583,035      1,563,881

Treasury stock

     (1,167,916 )     —        —  

Retained earnings

     4,994,951       4,370,853      3,995,940
                     

Total shareholders’ equity

     5,529,282       5,957,338      5,563,266
                     

Total liabilities and shareholders’ equity

   $ 9,494,689     $ 9,153,038    $ 9,404,227
                     

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Thousands, Except per Share Data)

 

     Three Months (13 Weeks) Ended    Nine Months (39 Weeks) Ended
     October 28,
2006
   October 29,
2005
   October 28,
2006
   October 29,
2005

Net sales

   $ 3,637,272    $ 3,119,360    $ 10,113,427    $ 8,750,276

Cost of merchandise sold

     2,288,141      1,986,766      6,378,058      5,565,897
                           

Gross margin

     1,349,131      1,132,594      3,735,369      3,184,379

Operating expenses:

           

Selling, general, and administrative

     856,908      753,799      2,377,077      2,099,183

Depreciation and amortization

     94,318      85,112      283,695      247,741

Preopening expenses

     28,521      26,252      47,580      42,923
                           

Operating income

     369,384      267,431      1,027,017      794,532

Interest expense, net

     10,189      18,031      30,395      51,497
                           

Income before income taxes

     359,195      249,400      996,622      743,035

Provision for income taxes

     134,699      94,273      372,524      275,988
                           

Net income

   $ 224,496    $ 155,127    $ 624,098    $ 467,047
                           

Net income per share:

           

Basic

           

Earnings per share

   $ 0.69    $ 0.45    $ 1.86    $ 1.36

Average number of shares

     326,904      344,441      335,148      344,011

Diluted

           

Earnings per share

   $ 0.68    $ 0.45    $ 1.85    $ 1.35

Average number of shares

     329,814      346,778      338,255      346,628

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(In Thousands)

 

     Common Stock    Paid-In
Capital
   Treasury
Stock
    Retained
Earnings
   Total  
     Shares    Amount           

Balance at January 28, 2006

   345,088    $ 3,450    $ 1,583,035    $ —       $ 4,370,853    $ 5,957,338  

Exercise of stock options

   2,633      27      63,163      —         —        63,190  

Excess tax benefits from share-based compensation

   —        —        20,480      —         —        20,480  

Share-based compensation expense

   —        —        32,092      —         —        32,092  

Treasury stock purchases

   —        —        —        (1,167,916 )     —        (1,167,916 )

Net income

   —        —        —        —         624,098      624,098  
                                          

Balance at October 28, 2006

   347,721    $ 3,477    $ 1,698,770    $ (1,167,916 )   $ 4,994,951    $ 5,529,282  
                                          

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

     Nine Months (39 Weeks) Ended  
     October 28, 2006     October 29, 2005  

Operating activities

    

Net income

   $ 624,098     $ 467,047  

Adjustments to reconcile net income to net cash provided by operating activities

    

Depreciation and amortization

     284,185       248,268  

Amortization of debt discount

     162       163  

Share-based compensation

     31,507       32,535  

Excess tax benefits from share-based compensation

     (20,480 )     (9,859 )

Deferred income taxes

     29,448       31,735  

Changes in operating assets and liabilities:

    

Accounts receivable, net

     1,652,065       (102,518 )

Merchandise inventories

     (1,013,653 )     (907,340 )

Other current and long-term assets

     (65,002 )     (32,406 )

Accounts payable

     812,464       625,729  

Accrued and other long-term liabilities

     145,760       24,833  

Income taxes payable

     (89,931 )     (114,739 )
                

Net cash provided by operating activities

     2,390,623       263,448  

Investing activities

    

Acquisition of property and equipment and favorable lease rights

     (964,511 )     (690,205 )

Net (purchases) sales of short-term investments

     (158,915 )     88,765  

Other

     (3,856 )     (3,362 )
                

Net cash used in investing activities

     (1,127,282 )     (604,802 )

Financing activities

    

Proceeds from short-term debt

     —         225,000  

Borrowings under credit facilities

     —         106,500  

Excess tax benefits from share-based compensation

     20,480       9,859  

Payments of other long-term debt

     (107,248 )     (3,779 )

Treasury stock purchases

     (1,167,916 )     —    

Proceeds from stock option exercises

     63,190       19,770  
                

Net cash (used in) provided by financing activities

     (1,191,494 )     357,350  
                

Net increase in cash and cash equivalents

     71,847       15,996  

Cash and cash equivalents at beginning of period

     126,839       116,717  
                

Cash and cash equivalents at end of period

   $ 198,686     $ 132,713  
                

Supplemental information:

    

Interest paid, net of capitalized interest

   $ 49,793     $ 52,755  

Income taxes paid

   $ 435,776     $ 359,159  

See accompanying Notes to Condensed Consolidated Financial Statements

 

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KOHL’S CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Company’s Form 10-K (Commission File No. 1-11084) filed with the Securities and Exchange Commission.

Due to the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of sales and costs associated with the opening of new stores.

Certain reclassifications have been made to prior year’s financial information to conform to the current year presentation.

 

2. Net Sales

Revenue from the sale of the Company’s merchandise at its stores is recognized at the time of sale, net of any returns. E-commerce sales are recorded upon the shipment of merchandise. Net sales do not include sales tax as the Company considers itself a pass-through conduit for collecting and remitting sales taxes. Revenue from gift card sales is recognized when the gift card is redeemed.

Gift card breakage revenue is based on historical redemption patterns and represents the balance of gift cards for which the Company believes the likelihood of redemption by a customer is remote. The Company analyzed the experience of the gift card program since its inception in 2001 to determine the breakage rate. Total sales for the three and nine months ended October 28, 2006, include $15.0 million related to this initial recognition of gift card breakage revenue.

 

3. New Accounting Pronouncements

In October 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period” (FSP 13-1). FSP 13-1 requires that rental costs associated with ground or building operating leases that are incurred during the construction period be recognized

 

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as rental expense. FSP 13-1 was adopted by the Company January 29, 2006 on a prospective basis. The Company had historically capitalized rental costs incurred during a construction period and the adoption of this guidance is expected to negatively impact net income per diluted share by approximately $0.03 in fiscal 2006.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Under FIN 48, a tax position is not recognized until it is more likely than not to be sustained upon examination. Measurement of the tax position is based on the largest amount, determined on a cumulative probability basis, that is more likely than not to be realized upon ultimate settlement. FIN 48 applies to all tax positions related to income taxes subject to Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is in the process of determining whether this statement will have a material impact on the Company’s consolidated net earnings, cash flow or financial position.

 

4. Stock Based Compensation

As of October 28, 2006, the Company has three long-term compensation plans from which stock-based compensation may be granted. The Company’s 1994 and 2003 long-term compensation plans provide for the granting of various forms of equity-based awards, including nonvested stock and options to purchase shares of the Company’s common stock, to officers and key employees. The 1997 Stock Option Plan for Outside Directors provides for granting of equity-based awards to outside directors.

The majority of stock options granted to employees vest in four equal annual installments. Remaining stock options granted vest in five to ten year annual installments. Outside directors’ stock options are typically granted upon a director’s election or re-election to the Company’s Board of Directors. The vesting periods for outside directors’ options are one to three years, depending on the length of the term to which the director is elected. Options that are surrendered or terminated without issuance of shares are available for future grants.

On January 30, 2005, the Company adopted SFAS No. 123(R), “Share-based Payment,” requiring the Company to recognize expense related to the fair value of its employee stock option awards. The Company adopted the “modified retrospective” method, which required the prior period financial statements to be restated under the provisions of SFAS No. 123(R) to recognize compensation cost in the amounts previously reported in the pro forma footnote disclosures.

The total compensation cost recognized related to options for the three months ended October 28, 2006 and October 29, 2005 was $9.1 million and $10.5 million, respectively. Total compensation cost recognized related to options for the nine months ended October 28, 2006 and October 29, 2005 was $28.0 million and $29.8 million, respectively. Stock compensation cost is recognized for new, modified and unvested

 

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stock option awards, measured at fair value and recognized as compensation expense over the vesting period. These amounts are included in selling, general and administrative (S,G & A) expenses in the accompanying Condensed Consolidated Statements of Income. The Black-Scholes option valuation model was used to estimate the fair value of each option award based on the following assumptions:

 

     2006     2005  

Dividend yield

     0 %     0 %

Volatility

     0.311       0.342  

Risk-free interest rate

     4.7 %     3.8 %

Expected life in years

     5.2       6.5  

Weighted average fair value at grant date

   $ 19.40     $ 20.17  

The Company has awarded nonvested shares of common stock to eligible key employees. All awards have restriction periods tied primarily to employment and/or service. The awards vest over three years. The awards are expensed on a straight-line basis over the vesting period.

As of October 28, 2006, there was $6.6 million of unearned compensation cost related to the nonvested stock granted under the plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total compensation expense recognized related to nonvested stock for the three months ended October 28, 2006 was $1.1 million and was $0.9 million for the three months ended October 29, 2005. Total compensation expense recognized related to nonvested stock during the nine months ended October 28, 2006 and October 29, 2005 was $3.0 million and $2.6 million, respectively.

 

5. Merchandise Inventories

Merchandise inventories are valued at the lower of cost or market using the first in, first out method (FIFO).

 

6. Short-term Investments

Short-term investments consist primarily of auction rate securities and are stated at cost, which approximates market value. Short-term investments are classified as available-for-sale securities and are highly liquid. These securities generally have a put option feature that allows the Company to liquidate the investments at par.

 

7. Contingencies

The Company is involved in various legal matters arising in the normal course of business. In the opinion of management, the outcome of such proceedings and litigation will not have a material adverse impact on the Company’s consolidated financial statements.

 

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8. Net Income Per Share

The calculations of the numerator and denominator for basic and diluted net income per share are summarized as follows:

 

     Three Months Ended    Nine Months Ended
    

October 28,

2006

  

October 29,

2005

   October 28,
2006
   October 29,
2005
     (In Thousands)

Numerator for basic and diluted earnings per share

   $ 224,496    $ 155,127    $ 624,098    $ 467,047
                           

Denominator for basic earnings per share – weighted average shares

     326,904      344,441      335,148      344,011

Impact of diluted employee stock options and nonvested stock (a)

     2,910      2,337      3,107      2,617
                           

Denominator for diluted earnings per share

     329,814      346,778      338,255      346,628
                           

 

(a) For the three months ended October 28, 2006 and October 29, 2005, 2,843,500 and 4,328,185 options, respectively, were not included in the diluted earnings per share calculation as the impact of such options was antidilutive. For the nine months ended October 28, 2006 and October 29, 2005, 3,533,923 and 6,190,380 options, respectively, were not included in the diluted earnings per share calculation as the impact of such options was antidilutive.

 

9. Common Stock Repurchases

During the first quarter of 2006, the Company’s Board of Directors authorized a $2 billion share repurchase program. During the three months ended October 28, 2006, the Company repurchased approximately 1.0 million shares for a cost of approximately $67.0 million. As of October 28, 2006 the Company has repurchased approximately 20.7 million shares for a total cost of approximately $1.2 billion. Share repurchases have been made in open-market transactions, subject to market conditions, legal requirements and other factors. The Company expects to complete the repurchase program in the next two years.

 

10. Sale of Proprietary Credit Card Business

On April 21, 2006, the Company completed the sale of its private label credit card accounts and the outstanding balances associated with the accounts to JPMorgan Chase (“Chase”) for a purchase price of approximately $1.6 billion. The purchase price is comprised of the face value of the receivables and was received in cash.

 

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Chase acquired all of the existing accounts as of April 21, 2006, and also owns the new accounts and the related balances generated during the term of the agreement.

Additionally, the companies have entered into a multi-year agreement that provides for the Company to receive ongoing payments related to the profitability of the credit card portfolio. The Company will continue to handle all customer service functions and will continue to be responsible for all advertising and marketing related to credit card customers.

 

11. Long-term Debt

During the quarter ended October 28, 2006, the Company executed a new $900 million senior unsecured revolving credit facility maturing October 12, 2011. Amounts borrowed bear the interest rate of LIBOR plus a margin, which is based on the Company’s long-term credit rating. This agreement replaced the $532 million unsecured revolving bank credit facility which would have matured on July 10, 2007. As of October 28, 2006, no amounts were outstanding under the facility.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Fiscal 2006 continues to be a successful year from both a sales and earnings perspective. The Company earned $624.1 million in net income during the nine months ended October 28, 2006, an increase of 33.6% over last year. The Company’s net sales increased 15.6% while comparable store sales increased 6.9%. The Company’s gross margin rate improved by 54 basis points from 36.4% last year to 36.9% this year. The Company’s S,G&A expenses leveraged by approximately 49 basis points, decreasing from 24.0% last year to 23.5% this year.

The Company earned $224.5 million in net income during the three months ended October 28, 2006, an increase of 44.7% over last year. The Company’s net sales increased 16.6% while comparable store sales increased 8.5%. The Company’s gross margin rate also improved by 78 basis points from 36.3% last year to 37.1% this year. The Company’s S,G&A expenses leveraged by approximately 61 basis points, decreasing from 24.2% last year to 23.6% this year.

The comparable store sales growth for the quarter and year to date periods was achieved through consistent sales performance from all regions of the country and all six lines of business. During the third quarter, the Company had strong sales in seasonal categories such as fleece, outerwear, boots and cold weather accessories as well as strong basics sales in mens, children’s and womens. The addition of more updated and contemporary offerings of national, exclusive and private brands has enabled the Company to broaden its customer base and add new customers.

The Company continues to introduce new brands and extend successful brands into additional areas of the store. The Company entered into two new merchandise partnerships during the third quarter, which will result in new brand introductions in fiscal 2007. These partnerships are with Vera Wang for merchandise categories across the store and the Food Network, which is focused on the home business. The purpose of these alliances is to differentiate the Company from the competition by adding world class brands that are highly recognized by both the current customer and those that the Company is broadening its reach to include.

The Company’s fully integrated marketing approach attracted new customers and resulted in an increase in transactions of 4.4% in comparable stores year to date. The Company’s marketing initiatives continue to build traffic through a wide range of media including print, broadcast and direct mail. These traffic increases, along with a comparable store sales growth of 6.9%, are clear indications that the Company has continued to build awareness with existing customers and gained new customers. The Company has put together an aggressive holiday marketing calendar for the fourth quarter in all forms of media to support its promotional events. In addition, the Company will continue to focus on opportunities provided by its credit partnership with JPMorgan Chase to reach new customers.

 

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The Company is committed to growing the business profitably and returning excess capital to its shareholders. As part of this commitment, the Company’s Board of Directors authorized a $2 billion share repurchase program in March 2006. The Company has repurchased 20.7 million shares to date at a cost of $1.2 billion. The Company anticipates completing this program over the next two years.

The Company continues to concentrate on profitable expansion. The Company’s future growth plans are to increase its presence in all of the regions it currently serves and to expand into new markets. During the month of October, the Company opened sixty-five new stores in thirty states across the Country. This was the Company’s largest one-day opening in its history. The Company opened three additional stores on November 9, 2006, which brings the Company’s total store count to 817 stores.

The Company remains on track to meet the goal of opening 415 stores over the next four years. Seventeen of the stores will open in the first quarter of 2007 in a blend of new and fill-in markets. The Company will open the majority of the Mervyn’s locations it acquired in the Pacific Northwest in the fall of 2007, giving the Company a greater presence in the Portland and Seattle markets.

Results of Operations

Expansion Update

At October 28, 2006, the Company operated 814 stores in 45 states compared with 731 stores in 41 states at the same time last year. Total square feet of selling space increased 9.9% from 56.5 million at October 29, 2005 to 62.1 million at October 28, 2006.

The Company successfully opened 68 stores during October and November 2006, including its initial entry into the state of Washington with four stores and continuing its expansion into Florida, entering the Tampa market with three stores. In addition, the Company added 16 stores in the Midwest region, 11 stores in the South Central region, 11 stores in the Southwest region, nine stores in the Southeast region, seven stores in the Northeast region, six stores in the Mid-Atlantic region and one store in the Northwest region.

In total, the Company opened 85 stores in fiscal 2006 and will end the year with 817 stores in 45 states, compared to 732 stores in 41 states at the end of fiscal 2005.

Net Sales

Net sales increased $517.9 million or 16.6% to $3,637.3 million for the three months ended October 28, 2006, from $3,119.4 million for the three months ended October 29, 2005. Net sales increased $248.0 million due to the opening of 82 new

 

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stores in the first nine months of fiscal 2006 and the inclusion of 62 new stores opened after the start of the third quarter in fiscal 2005 and $15.0 million due to the initial recognition of gift card breakage. The remaining $254.9 million increase is attributable to an increase in comparable store sales of 8.5%. Comparable store sales growth for the period is based on the sales of stores (including E-commerce sales and relocated or expanded stores) open throughout the full period and throughout the full prior fiscal year. The 8.5% comparable store sales increase was a result of a 5.3% increase in number of transactions per store and an increase in average transaction value of 3.2%. All lines of business posted strong results for the quarter, each achieving at least a mid-single digit comparable store sales increase. The Men’s and Women’s businesses led the Company for the quarter. All regions delivered high-single digit comparable store sales increases, with the Northeast region having the strongest performance for the quarter.

Net sales increased $1,363.1 million or 15.6% to $10,113.4 million for the nine months ended October 28, 2006, from $8,750.3 million for the nine months ended October 29, 2005. Net sales increased $770.8 million due to the opening of 82 new stores in the first nine months of fiscal 2006 and the inclusion of 95 new stores opened in fiscal 2005 and $15.0 million due to the initial recognition of gift card breakage. The remaining $577.3 million increase is attributable to an increase in comparable store sales of 6.9%. The 6.9% comparable store sales increase was a result of a 4.4% increase in transactions per store while average transaction value increased 2.5%. All lines of business posted strong results for the first nine months of the year with all lines achieving at least a mid-single digit comparable store sales increase. All regions had comparable store sales increases, with the Southwest region having the strongest performance for the year.

Gross Margin

Gross margin increased $216.5 million to $1,349.1 million for the three months ended October 28, 2006, from $1,132.6 million for the three months ended October 29, 2005. Gross margin increased $82.9 million due to the opening of 82 new stores during the first nine months of fiscal 2006 and the inclusion of 62 new stores opened after the start of the third quarter in fiscal 2005 and $15.0 million due to the initial recognition of gift card breakage. Comparable store gross margin increased $118.6 million. The Company’s gross margin as a percent of net sales was 37.1% for the three months ended October 28, 2006 compared to 36.3% for the three months ended October 29, 2005.

Gross margin increased $551.0 million to $3,735.4 million for the nine months ended October 28, 2006 from $3,184.4 for the nine months ended October 29, 2005. Gross margin increased $258.2 million due to the opening of 82 new stores during fiscal 2006 and the inclusion of 95 new stores opened in fiscal 2005 and $15.0 million due to the initial recognition of gift card breakage. Comparable store gross margin increased $277.8 million. The Company’s gross margin as a percent of net sales was 36.9% for the nine months ended October 28, 2006 compared to 36.4% for the nine months ended October 29, 2005. The improvement in gross margin for the three and nine months ended October 28, 2006, was a result of the Company’s merchandise initiatives as well as the impact of inventory management initiatives, which included more frequent flows of merchandise and improved store allocation.

 

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Operating Expenses

S,G&A expenses include all direct store expenses such as payroll, occupancy and store supplies and all costs associated with the Company’s distribution centers, advertising and corporate functions, but exclude depreciation and amortization and preopening expenses.

S,G&A expenses increased $103.1 million or 13.7% to $856.9 million for the three months ended October 28, 2006, from $753.8 million for the three months ended October 29, 2005. The S,G&A expenses decreased to 23.6% of net sales for the three months ended October 28, 2006, from 24.2% of net sales for the three months ended October 29, 2005, a decrease of 61 basis points. The decrease was primarily due to leverage achieved in store operating expenses, credit costs, advertising costs and distribution center costs, partially offset by corporate expenses as a percent of net sales being higher for the quarter. The increase in corporate expenses was driven by the effects of the Company’s stronger performance on incentive compensation expense.

S,G&A expenses increased $277.9 million or 13.2% to $2,377.1 million for the nine months ended October 28, 2006 from $2,099.2 million for the nine months ended October 29, 2005. The S,G&A expenses decreased to 23.5% of net sales for the nine months ended October 28, 2006, from 24.0% of net sales for the nine months ended October 29, 2005, a decrease of 49 basis points. The decrease was primarily due to leverage achieved in store operating expenses, credit costs, advertising costs and distribution center costs, partially offset by corporate expenses as a percent of net sales being higher for the year. The increase in corporate expenses was driven by the effects of a stronger year over year performance on incentive compensation expense.

Depreciation and amortization for the three months ended October 28, 2006 was $94.3 million compared to $85.1 million for the three months ended October 29, 2005. Depreciation and amortization for the nine months ended October 28, 2006 was $283.7 million compared to $247.7 million for the nine months ended October 29, 2005. The increase is primarily attributable to the addition of new stores.

Preopening expenses are expensed as incurred and relate to the costs associated with new store openings including advertising, hiring and training costs for new employees, processing and transporting initial merchandise and rent expenses. Preopening expense for the three months ended October 28, 2006, was $28.5 million compared to $26.3 million for the three months ended October 29, 2005. The increase is primarily due to expenses related to opening 65 stores for the three months ended October 28, 2006 compared to 61 stores for the three months ended October 29, 2005.

Preopening expense for the nine months ended October 28, 2006 was $47.6 million compared to $42.9 million for the nine months ended October 29, 2005. This

 

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increase is primarily due to the adoption of FSP 13-1 as of January 29, 2006, which requires that rental costs associated with ground or building operating leases incurred during the construction period be recognized as rental expense. Prior to the adoption of FSP 13-1, the Company capitalized rental costs incurred during the construction period. The adoption of FSP 13-1 resulted in $9.1 million of incremental rent expense. This increase was partially offset by the opening of 82 new stores for the nine months ended October 28, 2006 compared to opening 94 stores for the nine months ended October 29, 2005.

Operating Income

As a result of the above factors, operating income for the three months ended October 28, 2006, was $369.4 million or 10.2% of net sales compared to $267.4 million or 8.6% of net sales for the three months ended October 29, 2005, an increase of 38.1% from last year. Operating income for the nine months ended October 28, 2006 was $1,027.0 million or 10.2% of net sales compared to $794.5 million or 9.1% of net sales for the nine months ended October 29, 2005, an increase of 29.3% from last year.

Net Interest Expense

Net interest expense for the three months ended October 28, 2006 was $10.2 million compared to $18.0 million for the three months ended October 29, 2005. The decrease in net interest expense was primarily due to an increase in interest income of $4.9 million, due to the interest earned on the investment of the proceeds received from the sale of the Company’s private label credit card portfolio and higher interest rates on investments than last year. The decrease was also a result of less interest expense due to the retirement of $100.0 million of current debt during the first quarter of 2006.

Net interest expense for the nine months ended October 28, 2006 was $30.4 million compared to $51.5 million for the nine months ended October 29, 2005. The decrease in net interest expense was primarily due to an increase in interest income of $15.9 million, resulting from the interest earned on the investment of the proceeds received from the sale of the Company’s private label credit card portfolio and higher interest rates on investments than last year. The decrease was also a result of less interest expense due to the retirement of $100.0 million of current debt during the first quarter of 2006.

Provision for Income Taxes

The Company’s effective income tax rate was 37.5% for the three months ended October 28, 2006 compared to 37.8% for the three months ended October 29, 2005. The tax rate for the three months ended October 28, 2006, was favorably impacted by the tax-free interest earned on the investment of the proceeds received from the sale of the Company’s private label credit card portfolio.

 

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The Company’s effective income tax rate was 37.4% for the nine months ended October 28, 2006 compared to 37.1% for the nine months ended October 29, 2005. The increase in the effective tax rate was due to a tax adjustment of $4.9 million taken during the nine months ended October 29, 2005, due to the favorable resolution of certain state tax matters.

Net Income

Net income for the three months ended October 28, 2006, was $224.5 million compared to $155.1 million for the three months ended October 29, 2005, an increase of 44.7% from last year. Net income per diluted share was $0.68 for the three months ended October 28, 2006, compared to $0.45 per diluted share for the three months ended October 29, 2005, an increase of 51.1% over last year.

Net income for the nine months ended October 28, 2006, was $624.1 million compared to $467.0 million for the nine months ended October 29, 2005, an increase of 33.6% from last year. Earnings were $1.85 per diluted share for the nine months ended October 28, 2006, compared to $1.35 per diluted share for the nine months ended October 29, 2005, an increase of 37.0% over last year.

Seasonality & Inflation

The Company’s business, like that of most retailers, is subject to seasonal influences, with the major portion of sales and income typically realized during the second half of each fiscal year, which includes the back-to-school and holiday seasons. Approximately 15% and 30% of sales typically occur during the back-to-school and holiday seasons, respectively. Because of the seasonality of the Company’s business, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. In addition, quarterly results of operations depend significantly upon the timing and amount of sales and costs associated with the opening of new stores.

The Company does not believe that inflation has had a material effect on its results during the periods presented. However, there can be no assurance that the Company’s business will not be affected by such factors in the future.

Financial Condition and Liquidity

The Company’s primary ongoing cash requirements are for capital expenditures in connection with the expansion and remodeling programs and seasonal and new store inventory purchases. The Company’s primary sources of funds for its business activities are cash flow from operations, short-term trade credit and its lines of credit.

Operating Activities. Cash flow provided by operations was $2,390.6 million for the nine months ended October 28, 2006, compared to $263.4 million for the nine months ended October 29, 2005. The primary source of cash flow for the nine months ended October 28, 2006, was the $1,652.1 million cash proceeds received in connection with the sale of the Company’s proprietary credit card accounts to Chase on April 21, 2006.

 

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The primary use of cash flow for the nine months ended October 28, 2006, was an increase of merchandise inventory of $1,013.7 million which was offset by an increase of $812.5 million in accounts payable. Short-term trade credit, in the form of extended payment terms for inventory purchases, represents a significant source of financing for merchandise inventories.

Key financial ratios that provide certain measures of the Company’s liquidity are as follows:

 

    

October 28,

2006

   

January 28,

2006

    October 29,
2005
 

Working Capital (In Thousands)

   $ 1,487,115     $ 2,519,597     $ 2,175,610  

Current Ratio

     1.61:1       2.44:1       1.91:1  

Debt/Capitalization

     15.9 %     16.2 %     21.0 %

The reduction in the debt/capitalization ratio as of October 28, 2006, compared to October 29, 2005, was due to the retirement of $100.0 million of current debt during the first quarter of 2006 and the $1.2 billion share repurchase made during the nine months ended October 28, 2006. The decrease in working capital and the current ratio as of October 28, 2006, compared to October 29, 2005, was due to the sale of the Company’s private label credit card portfolio on April 21, 2006, and the $1.2 billion of share repurchases made during the nine months ended October 28, 2006.

The Company’s merchandise inventories increased $396.9 million, or 13.9% from the October 29, 2005 balance primarily due to the increase in the number of stores. On an average per store basis, the inventory at October 28, 2006 increased 2.3% from the October 29, 2005 balance. The Company’s merchandise inventories increased $1,013.7 million, or 45.3% from the January 28, 2006 balance due to normal business seasonality and the opening of 82 new stores. Accounts payable at October 28, 2006, increased $312.1 million from October 29, 2005, and increased $812.5 million from January 28, 2006. Accounts payable as a percent of inventory at October 28, 2006, was 50.5%, compared to 46.6% at October 29, 2005.

Investing Activities. Net cash used in investing activities was $1,127.3 million for the nine months ended October 28, 2006 compared to $604.8 million for the nine months ended October 29, 2005. Investing activities in 2006 included the net purchases of $158.9 million of short-term investments and $964.5 million of capital expenditures. The purchase of short-term investments represents the investment of the proceeds received from the private label credit card transaction on April 21, 2006 in excess of the cash used to repurchase common stock and the cash used to build seasonal working capital. Capital expenditures include costs for new store openings, store remodels, distribution center openings and other base capital needs. Investing activities for 2005 included capital expenditures of $690.2 million offset by net sales of $88.8 million of short-term investments.

Total capital expenditures for fiscal 2006 are expected to be approximately $1.2 billion. This estimate includes new store spending, new distribution center spending, as

 

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well as remodeling and base capital needs. The actual amount of the Company’s future annual capital expenditures will depend primarily on the number of new stores opened, the mix of owned, leased or acquired stores, the number of stores remodeled and the timing of opening distribution centers.

Financing Activities. The Company expects to fund growth with available cash and short-term investments, proceeds from cash flows from operations, short-term trade credit, seasonal borrowings under its revolving credit facility and other sources of financing. The Company believes it has sufficient lines of credit, cash and short-term investments and expects to generate adequate cash flows from operating activities to sustain current levels of operations.

On October 12, 2006, the Company entered into a new $900.0 million senior unsecured revolving facility (“revolver”). This agreement replaces the $532.0 million unsecured revolving credit facility (“previous revolver”) which would have matured on July 10, 2007. No amounts were outstanding under the revolver as of October 28, 2006. As of October 29, 2005, $106.5 million was outstanding under the previous revolver. The Company also had a Receivable Purchase Agreement (“RPA”) which was terminated in the first quarter of 2006 in conjunction with the sale of the receivables. As of October 29, 2005, $225.0 million was outstanding under the RPA.

In addition, the Company has two demand notes with availability totaling $50.0 million. No amounts were outstanding under these notes at October 28, 2006 and October 29, 2005.

Contractual Obligations

The Company has aggregate contractual obligations at October 28, 2006, of $14.9 billion related to debt repayments, capital leases, operating leases, royalties and purchase obligations as follows:

 

     Fiscal Year
     Remaining
2006
   2007    2008    2009    2010    Thereafter    Total
     (In Thousands)

Long-term debt (a)

   $ 16,272    $ 58,785    $ 58,775    $ 58,775    $ 58,775    $ 1,751,175    $ 2,002,557

Capital leases (a)

     5,043      20,261      20,439      18,967      16,079      189,522      270,311

Operating leases

     91,116      367,079      367,357      361,125      354,379      7,080,632      8,621,688

Royalties

     1,511      19,184      26,214      30,574      35,510      36,564      149,557

Purchase obligations (b)

     2,510,860      896,164      —        —        —        —        3,407,024

Other (c)

     13,624      17,786      11,711      7,341      5,835      408,277      464,574
                                                

Total

   $ 2,638,426    $ 1,379,259    $ 484,496    $ 476,782    $ 470,578    $ 9,466,170    $ 14,915,711
                                                

 

(a) Annual commitments on long-term debt and capital leases are inclusive of related interest costs, which total $1,106.8 million and $116.8 million, respectively.

 

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(b) The Company’s purchase obligations consist mainly of purchase orders for merchandise. Amounts committed under open purchase orders for merchandise are cancelable without penalty prior to a date that precedes the vendors’ scheduled shipment date.

 

(c) The other category above includes commitments for stores to be opened in fiscal 2007 and employment contracts.

The Company also has outstanding letters of credit and stand-by letters of credit that total approximately $53.8 million at October 28, 2006. If certain conditions were met under these arrangements, the Company would be required to satisfy the obligations in cash. Due to the nature of these arrangements and based on historical experience, the Company does not expect to make any significant payments. Therefore, they have been excluded from the preceding table.

The various debt agreements contain certain covenants that limit, among other things, additional indebtedness, as well as require the Company to meet certain financial tests. As of October 28, 2006, the Company was in compliance with all financial covenants of the debt agreements and expects to remain in compliance for the upcoming year.

Off-Balance Sheet Arrangements

The Company has not provided any financial guarantees as of October 28, 2006.

The Company has not created, and is not party to, any special-purpose or off- balance sheet entities for the purpose of raising capital, incurring debt or operating the Company’s business. The Company does not have any arrangements or relationships with entities that are not consolidated into the financial statements that are reasonably likely to materially affect the Company’s liquidity or the availability of capital resources.

Critical Accounting Policies and Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the reported amounts. A discussion of the more significant estimates follows. Management has discussed the development, selection and disclosure of these estimates and assumptions with the Audit Committee of the Board of Directors.

Retail Inventory Method and Inventory Valuation

The Company values its inventory at the lower of cost or market with cost determined on the first-in, first-out (FIFO) basis using the retail inventory method (RIM). Under RIM, the valuation of inventories at cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality.

 

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The use of RIM will result in inventories being valued at the lower of cost or market as markdowns are currently taken as a reduction of the retail value of inventories.

Based on a review of historical clearance markdowns, current business trends, expected vendor funding and discontinued merchandise categories, an adjustment to inventory is recorded to reflect additional markdowns which are estimated to be necessary to liquidate existing clearance inventories and reduce inventories to the lower of cost or market. Management believes that the Company’s inventory valuation approximates the net realizable value of clearance inventory and results in carrying inventory at the lower of cost or market.

Vendor Allowances

The Company records vendor allowances and discounts in the income statement when the purpose for which those monies were designated is fulfilled. Allowances provided by vendors generally relate to profitability of inventory recently sold and, accordingly, are reflected as reductions to cost of merchandise sold as negotiated. Vendor allowances received for advertising or fixture programs reduce the Company’s expense or expenditure for the related advertising or fixture program when appropriate. Vendor allowances will fluctuate based on the amount of promotional and clearance markdowns necessary to liquidate the inventory.

Insurance Reserve Estimates

The Company uses a combination of insurance and self-insurance for a number of risks including workers’ compensation, general liability and employee-related health care benefits, a portion of which is paid by its associates. The Company determines the estimates for the liabilities associated with these risks by considering historical claims experience, demographic factors, severity factors and other actuarial assumptions. A change in claims frequency and severity of claims from historical experience as well as changes in state statutes and the mix of states in which the Company operates could result in a change to the required reserve levels. Under its workers’ compensation and general liability insurance policies, the Company retains the initial risk of $500,000 and $250,000, respectively, per occurrence. The Company also has a lifetime medical payment limit of $1.5 million.

Impairment of Assets and Closed Store Reserves

The Company has a significant investment in property and equipment and favorable lease rights. The related depreciation and amortization is computed using estimated useful lives of up to 50 years. The Company reviews whether indicators of impairment of long-lived assets held for use (including favorable lease rights) are present annually or whenever an event, such as decisions to close a store, indicate the carrying value of the asset may not be recoverable. The Company has historically not experienced any significant impairment of long-lived assets or closed store reserves. Decisions to close a store can also result in accelerated depreciation over the revised useful life. If the store is leased, a reserve is set up for the discounted difference between the rent and the expected sublease rental income when the location is no longer in use. A significant

 

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change in cash flows, market valuation, demand for real estate or other factors, could result in an increase or decrease in the reserve requirement or impairment charge.

Income Taxes

The Company pays income taxes based on tax statutes, regulations and case law of the various jurisdictions in which it operates. At any one time, multiple tax years are subject to audit by the various taxing authorities. The Company’s effective income tax rate was 37.4% for the nine months ended October 28, 2006, and 37.1% for the nine months ended October 29, 2005. The effective rate is impacted by changes in law, location of new stores, level of earnings and the result of tax audits.

Operating Leases

The Company leases retail stores under operating leases. Many lease agreements contain rent holidays, rent escalation clauses and/or contingent rent provisions. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods where failure to exercise such options would result in an economic penalty. The Company uses a time period for its straight-line rent expense calculation that equals or exceeds the time period used for depreciation.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary exposure to market risk consists of changes in interest rates or borrowings. At October 28, 2006, the Company’s fixed rate long-term debt, excluding capital leases, was $895.8 million.

Fixed rate long-term debt is utilized as a primary source of capital. When these debt instruments mature, the Company may refinance such debt at then existing market interest rates, which may be more or less than interest rates on the maturing debt. If interest rates on the existing fixed rate debt outstanding at October 28, 2006, changed by 100 basis points, the Company’s annual interest expense would change by $9.0 million.

During the first nine months of 2006, average borrowings under the Company’s variable rate credit facilities, the revolver and the RPA, were $17.9 million. If interest rates on the average fiscal 2006 variable rate debt changed by 100 basis points, the Company’s interest expense would change by $179,000 assuming comparable borrowing levels.

 

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the

 

22


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Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of these disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1A Risk Factors

There have been no material changes in the Company’s risk factors from those disclosed in our 2005 Annual Report on Form 10-K.

Forward Looking Statements

This report contains statements that may constitute forward-looking statements within the meaning of the safe harbor provisions for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. Those statements relate to developments, results, conditions or other events the Company expects or anticipates will occur in the future. The Company intends words such as “believes,” “anticipates,” “plans,” “expects” and similar expressions to identify forward-looking statements. Without limiting the foregoing, these statements may relate to future outlook, revenues, earnings, store openings, planned capital expenditures, market conditions, new strategies and the competitive environment. Forward-looking statements are based on management’s then current views and assumptions and, as a result, are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Any such forward-looking statements are qualified by the important risk factors, described in part 1A of the Company’s Annual Report on Form 10-K filed with the SEC on March 17, 2006, that could cause actual results to differ materially from those predicted by the forward-looking statements. Forward looking statements relate to the date initially made, and the Company undertakes no obligation to update them. An investment in the Company’s common stock or other securities carries certain risks. Investors should carefully consider the risks as stated in the Company’s Form 10-K and other risks which may be disclosed from time to time in the Company’s filings with the SEC before investing in the Company’s securities.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended October 28, 2006, the Company did not sell any equity securities which were not registered under the Securities Act.

 

c. Issuer Purchases of Securities

 

23


Table of Contents

On March 6, 2006, the Company announced that its Board of Directors authorized a $2.0 billion share repurchase program. Purchases under the repurchase program may be made in the open market, through block trades and other negotiated transactions. The Company expects to execute the share repurchase program primarily in open market transactions, subject to market conditions. The Company expects to complete the program over the next two years. There is no fixed termination date for the repurchase program, and the program may be suspended, discontinued or accelerated at any time.

The following table contains information for shares repurchased during the three months ended October 28, 2006:

 

Period

  

Total
Number

of Shares

Purchased

During

Period

  

Average

Price

Paid Per

Share

  

Total Number

of Shares

Purchased as

Part of

Publicly

Announced

Plans or

Programs

  

Maximum

Approximate

Dollar Value of

Shares that May

Yet Be
Purchased

Under the Plans

or Programs

July 30, 2006 – August 26, 2006

   —        —      —      $ 900,000,000

August 27, 2006 – September 30, 2006

   1,004,200    $ 66.54    1,004,200    $ 833,000,000

October 1, 2006 – October 28, 2006

   2,400    $ 65.32    2,400    $ 833,000,000
                       

Total

   1,006,600    $ 66.54    1,006,600    $ 833,000,000
                       

 

24


Table of Contents
Item 6. Exhibits

 

10.1    Credit Agreement dated as of October 12, 2006 by and among Kohl’s Corporation, the Lenders party hereto, Bank of America, N.A., as an Issuing Bank and Syndication Agent, JPMorgan Chase Bank, N.A., US Bank National Association and Wachovia Bank National Association, as Co-Documentation Agents and The Bank of New York, as an Issuing Bank, the Swing Line Lender and the Administrative Agent
10.2    Employment Agreement between Kohl’s Department Stores, Inc. and Thomas Kingsbury dated August 1, 2006
10.3    Agreement between Kohl’s Department Stores, Inc., Kohl’s Corporation and Arlene Meier dated September 1, 2006
10.4    Executive Compensation Agreement, dated October 6, 2006, between Kohl’s Department Stores, Inc. and Wesley S. McDonald, incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K, filed on November 13, 2006.
10.5    Executive Compensation Agreement, dated November 3, 2006, between Kohl’s Department Stores, Inc. and Peggy Eskenasi, incorporated by reference to Exhibit 10.2 of the Company’s current report on form 8-K, filed on November 13, 2006.
31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1    Certification of Periodic Report by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2    Certification of Periodic Report by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    Kohl’s Corporation
    (Registrant)
Date: November 29, 2006     /s/ R. Lawrence Montgomery
    R. Lawrence Montgomery
    Chief Executive Officer and Director
Date: November 29, 2006     /s/ Wesley S. McDonald
    Wesley S. McDonald
    Chief Financial Officer

 

26

Credit Agreement dated as of October 12, 2006

Exhibit 10.1

CREDIT AGREEMENT,

dated as of October 12, 2006,

by and among

KOHL’S CORPORATION,

THE LENDERS PARTY HERETO,

BANK OF AMERICA, N.A.,

as an Issuing Bank and the Syndication Agent,

JPMORGAN CHASE BANK, N.A.,

U.S. BANK, NATIONAL ASSOCIATION

and

WACHOVIA BANK, NATIONAL ASSOCIATION,

as Co-Documentation Agents

and

THE BANK OF NEW YORK,

as an Issuing Bank, the Swing Line Lender and the Administrative Agent

 


$900,000,000

 


BANC OF AMERICA SECURITIES LLC

and

BNY CAPITAL MARKETS, INC.

Joint Lead Arrangers and Book Runners


TABLE OF CONTENTS

 

             Page
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION    5
  1.1.   Definitions    5
  1.2.   Principles of Construction    23
2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT    24
  2.1.   Revolving Credit Loans    24
  2.2.   Notes; Maturity    24
  2.3.   Swing Line Loans    24
  2.4.   [Reserved]    26
  2.5.   Procedure for Borrowing    26
  2.6.   Competitive Bid Procedure    28
  2.7.   Termination, Reduction or Increases in Commitments    31
  2.8.   Prepayments    32
  2.9.   Use of Proceeds    33
  2.10.   Letter of Credit Sub Facility    33
  2.11.   Letter of Credit Participation and Funding Commitments    36
  2.12.   Absolute Obligation With Respect to Letter of Credit Payments    38
  2.13.   Payments    38
  2.14.   Extension of Revolving Credit Commitment Period    39
3. INTEREST, FEES, YIELD PROTECTIONS, ETC.    39
  3.1.   Interest Rate and Payment Dates    39
  3.2.   Fees    41
  3.3.   Conversions; Eurodollar Advances    42
  3.4.   Concerning Eurodollar Interest Periods and Swing Line Interest Periods    43
  3.5.   Indemnification for Loss    43
  3.6.   Capital Adequacy    44
  3.7.   Reimbursement for Increased Costs    44
  3.8.   Illegality of Funding    45
  3.9.   Substituted Interest Rate    45
  3.10.   Taxes; Net Payments    46
  3.11.   Substitution of Lenders    47
4. REPRESENTATIONS AND WARRANTIES    48
  4.1.   Existence and Power    48
  4.2.   Authority and Execution    48
  4.3.   Binding Agreement    48
  4.4.   Litigation    49
  4.5.   Absence of Defaults; No Conflicting Agreements    49
  4.6.   Compliance with Applicable Laws    49
  4.7.   Governmental Regulations    49
  4.8.   Plans    49

 


  4.9.    Financial Statements    50
  4.10.    No Misrepresentation    50
  4.11.    Anti-Terrorism Law    50
5. CONDITIONS TO FIRST LOANS OR FIRST LETTER OF CREDIT    51
  5.1.    Evidence of Action    51
  5.2.    Notes    52
  5.3.    Absence of Litigation    52
  5.4.    Existing Bank Debt    52
  5.5.    Opinion of Counsel    52
  5.6.    Fees and Expenses    52
  5.7.    [Reserved]    52
  5.8.    Other Documents    52
6. CONDITIONS OF LENDING ALL LOANS AND LETTERS OF CREDIT    53
  6.1.    Compliance    53
  6.2.    Borrowing Request; Letter of Credit Request; Competitive Bid Request    53
7. AFFIRMATIVE COVENANTS    53
  7.1.    Financial Statements and Information    53
  7.2.    Legal Existence    55
  7.3.    Insurance    55
  7.4.    Performance of Obligations    55
  7.5.    Condition of Property    55
  7.6.    Observance of Legal Requirements    55
  7.7.    Inspection of Property; Books and Records; Discussions    56
  7.8.    Leverage Ratio    56
8. NEGATIVE COVENANTS    56
  8.1.    Subsidiary Indebtedness    56
  8.2.    Liens    56
  8.3.    Merger, Consolidations, Acquisitions and Other Changes    57
  8.4.    Dispositions    58
  8.5.    [Reserved]    59
  8.6.    [Reserved]    59
  8.7.    Business Changes    59
  8.8.    Transactions with Affiliates    59
  8.9.    Restrictive Agreements    59
  8.10.    Embargoed Person    59
9. DEFAULT    60
  9.1.    Events of Default    60
  9.2.    Contract Remedies    62
10. THE ADMINISTRATIVE AGENT    63
  10.1.    Appointment    63
  10.2.    Delegation of Duties    63

 

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  10.3.    Exculpatory Provisions    63
  10.4.    Reliance by Administrative Agent    64
  10.5.    Notice of Default    65
  10.6.    Non Reliance on Administrative Agent and Other Lenders    65
  10.7.    Indemnification    65
  10.8.    Administrative Agent in Its Individual Capacity    66
  10.9.    Successor Administrative Agent    66
  10.10.    Other Agents    67
11. OTHER PROVISIONS    67
  11.1.    Amendments and Waivers    67
  11.2.    Notices    68
  11.3.    No Waiver; Cumulative Remedies    71
  11.4.    Survival of Representations and Warranties and Certain Obligations    71
  11.5.    Lending Offices    72
  11.6.    Successors and Assigns    72
  11.7.    Indemnity    75
  11.8.    Limitation of Liability    76
  11.9.    Counterparts    76
  11.10.    Adjustments; Set off    76
  11.11.    Construction    77
  11.12.    Governing Law    77
  11.13.    Headings Descriptive    77
  11.14.    Severability    77
  11.15.    Integration    78
  11.16.    Consent to Jurisdiction    78
  11.17.    Service of Process    78
  11.18.    No Limitation on Service or Suit    78
  11.19.    WAIVER OF TRIAL BY JURY    78
  11.20.    Expenses    79
  11.21.    Treatment of Certain Information    80
  11.22.    USA PATRIOT Act Notice    80
  11.23.    No Advisory or Fiduciary Responsibility    80

 

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EXHIBITS     
Exhibit A      List of Revolving Credit Commitment Amounts
Exhibit B      Form of Note
Exhibit C-1      Form of Borrowing Request
Exhibit C-2      Form of Letter of Credit Request
Exhibit D      Form of Notice of Conversion
Exhibit E      Form of Compliance Certificate
Exhibit F-1      Form of Opinion of Counsel to the Borrower
Exhibit F-2      Form of Opinion of General Counsel of the Borrower
Exhibit G      Form of Revolving Credit Increase Supplement
Exhibit H      Form of Assignment and Assumption Agreement
Exhibit I      Form of Competitive Bid Request
Exhibit J      Form of Invitation to Bid
Exhibit K      Form of Competitive Bid
Exhibit L      Form of Competitive Bid Accept/Reject Letter
SCHEDULES     
Schedule 1.1      Existing Letters of Credit
Schedule 4.4      List of Litigation
Schedule 4.8      List of Existing Pension Plans
Schedule 8.2      List of Liens
Schedule 8.9      List of Existing Restrictive Agreements

 


CREDIT AGREEMENT, dated as of October 12, 2006, by and among KOHL’S CORPORATION, a Wisconsin corporation (the “Borrower”), the lenders party hereto (together with their respective assigns, the “Lenders”, each a “Lender”), BANK OF AMERICA, N.A., (“BofA”) as an Issuing Bank (as defined below), and the syndication agent (in such capacity, the “Syndication Agent”), JPMorgan Chase Bank, N.A., U.S. Bank, National Association, and Wachovia Bank, National Association, as co-documentation agents (in such capacity, the “Co-Documentation Agents”) and THE BANK OF NEW YORK (“BNY”), as an Issuing Bank (as defined below), the swing line lender (in such capacity, the “Swing Line Lender”), and as the administrative agent (in such capacity, the “Administrative Agent”).

1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION

1.1. Definitions

As used in this Agreement, terms defined in the preamble have the meanings therein indicated, and the following terms have the following meanings:

ABR Advances”: the Revolving Credit Loans (or any portions thereof), at such time as they (or such portions) are made and/or being maintained at a rate of interest based upon the Alternate Base Rate.

Accountants”: Ernst & Young LLP (or any successor thereto), or such other firm of certified public accountants of recognized national standing selected by the Borrower.

Accumulated Funding Deficiency”: as defined in Section 302 of ERISA.

Acquisition”: with respect to any Person, the purchase or other acquisition by such Person, by any means whatsoever (including through a merger, dividend or otherwise and whether in a single transaction or in a series of related transactions), of (i) any Capital Stock of, or other equity securities of, any other Person if, immediately thereafter, such other Person would be either a Subsidiary of such Person or otherwise under the control of such Person, (ii) any Operating Entity, or (iii) any Property of (A) any other Person or (B) any Operating Entity, in either case other than in the ordinary course of business, provided, however, that no acquisition of all or substantially all of the assets of such other Person or Operating Entity shall be deemed ordinary course of business. For purposes of this definition, “control” shall mean the ownership of 50% or more of any class or type of the Capital Stock of any Person.

Additional Issuing Bank”: as defined in Section 2.10(f).

Administrative Questionnaire”: an Administrative Questionnaire in a form supplied by the Administrative Agent.

Advance”: with respect to a Revolving Credit Loan, an ABR Advance or a Eurodollar Advance, as the case may be.

Adverse Claim”: a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person’s assets or properties in favor of any other Person.


Affected Advance”: as defined in Section 3.9.

Affected Lease”: with respect to each Subsidiary of the Borrower, each lease by such Subsidiary (as lessee) of property, plant or equipment that is characterized or re-characterized as a Capital Lease.

Affiliate”: 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, control of a Person shall mean the power, direct or indirect, (i) to vote 10% or more of the securities or other interests having ordinary voting power for the election of directors or other managing Persons thereof or (ii) to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

Agents”: the Arrangers and the Administrative Agent.

Aggregate Credit Exposure”: at any time, the sum at such time of (i) the outstanding principal balance of the Revolving Credit Loans and Competitive Bid Loans of all Lenders, plus (ii) the outstanding principal balance of the Swing Line Loans, plus (iii) an amount equal to the Letter of Credit Exposure of all Lenders.

Aggregate Revolving Credit Commitment Amount”: at any time, the sum at such time of the Revolving Credit Commitment Amounts of all Lenders.

Agreement”: this Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time.

Alternate Base Rate”: on any date, a rate of interest per annum equal to the higher of (i) the Federal Funds Rate in effect on such date plus 1/2 of 1% or (ii) the BNY Rate in effect on such date.

Applicable Debt”: senior unsecured long term debt of the Borrower that is unsupported by any guarantee and is otherwise non credit enhanced.

Applicable Margin”: (a) Subject to clauses (b) and (c) of this definition, (i) with respect to the unpaid principal balance of Eurodollar Advances and the Letter of Credit Commissions, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Applicable Eurodollar and LC Margin” and adjacent to such Pricing Level, (ii) with respect to the Facility Fee, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Facility Fee Margin” and adjacent to such Pricing Level, and (iii) with respect to the Utilization Fee, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Utilization Fee Margin” and adjacent to such Pricing Level:

 

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Pricing Level

   Applicable
Eurodollar
and LC
Margin
    Facility Fee
Margin
    Utilization Fee
Margin
 

Pricing Level I

   0.150 %   0.050 %   0.050 %

Pricing Level II

   0.170 %   0.055 %   0.050 %

Pricing Level III

   0.185 %   0.065 %   0.050 %

Pricing Level IV

   0.270 %   0.080 %   0.050 %

Pricing Level V

   0.350 %   0.100 %   0.100 %

Pricing Level VI

   0.475 %   0.125 %   0.100 %

(b) In the event that two Pricing Levels would be applicable at any one time but for this paragraph (b), then for purposes of determining the Applicable Margin, the higher of the two such Pricing Levels (Pricing Level I being the highest Pricing Level) shall be the applicable Pricing Level, provided that in the event such two Pricing Levels are separated by more than one Pricing Level, the Pricing Level that is one Pricing Level below the higher of such two Pricing Levels shall be the applicable Pricing Level. Notwithstanding anything to the contrary contained herein, (1) in the event that neither S&P nor Moody’s shall rate the Applicable Debt, then from the date of such event until such date, if any, as the Borrower shall deliver to the Administrative Agent a notice pursuant to Section 7.1(h) that either S&P or Moody’s has issued a new rating for the Applicable Debt, Pricing Level VI shall be the applicable Pricing Level, and (2) in the event that either S&P or Moody’s (but not both) shall not rate the Applicable Debt, then from the date of such event until such date, if any, as the Borrower shall deliver to the Administrative Agent a notice pursuant to Section 7.1(h) that such rating agency has issued a new rating for the Applicable Debt, then for purposes of determining the Applicable Margin, the Pricing Level that is one Pricing Level below the Pricing Level determined with respect to the other rating agency shall be the applicable Pricing Level. Each determination of an applicable Pricing Level shall be based on the ratings (or lack thereof) by S&P and Moody’s as of the close of business in New York City on such date of determination.

(c) Notwithstanding anything to the contrary contained in paragraph (b) above, (i) Pricing Level III shall be deemed to be the applicable Pricing Level in effect on the Effective Date, and (ii) thereafter, increases in the applicable Pricing Level (from lower to higher) shall become effective upon the delivery by the Borrower to the Administrative Agent of a notice pursuant to Section 7.1(h), and decreases in the applicable Pricing Level shall become effective on the effective date of any downgrade or withdrawal in the rating by Moody’s or S&P of Applicable Debt. Notwithstanding anything to the contrary contained herein, no increase in the applicable Pricing Level shall become effective upon the occurrence or during the continuance of any Event of Default.

Approved Fund”: with respect to any Lender that is a fund that invests in commercial loans, any other fund that invests in commercial loans and is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

 

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Arrangers”: BAS and BNY Capital Markets, each in its capacity as a Joint Lead Arranger and Book Runner hereunder.

Assignment and Assumption Agreement” an assignment and assumption agreement executed by an assignor and an assignee, substantially in the form of Exhibit H.

BAS”: Banc of America Securities LLC.

BNY Capital Markets”: BNY Capital Markets, Inc.

BNY Rate”: a rate of interest per annum equal to the rate of interest publicly announced in New York City by BNY from time to time as its prime commercial lending rate, such rate to be adjusted automatically (without notice) on the effective date of any change in such publicly announced rate.

Borrowing Date”: any Business Day on which (i) the Lenders make Revolving Credit Loans, (ii) a Lender makes a Competitive Bid Loan, (iii) the Swing Line Lender makes a Swing Line Loan, or (iv) an Issuing Bank Issues a Letter of Credit.

Borrowing Request”: a request for Revolving Credit Loans or a Swing Line Loan in the form of Exhibit C 1.

Business Day”: for all purposes other than as set forth in clause (ii) below, (i) any day other than a Saturday, a Sunday or a day on which commercial banks located in New York City are authorized or required by law or other governmental action to close, and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Advances, any day which is a Business Day described in clause (i) above and which is also a day on which eurodollar funding between banks may be carried on in London, England.

Capitalization”: at any fiscal quarter end, the sum of (i) Net Worth as of such fiscal quarter end minus the sum, determined on a Consolidated basis, of all investments of the Borrower and its Subsidiaries that are accounted for under equity method accounting, and (ii) Included Indebtedness determined on a Consolidated basis as of such fiscal quarter end.

Capital Lease”: a lease the obligations in respect of which are required to be capitalized by the lessee thereunder for financial reporting purposes in accordance with GAAP.

Capital Stock”: as to any Person, all shares, interests, partnership interests, limited liability company interests, participations, rights in or other equivalents (however designated) of such Person’s equity (however designated) and any rights, warrants or options exchangeable for or convertible into such shares, interests, participations, rights or other equity.

Change of Control”: any one or more of the following events: (i) any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) shall have become the “beneficial owner” (as defined in Rule 13d 3 under the Exchange Act) of Voting Shares entitled to exercise more than 50% of the total power of all outstanding Voting Shares of the Borrower (including any Voting Shares which are not then outstanding of which such person

 

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or group is deemed the beneficial owner), (ii) a change in the composition of the Managing Person of the Borrower shall have occurred in which the individuals who constituted the Managing Person of the Borrower at the beginning of the two year period immediately preceding such change (together with any other individual whose election by the Managing Person of the Borrower or whose nomination for election by the shareholders of the Borrower was approved by a vote of at least two thirds of the members of such Managing Person then in office who either were members of such Managing Person at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of such Managing Person then in office, or (iii) KDS shall cease to be a wholly-owned Subsidiary of the Borrower, unless it has merged into the Borrower or into another wholly-owned Subsidiary of the Borrower. For purposes of this definition, the term “Voting Shares” shall mean all outstanding shares of any class or classes (however designated) of Capital Stock of the Borrower entitled to vote generally in the election of members of the Managing Person thereof.

Charged-Off Receivable”: a Receivable (i) as to which the obligor thereof, if a natural person, is deceased, (ii) which, consistent with the Credit and Collection Policy, would be written off as uncollectible, (iii) which has been identified by the Borrower or any Subsidiary thereof as uncollectible or (iv) as to which any payment, or part thereof, remains past due for 91 days or more from the original due date (which shall be consistent with the Credit and Collection Policy) for such payment.

Code”: the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto, and the rules and regulations issued thereunder, as from time to time in effect.

Commitment”: a Revolving Credit Commitment or the Swing Line Commitment, as the case may be.

Commitment Percentage”: with respect to any Lender as of any date, the percentage as of such date equal to such Lender’s Revolving Credit Commitment Amount divided by the Aggregate Revolving Credit Commitment Amount (or, if no Revolving Credit Commitments then exist, the percentage equal to such Lender’s Revolving Credit Commitment Amount on the last day upon which Revolving Credit Commitments did exist divided by the Aggregate Revolving Credit Commitment Amount as in effect on such day).

Competitive Bid”: an offer by a Lender to make a Competitive Bid Loan, substantially in the form of Exhibit K.

Competitive Bid Accept/Reject Letter”: a notification given by the Borrower pursuant to Section 2.6(d) substantially in the form of Exhibit L.

Competitive Bid Loan”: a loan made pursuant to Section 2.6.

Competitive Bid Rate”: with respect to any Competitive Bid made by a Lender pursuant to Section 2.6, the fixed rate of interest offered by such Lender in connection therewith.

 

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Competitive Bid Request”: a request by the Borrower for Competitive Bids, substantially in the form of Exhibit I.

Competitive Interest Period”: with respect to any Competitive Bid Loan, the period commencing on the Borrowing Date with respect to such Competitive Bid Loan and ending on the date requested in the Competitive Bid Request with respect to such Competitive Bid Loan, which date shall be neither earlier than seven days, nor later than 90 days, after the Borrowing Date with respect to such Competitive Bid Loan, provided, however, that in no event shall any Competitive Interest Period end after the Revolving Credit Maturity Date. Interest shall accrue from and including the first day of a Competitive Interest Period to, but excluding, the last day of such Competitive Interest Period.

Compliance Certificate”: a certificate substantially in the form of Exhibit E.

Consolidated”: the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.

Contingent Obligation”: with respect to any Person, (i) any agreement, written undertaking or contractual arrangement by which such Person assumes, guarantees, endorses (other than the endorsement of instruments for deposit or collection in the ordinary course of business), contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the financial or monetary obligation or financial or monetary liability of any other Person (excluding customary indemnification obligations arising from a purchase and sale agreement negotiated at arm’s length and typical for transactions of a similar nature), or agrees in writing to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person in writing against loss, including, without limitation, any operating agreement, take-or-pay contract or application for or reimbursement agreement with respect to a letter of credit (including any Letter of Credit), and (ii) any obligation in respect of the liabilities of any partnership in which such Person is a general partner, except to the extent that such liabilities of such partnership are nonrecourse to such Person and its separate Property. The amount of any Contingent Obligation of a Person shall be deemed to be an amount equal to the stated or determinable amount of a primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith.

Control Person”: as defined in Section 3.6.

Conversion Date”: the date on which: (i) a Eurodollar Advance is converted to an ABR Advance, (ii) an ABR Advance is converted to a Eurodollar Advance or (iii) a Eurodollar Advance is converted to a new Eurodollar Advance.

Credit and Collection Policy”: the credit and collection policies and practices of the Borrower and its Subsidiaries relating to Receivables, as amended, supplemented or otherwise modified from time to time.

Credit Parties”: the Administrative Agent, the Swing Line Lender, the Issuing Banks and each Lender.

 

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Default”: any event or condition which constitutes an Event of Default or which, with the giving of notice, the lapse of time, or any other condition, would, unless cured or waived, become an Event of Default.

Defaulting Lender”: any Lender that (i) has failed to fund any portion of the applicable Loans, participations in Reimbursement Obligation or participations in Swing Line Loans required to be funded by it hereunder within three Business Days of the date required to be funded by it hereunder unless such failure has been cured, (ii) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three Business Days of the date when due, unless the subject of a good faith dispute or unless such failure has been cured, or (iii) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

Disposition”: with respect to any Person, any sale, assignment, transfer or other disposition by such Person, by any means, of (a) the Capital Stock of any other Person, (b) any business, going concern or division or segment thereof, or (c) any other Property of such Person, other than in the ordinary course of business.

Dollars” and “$”: lawful currency of the United States.

Effective Date”: October 12, 2006.

Eligible Receivable”: at any time, a Receivable:

(i) which is not a Charged-Off Receivable,

(ii) which is denominated and payable only in United States dollars in the United States,

(iii) which satisfies all applicable requirements of the Credit and Collection Policy, and

(iv) which is not subject to any right of rescission, set-off, counterclaim, any other defense (including defenses arising out of violations of usury laws) of the applicable obligor against the originator thereof, or any other Adverse Claim, and the obligor thereon holds no right as against such originator to cause such originator to repurchase the goods or merchandise the sale of which shall have given rise to such Receivable (except with respect to defective goods or returns otherwise in accordance with the originator’s usual and customary terms).

Employee Benefit Plan”: an employee benefit plan within the meaning of Section 3(3) of ERISA maintained, sponsored or contributed to by the Borrower, any of its Subsidiaries or any ERISA Affiliate.

ERISA”: the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations issued thereunder, as from time to time in effect.

 

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ERISA Affiliate”: when used with respect to an Employee Benefit Plan, ERISA, the PBGC or a provision of the Code pertaining to employee benefit plans, any Person which is a member of any group of organizations within the meaning of Sections 414(b) or (c) of the Code (or, solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, Sections 414(m) or (o) of the Code) of which the Borrower or any of its Subsidiaries is a member.

Eurodollar Advances”: collectively, the Revolving Credit Loans (or any portions thereof), at such time as they (or such portions) are made and/or being maintained at a rate of interest based upon the Eurodollar Rate.

Eurodollar Interest Period”: with respect to any Eurodollar Advance requested by the Borrower, the period commencing on, as the case may be, the Borrowing Date or Conversion Date with respect to such Eurodollar Advance and ending seven or fourteen days, or one, two, three or six months thereafter, as selected by the Borrower in its irrevocable Borrowing Request or its irrevocable Notice of Conversion, provided, however, that (i) if any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Eurodollar Interest Period into another calendar month, in which event such Eurodollar Interest Period shall end on the immediately preceding Business Day and (ii) any Eurodollar Interest Period which begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Eurodollar Interest Period) shall end on the last Business Day of a calendar month. Eurodollar Interest Periods shall be subject to the provisions of Section 3.4.

Eurodollar Rate”: with respect to the Eurodollar Interest Period applicable to any Eurodollar Advance, a rate of interest per annum, as determined by the Administrative Agent, obtained by dividing (and then rounding to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, then to the next higher 1/16 of 1%):

(a) the rate, as reported by BNY to the Administrative Agent, quoted by BNY to leading banks in the interbank eurodollar market as the rate at which BNY is offering Dollar deposits in an amount equal approximately to the Eurodollar Advance of BNY to which such Eurodollar Interest Period shall apply for a period equal to such Eurodollar Interest Period, as quoted at approximately 11:00 a.m. two Business Days prior to the first day of such Eurodollar Interest Period, by

(b) a number equal to 1.00 minus the aggregate of the then stated maximum rates during such Eurodollar Interest Period of all reserve requirements (including, without limitation, marginal, emergency, supplemental and special reserves), expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority to which BNY and other major United States money center banks are subject, in respect of eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board of Governors of the Federal Reserve System) or in respect of any other category of liabilities including deposits by reference to which the interest rate on Eurodollar Advances is determined or any category of

 

12


extensions of credit or other assets which includes loans by non domestic offices of any Lender to United States residents. Such reserve requirements shall include, without limitation, those imposed under such Regulation D. Eurodollar Advances shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of credits for proration, exceptions or offsets which may be available from time to time to any Lender under such Regulation D. The Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in any such reserve requirement.

Event of Default”: as defined in Section 9.1.

Exchange Act”: the Securities Exchange Act of 1934, as amended.

Excluded Receivables Indebtedness”: as of any date, Indebtedness that is secured by Receivables of the Borrower or Subsidiaries of the Borrower (but no other Property of the Borrower or any Subsidiary thereof, other than Related Receivable Assets), to the extent that such Indebtedness does not exceed 85% of Eligible Receivables on a Consolidated basis.

Excluded Taxes”: collectively, in the case of any Credit Party, (i) taxes imposed on the net income of such Credit Party by the jurisdiction in which such Credit Party has its situs of organization or in which such Credit Party’s lending office is located, (ii) taxes imposed on the net income of such Credit Party other than those taxes described in clause (i), except to the extent that such taxes would not have been incurred but for the situs of organization, any place of business or the activities of any Borrower, in the jurisdiction imposing the tax, (iii) taxes (other than withholding taxes) imposed on or measured by the gross income, gross receipts or capital of such Credit Party, except to the extent that such taxes would not have been incurred but for the situs of organization, any place of business or the activities of any Borrower, in the jurisdiction imposing the tax, (iv) any withholding taxes imposed with respect to a payment to a person who has become a Lender as a result of an Assignment to the extent such withholding arises as a result of Section 881(c)(3)(A) of the Code, (v) any tax imposed on a transfer of a Note, and (vi) any tax imposed as a result of the willful misconduct of such Credit Party.

Executive Order”: as defined in Section 4.11.

Existing Bank Debt”: collectively, the indebtedness of the Borrower under the Five-Year Credit Agreement, dated as of July 10, 2002, among Kohl’s Corporation, the lenders party thereto, Bank One, NA, as Syndication Agent, U.S. Bank, National Association, Wachovia Bank, National Association, and Fleet Bank, as Co-Documentation Agents, and BNY, as administrative agent thereunder, as amended, together with all outstanding principal, accrued interest and fees and other sums payable thereunder.

Existing Pension Plans”: as defined in Section 4.8.

Facility Fee”: as defined in Section 3.2(a).

Federal Funds Rate”: for any day, a rate per annum (expressed as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System

 

13


arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average of the quotations for such day on such transactions received by BNY from three Federal Funds brokers of recognized standing selected by it.

Financial Officer”: the chief financial officer of the Borrower, or such other representative of the Borrower as shall be satisfactory to the Administrative Agent.

Financial Statements”: as defined in Section 4.9.

Foreign Lender”: any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

Fronting Fee”: as defined in Section 3.2(c).

GAAP”: generally accepted accounting principles as in effect from time to time in the United States.

Governmental Authority”: any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof, or any court or arbitrator.

HIPAA”: The Health Insurance Portability and Accountability Act of 1996, as amended from time to time, and the rules and regulations issued thereunder, as from time to time in effect.

Impermissible Qualification”: relative to any opinion by the Accountants as to any financial statement delivered pursuant hereto, any qualification or exception to such opinion: (a) which is of a “going concern” or a similar nature with respect to the Borrower or any Significant Subsidiary, (b) which relates to the limited scope of examination of matters relevant to such financial statement (other than scope limitations included in the standard form of opinion utilized by the Accountants or with respect to Persons other than the Borrower or such Significant Subsidiary), or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 7.8.

Included Indebtedness”: as of any fiscal quarter end, (1) all items which constitute, without duplication, Indebtedness of the Borrower and its Subsidiaries on a Consolidated basis, other than (a) Indebtedness within the meaning of clause (v) of such defined term, and (b) Indebtedness within the meaning of clauses (ix) and (x) of such defined term solely in respect of Indebtedness referred to in clause (a) above, minus (2) any unamortized debt discount of the Borrower and its Subsidiaries on a Consolidated basis to the extent not otherwise

 

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taken into consideration in the determination of Indebtedness under clause (1) above, plus (3) an amount equal to the product of eight (8) multiplied by Rent for the four consecutive fiscal quarters then ended.

Included Taxes”: all taxes other than Excluded Taxes.

Income Tax”: as to any Person, an income tax or franchise tax imposed on all or part of the net income or net profits of such Person (including any interest, fees, or penalties for late payment of such an income tax or franchise tax) imposed by one of the following jurisdictions or by any political subdivision or taxing authority thereof: (i) the United States, (ii) the jurisdiction in which such Person is organized, (iii) the jurisdiction in which such Person’s principal office is located, or (iv) in the case of any Credit Party, any jurisdiction in which such Credit Party is deemed to be doing business.

Indebtedness”: as to any Person, at a particular time, all items (other than any indebtedness or obligations of such Person to the extent owed only to (A) any Subsidiary of such Person, or (B) any other Person (or any Subsidiary thereof) of which such Person is a Subsidiary) which constitute, without duplication, (i) indebtedness for borrowed money, (ii) indebtedness in respect of the deferred purchase price of Property (other than trade payables incurred in the ordinary course of business), provided that some or all of the purchase price is deferred for more than 120 days from the date such Person accepts the property, (iii) indebtedness evidenced by notes, bonds, debentures or similar instruments, (iv) obligations with respect to any conditional sale or title retention agreement, (v) indebtedness arising under acceptance facilities and the amount available to be drawn under all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder to the extent such Person shall not have reimbursed the issuer in respect of the issuer’s payment thereof, (vi) obligations under Capital Leases to the extent such obligations would be required to be capitalized on the balance sheet of such Person in accordance with GAAP, (vii) obligations under interest rate or foreign currency hedging arrangements at market value, (viii) all obligations of such Person in respect of Capital Stock subject to mandatory redemption or redemption at the option of the holder thereof, in whole or in part, (ix) Contingent Obligations of such Person in respect of any of the foregoing, and (x) all obligations of any other Person in respect of any of the foregoing that are secured by (or for which any obligee of any such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on any Property owned or acquired by such Person whether or not the obligation secured thereby has been assumed.

Indemnified Liability”: as defined in Section 11.20.

Indemnified Party”: as defined in Section 11.7.

Interest Payment Date”: (i) as to any ABR Advance, the last day of each March, June, September and December commencing on the first of such days to occur after such ABR Advance is made or any Eurodollar Advance is converted to an ABR Advance, (ii) as to any Swing Line Loan, the date on which the outstanding principal balance of such Swing Line Loan shall become due and payable, and the Revolving Credit Maturity Date, (iii) as to any Eurodollar Advance as to which the Borrower has selected a Eurodollar Interest Period of seven or fourteen days, or one, two or three months, the last day of such Eurodollar Interest Period, (iv) as to any

 

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Eurodollar Advance as to which the Borrower has selected a Eurodollar Interest Period of six months, the last day of each three month interval occurring during such Eurodollar Interest Period and the last day of such Eurodollar Interest Period, (v) as to any Competitive Bid Loan, the last day of the Competitive Interest Period with respect thereto, and (vi) as to all Advances and all Competitive Bid Loans, the Revolving Credit Maturity Date.

Interest Period”: a Eurodollar Interest Period, a Competitive Interest Period or a Swing Line Interest Period, as the case may be.

Invitation to Bid”: an invitation to make Competitive Bids in the form of Exhibit J.

Issue”: with respect to any Letter of Credit, the issuance, amendment, extension or renewal thereof. “Issuance” and “Issued” shall have a correlative meaning.

Issuing Banks”: BofA, BNY, and each Additional Issuing Bank.

KDS”: Kohl’s Department Stores, Inc., a Delaware corporation.

L/C Advance” with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Commitment Percentage.

L/C Borrowing” an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as an ABR Advance.

LC Disbursement”: a payment made by an Issuing Bank pursuant to a Letter of Credit.

Letter of Credit”: a New Letter of Credit or any letter of credit listed in Schedule 1.1, as the case may be.

Letter of Credit Commissions”: as defined in Section 3.2(b).

Letter of Credit Commitment”: the commitment of the Issuing Banks to Issue Letters of Credit having an aggregate outstanding face amount up to the Letter of Credit Commitment Amount, and the commitment of the Lenders to participate in the Letter of Credit Exposure as set forth in Section 2.11.

Letter of Credit Commitment Amount”: $250,000,000.

Letter of Credit Exposure”: as of any date and in respect of any Lender, an amount equal to (i) the sum as of such date, without duplication, of (x) the aggregate amount (determined in accordance with Section 2.10(e)) of all outstanding Letters of Credit, (y) the aggregate amount of unpaid drafts drawn on all Letters of Credit, and (z) the aggregate unpaid Reimbursement Obligations (after giving effect to any Revolving Credit Loans made on such date to pay any such Reimbursement Obligations), multiplied by (ii) such Lender’s Commitment Percentage.

 

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Letter of Credit Request”: a request for the Issuance of a Letter of Credit in the form of Exhibit C-2.

Leverage Ratio”: at any fiscal quarter end, the ratio of (x) Included Indebtedness as of such fiscal quarter end to (y) Capitalization as of such fiscal quarter end.

Lien”: any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), or other security agreement or security interest of any kind or nature whatsoever, including, without limitation, any conditional sale or other title retention agreement and any capital or financing lease having substantially the same economic effect as any of the foregoing.

Loan”: a Revolving Credit Loan, a Competitive Bid Loan, or a Swing Line Loan, as the case may be.

Loan Documents”: collectively, this Agreement, the Notes and the Reimbursement Agreements.

Loans”: the Revolving Credit Loans, the Competitive Bid Loans and/or the Swing Line Loans, as the case may be.

Managing Person”: with respect to any Person that is (i) a corporation, its board of directors, (ii) a limited liability company, its board of control, managing member or members, (iii) a limited partnership, its general partner, (iv) a general partnership or a limited liability partnership, its managing partner or executive committee or (v) any other Person, the managing body thereof or other Person analogous to the foregoing.

Margin Stock”: any “margin stock”, as defined in Regulation U of the Board of Governors of the Federal Reserve System, as amended, supplemented or otherwise modified from time to time.

Material Adverse Change”: a material adverse change in the financial condition, operations, business or Property of the Borrower and its Subsidiaries taken as a whole.

Material Adverse Effect”: a material adverse effect on (i) the financial condition, operations, business or Property of the Borrower and its Subsidiaries taken as a whole, or (ii) the ability of the Borrower to perform any of its payment obligations or other material obligations under the Loan Documents.

Material Obligations”: as of any date, (a) Indebtedness (other than Indebtedness under the Loan Documents and Indebtedness in respect of Capital Leases) of the Borrower or its Subsidiaries in an aggregate principal amount exceeding $35,000,000, or (b) obligations under leases in respect of interests in real property (whether operating leases or Capital Leases) of the Borrower or its Subsidiaries in an aggregate principal amount exceeding $50,000,000. For purposes of determining Material Obligations, the “principal amount” of Indebtedness and such other obligations at such date shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary, as applicable, would be required to pay if such Indebtedness and such obligations became due and payable on such date.

 

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Moody’s”: Moody’s Investors Service, Inc., or any successor thereto.

Multiemployer Plan”: a Pension Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

Negotiated Rate”: with respect to each Swing Line Loan, the rate per annum agreed to by the Borrower and the Swing Line Lender (such rate not to exceed the Alternate Base Rate) in accordance with Section 2.5(b) as the interest rate that such Swing Line Loan shall bear.

Net Worth”: as of any fiscal quarter end, the excess if any of total assets over total liabilities, in each case determined on a Consolidated basis.

New Letter of Credit”: as defined in Section 2.10.

Note” and “Notes”: as defined in Section 2.2.

Notice of Conversion”: a notice substantially in the form of Exhibit D.

OFAC”: as defined in Section 4.11.

Operating Entity”: any Person or any business or operating unit of a Person which is, or could be, operated separate and apart from (i) the other businesses and operations of such Person, or (ii) any other line of business or business segment.

Organizational Documents”: as to any Person which is (i) a corporation, the certificate or articles of incorporation and by laws of such Person, (ii) a limited liability company, the limited liability company agreement or similar agreement of such Person, (iii) a partnership, the partnership agreement or similar agreement of such Person, or (iv) any other form of entity or organization, the organizational documents analogous to the foregoing.

Participant”: as defined in Section 11.6(d).

PBGC”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to the functions thereof.

Pension Plan”: at any date of determination, any Employee Benefit Plan (including a Multiemployer Plan), the funding requirements of which (under Section 302 of ERISA or Section 412 of the Code) are, or at any time within the six years immediately preceding such date, were in whole or in part, the responsibility of the Borrower, any of its Subsidiaries or any ERISA Affiliate.

Person”: any individual, firm, partnership, limited liability company, joint venture, corporation, association, business enterprise, joint stock company, unincorporated association, trust, Governmental Authority or any other entity, whether acting in an individual, fiduciary, or other capacity, and for the purpose of the definition of “ERISA Affiliate”, a trade or business.

 

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Pricing Level”: at any time, Pricing Level I, Pricing Level II, Pricing Level III, Pricing Level IV, Pricing Level V, or Pricing Level VI, as applicable at such time.

Pricing Level I”: any time when Applicable Debt is rated A+ or higher by S&P or A1 or higher by Moody’s.

Pricing Level II”: any time when Applicable Debt is rated A by S&P or A2 by Moody’s.

Pricing Level III”: any time when Applicable Debt is rated A- by S&P or A3 by Moody’s.

Pricing Level IV”: any time when Applicable Debt is rated BBB+ by S&P or Baa1 by Moody’s.

Pricing Level V”: any time when Applicable Debt is rated BBB by S&P or Baa2 by Moody’s.

Pricing Level VI”: any time when Applicable Debt is rated BBB- or lower by S&P or Baa3 or lower by Moody’s.

Prior Quarter End”: with respect to each change after the date hereof in the fiscal year of the Borrower, the fiscal quarter end of the Borrower that occurred immediately before the effective date of such change.

Prohibited Transaction”: a transaction which is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA.

Property”: all types of real, personal, tangible, intangible or mixed property.

Proposed Lender”: as defined in Section 2.7(c).

Receivables”: with respect to any Person as at any date of determination, the aggregate unpaid principal portion of the obligations of one or more of the customers of such Person to pay money to such Person, whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale of goods or the rendering of services by such Person, plus any finance charges, late fees or other similar charges receivable by such Person with respect thereto.

Register”: as defined in Section 11.6(c).

Regulatory Change”: the occurrence of any of the following after the Effective Date: (i) the adoption of any treaty, constitution, law, rule or regulation, (ii) the issuance or promulgation of any directive, guideline or request from any Governmental Authority (whether or not having the force of law), or (iii) any change in the interpretation of any existing treaty, constitution, law, rule, regulation, directive, guideline or request by any Governmental Authority.

 

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Reimbursement Agreement”: as defined in Section 2.10(b).

Reimbursement Obligation”: the obligation of the Borrower to reimburse any Issuing Bank for amounts drawn under a Letter of Credit.

Related Parties”: with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents and advisors (as it relates to this Agreement) of such Person and such Person’s Affiliates.

Related Receivable Assets”: with respect to the retail accounts receivable of any Person, other Property of such Person upon which Liens are customarily granted in connection with the financing or securitization of such retail accounts receivable.

Rent”: with respect to any period, Consolidated rent expense of the Borrower and its Subsidiaries under all leases (other than Capital Leases) of real or personal property in accordance with GAAP, but shall be exclusive of any amounts, determined on a Consolidated basis, required to be paid by the Borrower or any such Subsidiary under such leases (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges.

Reportable Event”: with respect to any Pension Plan, (i) any event set forth in Sections 4043(c) (other than a Reportable Event as to which the 30 day notice requirement is waived by the PBGC under applicable regulations), 4062(c) or 4063(a) of ERISA or the regulations thereunder, (ii) an event requiring the Borrower, any of its Subsidiaries or any ERISA Affiliate to provide security to a Pension Plan under Section 401(a)(29) of the Code, or (iii) any failure to make any payment required by Section 412(m) of the Code.

Required Lenders”: (i) except as otherwise provided in clause (ii) of this defined term, Lenders having Revolving Credit Commitment Amounts greater than or equal to 51% of the Aggregate Revolving Credit Commitment Amount, and (ii) at any time after the Revolving Credit Commitment Period that there is any Aggregate Credit Exposure, Lenders having a pro rata share thereof which is greater than or equal to 51% of the Aggregate Credit Exposure.

Revolving Credit Commitment”: in respect of any Lender, such Lender’s undertaking during the Revolving Credit Commitment Period to make Revolving Credit Loans, subject to the terms and conditions hereof, in an aggregate outstanding principal amount not exceeding the Revolving Credit Commitment Amount of such Lender.

Revolving Credit Commitment Amount”: as of any date and with respect to any Lender, an amount equal to (i) the sum set forth adjacent to its name under the heading “Revolving Credit Commitment Amount” in Exhibit A, if any, plus (ii) the amount of any increase in such Lender’s “Revolving Credit Commitment Amount” pursuant to Section 2.7(c), plus (iii) the “Revolving Credit Commitment Amount” which such Lender shall have assumed from another Lender in accordance with Section 11.6 on or prior to such date, minus (iv) the “Revolving Credit Commitment Amount” which such Lender shall have assigned to another Person in accordance with Section 11.6 on or prior to such date; as such amount may be reduced from time to time pursuant to Section 2.7(a).

 

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Revolving Credit Commitment Period”: the period from the Effective Date to but excluding the earlier to occur of the Revolving Credit Maturity Date and such other date upon which the Revolving Credit Commitments shall be terminated (or the Aggregate Revolving Credit Commitment Amount shall be reduced to zero).

Revolving Credit Exposure”: with respect to any Lender as of any date, the sum as of such date of (i) the outstanding principal balance of such Lender’s Revolving Credit Loans, (ii) such Lender’s Swing Line Exposure, and (iii) such Lender’s Letter of Credit Exposure.

Revolving Credit Increase Supplement”: as defined in Section 2.7(c).

Revolving Credit Loan” and “Revolving Credit Loans”: as defined in Section 2.1.

Revolving Credit Maturity Date”: October 12, 2011, as the same may be extended from time to time in accordance with Section 2.14(a).

S&P”: Standard & Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc., or any successor thereto.

SEC”: the Securities and Exchange Commission or any Governmental Authority succeeding to the functions thereof.

Significant Subsidiary”: each “Significant Subsidiary” of the Borrower within the meaning of Regulation S X of the SEC as in effect from time to time.

Special Counsel”: Bryan Cave LLP, or such other counsel selected by the Administrative Agent as, special counsel to the Administrative Agent in connection with the Loan Documents.

Standby Letters of Credit”: as defined in Section 2.10(a).

Subsidiary”: as to any Person, any corporation, association, partnership, limited liability company, joint venture or other business entity of which such Person or any Subsidiary of such Person, directly or indirectly, either (i) in respect of a corporation, owns or controls more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the Managing Person thereof, irrespective of whether a class or classes shall or might have voting power by reason of the happening of any contingency, or (ii) in respect of an association, partnership, limited liability company, joint venture or other business entity, is entitled to share in more than 50% of the profits and losses, however determined.

Substitute Lender”: as defined in Section 3.11.

Swing Line Commitment”: the undertaking of the Swing Line Lender to make Swing Line Loans, subject to the terms and conditions hereof, in an aggregate outstanding principal amount not in excess of the Swing Line Commitment Amount.

Swing Line Commitment Amount”: $90,000,000.

 

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Swing Line Exposure”: at any time, in respect of any Lender, an amount equal to the aggregate outstanding principal amount of the Swing Line Loans at such time multiplied by such Lender’s Commitment Percentage at such time

Swing Line Interest Period”: subject to the provisions of Section 3.4, with respect to any Swing Line Loan requested by the Borrower, the period commencing on the Borrowing Date with respect to such Swing Line Loan and ending not in excess of seven days thereafter, as selected by the Borrower in its irrevocable Borrowing Request, provided, however, that (i) if any Swing Line Interest Period would otherwise end on a day that is not a Business Day, such Swing Line Interest Period shall be extended to the next succeeding Business Day, and (ii) the Borrower shall select Swing Line Interest Periods so as not to have more than three different Swing Line Interest Periods outstanding at any one time for all Swing Line Loans.

Swing Line Loan” and “Swing Line Loans”: as defined in Section 2.3(a).

Tangible Net Worth”: as of any date, the following determined on a Consolidated basis as of the fiscal quarter end occurring on such date (or, if such date shall not be a fiscal quarter end, as of the fiscal quarter end immediately preceding such date): (a) Net Worth minus (b) intangible assets of the Borrower and its Subsidiaries on a Consolidated basis, consisting of goodwill, patents, trademarks, service marks, trade names, copyrights, organizational or developmental expenses, and similar categories of assets that may arise in the future.

Tax”: any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by a Governmental Authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed.

Termination Event”: with respect to any Pension Plan, (i) a Reportable Event, (ii) the termination of a Pension Plan, or the filing of a notice of intent to terminate a Pension Plan, or the treatment of a Pension Plan amendment as a termination under Section 4041(e) of ERISA, (iii) the institution of proceedings to terminate a Pension Plan under Section 4042 of ERISA, or (iv) the appointment of a trustee to administer any Pension Plan under Section 4042 of ERISA.

Trade Letters of Credit”: as defined in Section 2.10(a).

Unfunded Pension Liabilities”: with respect to any Pension Plan, at any date of determination, the amount determined by taking the accumulated benefit obligation, as disclosed in accordance with Statement of Accounting Standards No. 87, “Employers’ Accounting for Pensions”, over the fair market value of Pension Plan assets.

United States”: the United States of America.

Unrecognized Retiree Welfare Liability”: with respect to any Employee Benefit Plan that provides postretirement benefits other than pension benefits, the amount of the transition obligation, as determined in accordance with Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” as of the most recent valuation date, that has not been recognized as an expense in an income statement of the Borrower and its Subsidiaries.

 

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Utilization Fee”: the fee referred to in Section 3.2(e).

1.2. Principles of Construction

(a) All terms defined in a Loan Document shall have the meanings given such terms therein when used in the other Loan Documents or any certificate, opinion or other document made or delivered pursuant thereto to the extent not otherwise provided therein.

(b) As used in the Loan Documents and in any certificate, opinion or other document made or delivered pursuant thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in this Agreement and (i) the Borrower notifies the Administrative Agent that the Borrower objects to determining compliance with such financial ratio or requirement on the basis of GAAP in effect immediately after such change becomes effective or (ii) Required Lenders so object, then the Borrower’s compliance with such ratio or requirement shall be determined on the basis of GAAP in effect immediately before such change becomes effective, until either such notice is withdrawn by the Borrower or Required Lenders, as the case may be, or the Borrower and Required Lenders otherwise agree. Except as otherwise expressly provided herein, the computation of financial ratios and requirements set forth in this Agreement shall be consistent with the Borrower’s financial statements required to be delivered hereunder.

(c) The words “hereof”, “herein”, “hereto” and “hereunder” and similar words when used in a Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof, and Section, schedule and exhibit references contained therein shall refer to Sections thereof or schedules or exhibits thereto unless otherwise expressly provided therein.

(d) Unless the context otherwise requires, words in the singular number include the plural, and words in the plural include the singular.

(e) Unless specifically provided in a Loan Document to the contrary, any reference to a time shall refer to such time in New York.

(f) Unless specifically provided in a Loan Document to the contrary, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.

(g) References in any Loan Document to a fiscal period shall refer to that fiscal period of the Borrower.

 

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2. AMOUNT AND TERMS OF LOANS AND LETTERS OF CREDIT

2.1. Revolving Credit Loans

Subject to the terms and conditions hereof, each Lender severally (and not jointly) agrees to make revolving credit loans (each a “Revolving Credit Loan” and, as the context may require, collectively with all other Revolving Credit Loans of such Lender and with the Revolving Credit Loans of all other Lenders, the “Revolving Credit Loans”) to the Borrower from time to time during the Revolving Credit Commitment Period, provided that immediately after giving effect thereto (i) such Lender’s Revolving Credit Exposure would not exceed such Lender’s Revolving Credit Commitment Amount, and (ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving Credit Commitment Amount. During the Revolving Credit Commitment Period, the Borrower may borrow, prepay in whole or in part and reborrow under the Revolving Credit Commitments, all in accordance with the terms and conditions of this Agreement. Subject to the provisions of Sections 2.5 and 3.3, at the option of the Borrower, Revolving Credit Loans may be made as one or more (i) ABR Advances, (ii) Eurodollar Advances or (iii) any combination thereof.

2.2. Notes; Maturity

The Revolving Credit Loans, the Competitive Bid Loans and the Swing Line Loans made by each Lender shall be evidenced by a promissory note made by the Borrower, substantially in the form of Exhibit B, payable to the order of such Lender, and dated the Effective Date (each, as indorsed or modified from time to time, a “Note” and, collectively with the Notes of all other Lenders, the “Notes”). The outstanding principal balance of the Revolving Credit Loans shall be due and payable on the Revolving Credit Maturity Date. The outstanding principal balance of each Swing Line Loan shall be due and payable on the earliest to occur of the last day of the Swing Line Interest Period applicable thereto, the Business Day immediately preceding the Revolving Credit Maturity Date, and the date on which the Swing Line Loans shall become due and payable pursuant to the provisions hereof, whether by acceleration or otherwise. The outstanding principal balance of each Competitive Bid Loan shall be due and payable on the earlier to occur of the last day of the Competitive Interest Period applicable thereto and the Business Day immediately preceding the Revolving Credit Maturity Date.

2.3. Swing Line Loans

(a) Subject to the terms and conditions of this Agreement, and further subject to the agreement of the Swing Line Lender and the Borrower with respect to the Negotiated Rate to be applied, the Swing Line Lender agrees to make swing line loans (each a “Swing Line Loan” and, collectively, the “Swing Line Loans”) to the Borrower from time to time on any Business Day during the Revolving Credit Commitment Period (but excluding the ten consecutive Business Days immediately preceding the Revolving Credit Maturity Date), provided that immediately after making each Swing Line Loan, (i) the aggregate unpaid balance of the Swing Line Loans would not exceed the Swing Line Commitment Amount, and (ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving Credit Commitment Amount. During the foregoing period, the Borrower may borrow, prepay in whole or in part and reborrow under the Swing Line Commitment, all in accordance with the terms and conditions of this Agreement.

 

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(b) The Swing Line Lender shall not be obligated to make any Swing Line Loan at a time when any Lender shall be in default of its obligations under this Agreement unless arrangements to eliminate the Swing Line Lender’s risk with respect to such defaulting Lender’s participation in such Swing Line Loan shall have been made for the benefit of the Swing Line Lender and such arrangements are satisfactory to the Swing Line Lender. The Swing Line Lender shall not make a Swing Line Loan if, no later than one Business Day prior to the Borrowing Date with respect to such Swing Line Loan, it shall have received written notice from any Credit Party that the conditions set forth in Section 6 with respect thereto have not been satisfied.

(c) The Swing Line Lender may by written notice given to the Administrative Agent not later than 10:00 a.m. on any Business Day notify the Administrative Agent that the Swing Line Lender is requesting that each Lender, and the Administrative Agent may (with the consent of Required Lenders) or shall (at the request of Required Lenders) by written notice given to the Swing Line Lender not later than 10:00 a.m. on any Business Day require that each Lender, at the option of the Swing Line Lender or the Administrative Agent, as the case may be, (i) make a Revolving Credit Loan in an amount equal to its Commitment Percentage of the outstanding principal balance of, and accrued and unpaid interest on, the Swing Line Loans, or (ii) purchase, unconditionally and irrevocably, without recourse or warranty, an undivided participating interest in the outstanding principal balance of, and accrued and unpaid interest on, the Swing Line Loans in an amount equal to its Commitment Percentage thereof. In either such case (i) the Administrative Agent shall notify each Lender of the details thereof and of the amount of such Lender’s Revolving Credit Loan or participation interest, as the case may be, and (ii) each Lender shall, whether or not any Default shall have occurred and be continuing, any representation or warranty shall be accurate, any condition to the making of any loan hereunder shall have been fulfilled, or any other matter whatsoever, make the Revolving Credit Loan required to be made by it, or purchase the participation required to be purchased by it, under this paragraph by wire transfer of immediately available funds to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, (A) in the event that such Lender receives such notice prior to 12:00 noon on any Business Day, by no later than 3:00 p.m. on such Business Day, or (B) in the event that such Lender receives such notice at or after 12:00 noon on any Business Day, by no later than 1:00 p.m. on the immediately succeeding Business Day. Any Loans made pursuant to this paragraph (c) shall, for all purposes hereof, be deemed to be Revolving Credit Loans referred to in Section 2.1 and made pursuant to Section 2.5, and the Lenders’ obligations to make such Loans shall be absolute and unconditional. The Administrative Agent will make such Loans, or the amount of such participations, as the case may be, available to the Swing Line Lender by promptly crediting or otherwise transferring the amounts so received, in like funds, to the Swing Line Lender. Each Lender shall also be liable for an amount equal to the product of its Commitment Percentage and any amounts paid by the Borrower pursuant to this Section 2.3 that are subsequently rescinded or avoided, or must otherwise be restored or returned. Such liabilities shall be absolute and unconditional and without regard to the occurrence of any Default or the compliance by the Borrower with any of its obligations under the Loan Documents.

 

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(d) Each Lender shall indemnify and hold harmless the Administrative Agent and the Swing Line Lender from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, costs and expenses resulting from any failure on the part of such Lender to pay, or from any delay in paying the Administrative Agent any amount such Lender is required to pay in accordance with this Section 2.3 (except in respect of losses, liabilities or other obligations suffered by the Administrative Agent or the Swing Line Lender, as the case may be, to the extent resulting from the gross negligence or willful misconduct of the Administrative Agent or the Swing Line Lender, as the case may be, as determined by a court of competent jurisdiction in a final and non-appealable decision), and such Lender shall be required to pay interest to the Administrative Agent for the account of the Swing Line Lender from the date such amount was due until paid in full, on the unpaid portion thereof, at a rate of interest per annum equal to (i) from the date such amount was due until the third day therefrom, the Federal Funds Rate, and (ii) thereafter, the Federal Funds Rate plus 2%, payable upon demand by the Swing Line Lender. The Administrative Agent shall distribute such interest payments to the Swing Line Lender upon receipt thereof in like funds as received.

(e) Whenever the Administrative Agent is reimbursed by the Borrower, for the account of the Swing Line Lender, for any payment in connection with Swing Line Loans and such payment relates to an amount previously paid by a Lender pursuant to this Section, the Administrative Agent will promptly pay over such payment to such Lender.

2.4. [Reserved]

2.5. Procedure for Borrowing

(a) Revolving Credit Loans. The Borrower may borrow under the Revolving Credit Commitments on any Business Day during the Revolving Credit Commitment Period, provided that the Borrower shall notify the Administrative Agent by the delivery of a Borrowing Request, which shall be sent by facsimile and shall be irrevocable (confirmed promptly, and in any event within five Business Days, by the delivery to the Administrative Agent of a Borrowing Request manually signed by the Borrower), no later than 12:00 noon, three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Advances, and 12:00 noon on the requested Borrowing Date, in the case of ABR Advances, specifying (A) the aggregate principal amount to be borrowed under the Revolving Credit Commitments, (B) the requested Borrowing Date, (C) whether such borrowing is to consist of one or more Eurodollar Advances, ABR Advances, or a combination thereof and (D) if the borrowing is to consist of one or more Eurodollar Advances, the amount of, and the length of the Interest Period for, each such Eurodollar Advance. Each (i) Eurodollar Advance to be made on a Borrowing Date, when aggregated with all amounts to be converted to a Eurodollar Advance on such date and having the same Interest Period as such first Eurodollar Advance, shall equal no less than $5,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof and (ii) each ABR Advance made on each Borrowing Date shall equal no less than $5,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof or, if less, the unused portion of the Aggregate Revolving Credit Commitment Amount.

 

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(b) Swing Line Loans. The Borrower may borrow under the Swing Line Commitment pursuant to Section 2.3, provided that the Borrower shall notify the Administrative Agent and the Swing Line Lender (by telephone or facsimile confirmed promptly, and in any event within five Business Days, by the delivery to the Administrative Agent and the Swing Line Lender of a Borrowing Request manually signed by the Borrower) no later than 3:00 p.m., on the requested Borrowing Date, specifying (i) the aggregate principal amount to be borrowed under the Swing Line Commitment, (ii) the requested Borrowing Date, and (iii) the amount of, and the length of the Swing Line Interest Period for, each Swing Line Loan, provided, however, that no such Swing Line Interest Period shall end after the fifth Business Day prior to the Revolving Credit Maturity Date. The Swing Line Lender will then, subject to its agreement with the Borrower on the Negotiated Rate to be applied thereto, make the requested amount available promptly on that same day, to the Administrative Agent who, thereupon, will promptly make such amount available to the Borrower at the office of the Administrative Agent specified in Section 11.2 by crediting the account of the Borrower at such office. Each borrowing of Swing Line Loans shall be in an aggregate principal amount equal to $1,000,000 or such amount plus a whole multiple of $500,000 in excess thereof or, if less, the unused portion of the Swing Line Commitment Amount.

(c) Funding of Revolving Credit Loans. Upon receipt of each Borrowing Request requesting Revolving Credit Loans, the Administrative Agent shall promptly notify each Lender thereof. Subject to its receipt of the notice referred to in the preceding sentence, each Lender will make the amount of its Commitment Percentage of the requested Revolving Credit Loans available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent set forth in Section 11.2 not later than 2:00 p.m., on the relevant Borrowing Date requested by the Borrower, in funds immediately available to the Administrative Agent at such office. The amounts so made available to the Administrative Agent on such Borrowing Date will then, subject to Section 5.2, be promptly made available on such date to the Borrower by the Administrative Agent at the office of the Administrative Agent specified in Section 11.2 by crediting the account of the Borrower at such office or elsewhere as the Borrower may from time to time instruct the Administrative Agent in writing, provided that Revolving Credit Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.11(b) shall be remitted by the Administrative Agent to the relevant Issuing Bank, provided further that Revolving Credit Loans made to finance the repayment of a Swing Line Loan as provided in Section 2.3(c) shall be remitted by the Administrative Agent to the Swing Line Lender.

(d) Failure to Fund. Unless the Administrative Agent shall have received prior notice from a Lender (by telephone or otherwise, such notice to be promptly confirmed by facsimile or other writing) that such Lender will not make available to the Administrative Agent such Lender’s Commitment Percentage of the Revolving Credit Loans requested by the Borrower, the Administrative Agent may assume that such Lender has made the same available to the Administrative Agent on the Borrowing Date in accordance with this Section, and the Administrative Agent may, in reliance upon such assumption, make

 

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available to the Borrower on the Borrowing Date a corresponding amount. If and to the extent such Lender shall not have so made its Commitment Percentage of such Revolving Credit Loans available to the Administrative Agent (in which event such Lender shall be deemed to be a Defaulting Lender (after giving effect to any applicable grace period contained in such defined term)), such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount (to the extent not previously paid by the other), together with interest thereon for each day from the date such amount is made available to the Borrower to the date such amount is paid to the Administrative Agent, at a rate per annum equal to, in the case of the Borrower, the applicable interest rate payable by the Borrower in respect of such Loans as set forth in Section 3.1, and, in the case of such Lender, at a rate of interest per annum equal to the Federal Funds Rate for the first three days after the due date of such payment and the Federal Funds Rate plus 2% thereafter until the date such payment is received by the Administrative Agent. Such payment by the Borrower, however, shall be without prejudice to its rights against such Lender. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender’s Revolving Credit Loan as part of the Revolving Credit Loans for purposes of this Agreement, which Loan shall be deemed to have been made by such Lender on the Borrowing Date applicable to such Revolving Credit Loans.

(e) Netting. If a Lender makes a new Loan on a Borrowing Date on which the Borrower is to repay an existing Loan from such Lender, such Lender shall apply the proceeds of such new Loan to make such repayment, and only the excess of the proceeds of such new Loan over the outstanding principal balance of the existing Loan being repaid need be made available to the Administrative Agent.

2.6. Competitive Bid Procedure

(a) The Borrower may, at any time and from time to time during the Revolving Credit Commitment Period, provided that no Event of Default shall have occurred and then be continuing, request Competitive Bids by delivering by hand or telecopy to the Administrative Agent a duly completed Competitive Bid Request. A request for Competitive Bids that does not conform substantially to the format of Exhibit I may be rejected in the Administrative Agent’s sole discretion, and the Administrative Agent shall promptly notify the Borrower of such rejection by telecopy. Each Competitive Bid Request shall specify (i) the aggregate amount of Competitive Bid Loans upon which the Borrower desires Competitive Bids under this Section 2.6, which amount shall not be in excess of (X) the Aggregate Revolving Credit Commitment Amount on such date, over (Y) the Aggregate Credit Exposure on such date, (ii) a proposed Borrowing Date for such Competitive Bid Loans, which date shall not be earlier than one Business Day after the date of delivery to the Administrative Agent of such Competitive Bid Request, provided that any Competitive Bid Request delivered to the Administrative Agent after 11:00 a.m., on any Business Day shall be deemed to have been given on the immediately succeeding Business Day, (iii) the proposed Competitive Interest Period(s) requested, provided that the number of different Competitive Interest Periods requested in a single Competitive Bid Request shall not exceed three, and (iv) in the event that more than one Competitive Interest Period shall have been so requested, the amount of the requested Competitive Bid Loan (in no event less than $5,000,000 or an

 

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integral multiple of $1,000,000 in excess thereof) in respect of each such Competitive Interest Period. Promptly after its receipt of each Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall send to each Lender an Invitation to Bid, appropriately completed by the Administrative Agent with reference to such Competitive Bid Request.

(b) Each Lender may, in its sole and absolute discretion, make one or more Competitive Bids to the Borrower in response to each Invitation to Bid. Each Competitive Bid by a Lender must be received by the Administrative Agent not later than 10:00 a.m., on such proposed Borrowing Date. Competitive Bids that do not conform substantially to the format of Exhibit K may be rejected by the Administrative Agent after conferring with, and upon the instruction of, the Borrower, and the Administrative Agent shall notify the Lender making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall be irrevocable and, with respect to each Competitive Interest Period requested by the Borrower, shall specify (i) the Competitive Interest Period offered by such Lender, and (ii) with respect to each such Competitive Interest Period offered by such Lender, the Competitive Bid Rate and the amount (which amount (A) shall not be less than $5,000,000, or a whole multiple of $1,000,000 in excess thereof, and (B) shall not exceed the Competitive Bid Loan requested by the Borrower in respect of such Competitive Interest Period) of the Competitive Bid Loan with respect thereto. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify the Administrative Agent by telecopy not later than 10:00 a.m., on such proposed Borrowing Date therefor, provided, however, that the failure by any Lender to give any such notice shall not obligate such Lender to make any Competitive Bid Loan in connection with the relevant Competitive Bid Request.

(c) With respect to each Invitation to Bid sent to the Lenders, the Administrative Agent shall (i) promptly notify the Borrower by telecopy of the amount of each Competitive Bid Loan offered thereby, and the Competitive Interest Period and Competitive Bid Rate applicable thereto, and the identity of the Lender that made such offer, and (ii) send a list of all Competitive Bids to the Borrower for its records as soon as practicable after completion of the bidding process.

(d) The Borrower may in its sole and absolute discretion, subject only to the provisions of this Section 2.6(d), accept or reject any Competitive Bid made in accordance with the procedures set forth in this Section 2.6, and the Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and to what extent it has decided to accept or reject any or all of such Competitive Bids, not later than 11:00 a.m., on the proposed Borrowing Date therefor, provided, however, that the failure by the Borrower to give such notice shall be conclusively deemed to be a rejection of all such Competitive Bids. In connection with each acceptance of one or more Competitive Bids by the Borrower:

(v) the Borrower shall not accept a Competitive Bid made at a particular Competitive Bid Rate if the Borrower has decided to reject another Competitive Bid made at a lower Competitive Bid Rate and having the same Competitive Interest Period as such Competitive Bid,

 

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(ii) the aggregate amount of the Competitive Bids accepted by the Borrower shall not exceed the aggregate principal amount of the Competitive Bid Loans specified in the related Competitive Bid Request,

(iii) if the Borrower shall desire to accept a Competitive Bid made at a particular Competitive Bid Rate and Competitive Interest Period, it must accept all other Competitive Bids at such Competitive Bid Rate and Competitive Interest Period, provided, however, that if the acceptance of all such other Competitive Bids would cause the aggregate amount of all accepted Competitive Bids to exceed the aggregate principal amount of the Competitive Bid Loans specified in the related Competitive Bid Request, then such acceptance shall be made pro rata in accordance with the amount of each such Competitive Bid at such Competitive Bid Rate and Competitive Interest Period, and

(iv) except pursuant to Section 2.6(d)(iii), no Competitive Bid shall be accepted unless the Competitive Bid Loan with respect thereto shall be in (A) a minimum principal amount of $5,000,000, or a whole multiple of $1,000,000 in excess thereof, or (B) if less, an aggregate principal amount equal to the excess of the Aggregate Revolving Credit Commitment Amount over the Aggregate Credit Exposure.

(e) The Administrative Agent shall promptly notify each bidding Lender whether or not each Competitive Bid of such Lender has been accepted by telecopy sent by the Administrative Agent, and, if such Competitive Bid has been accepted by the Borrower, in whole or in part, such bidding Lender shall, after its receipt of such notice and no later than 2:00 p.m., on the related Borrowing Date, make immediately available funds available to the Administrative Agent at the address therefor set forth in Section 11.2, in the amount in which each such Competitive Bid of such Lender was accepted by the Borrower, and the amount so made available to the Administrative Agent on such Borrowing Date will then, subject to the satisfaction of the terms and conditions of this Agreement, as determined by the Administrative Agent, be promptly made available on such Borrowing Date to the Borrower by the Administrative Agent at such office by crediting the account of the Borrower on the books of such office (or elsewhere as the Borrower may from time to time instruct the Administrative Agent in writing) with the aggregate of said amount received by the Administrative Agent. Notwithstanding anything to the contrary contained herein, no Lender shall be obligated to make a Competitive Bid Loan if immediately after making such Competitive Bid Loan, the Aggregate Credit Exposure would exceed the Aggregate Revolving Credit Commitment Amount.

(f) A Competitive Bid Request shall not be made within four Business Days after the date of any previous Competitive Bid Request, unless the Borrower has accepted one or more Competitive Bids pursuant to a Competitive Bid Request made within such five Business Days.

(g) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to the Borrower fifteen minutes earlier than the latest time at which the other Lenders are required to submit their bids to the Administrative Agent pursuant to Section 2.6(b).

 

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2.7. Termination, Reduction or Increases in Commitments

(a) Voluntary Termination or Reductions. The Borrower shall have the right, upon at least three Business Days’ prior written notice to the Administrative Agent, (A) at any time when the Aggregate Credit Exposure shall be zero, to terminate the Revolving Credit Commitments of all of the Lenders, and (B) at any time and from time to time when the Aggregate Revolving Credit Commitment Amount shall exceed the Aggregate Credit Exposure, to permanently reduce the Aggregate Revolving Credit Commitment Amount by a sum not greater than the amount of such excess, provided, however, that each such reduction shall be in the amount of $10,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof.

(b) Reductions in General. Each reduction of the Aggregate Revolving Credit Commitment Amount shall be made by reducing each Lender’s Revolving Credit Commitment Amount by an amount equal to such Lender’s Commitment Percentage of such reduction. Simultaneously with each reduction of the Aggregate Revolving Credit Commitment Amount, the Borrower shall pay the Facility Fee accrued and unpaid on the amount by which the Aggregate Revolving Credit Commitment Amount is being reduced.

(c) Increases of Revolving Credit Commitments. The Borrower may at any time prior to the first voluntary reduction of the Aggregate Revolving Credit Commitment Amount, and from time to time (but no more than twice in any calendar year and no more than five times in the aggregate), at its sole cost and expense, request (i) any Lender to increase (such decision to increase to be within the sole and absolute discretion of such Lender) its Revolving Credit Commitment Amount, or (ii) any other Person (each a “Proposed Lender”; each such Proposed Lender to be reasonably satisfactory to the Administrative Agent and Issuing Banks) to provide a new Revolving Credit Commitment, by submitting a supplement to this Agreement in the form of Exhibit G (each a “Revolving Credit Increase Supplement”), duly executed by the Borrower and each such Lender or Proposed Lender, as the case may be. If such Revolving Credit Increase Supplement is in all respects reasonably satisfactory to the Administrative Agent, the Administrative Agent shall execute such Revolving Credit Increase Supplement and deliver a copy thereof to the Borrower and each such Lender or Proposed Lender, as the case may be. Upon execution and delivery of such Revolving Credit Increase Supplement, (i) in the case of each such Lender, such Lender’s Revolving Credit Commitment Amount shall be increased to the amount set forth in such Revolving Credit Increase Supplement, (ii) in the case of each such Proposed Lender, such Proposed Lender shall become a party hereto and shall for all purposes of the Loan Documents be deemed a “Lender” with a Revolving Credit Commitment Amount in the amount set forth in such Revolving Credit Increase Supplement, and (iii) the Borrower shall have executed and delivered to the Administrative Agent a Note for each Proposed Lender providing a new Revolving Credit Commitment; provided, however, that:

(A) immediately after giving effect thereto, the sum of all increases in the Aggregate Revolving Credit Commitment Amount shall not exceed the excess of (I) $200,000,000 over (II) the Aggregate Revolving Credit Commitment Amount as in effect on the Effective Date;

 

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(B) each such increase shall be in an amount not less than $25,000,000 or such amount plus an integral multiple of $5,000,000;

(C) if Revolving Credit Loans would be outstanding immediately after giving effect to such increase, then simultaneously with such increase (1) each Lender (including each such Proposed Lender) shall be deemed to have entered into a master assignment and acceptance agreement, in form and substance substantially similar to Exhibit H, pursuant to which the Lenders (including such Proposed Lenders) shall have assigned to each other such portion of its Revolving Credit Loans, if any, as shall be necessary to reflect proportionately the Revolving Credit Commitment Amounts as adjusted in accordance with this Section 2.7(c), and (2) in connection with such assignment, each such Lender (including each such Proposed Lender) shall pay to the Administrative Agent, for the account of the other Lenders, such amount as shall be necessary to appropriately reflect the assignment to it of Revolving Credit Loans, and in connection with such master assignment and acceptance agreement each Lender may treat the assignment of Eurodollar Advances by it as a prepayment of such Eurodollar Advances for purposes of Section 3.5;

(D) each Proposed Lender shall have delivered to the Administrative Agent and the Borrower all forms, if any, that are required to be delivered by such Proposed Lender pursuant to Section 3.10(c); and

(E) the Administrative Agent shall have received such certificates, legal opinions and other documents as it shall reasonably request in connection with such increase.

2.8. Prepayments

(a) Voluntary Prepayments. The Borrower may, at its option, prepay the Revolving Credit Loans without premium or penalty (but subject to Section 3.5), in full at any time or in part from time to time by delivering to the Administrative Agent an irrevocable written notice thereof on the proposed prepayment date, in the case of Revolving Credit Loans consisting of ABR Advances, and at least three Business Days prior to the proposed prepayment date, in the case of Revolving Credit Loans consisting of Eurodollar Advances, specifying whether the Revolving Credit Loans to be prepaid consist of ABR Advances, Eurodollar Advances, or a combination thereof, the amount to be prepaid and the date of prepayment, whereupon the amount specified in such notice shall be due and payable on the date specified. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. Each partial prepayment of the Revolving Credit Loans pursuant to this subsection (a) shall be in an aggregate principal amount of $10,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof, or, if less, the outstanding principal balance of the Revolving Credit Loans. After giving effect to any partial prepayment with respect to Eurodollar Advances which were made (whether as the result of

 

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a borrowing or a conversion) on the same date and which had the same Interest Period, the outstanding principal balance of such Eurodollar Advances shall exceed $5,000,000. Neither Swing Line Loans nor Competitive Bid Loans may be prepaid.

(b) In General. Simultaneously with each prepayment of a Revolving Credit Loan, the Borrower shall prepay all accrued interest on the amount prepaid through the date of prepayment. Unless otherwise specified by the Borrower, each prepayment of Revolving Credit Loans shall first be applied to ABR Advances. If any prepayment is made in respect of any Eurodollar Advance, any Competitive Bid Loan or any Swing Line Loan, in whole or in part, prior to the last day of the applicable Interest Period, the Borrower agrees to indemnify the Lenders in accordance with Section 3.5.

2.9. Use of Proceeds

The Borrower agrees that the proceeds of the Loans shall be used solely (i) to repay the Existing Bank Debt, (ii) to pay all of the fees and other sums due hereunder, (iii) to pay the reasonable out of pocket fees and expenses incurred by the Borrower in connection with the Loan Documents, (iv) for the Borrower’s working capital purposes in the ordinary course of business and (v) for the Borrower’s general corporate purposes. Notwithstanding anything to the contrary contained in any Loan Document, the Borrower further agrees that no part of the proceeds of any Loan, and no Letter of Credit, will be used, directly or indirectly, for a purpose which violates any law, rule or regulation of any Governmental Authority, including, without limitation, the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System, as amended.

2.10. Letter of Credit Sub Facility

(a) Subject to the terms and conditions of this Agreement, each Issuing Bank agrees, in reliance on the agreement of the other Lenders set forth in Section 2.11, to Issue letters of credit (each a “New Letter of Credit” and collectively, the “New Letters of Credit”) in the form of standby letters of credit (the “Standby Letters of Credit”) or commercial (trade) letters of credit (the “Trade Letters of Credit”), denominated in Dollars for the account of the Borrower from time to time on any Business Day during the Revolving Credit Commitment Period (but excluding the ten consecutive Business Days immediately preceding the Revolving Credit Maturity Date), provided that immediately after the Issuance of each Letter of Credit (i) the Letter of Credit Exposure of all Lenders (whether or not the conditions for drawing under any Letter of Credit have or may be satisfied) would not exceed the Letter of Credit Commitment Amount and (ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving Credit Commitment Amount. Each Letter of Credit shall have an expiration date which shall be not later than the earlier of (i) twelve months after the date of Issuance thereof (provided that any Letter of Credit may provide for the automatic extension thereof for additional one year periods unless the relevant Issuing Bank shall provide notice to the beneficiary under, and in accordance with the terms of, such Letter of Credit, that it has elected not to allow such automatic extension) or (ii) (A) with respect to each Standby Letter of Credit, the fifth Business Day before the Revolving Credit Maturity Date, and (B) with respect to each Trade Letter of Credit, the thirtieth day before the Revolving Credit Maturity Date; provided that no Letter of Credit may expire after the

 

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existing Revolving Credit Maturity Date of any Lender who did not agree to extend the same in accordance with Section 2.14 if, after giving effect to such Issuance, the aggregate Commitments of the Lenders (including any replacement Lenders) who have agreed to extend the Revolving Credit Maturity Date would be less than the Letter of Credit Exposure expiring after such existing Revolving Credit Maturity Date. No Issuing Bank shall be obligated to Issue any Letter of Credit at a time when any Lender is a Defaulting Lender unless arrangements to eliminate such Issuing Bank’s risk with respect to such defaulting Lender’s participation in such Letter of Credit shall have been made for the benefit of such Issuing Bank and such arrangements are satisfactory to such Issuing Bank. No Issuing Bank shall be under any obligation to Issue any Letter of Credit if (i) any order, judgment or decree of any Governmental Authority shall by its terms purport to enjoin or restrain such Issuing Bank from Issuing such Letter of Credit, or any law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which such Issuing Bank in good faith deems material to it; or (ii) the Issuance of such Letter of Credit would violate one or more policies of such Issuing Bank applicable to letters of credit generally. No Issuing Bank shall Issue any Letter of Credit if, no later than one Business Day prior to the requested date of Issuance of such Letter of Credit, such Issuing Bank shall have received written notice from any Credit Party that the conditions set forth in Section 6 with respect thereto have not been satisfied.

(b) Each Letter of Credit shall be Issued for the account of the Borrower in support of an obligation of the Borrower or any Subsidiary thereof in favor of a beneficiary who has requested the Issuance of such Letter of Credit as a condition to a transaction entered into in the ordinary course of business. Each Letter of Credit shall be Issued in a minimum amount of $5,000 or such lesser amount as the Administrative Agent and the relevant Issuing Bank may agree. The Borrower shall give the Administrative Agent a Letter of Credit Request for the Issuance of each Letter of Credit by no later than 11:00 a.m., three Business Days prior to the requested date of Issuance. Each Letter of Credit Request shall be accompanied by such Issuing Bank’s standard letter of credit application, standard reimbursement agreement (each a “Reimbursement Agreement”) and such other documentation as such Issuing Bank may reasonably require, executed by the Borrower. The Administrative Agent shall notify such Issuing Bank (and simultaneously provide to such Issuing Bank a copy of such Letter of Credit Request) and each other Lender thereof no later than 1:00 p.m., on the date of receipt of the Letter of Credit Request by the Administrative Agent in accordance with the foregoing sentence. Each Letter of Credit shall be in form and substance reasonably satisfactory to such Issuing Bank, with such provisions with respect to the conditions under which a drawing may be made thereunder and the documentation required in respect of such drawing as such Issuing Bank shall reasonably require. Such Issuing Bank shall, on the proposed date of Issuance and subject to the terms and conditions of the Reimbursement Agreement and to the other terms and conditions of this Agreement, Issue the requested Letter of Credit.

 

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(c) Upon each payment by an Issuing Bank of a draft drawn under a Letter of Credit, the Issuer shall notify the Borrower and the Administrative Agent of such drawing. The Borrower shall pay to the Administrative Agent, for the account of such Issuing Bank, an amount equal to such payment in immediately available funds (1) if such notification is received by the Borrower on or before 11:00 a.m., on a Business Day, prior to 2:00 p.m., on such Business Day, and (2) in all other cases, prior to 11:30 a.m., on the immediately succeeding Business Day. The Administrative Agent shall remit such payment to such Issuing Bank, in the form received, (x) if such payment is received by the Administrative Agent on or before 2:00 p.m., on a Business Day, on such Business Day, and (x) in all other cases, on the immediately succeeding Business Day. The obligation of the Borrower to reimburse each Issuing Bank for each drawing under each Letter of Credit Issued by it and to repay each LC Disbursement shall, provided that the Borrower shall have received notice of such drawing, be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, (i) any draft, demand certificate or other document presented under such 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; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit, and (ii) any payment by the Issuing Bank under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit or any payment made by the Issuing Bank under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any bankruptcy or other debtor relief law.

(d) Notwithstanding anything to the contrary contained herein or in any Reimbursement Agreement, to the extent that the terms of this Agreement shall be inconsistent with the terms of such Reimbursement Agreement, the terms of this Agreement shall govern.

(e) Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all increases, whether or not such maximum stated amount is in effect at such time.

(f) The Borrower may at any time and from time to time with the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) designate one or more Lenders to Issue Letters of Credit (each such Lender an “Additional Issuing Bank”).

(g) All Letters of Credit listed on Schedule 1.1 hereto shall be deemed to have been Issued pursuant hereto, and from and after the Effective Date shall be subject to and governed by the terms and conditions hereof.

 

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2.11. Letter of Credit Participation and Funding Commitments

(a) Each Lender hereby unconditionally, irrevocably and severally (and not jointly) for itself only and without any notice to or the taking of any action by such Lender, takes an undivided participating interest in the obligations of each Issuing Bank under and in connection with each Letter of Credit in an amount equal to such Lender’s Commitment Percentage of the amount of such Letter of Credit. Each Lender shall be liable to each Issuing Bank for its Commitment Percentage of (i) the unreimbursed amount of any draft drawn and honored under each of its Letters of Credit, and (ii) any amounts paid by the Borrower pursuant to Sections 2.10(c) or 2.12 that are subsequently rescinded or avoided, or must otherwise be restored or returned. Such liabilities shall be unconditional and without regard to the occurrence of any Default or the compliance by the Borrower with the Loan Documents.

(b) Each Issuing Bank will promptly notify the Administrative Agent of the date and amount of any draft presented under each of its Letters of Credit, and the Administrative Agent will promptly notify each Lender (which notice shall be promptly confirmed in writing by the Administrative Agent) of the date, the amount of any draft presented under each of its Letters of Credit and the amount of such Lender’s Commitment Percentage with respect to which full reimbursement is not made as provided in Section 2.10(c). The Administrative Agent shall notify each Lender thereof (1) if such notification is received by the Administrative Agent on or before 11:00 a.m., on a Business Day, prior to 12:30 p.m., on such Business Day, and (2) in all other cases, prior to 11:00 a.m., on the immediately succeeding Business Day. In such event, the Borrower shall be deemed to have requested an ABR Advance without regard to the minimum and multiples specified in Section 2.5(a), but subject to the amount of the unutilized portion of the Aggregate Commitments and the conditions of lending set forth in Section 6.1. Any notice given by the Issuing Bank or Administrative Agent pursuant to this Section 2.11(b) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. Each Lender shall upon any notice pursuant to this Section 2.11(b) make funds available to the Administrative Agent for the account of the Issuing Bank at the Administrative Agent’s office in an amount equal to such Lender’s Commitment Percentage of the unreimbursed amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon each Lender that so makes funds available shall be deemed to have made a Revolving Credit Loan to the Borrower in such amount. Any Loans made pursuant to this paragraph (b) shall, for all purposes hereof, be deemed to be an ABR Advance referred to in Section 2.1 and made pursuant to Section 2.5, and the Lender’s obligation to make such ABR Advance shall be absolute and unconditional. The Administrative Agent shall remit the funds so received to the Issuing Bank. Notwithstanding the foregoing, with respect to any unreimbursed amount that is not fully refinanced by an ABR Advance because the conditions set forth in Section 6.1 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the amount of the unreimbursed amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Alternate Base Rate plus 2.0%. In such event, each Lender’s payment to the Administrative Agent for the account of the Issuing Bank pursuant

 

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to this Section 2.11(b) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.11. In either such case, (i) the Administrative Agent shall notify each Lender of the details thereof and of the amount of such Lender’s Revolving Credit Loan or purchase price, as the case may be, and (ii) each Lender shall, whether or not any Default shall have occurred and be continuing, any representation or warranty shall be accurate, any condition to the making of any loan hereunder shall have been fulfilled, or any other matter whatsoever, make the Revolving Credit Loan required to be made by it, or pay the purchase price required to be paid by it, under this paragraph by wire transfer of immediately available funds to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders, (A) in the event that such Lender receives such notice prior to 12:30 p.m. on any Business Day, by no later than 3:00 p.m. on such Business Day, or (B) in the event that such Lender receives such notice at or after 12:30 p.m. on any Business Day, by no later than 1:00 p.m. on the immediately succeeding Business Day. The Administrative Agent will make such Loans, or the amount of such purchase price payments, as the case may be, available to such Issuing Bank by promptly crediting or otherwise transferring the amounts so received, in like funds, to such Issuing Bank. Each Lender shall also be liable for an amount equal to the product of its Commitment Percentage and any amounts paid by the Borrower pursuant to this Section 2.11 that are subsequently rescinded or avoided, or must otherwise be restored or returned. Such liabilities shall be absolute and unconditional and without regard to the occurrence of any Default or the compliance by the Borrower with any of its obligations under the Loan Documents. Each Lender shall indemnify and hold harmless the Administrative Agent and such Issuing Bank from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, costs and expenses (including, without limitation, reasonable attorneys’ fees and expenses and an administration fee of not less than $100 payable to such Issuing Bank as the issuer of the relevant Letter of Credit) resulting from any failure on the part of such Lender to perform its obligations under this Section 2.11 (except in respect of losses, liabilities or other obligations suffered by such Issuing Bank to the extent resulting from the gross negligence or willful misconduct of such Issuing Bank as determined by a court of competent jurisdiction in a final and non-appealable decision). If a Lender does not make any payment required under this Section 2.11 when due, such Lender shall be required to pay interest to the Administrative Agent for the account of such Issuing Bank (upon demand therefor) on the amount of such payment at a rate of interest per annum equal to the Federal Funds Rate for the first three days after the due date of such payment and the Federal Funds Rate plus 2% thereafter until the date such payment is received by the Administrative Agent. The Administrative Agent shall distribute such interest payments to such Issuing Bank upon receipt thereof in like funds as received.

(c) Whenever any Issuing Bank is reimbursed by the Borrower or the Administrative Agent is reimbursed by the Borrower, for the account of such Issuing Bank, for any payment under a Letter of Credit and such payment relates to an amount previously paid by a Lender pursuant to this Section 2.11, the Administrative Agent will pay over such payment to such Lender (i) before 4:00 p.m. on the day such payment from the Borrower is received, if such payment is received at or prior to 1:00 p.m. on such day, or (ii) before 12:00 noon on the next succeeding Business Day, if such payment from the Borrower is received after 1:00 p.m. on such day.

 

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2.12. Absolute Obligation With Respect to Letter of Credit Payments

The Borrower’s obligation to reimburse the Administrative Agent for the account of each Issuing Bank in respect of each payment under or in respect of such Issuing Bank’s Letters of Credit shall be absolute and unconditional under any and all circumstances and irrespective of any set off, counterclaim or defense to payment which the Borrower may have or have had against the beneficiary of such Letter of Credit, the Administrative Agent, any Issuing Bank, as issuer of such Letter of Credit, any Lender or any other Person, including, without limitation, any defense based on the failure of any drawing to conform to the terms of such Letter of Credit, any drawing document proving to be forged, fraudulent or invalid, or the legality, validity, regularity or enforceability of such Letter of Credit; provided, that, with respect to any Letter of Credit, the foregoing shall not relieve any Issuing Bank of any liability it may have to the Borrower for any actual damages sustained by the Borrower to the extent arising from a wrongful payment under such Letter of Credit made as a result of such Issuing Bank’s gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and non-appealable decision.

2.13. Payments

(a) Each sum payable by the Borrower to the Credit Parties under the Loan Documents, including each payment of principal and interest on the Loans, the Reimbursement Obligations, the Facility Fee, the Utilization Fee, the Letter of Credit Commissions and the Fronting Fees shall be made prior to 1:00 p.m., on the date such payment is due, to the Administrative Agent for the account of the applicable parties hereto at the Administrative Agent’s office specified in Section 11.2, in each case in lawful money of the United States, in immediately available funds and without set off or counterclaim, provided that payments required to be made under Sections 3.5, 3.6, 3.7, 11.7 and 11.20 shall be made directly to the party entitled thereto. The failure of the Borrower to make any such payment by such time shall not constitute a Default, provided that such payment is made on such due date, but any such payment made after 1:00 p.m., on such due date shall be deemed to have been made on the next Business Day for the purpose of calculating interest thereon. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof.

(b) If any payment hereunder, under the Notes or under any Reimbursement Agreement shall be due and payable on a day which is not a Business Day, the due date thereof (except as otherwise provided in the definition of Eurodollar Interest Period) shall be extended to the next Business Day and (except with respect to payments of the Facility Fee, the Fronting Fee and the Utilization Fee) interest shall be payable at the applicable rate specified herein during such extension, provided, however that if such next Business Day is after the Revolving Credit Maturity Date, any such payment shall be due on the immediately preceding Business Day.

 

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2.14. Extension of Revolving Credit Commitment Period

(a) Prior to each of the second anniversary date and the third anniversary date of the Effective Date, the Borrower may request that the Lenders agree (the decision so to agree to be within the sole and absolute discretion of each Lender) to extend the Revolving Credit Commitment Period by one year per each such request by giving written notice thereof to the Administrative Agent (but in no event shall the Revolving Commitment Period be extended beyond seven (7) years from the Effective Date). Upon receipt of each such notice, the Administrative Agent shall promptly send each Lender a copy thereof. Any Lender not responding to such notice shall be deemed not to have consented to such extension. In the event that Required Lenders shall have consented to such extension request, the Revolving Credit Maturity Date shall be extended to the day which is one year following the then existing Revolving Credit Maturity Date (or, if such day is not a Business Day, the Business Day immediately preceding such day), provided, however, that (i) immediately before and after giving effect thereto, no Default shall exist, and (ii) the Administrative Agent shall have received such certificates, legal opinions and other documents as it shall reasonably request in connection with such extension. In all other events, the then existing Revolving Credit Maturity Date shall not be extended and shall remain in full force and effect until such time, if any, as the same may be extended pursuant to a subsequent extension request.

(b) With respect to each extension request approved in accordance with Section 2.14(a), on the existing Revolving Credit Maturity Date with respect thereto (i) with respect to each Lender which (A) shall not have so consented to such extension request, and (B) shall not have transferred its Revolving Credit Commitment pursuant to Section 3.11, the Aggregate Revolving Credit Commitment Amount shall be automatically reduced by an amount equal to the sum of the Revolving Credit Commitment Amounts of each such Lender (each a “Non-Extending Lender”), (ii) the Revolving Credit Commitment of each Non-Extending Lender shall automatically terminate, and (iii) the Borrower shall pay to the Administrative Agent for the account of each Non Extending Lender all principal, interest, fees and other sums owing to such Non Extending Lender under the Loan Documents, whether or not then otherwise due and, upon receipt by such Lender of such amount so paid, such Lender shall cease to be a “Lender” hereunder.

3. INTEREST, FEES, YIELD PROTECTIONS, ETC.

3.1. Interest Rate and Payment Dates

(a) Prior to Default. Except as otherwise provided in Section 3.1(b) and 3.1(c), (i) each Competitive Bid Loan shall bear interest at the applicable Competitive Bid Rate therefor, and (ii) Revolving Credit Loans and Swing Line Loans shall bear interest on the outstanding principal balance thereof at the applicable interest rate or rates per annum set forth below:

 

ADVANCES

  

RATE

Each ABR Advance    Alternate Base Rate.
Each Eurodollar Advance    Eurodollar Rate for the applicable Interest Period plus the Applicable Margin applicable to Eurodollar Advances.
Each Swing Line Loan    Negotiated Rate applicable to such Swing Line Loan for the applicable Interest Period.

 

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(b) Default Rate. Upon the occurrence and during the continuance of an Event of Default under Section 9.1(a) or 9.1(b), the unpaid principal balance of the Loans shall bear interest at a rate per annum (whether before or after the entry of a judgment thereon) equal to 2% plus the rate which would otherwise be applicable under Section 3.1(a), and any overdue interest or other amount payable under the Loan Documents shall bear interest (whether before or after the entry of a judgment thereon) at a rate per annum equal to the Alternate Base Rate plus 2%. For purposes of the preceding sentence, the rate applicable pursuant to Section 3.1(a), as the case may be, to any overdue principal, interest or other amount payable under the Loan Documents shall be (i) in the case of an overdue principal balance of any Eurodollar Advance, the applicable Eurodollar Rate plus the Applicable Margin until the last day of the applicable Interest Period (or the earlier termination thereof pursuant to this Agreement) and thereafter at the Alternate Base Rate, (ii) in the case of an overdue principal balance of any Competitive Bid Loan, the applicable Competitive Bid Rate until the last day of the applicable Competitive Interest Period (or the earlier termination thereof pursuant to this Agreement) and thereafter at the Alternate Base Rate, (iii) in the case of an overdue principal balance of any Swing Line Loan, the applicable Negotiated Rate until the last day of the applicable Swing Line Interest Period (or the earlier termination thereof pursuant to this Agreement) and thereafter at the Alternate Base Rate and (iv) in all other cases, the Alternate Base Rate. All such interest shall be payable on demand.

(c) In General. Interest on (i) ABR Advances to the extent based on the BNY Rate shall be calculated on the basis of a 365 or 366 day year (as the case may be), and (ii) ABR Advances to the extent based on the Federal Funds Rate, Eurodollar Advances, Competitive Bid Loans and Swing Line Loans shall be calculated on the basis of a 360 day year, in each case, for the actual number of days elapsed. Except as otherwise expressly provided herein, interest shall be payable in arrears on each Interest Payment Date and upon each payment (including prepayment) of the Loans. Any change in the interest rate on the Loans resulting from a change in the Alternate Base Rate or reserve requirements shall become effective as of the opening of business on the day on which such change shall become effective. The Administrative Agent shall, as soon as practicable, notify the Borrower and the Lenders of the effective date and the amount of each such change in the BNY Rate, but any failure to so notify shall not in any manner affect the obligation of the Borrower to pay interest on the Loans in the amounts and on the dates required. Each determination of the Alternate Base Rate or a Eurodollar Rate by the Administrative Agent pursuant to this Agreement shall be conclusive and binding on all parties hereto absent manifest error. The Borrower acknowledges that to the extent interest payable on ABR Advances is based on the BNY Rate, such rate is only one of the bases for computing interest on loans made by the Lenders, and by basing interest payable on ABR Advances on the BNY Rate, the Lenders have not committed to charge, and the Borrower has not in any way bargained for, interest based on a lower or the lowest rate at which any Lender may now or in the future make loans to other borrowers.

 

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3.2. Fees

(a) Facility Fees. The Borrower agrees to pay to the Administrative Agent, for the account of the Lenders in accordance with each Lender’s Commitment Percentage, a fee (the “Facility Fee”), during the Revolving Credit Commitment Period, at a rate per annum equal to the Applicable Margin on the average daily Aggregate Revolving Credit Commitment Amount, regardless of usage. The Facility Fee shall be payable (i) quarterly in arrears on the last day of each March, June, September and December during such period commencing on the first such day following the Effective Date, (ii) on the date of any reduction in the Aggregate Revolving Credit Commitment Amount (to the extent of such reduction) and (iii) on the last day of the Revolving Credit Commitment Period. The Facility Fee shall be calculated on the basis of a 360 day year for the actual number of days elapsed.

(b) Letter of Credit Commissions. The Borrower agrees to pay to the Administrative Agent, for the account of the Lenders in accordance with each Lender’s Commitment Percentage, commissions (the “Letter of Credit Commissions”) with respect to the Letters of Credit for the period from and including the date of Issuance of each thereof to the expiration date thereof, at a rate per annum equal to (A) with respect to Standby Letters of Credit, the Applicable Margin in effect on the date of Issuance thereof, and (B) with respect to Trade Letters of Credit, the Applicable Margin in effect on the date of Issuance thereof multiplied by 30%, in each case on the average daily maximum amount available under any contingency to be drawn under such Letter of Credit. The Letter of Credit Commissions shall be (i) calculated on the basis of a 360 day year for the actual number of days elapsed and (ii) payable quarterly in arrears on the last day of each March, June, September and December of each year and on the last day of the Revolving Credit Commitment Period.

(c) Letter of Credit Fronting Fees. The Borrower agrees to pay to Administrative Agent, for the account of each Issuing Bank, a fee (the “Fronting Fees”) with respect to the Letters of Credit Issued by such Issuing Bank for the period from and including the date of Issuance of each thereof to the expiration date thereof, at a rate per annum equal to 0.10% on the daily maximum amount available under any contingency to be drawn under such Letters of Credit. The Fronting Fees shall be (i) calculated on the basis of a 360 day year for the actual number of days elapsed and (ii) payable quarterly in arrears on the next Business Day following the last day of each March, June, September and December of each year. In addition to the Fronting Fees, the Borrower agrees to pay to each Issuing Bank, for its own account, its standard fees and charges customarily charged to customers similar to the Borrower with respect to any of its Letters of Credit.

(d) Administrative Agent’s Fees. The Borrower agrees to pay to the Administrative Agent, for its own account, such other fees as have been agreed to in writing by the Borrower and the Administrative Agent.

 

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(e) Utilization Fees. The Borrower shall pay to the Administrative Agent for the account of each Lender ratably in accordance with its Revolving Credit Commitment Amount a utilization fee at a rate per annum equal to the Applicable Margin on the Aggregate Credit Exposure for each day (i) that the Aggregate Credit Exposure shall exceed 50.0% of the Aggregate Revolving Credit Commitment Amount, or (ii) following the Revolving Credit Commitment Period that there shall be any Aggregate Credit Exposure. Accrued Utilization Fees shall be payable in arrears on the last day of March, June, September and December of each year and each date on which the Aggregate Revolving Credit Commitment Amount is permanently reduced, commencing on the first such date to occur after the Effective Date. All Utilization Fees shall be calculated on the basis of a 360 day year for the actual number of days elapsed.

3.3. Conversions; Eurodollar Advances

(a) The Borrower may elect from time to time to convert one or more Eurodollar Advances to ABR Advances by delivering to the Administrative Agent by facsimile a Notice of Conversion (confirmed promptly, and in any event within five Business Days, by the delivery to the Administrative Agent of a Notice of Conversion manually signed by the Borrower) at least one Business Day’s prior irrevocable notice of such election, specifying the amount to be converted, provided, that any such conversion shall only be made on a Business Day and on the last day of the Eurodollar Interest Period applicable thereto. In addition, the Borrower may elect from time to time to convert ABR Advances to Eurodollar Advances or existing Eurodollar Advances to new Eurodollar Advances by delivering to the Administrative Agent by facsimile a Notice of Conversion (confirmed promptly, and in any event within five Business Days, by the delivery to the Administrative Agent of a Notice of Conversion manually signed by the Borrower) at least three Business Days’ prior irrevocable notice of such election, specifying the amount to be so converted and the initial Eurodollar Interest Period relating thereto, provided that any such conversion shall only be made on a Business Day and, in the case of existing Eurodollar Advances being converted to new Eurodollar Advances, on the last day of the Eurodollar Interest Period applicable thereto. The Administrative Agent shall promptly provide the Lenders with notice of each such election. Advances may be converted pursuant to this Section in whole or in part, provided that the amount to be converted to each Eurodollar Advance, when aggregated with any Eurodollar Advance to be made on such date in accordance with Section 2.5 and having the same Eurodollar Interest Period as such first Eurodollar Advance, shall equal no less than $5,000,000 or such amount plus a whole multiple of $1,000,000 in excess thereof.

(b) Notwithstanding anything in this Agreement to the contrary, upon the occurrence and during the continuance of an Event of Default, the Borrower shall have no right to elect to convert any existing ABR Advance to a new Eurodollar Advance or to convert any existing Eurodollar Advance to a new Eurodollar Advance. In such event, all ABR Advances shall be automatically continued as ABR Advances and all Eurodollar Advances shall be automatically converted to ABR Advances on the last day of the Eurodollar Interest Period applicable to such Eurodollar Advance.

 

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(c) Each conversion shall be effected by each Lender by applying the proceeds of its new ABR Advance or Eurodollar Advance, as the case may be, to its Advances (or portion thereof) being converted (it being understood that any such conversion shall not constitute a borrowing for purposes of Sections 4, 5 or 6).

(d) Competitive Bid Loans shall not be converted.

3.4. Concerning Eurodollar Interest Periods and Swing Line Interest Periods

Notwithstanding any other provision of any Loan Document:

(a) If the Borrower shall have failed to elect a Eurodollar Advance under Section 2.5 or 3.3, as the case may be, in connection with any borrowing of new Revolving Credit Loans or expiration of an Eurodollar Interest Period with respect to any existing Eurodollar Advance, the amount of the Revolving Credit Loans subject to such borrowing or such existing Eurodollar Advance shall thereafter be an ABR Advance until such time, if any, as the Borrower shall elect a new Eurodollar Advance pursuant to Section 3.3.

(b) No Interest Period selected in respect of the conversion of any Eurodollar Advance comprising a Revolving Credit Loan, and no Interest Period selected in respect of any Swing Line Loan, shall end after the Revolving Credit Maturity Date.

(c) The Borrower shall not be permitted to have more than twelve Eurodollar Advances outstanding at any one time, it being agreed that each borrowing of a Eurodollar Advance pursuant to a single Borrowing Request shall constitute the making of one Eurodollar Advance for the purpose of calculating such limitation.

3.5. Indemnification for Loss

Notwithstanding anything contained herein to the contrary, if the Borrower shall fail for any reason to borrow a Revolving Credit Loan in respect of which it shall have requested a Eurodollar Advance or to convert an Advance to a Eurodollar Advance after it shall have notified the Administrative Agent of its intent to do so, or if the Borrower shall fail for any reason to borrow a Competitive Bid Loan in any instance in which it shall have accepted one or more Competitive Bids, or if the Borrower shall fail to borrow a Swing Line Loan after the Swing Line Lender shall have agreed to a Negotiated Rate with respect thereto, or if a Eurodollar Advance, Competitive Bid Loan or Swing Line Loan shall terminate for any reason prior to the last day of the Interest Period applicable thereto, or if the Borrower shall for any reason prepay or repay all or any part of the principal amount of a Eurodollar Advance, Competitive Bid Loan or Swing Line Loan prior to the last day of the Interest Period applicable thereto, without duplication of other payments hereunder, the Borrower shall indemnify each Lender against, and pay on demand directly to such Lender the amount (calculated by such Lender (in reasonable detail delivered to the Borrower) using any reasonable method chosen by such Lender which is customarily used by such Lender for such purpose) equal to any loss or out of pocket expense suffered by such Lender as a result of such failure to borrow or convert, or such termination, repayment or prepayment, including any loss, cost or expense suffered by such Lender in liquidating or employing deposits acquired to fund or maintain the funding of such Eurodollar Advance, Competitive Bid Loan or Swing Line Loan, as the case may be, or redeploying funds

 

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prepaid or repaid, in amounts which correspond to such Eurodollar Advance, Competitive Bid Loan or Swing Line Loan, as the case may be, and any internal processing charge customarily charged by such Lender in connection therewith.

3.6. Capital Adequacy

If the amount of capital required or expected to be maintained by any Lender or any Issuing Bank or any Person directly or indirectly owning or controlling such Lender or such Issuing Bank (each a “Control Person”), shall be affected by the occurrence of a Regulatory Change and such Lender or such Issuing Bank shall have determined that such Regulatory Change shall have had or will thereafter have the effect of reducing the rate of return on such Lender’s, such Issuing Bank’s, or such Control Person’s capital in respect of the Loans, Revolving Credit Commitment or Letter of Credit or Swing Line Loan participations made or maintained by such Lender, or of the Reimbursement Obligations owed to such Issuing Bank, in any case to a level below that which such Lender, such Issuing Bank or such Control Person could have achieved or would thereafter be able to achieve but for such Regulatory Change (after taking into account such Lender’s, such Issuing Bank’s or such Control Person’s policies regarding capital adequacy) by an amount deemed by such Lender or such Issuing Bank to be material, then, within thirty days after demand by such Lender or such Issuing Bank, without duplication of other payments hereunder, the Borrower shall pay to such Lender, such Issuing Bank or such Control Person, as the case may be, such additional amount or amounts (calculated by such Lender (in reasonable detail delivered to the Borrower) using any reasonable method chosen by such Lender) as shall be sufficient to compensate such Lender, such Issuing Bank or such Control Person for such reduction. Failure or delay on the part of any Lender, Issuing Bank or Control Person to demand compensation pursuant to this Section 3.6 shall not constitute a waiver of such Lender’s, Issuing Bank’s or Control Person’s right to demand such compensation; provided that Borrower shall not be required to compensate such Lender, Issuing Bank or Control Person pursuant to this Section 3.6 for any increased costs or reductions incurred more than 90 days prior to the date that such Lender, Issuing Bank or Control Person, as the case may be, notifies the Borrower of the Regulatory Change giving rise to such increased costs or reductions and of such Lender’s, Issuing Bank’s or Control Person’s intention to claim compensation therefor; provided further that, if the Regulatory Change giving rise to such increased costs or reductions is retroactive, then the 90-day period referred to above shall be extended to include the period of retroactive effect thereof.

3.7. Reimbursement for Increased Costs

If any Credit Party shall determine that a Regulatory Change:

(a) does or shall (i) subject it to any Tax of any kind whatsoever with respect to any Eurodollar Advances or its obligations under this Agreement to make Eurodollar Advances, or (ii) change the basis of taxation of payments to it of principal, interest or any other amount payable hereunder in respect of its Eurodollar Advances, or impose on such Credit Party any other condition regarding the Letters of Credit including any Tax required to be withheld from any amounts payable under the Loan Documents (except for imposition of, or change in the rate of, any Income Tax applicable to such Lender); or

 

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(b) does or shall impose, modify or make applicable any reserve, special deposit, compulsory loan, assessment, increased cost or similar requirement against assets held by, or deposits of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender in respect of its Eurodollar Advances which is not otherwise included in the determination of a Eurodollar Rate or against any Letters of Credit issued by such Issuing Bank or participated in by any Lender; and the result of any of the foregoing is to increase the cost to such Lender of making, renewing, converting or maintaining its Eurodollar Advances or its commitment to make such Eurodollar Advances, or to reduce any amount receivable hereunder in respect of its Eurodollar Advances, or to increase the cost to such Issuing Bank of Issuing or maintaining the Letters of Credit or the cost to any Lender of participating therein or the cost to the Administrative Agent or such Issuing Bank of performing its respective functions hereunder with respect to the Letters of Credit, then, in any such case, the Borrower shall, without duplication of other payments hereunder, pay such Credit Party within ten days after demand therefor, such additional amounts (calculated by such Lender (in reasonable detail delivered to the Borrower) using any reasonable method chosen by such Lender) as is sufficient to compensate such Credit Party for such additional cost or reduction in such amount receivable which such Lender deems to be material as determined by such Credit Party; provided, however, that nothing in this Section shall require the Borrower to indemnify any Credit Party with respect to withholding Taxes for which the Borrower has no obligation under Section 3.10. No failure by any Credit Party to demand, and no delay in demanding, compensation for any increased cost shall constitute a waiver of its right to demand such compensation at any time.

3.8. Illegality of Funding

Notwithstanding any other provision hereof, if any Lender shall reasonably determine that any Regulatory Change shall make it unlawful for such Lender to make or maintain any Eurodollar Advance as contemplated by this Agreement, such Lender shall promptly notify the Borrower and the Administrative Agent thereof, and (i) the commitment of such Lender to make such Eurodollar Advances or convert ABR Advances to Eurodollar Advances shall forthwith be suspended, (ii) such Lender shall fund its portion of each requested Eurodollar Advance as an ABR Advance and (iii) such Lender’s Revolving Credit Loans then outstanding as such Eurodollar Advances, if any, shall be converted automatically to an ABR Advance on the last day of the then current Eurodollar Interest Period applicable thereto or at such earlier time as may be required. If the commitment of any Lender with respect to Eurodollar Advances is suspended pursuant to this Section and such Lender shall have obtained actual knowledge that it is once again legal for such Lender to make or maintain Eurodollar Advances, such Lender shall promptly notify the Administrative Agent and the Borrower thereof and, upon receipt of such notice by each of the Administrative Agent and the Borrower, such Lender’s commitment to make or maintain Eurodollar Advances shall be reinstated.

3.9. Substituted Interest Rate

In the event that (i) the Administrative Agent shall have determined (which determination shall be conclusive and binding) that by reason of circumstances affecting the interbank eurodollar market either adequate or reasonable means do not exist for ascertaining the Eurodollar Rate, or (ii) Required Lenders shall have notified the Administrative Agent that they

 

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have determined (which determination shall be conclusive and binding absent manifest error) that the applicable Eurodollar Rate will not adequately and fairly reflect the cost to such Lenders of maintaining or funding loans bearing interest based on such Eurodollar Rate, with respect to any portion of the Revolving Credit Loans that the Borrower has requested be made as Eurodollar Advances or Eurodollar Advances that will result from the requested conversion of any portion of the Advances into Eurodollar Advances (each, an “Affected Advance”), the Administrative Agent shall promptly notify the Borrower and the Lenders (by telephone or otherwise, to be promptly confirmed in writing) of such determination, on or, to the extent practicable, prior to the requested Borrowing Date or Conversion Date for such Affected Advances. If the Administrative Agent shall give such notice, (a) any Affected Advances shall be made as ABR Advances, (b) the Advances (or any portion thereof) that were to have been converted to Affected Advances shall be converted to ABR Advances and (c) any outstanding Affected Advances shall be converted, on the last day of the then current Eurodollar Interest Period with respect thereto, to ABR Advances. Until any notice under clauses (i) or (ii), as the case may be, of this Section has been withdrawn by the Administrative Agent (by notice to the Borrower promptly upon either (x) the Administrative Agent having determined that such circumstances affecting the interbank eurodollar market no longer exist and that adequate and reasonable means do exist for determining the Eurodollar Rate, or (y) the Administrative Agent having been notified by such Required Lenders that circumstances no longer render the Advances (or any portion thereof) Affected Advances), no further Eurodollar Advances shall be required to be made by the Lenders, nor shall the Borrower have the right to convert all or any portion of the Revolving Credit Loans to or as Eurodollar Advances.

3.10. Taxes; Net Payments

(a) All payments made by the Borrower under the Loan Documents shall be made free and clear of, and without reduction for or on account of, any Included Taxes required by law to be withheld from any amounts payable under the Loan Documents. In the event that the Borrower is prohibited by law from making payments under the Loan Documents free of deductions or withholdings in respect of Included Taxes, then the Borrower, without duplication of other payments hereunder, shall pay such additional amounts to the Administrative Agent, for the benefit of the Credit Parties, as may be necessary in order that the actual amounts received by each Credit Party in respect of interest and any other amount payable under the Loan Documents after deduction or withholding (and after payment of any additional taxes or other charges due as a consequence of the payment of such additional amounts) shall equal the amount that would have been received if such deduction or withholding were not required. In the event that any such deduction or withholding with respect to Included Taxes can be reduced or nullified as a result of the application of any relevant double taxation convention, the relevant Credit Party will cooperate with the Borrower (at the sole expense of the Borrower) in making application to the relevant taxing authorities to seek to obtain such reduction or nullification, so long as it would not be disadvantageous to such Credit Party, provided, however, that no Credit Party shall have any obligation to engage in litigation with respect thereto. If the Borrower shall make any payments under this Section 3.10 or shall make any deductions or withholdings from amounts paid in accordance with this Section 3.10, the Borrower shall, as promptly as practicable thereafter, forward to the Administrative Agent original or certified copies of official receipts or other evidence acceptable to the Administrative Agent establishing such

 

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payment and the Administrative Agent in turn shall distribute copies of such receipts to each Credit Party. If payments under the Loan Documents to any Credit Party are or become subject to any withholding, such Credit Party shall (unless otherwise required by a Governmental Authority or as a result of any treaty, convention, law, rule, regulation, order or similar directive applicable to such Credit Party) use its best efforts to designate a different office or branch to which payments are to be made under the Loan Documents from that initially selected thereby, if such designation would avoid or mitigate such withholding and would not be disadvantageous to such Credit Party. In the event that any Credit Party shall have determined that it received a refund or credit for Included Taxes paid by the Borrower under this Section 3.10, such Credit Party shall promptly notify the Administrative Agent and the Borrower of such fact and shall remit to the Borrower the amount of such refund or credit applicable to the payments made by the Borrower in respect of such Credit Party under this Section 3.10.

(b) Each Credit Party shall deliver to the Borrower such certificates, documents, or other evidence as the Borrower may reasonably require from time to time as are necessary to establish that such Credit Party is not subject to withholding under Section 1441, 1442 or 3406 of the Code or as may be necessary to establish, under any law imposing upon the Borrower, hereafter, an obligation to withhold any portion of the payments made by the Borrower under the Loan Documents, that payments to the Administrative Agent on behalf of such Credit Party are not subject to withholding. Notwithstanding any provision herein to the contrary, the Borrower shall not have any obligation to pay to the Administrative Agent for the benefit of any Credit Party any amount which the Borrower is required to withhold (and shall have no obligation to otherwise indemnify any Lender with respect to such amount) to the extent that the Borrower’s obligation to withhold is due to the failure of such Credit Party to file any required statement, certificate or other document with respect to exemption which such Borrower requested of it.

(c) Each Credit Party not incorporated under the laws of the United States or any State thereof shall deliver to the Borrower such certificates, documents, or other evidence as the Borrower may reasonably require from time to time as are necessary to establish that such Credit Party is not subject to withholding under Section 1441, 1442 or 3406 of the Code or as may be necessary to establish, under any law imposing upon the Borrower, hereafter, an obligation to withhold any portion of the payments made by the Borrower under the Loan Documents, that payments to the Administrative Agent on behalf of such Credit Party are not subject to withholding. Notwithstanding any provision herein to the contrary, the Borrower shall not have any obligation to pay to the Administrative Agent for the benefit of any Credit Party any amount which the Borrower is liable to withhold due to the failure of such Credit Party to file any statement of exemption required by the Code.

3.11. Substitution of Lenders

Notwithstanding anything to the contrary contained herein, if any Lender is a Defaulting Lender, or if any Lender shall request compensation pursuant to Sections 3.6, 3.7 or 3.10 or shall not have consented to any request for the extension of the Revolving Credit Maturity Date which request was approved in accordance with Section 2.14, then, in each such case, provided that no Event of Default shall then exist and be continuing, the Borrower may

 

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require that such Lender transfer all of its right, title and interest under the Loan Documents to one or more of the other Lenders (in the sole and absolute discretion of each such Lender) or any other Person identified by the Borrower and reasonably acceptable to the Administrative Agent, the Swing Line Lender and each Issuing Bank (a “Substitute Lender”), if such Substitute Lender agrees to assume all of the obligations of such Lender under the Loan Documents for consideration equal to all principal, interest, fees and other sums owing to such Lender under the Loan Documents, whether or not then otherwise due. Subject to the execution and delivery by the Borrower at its expense of a new Note, an instrument of assignment and assumption, and such other documents as such Lender may reasonably require, such Substitute Lender shall be a “Lender” for all purposes hereunder. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements of the Borrower contained in Sections 3.5, 3.6, 3.7, 11.7 and 11.20 (without duplication of any payments made to such Lender by the Borrower or the Substitute Lender) shall survive for the benefit of any Lender replaced under this Section with respect to the time prior to such replacement.

4. REPRESENTATIONS AND WARRANTIES

In order to induce the Administrative Agent and the Lenders to enter into this Agreement, the Lenders to make the Revolving Credit Loans, each Issuing Bank to Issue the Letters of Credit and the Lenders to participate therein, and the Swing Line Lender to make the Swing Line Loans and the Lenders to participate therein, the Borrower makes the following representations and warranties to the Credit Parties:

4.1. Existence and Power

Each of the Borrower and each Significant Subsidiary has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its incorporation or formation, has all requisite power and authority to own its Property and to carry on its business as now conducted, and is in good standing and authorized to do business in each jurisdiction in which the nature of the business conducted therein or the Property owned by it therein makes such qualification necessary, except where the failure to have such requisite power and authority or to qualify would not reasonably be expected to have a Material Adverse Effect.

4.2. Authority and Execution

Each of the Borrower and each Significant Subsidiary has full legal power and authority to enter into, execute, deliver and perform the terms of the Loan Documents to which it is a party all of which have been duly authorized by all proper and necessary corporate, partnership or other applicable action and are in full compliance with its Organizational Documents. The Borrower and each Significant Subsidiary has duly executed and delivered each Loan Document to which it is a party.

4.3. Binding Agreement

The Loan Documents (other than the Notes) constitute, and the Notes, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of the Borrower, in each case to the extent it is a party thereto, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization moratorium or other similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles.

 

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4.4. Litigation

Except as set forth on Schedule 4.4, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority (whether purportedly on behalf of the Borrower or any of its Subsidiaries) pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries or maintained by the Borrower or any of its Subsidiaries or which may affect the Property of the Borrower or any of its Subsidiaries or any of their respective Properties or rights, which actions, suits or proceedings would reasonably be expected to have a Material Adverse Effect.

4.5. Absence of Defaults; No Conflicting Agreements

Neither the Borrower nor any of its Subsidiaries is in default under any judgment, order, writ, injunction, decree or decision of any Governmental Authority or any mortgage, indenture, contract or agreement to which it is a party or by which it or any of its Property is bound, the effect of which default would reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance of the terms of the Loan Documents will not constitute a default under or result in a breach of or require the mandatory repayment of or other acceleration of payment under or pursuant to the terms of, any such mortgage, indenture, contract or agreement.

4.6. Compliance with Applicable Laws

The Borrower and each of its Subsidiaries is complying with all laws, regulations, rules and orders of all Governmental Authorities, except to the extent a violation thereof would not reasonably be expected to have a Material Adverse Effect.

4.7. Governmental Regulations

Neither the Borrower nor any of its Subsidiaries nor any Person controlled by, controlling, or under common control with, the Borrower or any of its Subsidiaries, is subject to regulation under the Federal Power Act, as amended, or the Investment Company Act of 1940, as amended. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of any Loan, nor any Letter of Credit, will be used, directly or indirectly, for a purpose which violates any law, rule or regulation of any Governmental Authority, including, without limitation, the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System, as amended. After giving effect to the making of each Loan, Margin Stock will constitute less than 25% of the assets (as determined by any reasonable method) of the Borrower and its Subsidiaries.

4.8. Plans

The only Pension Plans in effect as of the Effective Date (the “Existing Pension Plans”) are listed on Schedule 4.8. Each Employee Benefit Plan is in compliance with ERISA,

 

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HIPAA and the Code, and other applicable federal and state laws, where applicable, except to the extent a violation thereof would not reasonably be expected to have a Material Adverse Effect. The Borrower and its Subsidiaries and ERISA Affiliates have, as of the Effective Date, made all contributions or payments to or under each such Pension Plan required by law or the terms of such Pension Plan or any contract or agreement with respect thereto, except to the extent that the failure to make such contribution or payment would not reasonably be expected to have a Material Adverse Effect. No liability to the PBGC has been, or is expected by the Borrower, any of its Subsidiaries or any ERISA Affiliate to be, incurred by the Borrower, any such Subsidiary or any ERISA Affiliate, except to the extent that such liability would not reasonably be expected to have a Material Adverse Effect. Liability, as referred to in this Section includes any joint and several liability. Each Employee Benefit Plan which is a group health plan within the meaning of Section 5000(b)(1) of the Code is in compliance with the continuation of health care coverage requirements of Section 4980B of the Code except to the extent a violation thereof would not reasonably be expected to have a Material Adverse Effect.

4.9. Financial Statements

The Borrower has heretofore delivered to the Administrative Agent and the Lenders copies of the audited Consolidated balance sheets of the Borrower as of January 28, 2006, and the related Consolidated statements of operations, stockholder’s equity and cash flows for the fiscal year then ended (with the related notes and schedules, the “Financial Statements”). The Financial Statements fairly present in all material respects the Consolidated financial condition and results of the operations of the Borrower and its Subsidiaries as of the dates and for the periods indicated therein and have been prepared in conformity with GAAP. Since January 28, 2006, there has been no Material Adverse Change.

4.10. No Misrepresentation

No representation or warranty contained in any Loan Document and no certificate or report from time to time furnished by the Borrower or any of its Subsidiaries in connection with the transactions contemplated thereby, on the date when made or deemed made, contains or will contain a misstatement of material fact, or omits or will omit to state a material fact required to be stated in order to make the statements therein contained not misleading in the light of the circumstances under which made.

4.11. Anti-Terrorism Law

(a) Neither the Borrower nor, to its knowledge, any of its Affiliates is in violation of any Requirement of Law relating to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive Order”), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56.

(b) Neither the Borrower nor, to its knowledge, any Affiliate or broker or other agent thereof, acting or benefiting in any capacity in connection herewith is any of the following:

(i) a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

 

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(ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;

(iii) a Person with which any Issuing Bank, the Swing Line Lender or any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order; or

(v) a Person that is named as a “specially designated national and blocked Person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”) at its official website or any replacement website or other replacement official publication of such list.

Neither the Borrower nor, to its knowledge, any Affiliate or broker or other agent thereof acting in any capacity in connection herewith (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

5. CONDITIONS TO FIRST LOANS OR FIRST LETTER OF CREDIT

In addition to the conditions precedent set forth in Section 6, the obligation of each Lender (including the Swing Line Lender) to make Loans and each Issuing Bank to Issue Letters of Credit on the first Borrowing Date and the Lenders to participate therein shall be subject to the fulfillment of the following conditions precedent:

5.1. Evidence of Action

The Administrative Agent shall have received a certificate, dated the Effective Date, of the Secretary or Assistant Secretary or other analogous counterpart of the Borrower (i) attaching a true and complete copy of the resolutions of its Managing Person and of all documents evidencing all necessary corporate, partnership or similar action (in form and substance satisfactory to the Administrative Agent) taken by it to authorize the Loan Documents to which it is a party and the transactions contemplated thereby, (ii) attaching a true and complete copy of its Organizational Documents, (iii) setting forth the incumbency of its officer or officers or other analogous counterpart who may sign the Loan Documents, including therein a signature specimen of such officer or officers and (iv) attaching a certificate of good standing of the Secretary of State of the jurisdiction of its formation and of each other jurisdiction in which it is qualified to do business.

 

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5.2. Notes

The Administrative Agent shall have received the Notes.

5.3. Absence of Litigation

There shall be no injunction, writ, preliminary restraining order or other order of any nature issued by any Governmental Authority in any respect affecting the transactions provided for in the Loan Documents and no action or proceeding by or before any Governmental Authority shall have been commenced or threatened seeking to prevent or delay the transactions contemplated by the Loan Documents or challenging any term or provision thereof or seeking any damages in connection therewith, and the Administrative Agent shall have received a certificate, in all respects satisfactory to the Administrative Agent, of an executive officer of the Borrower to the foregoing effects.

5.4. Existing Bank Debt

Prior to or simultaneously with the Effective Date, the Borrower shall have fully repaid all Existing Bank Debt and all agreements with respect thereto shall have been, and the Borrower and each of the Lenders agree that all commitments to extend credit under such agreements are hereby, cancelled or terminated (other than provisions thereof which, by their terms, provide that they survive any such termination), all Liens, if any, securing the same shall have been terminated, and the Administrative Agent shall have received satisfactory evidence of all of the foregoing.

5.5. Opinion of Counsel

The Administrative Agent shall have received (i) an opinion of Godfrey & Kahn S.C., counsel to the Borrower, dated the Effective Date and substantially in the form of Exhibit F, it being understood that such opinion is being delivered upon the direction of the Borrower, and that the addressees thereof may and will rely on such opinion, and (ii) an opinion of Richard D. Schepp, general counsel of the Borrower, dated the Effective Date and substantially in the form of Exhibit F-2.

5.6. Fees and Expenses

All fees payable under the Loan Documents to each Credit Party on or prior to the Effective Date shall have been paid, and the reasonable fees and expenses of Special Counsel in connection with the preparation, negotiation and closing of the Loan Documents shall have been paid.

5.7. [Reserved]

5.8. Other Documents

The Administrative Agent shall have received such other documents, each in form and substance reasonably satisfactory to the Administrative Agent, as the Administrative Agent shall reasonably require.

 

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6. CONDITIONS OF LENDING ALL LOANS AND LETTERS OF CREDIT

The obligation of each Lender (including the Swing Line Lender) to make any Loan and each Issuing Bank to Issue any Letter of Credit on a Borrowing Date is subject to the satisfaction of the following conditions precedent as of the date of such Loan or the Issuance of such Letter of Credit, as the case may be:

6.1. Compliance

On each Borrowing Date and after giving effect to the Loans to be made and the Letters of Credit to be Issued thereon (i) there shall exist no Default and (ii) the representations and warranties contained in the Loan Documents (other than that contained in the last sentence of Section 4.9) shall be true and correct with the same effect as though such representations and warranties had been made on such Borrowing Date. Each borrowing by the Borrower and each request by the Borrower for the Issuance of a Letter of Credit shall constitute a representation and warranty by the Borrower as of such Borrowing Date that each of the foregoing matters is true and correct in all respects.

6.2. Borrowing Request; Letter of Credit Request; Competitive Bid Request

With respect to the Loans to be made, and the Letters of Credit to be Issued, on each Borrowing Date, the Administrative Agent shall have received, (i) in the case of Revolving Credit Loans or Swing Line Loans, a Borrowing Request, (ii) in the case of Letters of Credit, a Letter of Credit Request, and (iii) in the case Competitive Bid Loans, a Competitive Bid Request and such other documents required to be delivered pursuant to Section 2.6, in each case duly executed by the Borrower.

7. AFFIRMATIVE COVENANTS

The Borrower agrees that, so long as this Agreement is in effect, any Loan or Reimbursement Obligation (contingent or otherwise) in respect of any Letter of Credit remains outstanding, or any other amount is owing under any Loan Document to any Credit Party, the Borrower shall:

7.1. Financial Statements and Information

Furnish or cause to be furnished to the Administrative Agent and each Lender:

(a) As soon as available, but in any event within 90 days after the end of each fiscal year, a copy of the Borrower’s annual report on Form 10 K in respect of such fiscal year, containing its Consolidated balance sheet as at the end of such fiscal year, together with the related Consolidated statements of operations, stockholders’ equity and cash flows as of and through the end of such fiscal year, setting forth in each case in comparative form the figures for the preceding fiscal year, such Consolidated financial statements to be audited and certified without Impermissible Qualification by the Accountants.

(b) As soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the Borrower’s quarterly

 

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report on Form 10 Q in respect of such fiscal quarter, containing the Consolidated balance sheet of the Borrower as at the end of each such quarterly period, together with the related Consolidated statements of operations, stockholders’ equity and cash flows for such period and for the elapsed portion of the fiscal year through such date (setting forth in each case in comparative form the figures for the corresponding periods of the preceding fiscal year), all of which shall be complete and correct in all material respects and shall present fairly the Consolidated financial condition and the Consolidated results of operations of the Borrower in accordance with GAAP (subject to normal year end adjustments and the absence of footnotes).

(c) Within 45 days after the end of each of the first three fiscal quarters, and within 90 days after the end of the last fiscal quarter, of each fiscal year a Compliance Certificate certified by a Financial Officer.

(d) Prompt written notice if there shall occur and be continuing any Event of Default.

(e) Prompt written notice of any citation, summons, subpoena, order to show cause or other document naming the Borrower or any of its Subsidiaries a party to any proceeding before any Governmental Authority which could reasonably be expected to have a Material Adverse Effect or which calls into question the validity or enforceability of any of the Loan Documents, and include with such notice a copy of such citation, summons, subpoena, order to show cause or other document.

(f) Promptly upon becoming available, copies of all registration statements, Annual Reports to shareholders, 10 Ks, 10 Qs, 8 Ks, proxy materials and other material documents which the Borrower or any of its Subsidiaries may now or hereafter be required to deliver to shareholders or file with or deliver to any securities exchange or the SEC.

(g) Prompt written notice in the event that the Borrower, any of its Subsidiaries or any ERISA Affiliate knows, or has reason to know, that any event shall have occurred or will occur, or any condition exists, with respect to a Pension Plan the result of which could reasonably be expected to have a Material Adverse Effect.

(h) Prompt written notice upon the Borrower becoming aware of any change, withdrawal or reinstatement of any rating of Applicable Debt by S&P or Moody’s.

(i) Such other information as the Administrative Agent or any Lender shall reasonably request from time to time.

Each report and document required to be delivered by the Borrower pursuant to subparagraphs (a), (b) and (f) of this Section 7.1 shall be deemed to have been delivered on the date on which the Borrower notifies the Administrative Agent and the Lenders that such report or such document has been posted at a site (the address of which shall be contained in such notice) on the world wide web, which site is accessible by a widely held nationally recognized web browser, from which such report or document may be readily printed.

 

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7.2. Legal Existence

Except as may otherwise be permitted by Section 8.3, maintain, and cause each Significant Subsidiary to maintain, its corporate, partnership or analogous existence, as the case may be, in good standing in the jurisdiction of its incorporation or formation and in each other jurisdiction in which the failure so to do would reasonably be expected to have a Material Adverse Effect; provided, however, that any Subsidiary of the Borrower may be dissolved if such dissolution would not reasonably be expected to have a Material Adverse Effect.

7.3. Insurance

Maintain, and cause each of its Subsidiaries to maintain, with financially sound and reputable insurance companies, insurance on all its Property in at least such amounts, having such deductibles and against at least such risks (but including in any event public liability, product liability and business interruption coverage) as are usually insured against in the same general area by companies engaged in the same or a similar business, and furnish to the Administrative Agent upon request full information as to all such insurance carried.

7.4. Performance of Obligations

Pay and discharge when due, and cause each of its Subsidiaries so to do, all lawful Indebtedness, obligations and claims for labor, materials and supplies or otherwise which, if unpaid, (i) would reasonably be expected to have a Material Adverse Effect, or (ii) become a Lien upon Property of the Borrower or any of its Subsidiaries other than a Lien permitted under Section 8.2, unless and to the extent only that the validity of such Indebtedness, obligation or claim shall be contested in good faith and by appropriate proceedings diligently conducted, and provided that the Borrower shall give the Administrative Agent prompt notice of any such contest and that such reserve or other appropriate provision as may be required by GAAP shall have been made therefor.

7.5. Condition of Property

At all times, maintain, protect and keep in good repair, working order and condition (ordinary wear and tear excepted), and cause each of its Subsidiaries so to do, all Property necessary to the operation of the Borrower’s or such Subsidiary’s business except to the extent that the failure so to do would not reasonably be expected to have a Material Adverse Effect.

7.6. Observance of Legal Requirements

Observe and comply in all respects, and cause each of its Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules, regulations, certifications, franchises, permits, licenses, directions and requirements of all Governmental Authorities, which now or at any time hereafter may be applicable to it, except to the extent a violation thereof would not reasonably be expected to have a Material Adverse Effect, and except such violations thereof as shall be contested in good faith and by appropriate proceedings diligently conducted by it,

 

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provided that the Borrower shall give the Administrative Agent prompt notice of such contest and that such reserve or other appropriate provision as shall be required in accordance with GAAP shall have been made therefor.

7.7. Inspection of Property; Books and Records; Discussions

Keep proper books of record and account, and cause each of its Subsidiaries so to do, in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made in all dealings and transactions in relation to its business and activities; and at all reasonable times, but no more than once per year provided no Event of Default has occurred, upon reasonable prior notice, permit representatives of the Administrative Agent and each Lender to visit the offices of the Borrower and each of its Subsidiaries, to examine the books and records thereof and Accountants’ reports relating thereto, and to make copies or extracts therefrom, to discuss the affairs of the Borrower and each such Subsidiary with the respective officers thereof, and to examine and inspect the Property of the Borrower and each such Subsidiary and to meet and discuss the affairs of the Borrower and each such Subsidiary with the Accountants.

7.8. Leverage Ratio

At each fiscal quarter end, have a Leverage Ratio of not more than 0.70:1.00.

8. NEGATIVE COVENANTS

The Borrower agrees that, so long as this Agreement is in effect, any Loan or Reimbursement Obligation (contingent or otherwise) in respect of any Letter of Credit remains outstanding, or any other amount is owing under any Loan Document to any Credit Party, the Borrower shall not:

8.1. Subsidiary Indebtedness

Permit any Subsidiary of the Borrower to create, incur, assume or suffer to exist any liability for Indebtedness, except Indebtedness which, when aggregated with all Indebtedness of the Subsidiaries of the Borrower (other than (a) Excluded Receivables Indebtedness, (b) any Indebtedness in respect of undrawn trade letters of credit, and (c) Indebtedness under each Affected Lease), does not exceed 10% of Tangible Net Worth.

8.2. Liens

Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, or permit any of its Subsidiaries so to do, except (i) Liens for Taxes in the ordinary course of business which are not delinquent or which are being contested in accordance with Section 7.4, provided that enforcement of such Liens is stayed pending such contest, (ii) Liens in connection with workers’ compensation, unemployment insurance or other social security obligations (but not ERISA), (iii) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, (iv) zoning ordinances, easements, rights of way, minor defects, irregularities, and other similar

 

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restrictions affecting real Property which do not adversely affect the value of such real Property or impair its use for the operation of the business of the Borrower or such Subsidiary, (v) mechanics’, materialmen’s, carriers’, warehousemen’s and other similar Liens arising by operation of law and incurred in the ordinary course of business which are not delinquent or which are being contested in accordance with Section 7.4, provided that enforcement of such Liens is stayed pending such contest, (vi) Liens arising out of judgments or decrees (other than judgments or decrees of the type referred to in Section 9.1(i)) which are being contested in accordance with Section 7.4, provided that enforcement of such Liens is stayed pending such contest, (vii) Liens in favor of the Credit Parties under the Loan Documents, (viii) Liens on Margin Stock to the extent that a prohibition on such Liens would result in any Credit Party being deemed to be “indirectly secured” by Margin Stock under Regulation U of the Board of Governors of the Federal Reserve System, as amended, (ix) Liens on Property of the Borrower and its Subsidiaries existing on the Effective Date as set forth on Schedule 8.2 as renewed from time to time, but not any increases in the amounts secured thereby or extensions thereof to additional Property, (x) Liens encumbering only Receivables and Related Receivable Assets of the Borrower or the Subsidiaries of the Borrower that secure only Indebtedness of the Borrower or the Subsidiaries of the Borrower permitted under Section 8.1, (xi) consensual Liens on fixed or capital assets (including any accessions thereto) acquired (including by lease under any Capital Lease), constructed or improved by the Borrower or any Subsidiary thereof, provided that (a) such consensual Liens secure only Indebtedness of the Borrower’s Subsidiaries permitted by Section 8.1 or Indebtedness of the Borrower, (b) such consensual Liens and such Indebtedness are incurred no later than the 90th (or, in the case of real property and fixtures, the 180th) day after such acquisition, leasing or the completion of such construction or improvement, (c) the Indebtedness secured thereby does not exceed the cost of acquiring, leasing, constructing or improving such fixed or capital assets, and (d) such consensual Liens shall not apply to any other Property (other than accessions to such fixed or capital assets) of the Borrower or any Subsidiary thereof, (xii) consensual Liens existing on any Property (and any accessions thereto) prior to the acquisition thereof by the Borrower or any Subsidiary thereof or existing on any Property (and any accessions thereto) of any Person that becomes a Subsidiary of the Borrower after the Effective Date prior to the time such Person became a Subsidiary of the Borrower, provided that (a) such consensual Liens secure only Indebtedness of the Borrower’s Subsidiaries permitted by Section 8.1 or Indebtedness of the Borrower, (b) such consensual Liens are not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary of the Borrower, as applicable, (c) such consensual Liens shall not apply to any other Property of the Borrower or any Subsidiary thereof, and (d) such consensual Liens shall secure only the Indebtedness that they secure on the date of such acquisition or the date such Person becomes a Subsidiary of the Borrower, as applicable, and any extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof and (xiii) other Liens on the property of the Borrower and the Subsidiaries securing obligations in an aggregate Consolidated amount not in excess of $75,000,000.

8.3. Merger, Consolidations, Acquisitions and Other Changes

Consolidate with, or merge into or with, any Person, or make any Acquisition, or change its fiscal year, or permit any of its Subsidiaries so to do, except that provided both immediately before and after giving effect thereto no Default shall exist, the Borrower or any Subsidiary thereof may:

(a) merge with the Borrower or any Subsidiary thereof, provided that in the event of a merger involving the Borrower, the Borrower shall be the surviving corporation,

 

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(b) merge with any other Person or make any Acquisition, provided that (i) immediately after giving effect thereto and any Indebtedness or other obligation incurred or assumed in connection therewith, all of the representations and warranties contained in Section 4 shall be true and correct as if then made and the Borrower will be in compliance herewith on a pro forma basis, (ii) it is on a non hostile basis pursuant to a negotiated agreement, and (iii) in the event of a merger involving the Borrower, the Borrower shall be the surviving corporation, or

(c) change its fiscal year, provided that with respect to each such change by the Borrower

(i) each reference to a fiscal quarter end contained in Section 7.8 shall be deemed to include both (1) the fiscal quarter end of the Borrower that would have occurred immediately after the Prior Quarter End assuming no such change had occurred (the “Existing Quarter End”), and (2) the fiscal quarter end of the Borrower that will (after having given effect to such change) occur immediately after the Prior Quarter End (the “New Quarter End”),

(ii) each of Sections 7.1(a), 7.1(b) and 7.1(c) shall be deemed to require (in addition to all of the other requirements thereof) the Borrower to furnish or cause to be furnished to the Administrative Agent and each Lender, at the applicable times required by each such Section, the financial statements otherwise required by such Section with respect to the Existing Quarter End, the New Quarter End and each of the Three Additional Quarter Ends, provided that each such statement of operations and each such statement of cash flows so furnished in respect of the New Quarter End and each of the Three Additional Quarter Ends shall instead be calculated on the basis of the 12 consecutive months then ended.

8.4. Dispositions

Make any Disposition, or permit any of its Subsidiaries so to do, except one or more Dispositions (other than a Disposition of all or substantially all assets of the Borrower or any Significant Subsidiary), provided that (i) immediately before and after giving effect to each such Disposition, no Default shall or would exist, and (ii) immediately after giving effect to each such Disposition, all of the representations and warranties contained in Section 4 shall be true and correct as if then made and the Borrower will be in compliance herewith on a pro forma basis

 

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8.5. [Reserved]

8.6. [Reserved]

8.7. Business Changes

Become significantly engaged, or permit any Significant Subsidiary to be significantly engaged, in any business other than in substantially the same or complimentary fields of enterprise as conducted by the Borrower and its Subsidiaries on the Effective Date.

8.8. Transactions with Affiliates

Become, or permit any Subsidiary of the Borrower to become, a party to any transaction with any Affiliate thereof unless the terms and conditions relating thereto are as favorable to the Borrower or such Subsidiary as those which would be obtainable at the time in a comparable arms length transaction with a Person other than an Affiliate thereof; provided, however, that the foregoing restrictions shall not prohibit the Borrower or any Subsidiary from (i) entering into any such transactions with the Borrower or another Subsidiary of the Borrower, or (ii) entering into any transaction, or series of related transactions not involving cash or other property having an aggregate value in excess of $2,000,000.

8.9. Restrictive Agreements

The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement binding on the Borrower or any Subsidiary thereof that prohibits, restricts or imposes any condition upon the ability of any Subsidiary of the Borrower to pay dividends or make other distributions with respect to any of its Capital Stock or to make or repay loans or advances to the Borrower or any other Subsidiary thereof, provided that (a) the foregoing shall not apply to restrictions and conditions imposed by law, by this Agreement, or by any other loan or credit agreement containing such restrictions and conditions that are no more onerous than the restrictions and conditions contained herein, (b) the foregoing shall not apply to restrictions and conditions existing on the date hereof and identified on Schedule 8.9 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (c) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary of the Borrower pending such sale, provided that such restrictions and conditions apply only to such Subsidiary and such sale is permitted hereunder and (d) the foregoing shall not apply to Subsidiaries which are special purpose entities involved in a securitization relating to the sale or financing of accounts receivable.

8.10. Embargoed Person

Cause or permit, or cause or permit any of its Subsidiaries to, (a) any of the funds or properties thereof that are used to pay amounts owing by the Borrower under the Loan Documents to constitute property of, or be beneficially owned directly or indirectly by, any person subject to sanctions or trade restrictions under United States law (“Embargoed Person” or “Embargoed Persons”) that is identified on (1) the “List of Specially Designated Nationals and Blocked Persons” maintained by OFAC and/or on any other similar list maintained by OFAC

 

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pursuant to any authorizing statute including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or any applicable law, rule or regulation promulgated thereunder, with the result that the investment in the Borrower (whether directly or indirectly) is prohibited by any applicable law, rule or regulation, or the making of any Loan would be in violation of any applicable law, rule or regulation, or (2) the Executive Order, any related enabling legislation or any other similar Executive Orders or (b) any Embargoed Person to have any direct or indirect interest, of any nature whatsoever in the Borrower or any Subsidiary thereof, with the result that the investment in Borrower (whether directly or indirectly) is prohibited by any applicable law, rule or regulation or any Loan, or participation therein, is in violation of any applicable law, rule or regulation.

9. DEFAULT

9.1. Events of Default

The following shall each constitute an “Event of Default”:

(a) The failure of the Borrower to make any payment (i) of principal on any Note when due and payable, or (ii) with respect to any Reimbursement Obligation when due and payable; or

(b) The failure of the Borrower to make any payment of interest, fees, expenses or other amounts (other than amounts under paragraph (a) immediately above) payable under any Loan Document when due and payable and such failure shall continue for a period of three Business Days; or

(c) The failure of the Borrower to observe or perform any covenant or agreement contained in Sections 2.9, 2.14(b), 7.1(d), 7.2, 7.8 or Section 8; or

(d) The failure of the Borrower to observe or perform any other term, covenant, or agreement contained in any Loan Document and such failure shall have continued unremedied for a period of 30 days after the Borrower shall have become aware thereof; or

(e) Any representation or warranty made or deemed made by the Borrower (or by an officer thereof on its behalf) in any Loan Document or in any certificate, report, opinion (other than an opinion of counsel) or other document delivered or to be delivered pursuant thereto (including any amendment or modification thereof or waiver thereunder), shall prove to have been incorrect or misleading (whether because of misstatement or omission) in any material respect when made; or

(f) (i) The Borrower or any Subsidiary thereof shall fail to make any payment (whether in respect of principal, interest or otherwise and regardless of amount) in respect of any Material Obligations when and as the same shall become due and payable (after giving effect to any applicable grace period), or (ii) any event or condition occurs that results in any Material Obligations becoming due prior to their scheduled maturity or payment date, or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Obligations or any trustee or agent on its or their behalf to cause any

 

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Material Obligations to become due prior to their scheduled maturity or payment date or to require the prepayment, repurchase, redemption or defeasance thereof, prior to their scheduled maturity or payment date (in each case after giving effect to any applicable cure period), provided that this clause (f)(ii) shall not apply to secured Indebtedness that becomes due solely as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; or

(g) The Borrower or any Significant Subsidiary shall (i) suspend or discontinue its retail business (other than pursuant to the transfer of such business to the Borrower or any Subsidiary thereof), (ii) make an assignment for the benefit of creditors, (iii) generally not be paying its debts as such debts become due, (iv) admit in writing its inability to pay its debts as they become due, (v) file a voluntary petition in bankruptcy, (vi) become insolvent (however such insolvency shall be evidenced), (vii) file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment of debt, liquidation or dissolution or similar relief under any present or future statute, law or regulation of any jurisdiction, (viii) petition or apply to any tribunal for any receiver, custodian or any trustee for any substantial part of its Property, (ix) be the subject of any such proceeding filed against it which remains undismissed for a period of 45 days, (x) file any answer admitting or not contesting the material allegations of any such petition filed against it or any order, judgment or decree approving such petition in any such proceeding, (xi) seek, approve, consent to, or acquiesce in any such proceeding, or in the appointment of any trustee, receiver, sequestrator, custodian, liquidator, or fiscal agent for it, or any substantial part of its Property, or an order is entered appointing any such trustee, receiver, custodian, liquidator or fiscal agent and such order remains in effect for 45 days, or (xii) take any formal action for the purpose of effecting any of the foregoing or looking to the liquidation or dissolution of the Borrower or any Significant Subsidiary under any laws relating to bankruptcy, insolvency, reorganization or relief of debtors; or

(h) An order for relief is entered under the United States bankruptcy laws or any other decree or order is entered by a court having jurisdiction (i) adjudging the Borrower or any Significant Subsidiary bankrupt or insolvent, (ii) approving as properly filed a petition seeking reorganization, liquidation, arrangement, adjustment or composition of or in respect of the Borrower or any Significant Subsidiary under the United States bankruptcy laws or any other applicable Federal or state law, (iii) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or any Significant Subsidiary or of any substantial part of the Property of any thereof, or (iv) ordering the winding up or liquidation of the affairs of the Borrower or any Significant Subsidiary, and any such decree or order continues unstayed and in effect for a period of 45 days; or

(i) One or more judgments for the payment of money in an aggregate amount (exclusive of any portions thereof covered by insurance) in excess of $35,000,000 shall be rendered against the Borrower or any Subsidiary thereof or any combination thereof and the same shall remain undischarged or unbonded for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Subsidiary to enforce any such judgment; or

 

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(j) The occurrence of a Change of Control; or

(k) Any Loan Document shall cease, for any reason, to be in full force and effect, or the Borrower shall so assert in writing or shall disavow any of its material obligations thereunder; or

(l) (i) Any Termination Event shall occur; (ii) any Accumulated Funding Deficiency, whether waived, shall exist with respect to any Pension Plan; (iii) any Person shall engage in any Prohibited Transaction involving any Employee Benefit Plan; (iv) the Borrower, any of its Subsidiaries or any ERISA Affiliate shall fail to pay when due an amount which is payable by it to the PBGC or to any Employee Benefit Plan; (v) the imposition of any tax under Section 4980B(a) or 4980C(a)of the Code; (vi) the assessment of a civil or criminal penalty with respect to any Employee Benefit Plan under any provision of ERISA or HIPAA; or (vii) any other event or condition shall occur or exist with respect to an Employee Benefit Plan which in the case of clauses (i) through (vii) would, individually or in the aggregate, have a Material Adverse Effect.

9.2. Contract Remedies

Upon the occurrence of an Event of Default or at any time thereafter during the continuance thereof, (i) if it is an Event of Default specified in Sections 9.1(g) or 9.1(h), all Revolving Credit Commitments, the Swing Line Commitment and the Letter of Credit Commitment shall immediately and automatically terminate and the Loans, all accrued and unpaid interest thereon, all Reimbursement Obligations owing or contingently owing in respect of all outstanding Letters of Credit and all other amounts owing under the Loan Documents shall immediately become due and payable, and the Borrower shall forthwith deposit an amount equal to the Letter of Credit Exposure in a cash collateral account with and under the exclusive control of the Administrative Agent for the pro rata benefit of the Credit Parties, and (ii) if it is any other Event of Default, upon the direction of the Required Lenders, the Administrative Agent shall (A) by notice to the Borrower, declare all Revolving Credit Commitments, the Swing Line Commitment, and the Letter of Credit Commitment to be terminated forthwith, whereupon such Revolving Credit Commitments, the Swing Line Commitment and the Letter of Credit Commitment shall immediately terminate, and/or (B) by notice of default to the Borrower, declare the Loans, all accrued and unpaid interest thereon, all Reimbursement Obligations owing or contingently owing in respect of all outstanding Letters of Credit and all other amounts owing under the Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable, and the Borrower shall forthwith deposit an amount equal to the Letter of Credit Exposure in a cash collateral account with and under the exclusive control of the Administrative Agent for the pro rata benefit of the Credit Parties. Except as otherwise provided in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. The Borrower hereby further expressly waives and covenants not to assert any appraisement, valuation, stay, extension, redemption or similar laws, now or at any time hereafter in force which might delay, prevent or otherwise impede the performance or enforcement of any Loan Document.

 

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10. THE ADMINISTRATIVE AGENT

10.1. Appointment

Each Credit Party hereby irrevocably designates and appoints the Administrative Agent as its agent under the Loan Documents and hereby irrevocably authorizes the Administrative Agent to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in any Loan Document, the Administrative Agent shall not have any duties or responsibilities other than those expressly set forth therein, or any fiduciary relationship with, or fiduciary duty to, any other Credit Party, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against the Administrative Agent. The Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Credit Parties as shall be necessary under the circumstances as provided in Section 11.1), and (iii) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower, any of its Subsidiaries or any other Loan Party that is communicated to or obtained by the Person serving as Administrative Agent or any of its Affiliates in any capacity.

10.2. Delegation of Duties

The Administrative Agent may execute any of its duties under the Loan Documents by or through sub agents, provided that no such delegation shall serve as a release of the Administrative Agent or waiver by the Borrower of any rights hereunder. The Administrative Agent and any such sub agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of this Section 10 shall apply to any such sub agent and to the Related Parties of the Administrative Agent and any such sub agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall be fully protected in, and shall not be under any liability for, relying upon, the advice of counsel (provided such counsel was selected by the Administrative Agent with due care) concerning all matters pertaining to such duties.

10.3. Exculpatory Provisions

Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys in fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Loan Documents (except the Administrative Agent for its own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final and non-appealable decision), or (ii) responsible in any manner to any other Credit Party for any recitals, statements, representations or warranties made

 

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by the Borrower, or any officer thereof, contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, the Loan Documents or for the value, validity, effectiveness, genuineness, perfection, enforceability or sufficiency of any of the Loan Documents or for any failure of the Borrower or any other Person to perform its obligations thereunder. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (a) any statement, warranty or representation made in or in connection with any Loan Document, (b) the contents of any certificate, report or other document delivered thereunder or in connection therewith, (c) the performance or observance of any of the covenants, agreements or other terms or conditions set forth therein, (d) the validity, enforceability, effectiveness or genuineness thereof or any other agreement, instrument or other document or (e) the satisfaction of any condition set forth in Section 5, Section 6 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. Each Credit Party acknowledges that the Administrative Agent shall not be under any duty to take any discretionary action permitted under the Loan Documents unless the Administrative Agent shall be instructed in writing to do so by the Required Lenders; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or is contrary to law or any provision of the Loan Documents. The Administrative Agent shall not be under any liability or responsibility whatsoever, as Administrative Agent, to the Borrower or any other Person as a consequence of any failure or delay in performance, or any breach, by any other Credit Party of any of its obligations under any of the Loan Documents.

10.4. Reliance by Administrative Agent

The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, opinion, letter, cablegram, telegram, facsimile, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by a proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may treat each other Credit Party, or the Person designated in the last notice filed with it under this Section, as the holder of all of the interests of such Credit Party, in its Loans, Notes, the Letters of Credit and the Reimbursement Obligations, as applicable, until written notice of transfer, signed by such Credit Party (or the Person designated in the last notice filed with the Administrative Agent) and by the Person designated in such written notice of transfer, in form and substance satisfactory to the Administrative Agent, shall have been filed with the Administrative Agent. The Administrative Agent shall not be under any duty to examine or pass upon the validity, effectiveness, enforceability or genuineness of the Loan Documents or any instrument, document or communication furnished pursuant thereto or in connection therewith, and the Administrative Agent shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be. The Administrative Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request or direction of the Required Lenders, and such request or direction and any action taken or failure to act pursuant thereto shall be binding upon the other Credit Parties and all future holders of the Notes and the Reimbursement Obligations.

 

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10.5. Notice of Default

The Administrative Agent shall be deemed not to have knowledge or notice of the occurrence of any Default unless the Administrative Agent has received written notice thereof from another Credit Party or the Borrower. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the other parties hereto.

10.6. Non Reliance on Administrative Agent and Other Lenders

Each Credit Party expressly acknowledges that neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys in fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any other Credit Party. Each Credit Party represents to the Administrative Agent that it has, independently and without reliance upon any other Credit Party, and based on such documents and information as it has deemed appropriate made its own evaluation of and investigation into the business, operations, Property, financial and other condition and creditworthiness of the Borrower and the value and Lien status of any collateral security and made its own decision to enter into this Agreement. Each Credit Party also represents that it will, independently and without reliance upon any other Credit Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, evaluations and decisions in taking or not taking action under any Loan Document, and to make such investigation as it deems necessary to inform itself as to the business, operations, Property, financial and other condition and creditworthiness of the Borrower and the value and Lien status of any collateral security. Except for notices, reports and other documents expressly required to be furnished to the other Credit Parties by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any other Credit Party with any credit or other information concerning the business, operations, Property, financial and other condition or creditworthiness of the Borrower which at any time may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys in fact or affiliates.

10.7. Indemnification

Each Lender agrees (severally and not jointly) to indemnify and hold harmless the Administrative Agent in its capacity as such (to the extent not promptly reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), pro rata in accordance with (i) at any time that the Revolving Credit Commitments shall have expired or otherwise been terminated and there shall be Loans or Reimbursement Obligations outstanding, its share of the Aggregate Credit Exposure, and (ii) at all other times, its Commitment Percentage, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever including, without limitation, any amounts paid to the Credit Parties (through the Administrative Agent) by the Borrower pursuant

 

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to the terms of the Loan Documents, that are subsequently rescinded or avoided, or must otherwise be restored or returned) which may at any time (including, without limitation, at any time following the payment of the Loans, the Notes and the Reimbursement Obligations) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other documents contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted to be taken by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the gross negligence or willful misconduct of the Administrative Agent as determined by a court of competent jurisdiction in a final and non-appealable decision. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its pro rata share of any unpaid fees owing to the Administrative Agent, and any costs and expenses (including, without limitation, reasonable fees and expenses of counsel) payable by the Borrower under Section 11.20, to the extent that the Administrative Agent has not been paid such fees or has not been reimbursed for such costs and expenses by the Borrower. The failure of any Lender to reimburse the Administrative Agent promptly upon demand for any amount required to be paid by such Lender to the Administrative Agent as provided in this Section shall not relieve any other Lender of its obligation hereunder. The agreements in this Section shall survive the termination of the Revolving Credit Commitments of all of the Lenders, the Swing Line Commitment of the Swing Line Lender, the Letter of Credit Commitment, and the payment of all amounts otherwise payable under the Loan Documents.

10.8. Administrative Agent in Its Individual Capacity

BNY and its affiliates may make secured or unsecured loans to, accept deposits from, issue letters of credit for the account of, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower as though BNY were not Administrative Agent hereunder and BNY Capital Markets did not arrange the transactions contemplated hereby. With respect to the Revolving Credit Commitment, Swing Line Commitment and Letter of Credit Commitment made or renewed by BNY and the Notes issued to, and the Reimbursement Obligations owing to, BNY, BNY shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms “Lender” and “Lenders” shall in each case include BNY.

10.9. Successor Administrative Agent

If at any time the Administrative Agent deems it advisable, in its sole discretion, it may submit to each other Credit Party a written notice of its resignation as Administrative Agent under the Loan Documents, such resignation to be effective upon the earlier of (i) the written acceptance of the duties of the Administrative Agent under the Loan Documents by a successor Administrative Agent and (ii) on the 30th day after the date of such notice. Upon any such resignation, the Required Lenders shall have the right to appoint from among the Lenders a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and accepted such appointment in writing within 30 days after the retiring Administrative Agent’s giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the other Credit Parties, appoint a successor

 

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Administrative Agent, which successor Administrative Agent shall be a commercial bank organized under the laws of the United States or any State thereof and having a combined capital, surplus, and undivided profits of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent’s rights, powers, privileges and duties as Administrative Agent under the Loan Documents shall be terminated. The Borrower and the Credit Parties (other than the Administrative Agent) shall execute such documents as shall be necessary to effect such appointment. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of the Loan Documents shall inure to its benefit as to any actions taken or omitted to be taken by it, and any amounts owing to it, while it was Administrative Agent under the Loan Documents. If at any time there shall not be a duly appointed and acting Administrative Agent, the Borrower agrees to make each payment due under the Loan Documents directly to the Credit Party entitled thereto during such time. Notwithstanding anything to the contrary contained in this Section 10.9, the appointment of any successor Administrative Agent shall be consented to by the Borrower (such consent not to be unreasonably withheld and such consent not to be required during the occurrence and continuance of any Default).

10.10. Other Agents

Notwithstanding anything in any Loan Document to the contrary, neither Arranger nor the Syndication Agent nor any Co-Documentation Agents, in each case acting in such capacity, shall have any duty or obligation under the Loan Documents.

11. OTHER PROVISIONS

11.1. Amendments and Waivers

(a) Neither any Loan Document nor any provision thereof may be waived, amended, supplemented or otherwise modified (including, without limitation, by any consent) except pursuant to an agreement in writing entered into by the Borrower and either Required Lenders or the Administrative Agent with the consent of Required Lenders; provided, however, that no such agreement shall (i) increase the Revolving Credit Commitment Amount of any Lender without the consent of such Lender, (ii) extend the Revolving Credit Commitment Period or the Revolving Credit Maturity Date without the consent of each Credit Party affected thereby, (iii) decrease the principal sum of any Loan or Reimbursement Obligation, or any payment in respect thereof, or the rate (other than any rate or rates provided for in Section 3.1(b)) of interest on any obligation, without the consent of each Credit Party affected thereby, (iv) extend the scheduled due date for any payment of any principal of, or interest on, any Loan or Reimbursement Obligation without the consent of each Credit Party affected thereby, (v) change the pro rata allocation of payments under, or the pro rata reductions of the Revolving Credit Commitments under, the Loan Documents without the consent of each Credit Party, (vi) decrease the rate or amount of, or extend the time of payment of, or change the pro rata allocation of, payments in respect of the Facility Fee, the Fronting Fee, the Utilization Fee or the Letter of Credit Commissions, in each case without the consent of each Credit Party affected thereby, or (vii) without the consent of each Credit Party, change the provisions of this Section

 

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11.1 or the definition of “Required Lenders”; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent, any Issuing Bank or the Swing Line Lender without the prior written consent of such Credit Party.

(b) Any such agreement referred to in paragraph (a) above shall apply equally to each Credit Party and shall be binding upon the parties to the applicable Loan Document and all future holders of the Notes and the Reimbursement Obligations. In the case of any waiver, the Borrower and the Credit Parties shall be restored to their former position and rights under the Loan Documents to the extent provided for in such waiver, and any Default waived shall not extend to any subsequent or other Default, or impair any right consequent thereon. The Loan Documents shall not be amended orally or by any course of conduct.

11.2. Notices

(a) Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, (provided however that any notice by the Administrative Agent or any Lender to the Borrower of an Event of Default shall not be effective if sent by telecopier):

 

  (i) if to the Borrower, to it at:

 

Kohl’s Corporation
c/o Kohl’s Department Stores, Inc.
N56W17000 Ridgewood Drive
Menomonee Falls, Wisconsin 53051
Attention:   Chief Executive Officer
  Chief Financial Officer and
  General Counsel
Telephone:  
Facsimile:  

 

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if to the Administrative Agent or the Swing Line Lender, to it at:

 

The Bank of New York

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention:

 

Susan E. Baratta

Telephone:

 

(212) 635 4695

Facsimile:

 

(212) 635 6365 or 6366 or 6367

with a copy to:

The Bank of New York

One Wall Street

New York, New York 10286

Attention:

 

William M. Barnum

Telephone:

 

(212) 635-1019

Facsimile:

 

(212) 635-1483; and

if to a Lender or an Issuing Bank, to it at its address (or telecopier number) set forth in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).

(b) Electronic Communications. Notices and other communications to the Lenders, the Swing Line Lender and each Issuing Bank hereunder may (subject to Section 11.2(c)) be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender, the Swing Line Lender or any Issuing Bank pursuant to Article 2 if such Lender, the Swing Line Lender or such Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it (including as set forth in Section 11.2(d)); provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next

 

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business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(c) Change of Address, etc. Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.

(d) Posting. The Borrower hereby agrees that it will provide to the Administrative Agent all information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to this Agreement and any other Loan Document, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Loan or other extension of credit (including any election of an interest rate or interest period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default under this Agreement or (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any borrowing or other extension of credit hereunder (all such non-excluded communications, collectively, the “Communications”), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to the Administrative Agent at such e-mail address(es) as may be provided to Borrower from time to time or in such other form, including hard copy delivery thereof, as the Administrative Agent shall require. In addition, each Loan Party agrees to continue to provide the Communications to the Administrative Agent in the manner specified in this Agreement or any other Loan Document or in such other form, including hard copy delivery thereof, as the Administrative Agent shall require. Nothing in this Section 11.2 shall prejudice the right of the Agents, any Lender or any Loan Party to give any notice or other communication pursuant to this Agreement or any other Loan Document in any other manner specified in this Agreement or any other Loan Document or as any such Agent shall require.

To the extent consented to by the Administrative Agent in writing from time to time, the Administrative Agent agrees that receipt of the Communications by the Administrative Agent at its e-mail address(es) set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Loan Documents; provided that Borrower shall also deliver to the Administrative Agent an executed original of each Compliance Certificate required to be delivered hereunder.

The Borrower further agrees that the Agents may make the Communications and other information provided or approved by or on behalf of the Borrower (collectively, the “Information”) available to the Lenders, the Swing Line Lender and each Issuing Bank by posting the Information on Intralinks or a substantially similar electronic transmission system (the “Platform”). The Borrower hereby acknowledges and agrees that (i) in connection with the posting of Information on the Platform, certain of the Lenders may be “public-side” Lenders (i.e., Lenders that do not wish to receive material non-public information with respect to the Borrower or its securities) (each, a “Public Lender”), and (ii) so long as the Borrower is the issuer of any outstanding debt or equity securities that are registered or issued pursuant to a

 

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private offering or are actively contemplating issuing any such securities, (1) all Information that is to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof, (2) by marking Information “PUBLIC,” the Borrower shall be deemed to have authorized the Arrangers and the Credit Parties to treat such Information as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States federal and state securities laws, it being understood that certain of such Information may be subject to the confidentiality requirements of Section 11.21, (3) all Information marked “PUBLIC” is permitted to be made available through a portion of the Platform designated “Public Investor”, and (4) the Arrangers and the Credit Parties shall be entitled to treat any Information that is not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.” The Platform is provided “as is” and “as available.” The Agents do not warrant the accuracy or completeness of the Information, or the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Information. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by any Agent in connection with the Information or the Platform. In no event shall any Agent or any of its Related Parties have any liability to the Borrower, any Lender, any Issuing Bank, the Swing Line Lender or any other person for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower’s or any Agent’s transmission of communications through the Internet, except to the extent the liability of such person is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such person’s gross negligence or willful misconduct.

11.3. No Waiver; Cumulative Remedies

No failure to exercise and no delay in exercising, on the part of any Credit Party, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

11.4. Survival of Representations and Warranties and Certain Obligations

(a) All representations and warranties made under the Loan Documents and in any document, certificate or statement delivered pursuant thereto or in connection therewith shall survive the execution and delivery of the Loan Documents.

(b) The obligations of the Borrower under Sections 3.5, 3.6, 3.7, 3.10, 11.7 and 11.20 shall survive the termination of the Revolving Credit Commitments of all of the Lenders, the Letter of Credit Commitment, the Swing Line Commitment and the payment of the Loans, the Reimbursement Obligations and all other amounts payable under the Loan Documents.

 

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11.5. Lending Offices

Each Lender agrees that, upon the occurrence of any event giving rise to any increased cost or indemnity under Sections 3.6, 3.7 and 3.10 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of any such Section. Nothing in this Section shall affect or postpone any of the obligations of the Borrower or the right of any Lender provided in Sections 3.6, 3.7 and 3.10.

11.6. Successors and Assigns

(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Credit Party and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Credit Parties) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. Any Lender, any Issuing Bank and the Swing Line Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it , or in the case of an assignment of the entire remaining amount of an Issuing Bank’s commitment to issue Letters of Credit and the reimbursement obligations at the time owing to it, or in the case of an assignment of the entire remaining amount of the Swing Line Lender’s Swing Line Commitment and the Swing Line Loans at the time owing to it, or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

 

72


(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption Agreement with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption Agreement, as of the Trade Date) shall not be less than $5,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (ii) shall not apply to rights in respect of Competitive Bid Loans.

(iii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:

(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;

(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender with a Commitment, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and

(C) the consent of (i) each Issuing Bank (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding) and (ii) the Swing Line Lender (such consent not to be unreasonably withheld or delayed) shall be required.

(iv) Assignment and Assumption Agreement. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption Agreement, together with a processing and recordation fee of $3,500, and the assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

(v) No Assignment to Borrower. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries.

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

 

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Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender (or Issuing Bank or Swing Line Lender, as the case may be), under this Agreement, and the assignor thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assignor’s rights and obligations under this Agreement, such assignor shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.3, 2.10, 11.7 and 11.20 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender, an Issuing Bank or the Swing Line Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Person of a participation in such rights and obligations in accordance with paragraph (d) of this Section.

(c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in New York, New York, a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, the Issuing Bank and the Swing Line Lender, and the Commitments and Swing Line Commitment of, and principal amounts of the Loans and Letter of Credit reimbursement obligations owing to, each such Person pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower and the Credit Parties may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender (or an Issuing Bank or the Swing Line Lender, as the case may be) hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any other Credit Party, at any reasonable time and from time to time upon reasonable prior notice.

(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders, the Issuing Banks and the Swing Line Lender shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any waiver, amendment, supplement or other modification of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any waiver, amendment, supplement or other modification described in Section 11.1 that affects such Participant. Subject to paragraph (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections

 

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3.5, 3.6, 3.7 and 3.10 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.10(a) as though it were a Lender, provided such Participant agrees to be subject to Section 11.10(b) as though it were a Lender.

(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Sections 3.6, 3.7 and 3.10 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.10 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.10 as though it were a Lender.

(f) Certain Pledges. Any Credit Party may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Credit Party, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Credit Party from any of its obligations hereunder or substitute any such pledgee or assignee for such Credit Party as a party hereto.

11.7. Indemnity

The Borrower agrees to indemnify and hold harmless the Administrative Agent, each Issuing Bank, BAS, BNY Capital Markets, each other Lender and each of their affiliates and their officers, directors, employees, agents, advisors and other representatives (each an “Indemnified Party”) from and against (and will reimburse each Indemnified Party as the same are incurred for) any and all claims, damages, losses, liabilities and expenses (including, without limitation, the reasonable fees, disbursements and other charges of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (a) any aspect of this Agreement or any similar transaction and any of the other transactions contemplated hereby or (b) the Loans, Letters of Credit and any other financings, or any use made or proposed to be made with the proceeds thereof, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party’s gross negligence or willful misconduct. In the case of an investigation, litigation or proceeding to which the indemnity in this paragraph applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by you, your equity holders or creditors or an Indemnified Party, whether or not an Indemnified Party is otherwise a party thereto and whether or not any aspect of this Agreement is consummated. The Borrower also agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Borrower or its subsidiaries or affiliates or to the Borrower’s or their respective equity holders or creditors arising out of, related to or in connection with any aspect of this Agreement, except to the extent of direct (as opposed to special, indirect, consequential or punitive) damages determined in a final non-appealable judgment by a court of competent jurisdiction to have

 

75


resulted from such Indemnified Party’s gross negligence or willful misconduct. It is further agreed that any Indemnified Party shall only have liability to the Borrower (as opposed to any other person), and that any Indemnified Party shall be liable solely in respect of its own commitment under this Agreement on a several, and not joint, basis with any other Person. Notwithstanding any other provision of this Agreement, no Indemnified Party shall be liable for any damages arising from the use by others of information or other materials obtained through electronic telecommunications or other information transmission systems.

11.8. Limitation of Liability

No claim may be made by the Borrower, any of its Subsidiaries, any Lender or other Person against the Administrative Agent, any Lender, any Issuing Bank, the Swing Line Lender, the Borrower or any directors, officers, employees, or agents of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by any Loan Document, or any act, omission or event occurring in connection therewith, and each of the Borrower, its Subsidiaries, Administrative Agent, Swing Line Lender any such Lender or other Person hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

11.9. Counterparts

Each Loan Document (other than the Notes) may be executed by one or more of the parties thereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same document. It shall not be necessary in making proof of any Loan Document to produce or account for more than one counterpart signed by the party to be charged. A counterpart of any Loan Document or to any document evidencing, and of any an amendment, modification, consent or waiver to or of any Loan Document transmitted by facsimile shall be deemed to be an originally executed counterpart. A set of the copies of the Loan Documents signed by all the parties thereto shall be deposited with each of the Borrower and the Administrative Agent. Any party to a Loan Document may rely upon the signatures of any other party thereto which are transmitted by facsimile or other electronic means to the same extent as if originally signed.

11.10. Adjustments; Set off

(a) In addition to any rights and remedies of each Lender provided by law, upon the occurrence of an Event of Default and acceleration of the Notes, or at any time upon the occurrence and during the continuance of an Event of Default under Sections 9.1(a) or 9.1(b), each Credit Party shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against any indebtedness or other liability, whether matured or unmatured, of the Borrower to such Credit Party arising under the Loan Documents, any amount owing from such Credit Party to the Borrower. To the extent permitted by applicable law, the aforesaid right of set off may be exercised by such Credit Party against the Borrower or against any trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor of the

 

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Borrower, or against anyone else claiming through or against the Borrower or such trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit of creditors, receivers, or execution, judgment or attachment creditors, notwithstanding the fact that such right of set off shall not have been exercised by such Credit Party prior to the making, filing or issuance of, service upon such Credit Party of, or notice to such Credit Party of, any petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Credit Party agrees promptly to notify the Borrower and the Administrative Agent after each such set off and application made by such Credit Party, provided that the failure to give such notice shall not affect the validity of such set off and application.

(b) If any Credit Party shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set off, or otherwise) on account of its Loans, its Notes or Reimbursement Obligations in excess of its pro rata share of payments then due and payable on account of the Loans, the Notes or Reimbursement Obligations received by all the Credit Parties, such Credit Party shall forthwith purchase, without recourse, for cash, from the other Credit Parties such participations in their Loans, Notes and Reimbursement Obligations as shall be necessary to cause such purchaser to share such excess payment with each of them on a pro rata basis, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchaser, such purchase shall be rescinded and the related seller shall repay to such purchaser the purchase price to the extent of such recovery, together with an amount equal to such seller’s pro rata share (according to the proportion of (i) the amount of all other related required repayments to (ii) the total amount so recovered from the purchaser) of any interest or other amount paid or payable by the purchaser in respect of the total amount so recovered.

11.11. Construction

Each party to a Loan Document represents that it has been represented by counsel in connection with the Loan Documents and the transactions contemplated thereby and that the principle that agreements are to be construed against the party drafting the same shall be inapplicable.

11.12. Governing Law

The Loan Documents and the rights and obligations of the parties thereunder shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York.

11.13. Headings Descriptive

Section headings have been inserted in the Loan Documents for convenience only and shall not be construed to be a part thereof.

11.14. Severability

Every provision of the Loan Documents is intended to be severable, and if any term or provision thereof shall be invalid, illegal or unenforceable for any reason, the validity,

 

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legality and enforceability of the remaining provisions thereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction.

11.15. Integration

All exhibits to a Loan Document shall be deemed to be a part thereof. Except for agreements between the Borrower and a Credit Party with respect to certain additional fees and expenses, the Loan Documents embody the entire agreement and understanding among the Borrower and the Credit Parties with respect to the subject matter thereof and supersede all prior agreements and understandings among them with respect to the subject matter thereof.

11.16. Consent to Jurisdiction

Each party to a Loan Document hereby irrevocably submits to the jurisdiction of any New York State or Federal court sitting in the City of New York (and each appellate court from any thereof) over any suit, action or proceeding arising out of or relating to the Loan Documents or for recognition or enforcement of any judgment. Each party to a Loan Document hereby irrevocably waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Borrower hereby agrees that a final judgment in any such suit, action or proceeding brought in such a court, after all appropriate appeals, shall be conclusive and binding upon each of them.

11.17. Service of Process

Each party to a Loan Document hereby irrevocably consents to the service of process in any suit, action or proceeding arising thereunder or in connection therewith by sending the same by first class mail, return receipt requested or by overnight courier service, to the address of such party set forth in Section 11.2. Each party to a Loan Document hereby agrees that any such service (i) shall be deemed in every respect effective service of process upon it in any such suit, action, or proceeding, and (ii) shall to the fullest extent enforceable by law, be taken and held to be valid personal service upon and personal delivery to it.

11.18. No Limitation on Service or Suit

Nothing in the Loan Documents or any modification, waiver, consent or amendment thereto shall affect the right of any Credit Party to serve process in any manner permitted by law or limit the right of any Credit Party to bring proceedings against the Borrower in the courts of any jurisdiction or jurisdictions in which the Borrower may be served.

11.19. WAIVER OF TRIAL BY JURY

EACH OF THE CREDIT PARTIES AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE

 

78


TRANSACTIONS CONTEMPLATED THEREIN. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF, OR COUNSEL TO, ANY CREDIT PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT ANY CREDIT PARTY WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT EACH CREDIT PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS SECTION.

11.20. Expenses

The Borrower agrees, promptly after presentation of a statement or invoice therefor, and whether any Loan is made or any Letter of Credit is Issued (i) to pay or reimburse the Agents for all their respective out of pocket costs and expenses reasonably incurred in connection with the development, preparation and execution of the Loan Documents and any amendment, supplement or modification thereto (whether or not executed or effective), any other documents prepared in connection therewith and the consummation and administration of the transactions contemplated thereby, including the reasonable fees and disbursements of Special Counsel, (ii) to pay or reimburse each Credit Party for all of its out of pocket costs and expenses, including reasonable fees and disbursements of counsel (including allocated costs of internal counsel) (to the extent set forth in a reasonably detailed invoice therefor), incurred in connection with the preservation, protection or enforcement of any rights under the Loan Documents and any such other documents, including, without limitation, the reasonable fees and disbursements of counsel (to the extent set forth in a reasonably detailed invoice therefor) to each Credit Party and including all such out of pocket costs and expenses incurred during any workout, restructuring or negotiations in respect hereof, (iii) to pay, indemnify, and hold each Credit Party harmless from and against any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Loan Documents and any such other documents, and (iv) to pay, indemnify and hold each Credit Party and each of its officers, directors, employees and other agents and representatives harmless from and against any and all other liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, and out of pocket costs, expenses and disbursements of any kind or nature whatsoever (including reasonable counsel fees and disbursements to the extent set forth in a reasonably detailed invoice therefor) with respect to the execution, delivery, performance, enforcement and administration of, or in any other way arising out of or relating to, the Loan Documents (all the foregoing referred to in this clause (iv), collectively, the “Indemnified Liabilities”); provided, however, that the Borrower shall have no obligation to pay Indemnified Liabilities to any Credit Party to the extent arising out of the gross negligence or willful misconduct of such Credit Party as determined by a court of competent jurisdiction in a final and non-appealable decision. The agreements in this Section shall survive the performance by the Borrower of all of its other obligations under the Loan Documents.

 

79


11.21. Treatment of Certain Information

Each Credit Party agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature, all non public information supplied by the Borrower or any of its Subsidiaries pursuant to this Agreement which (a) is identified by such Person as being confidential at the time the same is delivered to such Credit Party, or (b) constitutes any financial statement, financial projections or forecasts, budget, compliance certificate, audit report, management letter or accountants’ certification delivered hereunder, provided, however, that nothing herein shall limit the disclosure of any such information (i) to the extent required by law, rule, regulation or judicial process, (ii) on a confidential basis, to counsel to any Credit Party, (iii) to bank examiners, auditors or accountants, and any analogous counterpart thereof, (iv) to the Credit Parties, (v) in connection with any litigation to which any one or more of the Credit Parties is a party, (vi) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) agrees to keep such information confidential on substantially the same basis as set forth in this Section, (vii) to affiliates of the Credit Parties, or (viii) following the end of the thirty-sixth month after such information was so supplied.

11.22. USA PATRIOT Act Notice

Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of each Borrower and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Borrower in accordance with the Act.

11.23. No Advisory or Fiduciary Responsibility

In connection with all aspects of each transaction contemplated hereby, the Borrower acknowledges and agrees, and acknowledges its Affiliates’ understanding that: (i) the credit facility provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent and the Arrangers, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof); (ii) in connection with the process leading to such transaction, the Administrative Agent and the Arrangers each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person; (iii) neither the Administrative Agent nor the Arrangers has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document

 

80


(irrespective of whether the Administrative Agent or the Arrangers has advised or is currently advising the Borrower or any of its Affiliates on other matters) and neither the Administrative Agent nor the Arrangers has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; (iv) the Administrative Agent and the Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and neither the Administrative Agent nor the Arrangers has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (v) the Administrative Agent and the Arrangers have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. The Borrower hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent and the Arrangers with respect to any breach or alleged breach of agency or fiduciary duty.

 

81


IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

 

KOHL’S CORPORATION
By:  

/s/ R. Lawrence Montgomery

Name:   R. Lawrence Montgomery
Title:   Chairman, Chief Executive Officer


KOHL’S CORPORATION

CREDIT AGREEMENT

 

THE BANK OF NEW YORK, in its

individual capacity, as Swing Line Lender

and as Administrative Agent

By:  

/s/ William M. Barnum, Jr.

Name:   William M. Barnum, Jr.
Title:   Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

BANK OF AMERICA, N.A. in its

individual capacity, as an Issuing Bank

and as Syndication Agent

By:  

/s/ Ross Evans

Name:   Ross Evans
Title:   Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

JPMORGAN CHASE BANK, N.A.,

individually and as Co-Documentation Agent

By:  

/s/ Barry Bergman

Name:   Barry Bergman
Title:   Managing Director


KOHL’S CORPORATION

CREDIT AGREEMENT

 

U.S. BANK, NATIONAL ASSOCIATION,

individually and as Co-Documentation Agent

By:  

/s/ Caroline V. Krider

Name:   Caroline V. Krider
Title:   Vice President & Senior Lender


KOHL’S CORPORATION

CREDIT AGREEMENT

 

WACHOVIA BANK, NATIONAL

ASSOCIATION, individually and as Co-Documentation Agent

By:  

/s/ Anthony D. Braxton

Name:   Anthony D. Braxton
Title:   Director


KOHL’S CORPORATION

CREDIT AGREEMENT

 

MORGAN STANLEY BANK
By:  

/s/ Daniel Twenge

Name:   Daniel Twenge
Title:   Authorized Signatory
  Morgan Stanley Bank


KOHL’S CORPORATION

CREDIT AGREEMENT

 

UBS LOAN FINANCE LLC
By:  

/s/ Richard L. Tavrow

Name:   Richard L. Tavrow
Title:   Director
By:  

/s/ Irja R. Otsa

Name:   Irja R. Osta
Title:   Associate Director


KOHL’S CORPORATION

CREDIT AGREEMENT

 

FIFTH THIRD BANK
By:  

/s/ Christopher D. Jones

Name:   Christopher D. Jones
Title:   Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

UNION BANK OF CALIFORNIA, N.A.
By:  

/s/ Tawny J. Palovchik

Name:   Tawny J. Palovchik
Title:   Investment Banking Officer


KOHL’S CORPORATION

CREDIT AGREEMENT

 

COMERICA BANK
By:  

/s/ Heather A Whiting

Name:   Heather A Whiting
Title:   Assistant Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

WELLS FARGO BANK, NATIONAL

ASSOCIATION

By:  

/s/ Mark H. Halldorson

Name:   Mark H. Halldorson
Title:   Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

CITIBANK, N.A.
By:  

/s/ Michel R.R. Pendill

Name:   Michel R.R. Pendill
Title:   Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

NATIONAL CITY BANK
By:  

/s/ Brian T. Strayton

Name:   Brian T. Strayton
Title:   Senior Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

M&I MARSHALL & ILSLEY BANK
By:  

/s/ Leo D. Freeman

Name:   Leo D. Freeman
Title:   Vice President
By:  

/s/ James R. Miller

Name:   James R. Miller
Title:   Senior Vice President


KOHL’S CORPORATION

CREDIT AGREEMENT

 

THE NORTHERN TRUST COMPANY
By:  

/s/ David E. Graham

Name:   David E. Graham
Title:   Commercial Banking Officer


KOHL’S EXHIBIT A

LIST OF REVOLVING CREDIT COMMITMENT AMOUNTS

 

     Revolving Credit
Commitment Amount

Bank of America, N.A.

   $ 100,000,000.00

The Bank of New York

   $ 100,000,000.00

JPMorgan Chase Bank, N.A.

   $ 90,000,000.00

US Bank, National Association

   $ 90,000,000.00

Wachovia Bank, National Association

   $ 90,000,000.00

Morgan Stanley Bank

   $ 70,000,000.00

Fifth Third Bank

   $ 50,000,000.00

UBS Loan Finance LLC

   $ 50,000,000.00

Union Bank of California, N.A.

   $ 50,000,000.00

Citibank, N.A.

   $ 40,000,000.00

Comerica Bank

   $ 40,000,000.00

Wells Fargo Bank, National Association

   $ 40,000,000.00

M&I Marshall & Ilsley Bank

   $ 30,000,000.00

National City Bank

   $ 30,000,000.00

The Northern Trust Company

   $ 30,000,000.00

TOTAL

   $ 900,000,000.00
      


KOHL’S EXHIBIT B

FORM OF NOTE

 

                     , 2006      
New York, New York

FOR VALUE RECEIVED, the undersigned, KOHL’S CORPORATION, a Wisconsin corporation (the “Borrower”), hereby promises to pay to the order of              (the “Lender”) the unpaid principal amount of the Loans made by the Lender, and to pay interest from the date hereof on the principal balance thereof from time to time outstanding, at the rate or rates, and at the times, set forth in the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), in each case at the office of the Administrative Agent located at One Wall Street, New York, New York, or at such other place as the Administrative Agent may specify from time to time, in lawful money of the United States of America in immediately available funds.

Capitalized terms used herein which are not otherwise defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.

The Loans evidenced by this Note are prepayable in the amounts and under the circumstances, and its maturity is subject to acceleration upon the terms, set forth in the Credit Agreement. This Note is one of the Notes under, and as such term is defined in, the Credit Agreement, and is subject to, and should be construed in accordance with, the provisions thereof, and is entitled to the benefits and security set forth in the Loan Documents.

The Lender is hereby authorized to record on the schedule annexed hereto, and any continuation sheets which the Lender may attach hereto, (i) the date and amount of each Loan made by the Lender, (ii) the character thereof as a Revolving Credit Loan (and whether an ABR Advance, a Eurodollar Advance, or a combination thereof), a Competitive Bid Loan or a Swing Line Loan, (iii) the interest rate (without regard to the Applicable Margin) and Interest Period (if any) applicable thereto, and (iv) the date and amount of each conversion of, and each payment or prepayment of principal of, any such Loan. No failure to so record or any error in so recording shall affect the obligation of the Borrower to repay the Loans, together with interest thereon, as provided in the Credit Agreement, and the outstanding principal balance of the Loans made by the Lender as set forth in such schedule shall be presumed to be correct absent manifest error.

 

1


Except as specifically otherwise provided in the Credit Agreement, the Borrower hereby waives presentment, demand, notice of dishonor, protest, notice of protest and all other demands, protests and notices in connection with the execution, delivery, performance, collection and enforcement of this Note.

Whenever in this Note either party hereto is referred to, such reference shall be deemed to include the successors and assigns of such party. The Borrower shall not have the right to assign its rights or obligations hereunder or any interest herein (and any such attempted assignment shall be void), except as expressly permitted by the Loan Documents. No failure or delay of the Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. Neither this Note nor any provision hereof may be waived, amended or modified, nor shall any departure therefrom be consented to, except pursuant to a written agreement entered into between the Borrower and the Lender with respect to which such waiver, amendment, modification or consent is to apply, subject to any consent required in accordance with Section 11.1 of the Credit Agreement.

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.

All communications and notices hereunder shall be in writing and given as provided in Section 11.2 of the Credit Agreement.

The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Note or the other Loan Documents, or for recognition or enforcement of any judgment, and the Borrower hereby irrevocably and unconditionally agrees that, to the extent permitted by applicable law, all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the extent permitted by applicable law, in such Federal court. The Borrower, and by accepting this Note, the Lender, agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Note shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Note or the other Loan Documents against the Borrower, or any of its property, in the courts of any jurisdiction.

The Borrower, and by accepting this Note, the Lender, hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Note or the other Loan Documents in any court referred to in the preceding paragraph hereof. The Borrower, and by accepting this Note, the Lender, hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

 

2


The Borrower, and by accepting this Note, the Lender, irrevocably consents to service of process in the manner provided for notices herein. Nothing herein will affect the right of the Borrower to serve process in any other manner permitted by law.

THE BORROWER, AND BY ACCEPTING THIS NOTE, THE LENDER, HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT SUCH LENDER HAS BEEN INDUCED TO ACCEPT THIS NOTE AND ENTER INTO THE LOAN DOCUMENTS TO WHICH IT IS A PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.

 

KOHL’S CORPORATION
By:  

 

Name:  

 

Title:  

 

 

3


SCHEDULE TO

NOTE

 

Date   Type of
Loan/Advance
  Amount   Amount of
principal
converted, paid
or prepaid
  Interest Rate   Interest Period   Notation Made by

 

4


KOHL’S EXHIBIT C-1

FORM OF BORROWING REQUEST

[Date]

The Bank of New York, as

Administrative Agent

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention: Susan E. Baratta

The Bank of New York, as

Administrative Agent

One Wall Street

New York, New York 10286

Attention: William M. Barnum

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

1. Pursuant to Section 2.5 of the Credit Agreement, the Borrower hereby gives notice of its intention to borrow Revolving Credit Loans and/or Swing Line Loans in an aggregate principal amount of $             on                 , 20     which borrowing(s) shall consist of the following Advances and/or Swing Line Loans:

A) Revolving Credit Loans:

Type of Advance
(Eurodollar and/or

or ABR Advance)

  Amount Advances  

Initial Interest

Period for
Eurodollar
Advances

    Advances   $                    months [days]
    Advances   $                    months [days]
    Advances   $                    months [days]


B) Swing Line Loans:

Amount   Swing Line
Interest Period
  [Requested Negotiated Rate]  
$                            days     .     %
$                            days     .     %
$                            days     .     %

2. The Borrower hereby certifies that on the date hereof and on the Borrowing Date set forth above, and after giving effect to the Loans requested hereby (i) there exists and shall exist no Default or Event of Default, and (ii) each of the representations and warranties contained in each Loan Document (other than that contained in the last sentence of Section 4.9 of the Credit Agreement) is and shall be true and correct, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct at such earlier date.

 

2


IN WITNESS WHEREOF, the Borrower has caused this Borrowing Request to be duly executed as of the date and year first written above.

 

KOHL’S CORPORATION
By:  

 

Name:  

 

Title:  

 


KOHL’S EXHIBIT C-2

FORM OF LETTER OF CREDIT REQUEST

[Date]

The Bank of New York, as

Administrative Agent

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention: Susan E. Baratta

The Bank of New York, as

Administrative Agent

One Wall Street

New York, New York 10286

Attention: William M. Barnum

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

1. Pursuant to Sections 2.10 and 6.2 of the Credit Agreement, the Borrower hereby requests that [            ], as an Issuing Bank issue a Letter of Credit on                      , 20     (the “Borrowing Date”), in accordance with the information annexed hereto (attach additional sheets if necessary).

2. The Borrower hereby certifies that on the date hereof and on the Borrowing Date set forth above, and after giving effect to the Letters of Credit requested hereby and any Loans made on the requested Borrowing Date (i) there exists and shall exist no Default or Event of Default, (ii) each of the representations and warranties contained in each Loan Document (other than that contained in the last sentence of Section 4.9 of the Credit Agreement) is and shall be true and correct, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct at such earlier date.


IN WITNESS WHEREOF, the Borrower has caused this Letter of Credit Request to be duly executed as of the date and year first written above.

 

KOHL’S CORPORATION

By:

 

 

Name:

 

 

Title:

 

 

 

2


LETTER OF CREDIT INFORMATION

 

1.        Name of Beneficiary: ___________________________________.
2.    Address of Beneficiary to which Letter of Credit will be sent: ______________________
   ___________________________________.
3    Obligations in respect of which the Letter of Credit is to be issued: ___________________
   ___________________________________.
4.    Conditions under which a drawing may be made (specify any documentation required to be delivered with any drawing request): _________________________________.
5.    Maximum amount to be available under such Letter of Credit: $             .
6.    Requested date of issuance:                          ,         .
7.    Requested date of expiration:                          ,         .

 

3


KOHL’S EXHIBIT D

FORM OF NOTICE OF CONVERSION

[Date]

The Bank of New York, as

Administrative Agent

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention: Susan E. Baratta

The Bank of New York, as

Administrative Agent

One Wall Street

New York, New York 10286

Attention: William M. Barnum

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

1. Pursuant to Section 3.3 of the Credit Agreement, the Borrower hereby gives notice of its request to convert Advances as set forth below:

[(a) on                  ,         , to convert $             in principal amount of presently outstanding Eurodollar Advances having an Interest Period that expires on                      ,              to ABR Advances;

(b) on                  ,         , to convert $             in principal amount of presently outstanding Eurodollar Advances having an Interest Period that expires on                      ,          to new Eurodollar Advances that have an initial Interest Period of      months; and

(c) on                  ,         , to convert $             in principal amount of presently outstanding ABR Advances to Eurodollar Advances that have an initial Interest Period of      months.]


2. The Borrower hereby certifies that on the date hereof and on the requested Conversion Dates set forth above, there exists and there shall exist no Default or Event of Default.

IN WITNESS WHEREOF, the Borrower has caused this Notice of Conversion to be duly executed as of the date and year first written above.

 

KOHL’S CORPORATION

By:

 

 

Name:

 

 

Title:

 

 


KOHL’S EXHIBIT E

FORM OF COMPLIANCE CERTIFICATE

I,                     , do hereby certify that I am the              of Kohl’s Corporation (the “Borrower”), and that, as such, I am duly authorized to execute and deliver this Compliance Certificate on the Borrower’s behalf pursuant to Section 7.1(c) of the Credit Agreement, dated as of October __, 2006, among the Borrower, the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agents, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

I hereby certify that:

1. The Leverage Ratio as of the fiscal quarter ended was   .    :1.00, calculated as set forth on Schedule 1.

2. There exists no violation of any covenant or agreement contained in any Loan Document, and no condition or event has occurred which would constitute a Default under the Credit Agreement[, EXCEPT AS FOLLOWS]:

[SPECIFY ALL SUCH VIOLATIONS, CONDITIONS AND EVENTS AND THE NATURE AND STATUS THEREOF].

IN WITNESS WHEREOF, I have executed this Compliance Certificate on this      day of                     ,         .


Schedule 1 to Compliance Certificate

dated     /    /    

CALCULATION OF THE LEVERAGE RATIO

 

INCLUDED INDEBTEDNESS
   A.    Consolidated Indebtedness    $             
   B.    Permitted exclusions for L/C obligations    $             
   C.    Permitted exclusions for unamortized debt discount    $             
            
   D.    Sub-total (A - B - C)    $             
   E.    Rent x 8    $             
            
   F.    Included Indebtedness (D + E)    $             
CAPITALIZATION
   G.    Net Worth    $             
   H.    Investments    $             
            
   I.    Sub-total (G - H)    $             
   J.    Included Indebtedness (from F, above)    $             
            
   K.    Capitalization (I + J)    $             
   Leverage Ratio as of the Fiscal Quarter End        .    :1.00
   Maximum permitted Leverage Ratio pursuant to Section 7.8(a) of the Credit Agreement      0.70:1.00


KOHL’S EXHIBIT G

FORM OF REVOLVING CREDIT INCREASE SUPPLEMENT

SUPPLEMENT, dated as of                 , 20     to Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”).

Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

1. The Borrower hereby proposes to increase (the “Increase”) the Aggregate Revolving Credit Commitment Amount from $             to $            .

2. The following undersigned Lender(s) have been invited by the Borrower, and are ready, willing and able, to increase the amount of their respective Revolving Credit Commitment Amounts as follows:

 

Revolving Credit Commitment Amount

(after giving effect to the Increase)

   Name of Lender

 

 

3. The following undersigned Proposed Lender(s) have been invited by the Borrower to, and are ready, willing and able to, become “Lenders” and extend a Revolving Credit Commitment under the Agreement as follows:

 

Revolving Credit Commitment Amount

(after giving effect to the Increase)

   Name of Lender

 

 

4. The proposed effective date for the Increase is             , 20    .

5. The Borrower hereby represents and warrants to the Administrative Agent, each Issuing Bank, each Swing Line Lender, each Lender and each Proposed Lender as follows:

(a) immediately before and after giving effect to the Increase no Default or Event of Default shall exist, and


(b) the sum of the Aggregate Revolving Credit Commitment Amount, immediately after giving effect to the Increase, shall not exceed $1,100,000,000

6. Attached hereto is a revised Exhibit A, after giving effect to the Increase, listing each Lender’s Revolving Credit Commitment Amount.

7. Pursuant to Section 2.7(c) of the Credit Agreement, by execution and delivery of this Supplement, together with the satisfaction of all of the other requirements set forth in Section 2.7(c), each undersigned Lender and Proposed Lender (i) shall have, on and as of the effective date of the Increase, a Revolving Credit Commitment Amount equal to the amount set forth next to its name on the revised Exhibit A attached hereto and (ii) in the event it is a Proposed Lender, shall be, and shall be deemed to be, a “Lender” under, and as such term is defined in, the Agreement and shall have made, and shall be deemed to have made, the representations, warranties and covenants of a Lender contained in the Agreement on and as of the date hereof.

 

KOHL’S CORPORATION

By:

 

 

Name:

 

 

Title:

 

 

THE BANK OF NEW YORK,

as Administrative Agent

By:

 

 

Name:

 

 

Title:

 

 


[EXISTING LENDER INCREASING ITS

REVOLVING CREDIT COMMITMENT AMOUNT]

 

By:

 

 

Name:

 

 

Title:

 

 

[PROPOSED LENDER]

 

By:

 

 

Name:

 

 

Title:

 

 

 

Applicable

Lending

Office for

ABR Advances

 

Applicable

Lending Office

for Eurodollar

Advances

 

Address

for Notices

 

 

 

 

 

 

 

 

 

 

Attention:

  Attention:   Attention:

Telephone:

  Telephone:   Telephone:

Facsimile:

  Facsimile:   Facsimile:


KOHL’S EXHIBIT H

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

This Assignment and Assumption Agreement (the “Assignment and Assumption Agreement”) is dated as of the Effective Date set forth below and is entered into by and between the Assignor identified in item 1 below (the “Assignor”) and the Assignee identified in item 2 below (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption Agreement as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including without limitation any Letters of Credit, guarantees, and Swing Line Loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by the Assignor to the Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Each such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption Agreement, without representation or warranty by the Assignor.

 

1.       Assignor:    ___________________________________
     ___________________________________
2.   Assignee:    ___________________________________
     ___________________________________
3.   Borrower:    Kohl’s Corporation
4.   Administrative Agent:    The Bank of New York, as the Administrative Agent under the Credit Agreement


5.        Credit Agreement:    The Credit Agreement dated as of October 12, 2006 among Kohl’s Corporation, the Lenders parties thereto, Bank of America, N.A., as an Issuing Bank and the Syndication Agent, JP Morgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents and The Bank of New York, as an Issuing Bank, the Swing Line Lender and the Administrative Agent
6.    Assigned Interest:   

 

Assignor   Assignee   Facility
Assigned
 

Aggregate
Amount of
Commitment/

Loans for all
Lenders

 

Amount of
Commitment/

Loans
Assigned

  Percentage
Assigned of
Commitment/Loans
  CUSIP
Number
      $   $   %  
      $   $   %  
      $   $   %  

 

[7.        Trade Date:    ___________________]

Effective Date:                          , 20     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption Agreement are hereby agreed to:

 

ASSIGNOR

[NAME OF ASSIGNOR]

By:

 

 

Name:

 

 

Title:

 

 

ASSIGNEE

[NAME OF ASSIGNEE]

By:

 

 

Name:

 

 

Title:

 

 

 

2


[CONSENTED TO1]

KOHL’S CORPORATION

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

THE BANK OF NEW YORK, as
Administrative Agent

By:

 

 

Name:

 

 

Title:

 

 

 

[NAME OF ISSUING BANK OR SWING LINE LENDER AS APPLICABLE]

By:

 

 

Name:

 

 

Title:

 

 

 


1 Such consents shall be required to the extent provided in the Credit Agreement.

 

3


ANNEX 1

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION AGREEMENT

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption Agreement and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption Agreement and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 11.6(b) of the Credit Agreement (subject to such consents, if any, as may be required under Section 11.6(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 7.1 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption Agreement and to purchase the Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption Agreement and to purchase the Assigned Interest, and (vii) if it is a Foreign Lender, attached to the Assignment and Assumption Agreement is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the 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 the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.


2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignee whether such amounts have accrued prior to, on or after the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves.

3. General Provisions. This Assignment and Assumption Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption Agreement may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption Agreement. This Assignment and Assumption Agreement shall be governed by, and construed in accordance with the law of the State of New York.

 

2


KOHL’S EXHIBIT I

FORM OF COMPETITIVE BID REQUEST

[Date]

The Bank of New York, as

Administrative Agent

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention: Susan E. Baratta

The Bank of New York, as

Administrative Agent

One Wall Street

New York, New York 10286

Attention: William M. Barnum

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co-Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

1. Pursuant to Section 2.6 of the Credit Agreement, the Borrower hereby gives notice of the Borrower’s request to borrow Competitive Bid Loans in the aggregate sum of $             on             , 20     which borrowing shall consist of the following Competitive Interest Periods and amounts corresponding thereto:

 

Competitive

Interest Period

  

Amount

     days    $            
     days    $            
     days    $            

 

1


2. The Borrower hereby certifies that on the date hereof and on the Borrowing Date set forth above, and after giving effect to the Competitive Bid Loans requested hereby (i) there exists and shall exist no Default or Event of Default, and (ii) each of the representations and warranties contained in each Loan Document is and shall be true and correct, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties were true and correct at such earlier date.

IN WITNESS WHEREOF, the Borrower has caused this Competitive Bid Request to be duly executed as of the date and year first written above.

 

KOHL’S CORPORATION

By:

 

 

Name:

 

 

Title:

 

 

 

2


KOHL’S EXHIBIT J

FORM OF INVITATION TO BID

[Date]

To the Lenders under the

Credit Agreement referred to below

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co- Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

Pursuant to a Competitive Bid Request, dated             , 20     the Borrower gave notice of its request to borrow Competitive Bid Loans in the aggregate sum of $             on             , 20     which borrowing would consist of the following:

 

Competitive

Interest Period

  

Amount

     days    $            
     days    $            
     days    $            

The Lenders are hereby invited to bid, pursuant to the terms and conditions of the Credit Agreement, on such requested Competitive Bid Loans.

 

Very truly yours,

THE BANK OF NEW YORK,

as Administrative Agent

By:  

 

Name:  

 

Title:  

 


KOHL’S EXHIBIT K

FORM OF COMPETITIVE BID

[Date]

The Bank of New York, as

Administrative Agent

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention: Susan E. Baratta

The Bank of New York, as

Administrative Agent

One Wall Street

New York, New York 10286

Attention: William M. Barnum

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association, as Co- Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

In response to the Competitive Bid Request, dated            , 20     the undersigned Lender hereby offers to make Competitive Bid Loans in the aggregate sum of $             on             , 20     which borrowing shall consist of the following Competitive Interest Periods and the amounts and Competitive Bid Rates corresponding thereto:

 

Competitive

Interest Period

  

Amount

  

Competitive Bid Rate

     days    $                    .    %
     days    $                    .    %
     days    $                    .    %

 

1


Very truly yours,
[LENDER]

By:

 

 

Name:

 

 

Title:

 

 

 

2


KOHL’S EXHIBIT L

FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER

[Date]

The Bank of New York, as

Administrative Agent

One Wall Street

Agency Function Administration

18th Floor

New York, New York 10286

Attention: Susan E. Baratta

The Bank of New York, as

Administrative Agent

One Wall Street

New York, New York 10286

Attention: William M. Barnum

Reference is made to the Credit Agreement, dated as of October 12, 2006, among Kohl’s Corporation (the “Borrower”), the Lenders party thereto, Bank of America, N.A., as an Issuing Bank and as the Syndication Agent, JPMorgan Chase Bank, N.A., U.S. Bank, National Association and Wachovia Bank, National Association as Co- Documentation Agents, and The Bank of New York, as an Issuing Bank, the Swing Line Lender, and as Administrative Agent (as the same may be amended, supplemented or otherwise modified from time to time, the “Credit Agreement”). Capitalized terms used herein that are defined in the Credit Agreement shall have the meanings therein defined.

Pursuant to Section 2.6(d) of the Agreement, the Borrower hereby gives notice of its acceptance of the following Competitive Bids and its rejection of all other Competitive Bids, in each case made pursuant to the Competitive Bid Request, dated              20    :

Competitive

 

Competitive

Lender

  Amount   Interest Period   Competitive Bid Rate  
__________   $                     days       .     %
__________   $                     days       .     %
__________   $                     days       .     %

 

1


IN WITNESS WHEREOF, the Borrower hereby has caused this Competitive Bid Accept/Reject Letter to be duly executed as of the date and year first written above.

 

KOHL’S CORPORATION

By:

 

 

Name:

 

 

Title:

 

 

 

2


SCHEDULE 1.1

Existing Letters of Credit

None


SCHEDULE 4.4

List of Litigation

None


SCHEDULE 4.8

List of Existing Pension Plans

None


SCHEDULE 8.2

List of Liens

None


SCHEDULE 8.9

List of Existing Restrictive Agreements

None

Employment Agreement between Kohl's Dept. Stores and Thomas Kingsbury

Exhibit 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is executed as of this 1st day of August, 2006, by and between Kohl’s Department Stores, Inc. (“Company”) and Thomas Kingsbury (“Employee”).

RECITALS

The Company desires to employ Employee, and Employee desires to be employed by the Company, on the terms and conditions set forth herein.

The parties believe it is in their best interests to make provision for certain aspects of their relationship during and after the period in which Employee is employed by the Company.

NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Company and Employee (“Parties”), the Parties agree as follows:

ARTICLE I

EMPLOYMENT

1.1 Term of Employment. The Company employs Employee, and Employee accepts employment by the Company, for the three (3) year period commencing on August 1, 2006 (“Initial Term”), subject to earlier termination as hereinafter set forth in Article IV, below. This Agreement shall be automatically extended for one (1) day each day during the term (collectively, “Renewal Terms”; individually, “Renewal Term”) unless either party shall give the other with a written notice of intention not to renew, in which case this Agreement shall terminate as of the end of the Initial Term or said Renewal Term, as applicable. If this Agreement is extended, the terms of this Agreement during such Renewal Term shall be the same as the terms in effect immediately prior to such extension (including the early termination provisions set forth in Article IV, below), subject to any such changes or modifications as mutually may be agreed between the Parties as evidenced in a written instrument signed by both the Company and Employee. If Employee’s employment is terminated for any reason specified in Section 4.1, below, after either party has provided a notice of non-renewal under this Section 1.1, such termination will be treated as a termination under the applicable provision of Section 4.1 and not as a termination due to non-renewal under this Section 1.1.

1.2 Position and Duties. Employee shall be employed in the position of Senior Executive Vice President—Principal, and shall be subject to the authority of, and shall report to, the Company’s Chief Executive Officer (“CEO”) and/or Board of Directors (“Board”). Employee’s duties and responsibilities shall include all those customarily attendant to the position of Senior Executive Vice President - Principal and such other duties and responsibilities as may be assigned from time to time by the Company’s CEO and/or Board. Employee shall devote Employee’s entire business time, attention and energies exclusively to the business interests of the Company while employed by the Company except as otherwise specifically approved in writing by the Company’s


CEO and/or Board. During the Initial Term and any Renewal Term, Employee may not participate on the board of directors or any similar governing body of any for-profit entity other than the Company, unless first approved in writing by the Company’s Board.

ARTICLE II

COMPENSATION AND OTHER BENEFITS

2.1 Base Salary. During the Initial Term and any Renewal Term, the Company shall pay Employee an annual base salary as described in Exhibit A (a copy of which is attached hereto and incorporated herein), payable in accordance with the normal payroll practices and schedule of the Company (“Base Salary”). The Base Salary shall be subject to adjustment from time to time as determined by the Board.

2.2 Benefit Plans and Fringe Benefits. During the Initial Term or any Renewal Term, Employee will be eligible to participate in the plans, programs and policies including, without limitation, group medical insurance, fringe benefits, paid vacation, expense reimbursement and incentive pay plans, which the Company makes available to senior executives of the Company in accordance with the eligibility requirements, terms and conditions of such plans, programs and policies in effect from time to time. Employee acknowledges and agrees that the Company may amend, modify or terminate any of such plans, programs and policies at any time at its discretion.

2.3 Equity Plans or Programs. During the Initial Term or any Renewal Term, Employee may be eligible to participate in stock option, phantom stock, restricted stock or other similar equity-incentive plans or programs which the Company may establish from time to time. The terms of any such plans or programs, and Employee’s eligibility to participate in them, shall be established by the Board at its sole discretion. Employee acknowledges and agrees that the Company may amend, modify or terminate any of such plans or programs at any time at its discretion.

ARTICLE III

RESTRICTED STOCK

Upon commencement of the Initial Term, Employee will be granted restricted stock of the Company pursuant to the terms of the Restricted Stock Agreement between Employee and the Company (a copy of which is attached hereto as Exhibit B and incorporated herein). Employee understands and acknowledges that his/her rights and obligations regarding the restricted stock granted to him/her under this Agreement are governed by the Restricted Stock Agreement executed herewith.

ARTICLE IV

TERMINATION

4.1 Right to Terminate; Automatic Termination.

(a) Termination Without Cause. Subject to Section 4.2, below, the Company may terminate Employee’s employment and all of the Company’s obligations under this Agreement at any time and for any reason.

 

2


(b) Termination For Cause. Subject to Section 4.2, below, the Company may terminate Employee’s employment and all of the Company’s obligations under this Agreement at any time for Cause (defined below) by giving notice to Employee stating the basis for such termination, effective immediately upon giving such notice or at such other time thereafter as the Company may designate. “Cause” shall mean any of the following: (i) Employee’s continuous failure to substantially perform Employee’s duties after a written demand for substantial performance is delivered to Employee that specifically identifies the manner in which the Company believes that Employee has not substantially performed his/her duties, and Employee has failed to demonstrate substantial efforts to resume substantial performance of Employee’s duties on a continuous basis within sixty (60) calendar days after receiving such demand; (ii) Employee’s violation of a material provision of “Kohl’s Ethical Standards and Responsibilities” which is materially injurious to the Company, monetarily or otherwise; (iii) any dishonest or fraudulent conduct which results, or is intended to result, in gain to Employee or Employee’s personal enrichment at the expense of the Company; (iv) any material breach of this Agreement by Employee after a written notice of such breach is delivered to Employee that specifically identifies the manner in which the Company believes that Employee has breached this Agreement, and Employee has failed to cure such breach within thirty (30) calendar days after receiving such demand; provided, however, that no cure period shall be required for breaches of Articles V, VI or VIII, below, of this Agreement; or (v) conviction of Employee, after all applicable rights of appeal have been exhausted or waived, of any crime that materially discredits the Company or is materially detrimental to the Company’s reputation or goodwill.

(c) Termination for Good Reason. Subject to Section 4.2, below, Employee may terminate Employee’s employment and all of the Company’s obligations under this Agreement at any time for Good Reason (defined below) by giving notice to the Company stating the basis for such termination, effective immediately upon giving such notice. “Good Reason” shall mean any of the following: (i) a material reduction in the Employee’s status, title, position, responsibilities or Base Salary; (ii) any material breach by the Company of this Agreement; (iii) any purported termination of the Employee’s employment for Cause which does not comply with the terms of this Agreement; or (iv) a mandatory relocation of Employee’s employment with the Company from the Milwaukee, Wisconsin area, except for travel reasonably required in the performance of Employee’s duties and responsibilities; provided, however, that no termination shall be for Good Reason until the Employee has provided the Company with written notice of the conduct alleged to have caused Good Reason and at least thirty (30) calendar days have elapsed and the Company has failed to demonstrate substantial efforts to cure any such alleged conduct after the Company’s receipt of such written notice from Employee.

(d) Termination by Death or Disability. Subject to Section 4.2, below, Employee’s employment and the Company’s obligations under this Agreement shall terminate automatically, effective immediately and without any notice being necessary, upon Employee’s death or a determination of Disability of Employee. For purposes of this Agreement, “Disability” means the inability of Employee, due to a physical or mental impairment, to perform the essential functions of Employee’s job with the Company, with or without a reasonable accommodation and such inability has or is reasonably anticipated to continue or has continued for a period of two hundred seventy (270) consecutive days or for a period or periods aggregating two hundred fifteen (215) business days in any consecutive twelve (12) month period. A determination of Disability

 

3


shall be made by the Company, which may, at its sole discretion, consult with a physician or physicians satisfactory to the Company, and Employee shall cooperate with any efforts to make such determination. Any such determination shall be conclusive and binding on the parties. Any determination of Disability under this Section 4.1(d) is not intended to alter any benefits any party may be entitled to receive under any disability insurance policy carried by either the Company or Employee with respect to Employee, which benefits shall be governed solely by the terms of any such insurance policy.

(e) Termination by Resignation. Subject to Section 4.2, below, Employee’s employment and the Company’s obligations under this Agreement shall terminate automatically, effective immediately upon Employee’s provision of written notice to the Company of Employee’s resignation from employment with the Company or at such other time as may be mutually agreed between the Parties following the provision of such notice.

4.2 Rights Upon Termination.

(a) Termination By Company for Cause, By Employee Other Than For Good Reason or By Employee’s Non-Renewal. If Employee’s employment is terminated by the Company pursuant to Section 4.1(b), above, by Employee pursuant to Section 4.1(e), above, or due to non-renewal by Employee pursuant to Section 1.1, above, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) any unpaid Base Salary with respect to the period prior to the effective date of termination together with payment of any vacation that Employee has accrued but not used through the date of termination (collectively “Final Pay”); (ii) reimbursement of expenses to which Employee is entitled under Section 2.2, above (“Final Expenses”); and (iii) Employee’s unpaid bonus, if any, attributable to any complete fiscal year of the Company ended before the date of termination (in the aggregate the “Accrued Benefits”). Any such bonus payment shall be made at the same time as any such bonus is paid to other similarly situated executives of the Company. Furthermore, under this Section 4.2(a), vesting of any Company stock options granted to Employee ceases on the date of termination, and any unvested stock options lapse and are forfeited immediately upon termination.

(b) Termination By Company’s Non-Renewal or Due to Employee’s Death. If Employee’s employment is terminated due to non-renewal by the Company pursuant to Section 1.1, above, or due to Employee’s death pursuant to Section 4.1(d), above, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Accrued Benefits; (ii) a share of any bonus attributable to the fiscal year of the Company during which the date of termination occurs determined as follows: the product of the average bonuses paid or payable, including any amounts that were deferred in respect of the three (3) fiscal years immediately preceding the fiscal year in which the termination occurs (the “Recent Average Bonus”) and (y) a fraction, the numerator of which is the number of days completed in the current fiscal year through the date of termination and the denominator of which is three hundred sixty-five (365) (the “Pro Rata Bonus”). Such bonus payments shall be made at the same time as any such bonuses are paid to other similarly situated executives of the Company. Employee shall also be entitled to a severance payment equal to fifty percent (50%) of Employee’s Base Salary payable for one (1) year following the date of termination pursuant to normal payroll practices. Furthermore, under this Section 4.2(b), vesting of any Company stock options granted to Employee prior to the date of

 

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termination shall continue as scheduled during the term of this Agreement, after which such vesting ceases, and any unvested stock options lapse and are forfeited; provided, however, that if Employee’s termination is due to Employee’s death, all Company stock options granted to Employee immediately vest upon the date of Employee’s death.

(c) Termination Due to Disability. If Employee’s employment is terminated due to Employee’s Disability pursuant to Section 4.1(d), above, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Accrued Benefits; (ii) the Pro Rata Bonus, plus; (iii) a Severance Benefit. Any such bonus payments shall be made at the same time as any such bonuses are paid to other similarly situated executives of the Company. For purposes of this Section 4.2(c), “Severance Benefit” means six (6) months of Base Salary, payable in equal installments during the six (6) month period following Employee’s exhaustion of any short-term disability benefits provided by the Company, in accordance with the normal payroll practices and schedule of the Company. The amount of such Severance Benefit shall be reduced by any compensation (including any payments from the Company or any benefit plans or program paid for by the Company, received by Employee under any disability plans, programs or policies offered by the Company) earned or received by Employee during the six (6) month period following the date of termination, or the six (6) month period during which Employee receives the Severance Benefit, and Employee agrees to reimburse the Company for the amount of any such reduction. Employee acknowledges and agrees that, upon the cessation, if any, of such Disability during the period of the payment of the Severance Benefit, he/she has an obligation to use his/her reasonable efforts to secure other employment consistent with Employee’s status and experience and that his/her failure to do so, as determined at the sole discretion of the Board, is a breach of this Agreement. Furthermore, under this Section 4.2(c), vesting of any Company stock options granted to Employee ceases on the date of termination, and any unvested stock options lapse and are forfeited immediately upon termination.

(d) Termination By Company Without Cause or By Employee for Good Reason.

i. No Change of Control. If Employee’s employment is terminated by the Company pursuant to Section 4.1(a), above, or by the Employee pursuant to Section 4.1(c), above, and such termination does not occur three (3) months prior to or within one (1) year after the occurrence of a Change of Control (defined below), Employee shall have no further rights against the Company hereunder, except for the right to receive (A) Accrued Benefits; (B) a Severance Payment (defined below); (C) the Pro Rata Bonus; provided, however, that such bonus payments shall be made at the same time as any such bonuses are paid to other similarly situated executives of the Company; (D) outplacement services from an outplacement service company of the Company’s choosing at a cost not to exceed Twenty Thousand Dollars ($20,000.00), payable directly to such outplacement service company (“Outplacement Services”); and (E) Health Insurance Continuation (defined below). For purposes of this Section 4.2(d)(i), “Severance Payment” means payment of Employee’s Base Salary for the remainder of the Initial Term or the then current Renewal Term, as applicable, pursuant to the normal payroll practices and schedule of the Company. The amount of such

 

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Severance Payment shall be reduced by any compensation earned or received by Employee from any source for service rendered during the remainder of the Initial Term or the then current Renewal Term, as applicable, and Employee agrees to reimburse the Company for any portion of the Severance Payments made to the extent of any such compensation, net of any taxes owed by employee on such compensation. Furthermore, under this Section 4.2(d)(i), vesting of any Company stock options granted to Employee prior to the date of termination shall continue as scheduled until the term of this Agreement expires, after which such vesting ceases and any unvested stock options lapse and are forfeited.

ii. Change of Control. If Employee’s employment is terminated by the Company pursuant to Section 4.1(a), above, or by the Employee pursuant to Section 4.1(c), above, and such termination occurs within three (3) months prior to or one (1) year after the occurrence of a Change of Control (defined below), Employee shall have no further rights against the Company hereunder, except for the right to receive (A) Accrued Benefits; (B) a Severance Payment (defined below); (C) the Pro Rata Bonus; provided, however, that such bonus payments shall be made at the same time as any such bonuses are paid to other similarly situated executives of the Company; (D) Health Insurance Continuation (defined below); and (E) Outplacement Services. For purposes of this Section 4.2(d)(ii), “Severance Payment” means an amount equal to the sum of (x) Employee’s Base Salary for the period of time equal to the longer of the remainder of the then current term of this Agreement or two and nine-tenths (2.9) years (“Severance Period”) plus (y) an amount equal to the average (calculated at the sole discretion of the Company) of the three (3) most recent annual incentive compensation plan payments, if any, paid to Employee prior to the effective date of termination multiplied times the number of incentive plan payments Employee would have received during the remainder of the then current term of this Agreement but not to exceed two and nine-tenths (2.9) years. If Employee received less than three (3) years’ incentive compensation, the Company shall, in good faith, calculate an appropriate average based on Employee’s tenure. Furthermore, under this Section 4.2(d)(ii), vesting of any Company stock options granted to Employee prior to termination shall occur immediately upon the date of termination.

iii. Definition – Change of Control. “Change of Control” means the occurrence of (1) the acquisition (other than from the Company) by any person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), other than the Company, a subsidiary of the Company or any employee benefit plan or plans sponsored by the Company or any subsidiary of the Company, directly or indirectly, of beneficial ownership (within the meaning of Exchange Act Rule 13d-3) of thirty-three percent (33%) or more of the then outstanding shares of common stock of the Company or voting securities representing thirty-three percent (33%) or more of the combined voting power of the Company’s then outstanding voting securities ordinarily entitled to vote in the election of directors unless the Incumbent Board (defined below), before such acquisition or within thirty (30) days thereafter, deems such acquisition

 

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not to be a Change of Control; or (2) individuals who, as of the date of this Agreement, constitute the Board (as of such date, “Incumbent Board”) ceasing for any reason to constitute at least a majority of such Board; provided, however, that any person becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the shareholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be for purposes of this Agreement, considered as though such person were a member of the Incumbent Board but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest which was (or, if threatened, would have been) subject to Exchange Act Rule 14a-12(c); or (3) the consummation of any merger, consolidation or share exchange of the Company with any other corporation, other than a merger, consolidation or share exchange which results in more than sixty percent (60%) of the outstanding shares of the common stock, and voting securities representing more than sixty percent (60%) of the combined voting power of then outstanding voting securities entitled to vote generally in the election of directors, of the surviving, consolidated or resulting corporation being then beneficially owned, directly or indirectly, by the persons who were the Company’s shareholders immediately prior to such transaction in substantially the same proportions as their ownership, immediately prior to such transaction, of the Company’s then outstanding Common Stock or then outstanding voting securities, as the case may be; or (4) the consummation of any liquidation or dissolution of the Company or a sale or other disposition of all or substantially all of the assets of the Company.

Following the occurrence of an event which is not a Change of Control whereby there is a successor company to the Company, or if there is no such successor whereby the Company is not the surviving corporation in a merger or consolidation, the surviving corporation or successor holding company (as the case may be), for purposes of this Agreement, shall thereafter be referred to as the Company.

iv. Definition – Health Insurance Continuation. For purposes of Section 4.2(d)(i), above, the term “Health Insurance Continuation” means that, if Employee (and Employee’s eligible dependents), following termination from employment under Section 4.2(d)(i), above, timely elects to participate in the Company’s group health insurance plans, the Company shall continue to provide Employee and Employee’s Eligible Dependents (as defined in the health insurance program of the Company from time to time (the “Program”) with health insurance and supplemental executive medical plan coverage. In the event of Employee’s death during such Health Insurance Continuation, such benefits shall continue to be provided to Employee’s Eligible Dependents, in each case for as long as each individual would have continued to qualify as an “Eligible Dependent” under the terms of the Program had the Employee been living. Such benefit shall continue to be provided as long as (i) such benefits are reasonably available to the Company with respect to Employee and Employee’s Eligible Dependents, as the case may be; and (ii) Employee and Employee’s Eligible

 

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Dependents, as the case may be, reimburse the Company for all premiums paid for Employee and Employee’s Eligible Dependents’ health benefits as determined by the Company in good faith from time to time. The Company shall provide Employee a quarterly invoice for such reimbursement and amounts due hereunder may be withheld from other amounts payable to Employee. The Health Insurance Continuation provided under this Section 4.2(d)(iv) will cease on the date on which Employee becomes eligible for health insurance coverage under another employer’s group health insurance plan and within five (5) calendar days of Employee becoming eligible for health insurance coverage under another employer’s group health insurance plan, Employee agrees to inform the Company of such fact in writing.

(e) Delay of Payments if Required by Section 409A. If amounts paid to Employee pursuant to any Subsection of Section 4.2 would be subject to a penalty under Section 409A of the Internal Revenue Code because Employee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i), such payments will be delayed until a date which is six (6) months after Employee’s termination of employment, at which point any such delayed payments will be paid to Employee in a lump sum.

4.3 Return of Records. Upon termination of employment, for whatever reason, or upon request by the Company at any time, Employee shall immediately return to the Company all documents, records, and materials belonging and/or relating to the Company, and all copies of all such materials. Upon termination of employment, for whatever reason, or upon request by the Company at any time, Employee further agrees to destroy such records maintained by Employee on Employee’s own computer equipment.

4.4 Release. As a condition to the receipt of any amounts or benefits after termination of employment for whatever reason, Employee, or his personal representative, shall be required to execute a written release agreement in a form satisfactory to the Company containing, among other items, a general release of claims against the Company.

4.5 Excise Tax Payments.

(a) Notwithstanding anything contained in this Agreement to the contrary, in the event any payment or distribution to or for the benefit of Employee, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise in connection with, or arising out of, his employment with the Company (a “Payment” or “Payments”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any interest or penalties are incurred by Employee with respect to such excise tax (such excise tax, together with any interest and penalties, are collectively referred to as the “Excise Tax”), then Employee shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

 

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(b) A determination shall be made as to whether and when Gross-Up Payment is required pursuant to this Paragraph 4.5 and the amount of such Gross-Up Payment, such determination to be made within fifteen (15) business days of the Termination Date, or such other time as requested by Company or Employee (provided Employee reasonably believes that any of the Payments may be subject to the Excise Tax). Such determination shall be made by a national independent accounting firm selected by Employee (the “Accounting Firm”). All fees, costs and expenses including, but not limited to, the cost of retaining experts of the Accounting Firm, shall be borne by Company and Company shall pay such fees, costs and expenses as they become due. The Accounting Firm shall provide to Company and Employee detailed supporting calculations acceptable to Employee. The Gross-Up Payment, if any, as determined pursuant to this Paragraph 4.5(b) shall be paid by Company to Employee within five (5) business days of the receipt of the Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is payable by Employee with respect to a Payment or Payments, it shall furnish Employee with an unqualified opinion that no Excise Tax will be imposed with respect to any such Payment or Payments. Any such initial determination by the Accounting Firm of the Gross-Up Payment shall be binding upon Company and Employee subject to the application of Paragraph 4.5(c), below.

(c) As a result of the uncertainty in the application of Sections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should not have been paid (an “Overpayment”) or a Gross-Up Payment (or a portion thereof) which should have been paid will not have been paid (an “Underpayment”). An Underpayment shall be deemed to have occurred upon notice (formal or informal) to Employee to Employee from any governmental taxing authority that the tax liability of Employee (whether in respect of the then current taxable year of Employee or in respect of any prior taxable year of Employee) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respect to which Company has failed to make a sufficient Gross-Up Payment. An Overpayment shall be deemed to have occurred upon a “Final Determination” (as hereinafter defined) that the Excise Tax shall not be imposed upon a Payment or Payments with respect to which Employee had previously received a Gross-Up Payment. A Final Determination shall be deemed to have occurred when Employee has received from the applicable governmental taxing authority a refund of taxes or other reduction in his tax liability by reason of the Overpayment and upon either (i) the date a determination is made by, or an agreement is entered into with, the applicable governmental taxing authority which finally and conclusively binds Employee and such taxing authority, or in the event a claim is brought before a court of competent jurisdiction, the date upon which a final determination has been made by such court and either all appeals have been taken and finally resolved, or the time for all appeals has expired; or (ii) the expiration of the statute of limitations with respect to Employee’s applicable tax return. If an Underpayment occurs, Employee shall promptly notify Company and Company shall pay to Employee at least five (5) business days prior to the date on which the applicable governmental taxing authority has requested payment, an additional Gross-Up Payment equal to the amount of the Underpayment plus any interest and penalties imposed on the Underpayment. If an Overpayment occurs, the amount of the Overpayment shall be treated as a loan by Company to Employee and Employee shall, within ten (10) business days of the occurrence of such Overpayment, pay to Company the amount of the Overpayment plus interest at an annual rate equal to the rate provided for in Section 1274(b)(2)(B) of the Code from the date the Gross-Up Payment (to which the Overpayment relates) was paid to Employee.

 

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(d) Notwithstanding anything contained in this Agreement to the contrary, in the event it is determined that an Excise Tax will be imposed on any Payment or Payments, Company shall pay to the applicable governmental taxing authorities as Excise Tax withholding, the amount of the Excise Tax that Company has actually withheld from the Payment or Payments.

ARTICLE V

CONFIDENTIALITY

5.1 Acknowledgments. Employee acknowledges and agrees that, as an integral part of its business, the Company has expended a great deal of time, money and effort to develop and maintain confidential, proprietary and trade secret information to compete against similar businesses and that this information, if misused or disclosed, would be harmful to the Company’s business and competitive position in the marketplace. Employee further acknowledges and agrees that in Employee’s position with the Company, the Company provides Employee with access to its confidential, proprietary and trade secret information, strategies and other confidential business information that would be of considerable value to competitive businesses. As a result, Employee acknowledges and agrees that the restrictions contained in this Article V are reasonable, appropriate and necessary for the protection of the Company’s confidential, proprietary and trade secret information.

5.2. Confidentiality Obligations. During the term of Employee’s employment under this Agreement, Employee will not directly or indirectly use or disclose any Confidential Information or Trade Secrets (defined below) except in the interest and for the benefit of the Company. After the termination, for whatever reason, of Employee’s employment with the Company, Employee will not directly or indirectly use or disclose any Trade Secrets unless such information ceases to be deemed a Trade Secret by means of one of the exceptions set forth in Section 5.3(c), below. For a period of two (2) years following termination, for whatever reason, of Employee’s employment with the Company, Employee will not directly or indirectly use or disclose any Confidential Information, unless such information ceases to be deemed Confidential Information by means of one of the exceptions set forth in Section 5.3(c), below.

5.3 Definitions.

(a) Trade Secret. The term “Trade Secret” shall have that meaning set forth under applicable law. This term is deemed by the Company to specifically include all Company-created computer source code and any confidential information received from a third party with whom the Company has a binding agreement restricting disclosure of such confidential information.

(b) Confidential Information. The term “Confidential Information” shall mean all non-Trade Secret or proprietary information of the Company which has value to the Company and which is not known to the public or the Company’s competitors, generally,

 

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including, but not limited to, new products, customer lists, pricing policies and strategies, employment records and policies, operational methods, marketing plans and strategies, advertising plans and strategies, product development techniques and plans, business acquisition and divestiture plans, resources, sources of supply, suppliers and supplier contractual relationships and terms, technical processes, designs, inventions, research programs and results, source code, short-term and long-range planning, projections, information systems, sales objectives and performance, profits and profit margins, and seasonal plans, goals and objectives.

(c) Exclusions. Notwithstanding the foregoing, the terms “Trade Secret” and “Confidential Information” shall not include, and the obligations set forth in this Article V shall not apply to, any information which: (i) can be demonstrated by Employee to have been known by Employee prior to Employee’s employment by the Company; (ii) is or becomes generally available to the public through no act or omission of Employee; (iii) is obtained by Employee in good faith from a third party who discloses such information to Employee on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (iv) is independently developed by Employee outside the scope of Employee’s employment without use of Confidential Information or Trade Secrets.

ARTICLE VI

RESTRICTED SERVICES OBLIGATION

6.1 Acknowledgments. Employee acknowledges and agrees that the Company is one of the leading retail companies in the United States, with department stores throughout the United States, and that the Company compensates executives like Employee to, among other things, develop and maintain valuable goodwill and relationships on the Company’s behalf (including relationships with customers, suppliers and vendors) and to maintain business information for the Company’s exclusive ownership and use. As a result, Employee acknowledges and agrees that the restrictions contained in this Article VI are reasonable, appropriate and necessary for the protection of the Company’s goodwill, customer, supplier and vendor relationships and confidential information and trade secrets. Employee further acknowledges and agrees that the restrictions contained in this Article VI will not pose an undue hardship on Employee or Employee’s ability to find gainful employment.

6.2 Restricted Services Obligation. For the one (1) year period following termination, for whatever reason, of Employee’s employment with the Company, Employee will not, directly or indirectly, provide Restricted Services (defined below) for or on behalf of any Competitive Business (defined below). During such one (1) year period, Employee also will not, directly or indirectly, provide any Competitive Business with any advice or counsel in the nature of the Restricted Services.

 

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6.3 Definitions. For purposes of this Article VI, the following are defined terms:

(a) Restricted Services. “Restricted Services” shall mean services of any kind or character comparable to those Employee provided to the Company during the eighteen (18) month period immediately preceding Employee’s last date of employment with the Company.

(b) Competitive Business. “Competitive Business” shall mean any entity (including related entities) that as of the time of the determination (i) generates, in the aggregate with its related entities, more than Five Hundred Million Dollars ($500,000,000) in annual revenues; and (ii) operates or owns a Retail Business. “Competitive Business” shall also include a business that provides a buying office or sourcing service to a Retail Business. “Retail Business” means any business or related businesses engaged in the sale of products at retail which derives at least twenty percent (20%) of its annual revenue from the sale of Goods in the United States and owns or operates retail stores located within twenty-five (25) miles of any store operated by Kohl’s Corporation or any of its subsidiaries.

(c) Goods. “Goods” means merchandise categories that comprise at least ten percent (10%) of the Company’s annual revenues during the twelve (12) months prior to Employee’s last date of employment with the Company.

ARTICLE VII

BUSINESS IDEAS; NON-DISPARAGEMENT

7.1 Assignment of Business Ideas. Employee shall immediately disclose to the Company a list of all inventions, patents, applications for patent, copyrights, and applications for copyright in which Employee currently holds an interest. The Company will own, and Employee hereby assigns to the Company, all rights in all Business Ideas. All Business Ideas which are or form the basis for copyrightable works shall be considered “works for hire” as that term is defined by United States Copyright Law. Any works that are not found to be “works for hire” are hereby assigned to the Company. While employed by the Company and for one (1) year thereafter, Employee will promptly disclose all Business Ideas to the Company and execute all documents which the Company may reasonably require to perfect its patent, copyright and other rights to such Business Ideas throughout the world. After Employee’s employment with the Company terminates, for whatever reason, Employee will cooperate with the Company to assist the Company in perfecting its rights to any Business Ideas including executing all documents which the Company may reasonably require.

7.2 Business Ideas. The term “Business Ideas” as used in this Agreement means all ideas, inventions, data, software, developments and copyrightable works, whether or not patentable or registrable, which Employee originates, discovers or develops, either alone or jointly with others while Employee is employed by the Company [and for one (1) year thereafter] and which are (a) related to any business known by Employee to be engaged in or contemplated by the Company, (b) originated, discovered or developed during Employee’s working hours during his employment with the Company, or (c) originated, discovered or developed in whole or in part using materials, labor, facilities, Confidential Information, Trade Secrets, or equipment furnished by the Company.

 

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7.3 Non-Disparagement. Employee agrees not to engage at any time in any form of conduct or make any statements or representations, or direct any other person or entity to engage in any conduct or make any statements or representations, that disparage, criticize or otherwise impair the reputation of the Company, its affiliates, parents and subsidiaries and their respective past and present officers, directors, stockholders, partners, members, agents and employees. Nothing contained in this Section 7.3 shall preclude Employee from providing truthful testimony or statements pursuant to subpoena or other legal process or in response to inquiries from any government agency or entity.

ARTICLE VIII

EMPLOYEE NON-SOLICITATION

During the term of Employee’s employment with the Company and for one (1) year thereafter, Employee shall not directly or indirectly encourage any Company employee to terminate his/her employment with the Company unless Employee does so in the course of performing his duties for the Company and such encouragement is in the Company’s best interests.

ARTICLE IX

GENERAL PROVISIONS

9.1 Notices. Any and all notices, consents, documents or communications provided for in this Agreement shall be given in writing and shall be personally delivered, mailed by registered or certified mail (return receipt requested) or sent by courier, confirmed by receipt, and addressed as follows (or to such other address as the addressed party may have substituted by notice pursuant to this Section 9.1):

 

  (a) If to the Company:  
  Kohl’s Department Stores, Inc.  
  N56 W17000 Ridgewood Drive  
  Menomonee Falls, WI 53051  
  Attn: Richard Schepp, General Counsel  
  (b) If to Employee:  
  Thomas Kingsbury  
 

 

 
 

 

 

Such notice, consent, document or communication shall be deemed given upon personal delivery or receipt at the address of the party stated above or at any other address specified by such party to the other party in writing, except that if delivery is refused or cannot be made for any reason, then such notice shall be deemed given on the third day after it is sent.

 

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9.2 Employee Disclosures and Acknowledgments.

(a) Prior Obligations. Attached as Exhibit C is a list of prior obligations (written and oral), such as confidentiality agreements or covenants restricting future employment or consulting, that Employee has entered into which may restrict Employee’s ability to perform Employee’s duties as an Employee for the Company.

(b) Confidential Information of Others. Employee certifies that Employee has not, and will not, disclose or use during Employee’s time as an employee of the Company, any confidential information which Employee acquired as a result of any previous employment or under a contractual obligation of confidentiality or secrecy before Employee became an employee of the Company.

(c) Scope of Restrictions. By entering into this Agreement, Employee acknowledges the nature of the Company’s business and the nature and scope of the restrictions set forth in Articles V, VI and VIII, above, including specifically Wisconsin’s Uniform Trade Secrets Act, presently § 134.90, Wis. Stats. Employee acknowledges and represents that the scope of such restrictions are appropriate, necessary and reasonable for the protection of the Company’s business, goodwill, and property rights. Employee further acknowledges that the restrictions imposed will not prevent Employee from earning a living in the event of, and after, termination, for whatever reason, of Employee’s employment with the Company. Nothing herein shall be deemed to prevent Employee, after termination of Employee’s employment with the Company, from using general skills and knowledge gained while employed by the Company.

(d) Prospective Employers. Employee agrees, during the term of any restriction contained in Articles V, VI and VIII, above, to disclose such provisions to any future or prospective employer. Employee further agrees that the Company may send a copy of this Agreement to, or otherwise make the provisions hereof known to, any such employer.

9.3 Effect of Termination. Notwithstanding any termination of this Agreement, the Employee, in consideration of his employment hereunder, shall remain bound by the provisions of this Agreement which specifically relate to periods, activities or obligations upon or subsequent to the termination of the Employee’s employment.

9.4 Confidentiality of Agreement. Employee agrees that, with the exception of disclosures pursuant to Section 9.2(d), above, Employee will not disclose, directly or indirectly, the terms of this Agreement to any third party; provided, however, that following Employee’s obtaining a promise of confidentiality for the benefit of the Company from Employee’s tax preparer, accountant, attorney and spouse, Employee may disclose the terms of this Agreement to such of these individuals who have made such a promise of confidentiality. This provision shall not prevent Employee from disclosing such matters in testifying in any hearing, trial or other legal proceeding where Employee is required to do so.

9.5 Cooperation. Employee agrees to take all reasonable steps during and after Employee’s employment with the Company to make himself/herself available to and to cooperate with the Company, at its request, in connection with any legal proceedings or other matters in which it is or may become involved. Following Employee’s employment with the

 

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Company, the Company agrees to pay reasonable compensation to Employee and to pay all reasonable expenses incurred by Employee in connection with Employee’s obligations under this Section 9.5.

9.6 Effect of Breach. In the event that Employee breaches any provision of this Agreement, Employee agrees that the Company may suspend all additional payments to Employee under this Agreement (including any Severance Payment), recover from Employee any damages suffered as a result of such breach and recover from Employee any reasonable attorneys’ fees or costs it incurs as a result of such breach. In addition, Employee agrees that the Company may seek injunctive or other equitable relief, without the necessity of posting bond, as a result of a breach by Employee of any provision of this Agreement.

9.7 Entire Agreement. This Agreement contains the entire understanding and the full and complete agreement of the Parties and supersedes and replaces any prior understandings and agreements among the Parties, with respect to the subject matter hereof.

9.8 Headings. The headings of sections and paragraphs of this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any of its provisions.

9.9 Consideration. Execution of this Agreement is a condition of Employee’s employment with the Company and Employee’s employment by the Company, and the benefits provided to Employee under this Agreement, constitute the consideration for Employee’s undertakings hereunder.

9.10 Amendment. This Agreement may be altered, amended or modified only in a writing, signed by both of the Parties hereto.

9.11 Assignability. This Agreement and the rights and duties set forth herein may not be assigned by Employee, but may be assigned by the Company, in whole or in part. This Agreement shall be binding on and inure to the benefit of each party and such party’s respective heirs, legal representatives, successors and assigns.

9.12 Severability. If any court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then such invalidity or unenforceability shall have no effect on the other provisions hereof, which shall remain valid, binding and enforceable and in full force and effect, and such invalid or unenforceable provision shall be construed in a manner so as to give the maximum valid and enforceable effect to the intent of the Parties expressed therein.

9.13 Waiver of Breach. The waiver by either party of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party.

9.14 Governing Law; Construction. This Agreement shall be governed by the internal laws of the State of Wisconsin, without regard to any rules of construction concerning the draftsman hereof.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written above.

 

KOHL’S DEPARTMENT STORES, INC.:
By:  

/s/ R. Lawrence Montgomery

  R. Lawrence Montgomery,
  Chief Executive Officer and Director
EMPLOYEE:
 

/s/ Thomas Kingsbury

  Thomas Kingsbury

 

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EXHIBIT A

BASE COMPENSATION

 

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EXHIBIT B

RESTRICTED STOCK AGREEMENT

 

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EXHIBIT C

PRIOR OBLIGATIONS

Employee is a party to an Employment Agreement with May Department Stores Company dated May 1, 1999, a copy of which has been previously provided to the Company, which contains certain restrictions on post-termination competition and confidentiality. This Agreement has been modified by agreement of the parties thereto such that the non-compete provisions expire effective August 1, 2006.

 

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Agreement between Kohl's Corp. and Arlene Meier dated 9/1/2006

Exhibit 10.3

AGREEMENT

This Agreement (“Agreement”) is made as of the last date set forth opposite any signature hereto between ARLENE MEIER (“Executive”), N53 W34378 Road Q, Okauchee, Wisconsin 53069, and KOHL’S DEPARTMENT STORES, INC. and KOHL’S CORPORATION (collectively, the Company”).

BACKGROUND

Executive and Company entered into an Employment Agreement dated as of November 15, 2000, as amended on January 31, 2004 (the Employment Agreement) whereby Company agreed to employ Executive as Chief Operating Officer, and Executive agreed to be employed by Company for a continuous three (3) year term;

Executive is a member of the Board of Directors of the Company (the “Directorship”);

Executive has expressed her desire to retire from her management positions with Company and from her Directorship. Both parties now desire to terminate the Employment Agreement and provide for an orderly separation;

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, the sufficiency of which is hereby acknowledged, the parties agree as follows:

AGREEMENT

1. RETIREMENT.

Notwithstanding any provision in the Employment Agreement, the date of Executive’s retirement as an employee of the Company shall be September 1, 2006 (the “Retirement Date). The date of Executive’s retirement from the Company’s Board of Directors shall be February 28, 2007. Executive hereby resigns from all management positions Executive held with Company and its affiliates, effective on the Retirement Date. Executive hereby resigns from her Directorship, effective on February 28, 2007. Company hereby accepts these resignations.

 

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Subject to and conditional upon Executive executing this Agreement and not revoking her acceptance hereof within the timeframes specified below, the Employment Agreement is hereby terminated, cancelled, null and void and of no further force and effect, and the rights, duties and obligations of the parties shall be governed solely by this Agreement.

2. BENEFITS TO EXECUTIVE.

Subject to and conditional upon Executive executing this Agreement and not revoking her acceptance hereof within the timeframes specified below, Company agrees to provide Executive with the following benefits:

 

  A. Income Payments. On March 15, 2007, Company shall pay Executive one lump sum payment in the gross amount of Eight Hundred Eighty Thousand Dollars ($880,000) (the “Income Payment”). The Income Payment shall be subject to applicable federal, state and local withholding or charges which Company is required to deduct under applicable law, and as Executive has elected. Executive shall be entitled to no additional compensation for any other time, including vacation time.

 

  B. Long-Term Compensation Plans. The Retirement Date shall be Executive’s last day of employment for purposes of vesting of stock options granted under the Companys Long-Term Incentive Plans. All of Executives outstanding option grants shall cease to vest after the Retirement Date. For a period of one year following the Retirement Date, Executive shall retain the right to exercise all non-expired stock options in which Executive is vested as of the Retirement Date. All of Executive’s stock options shall be terminated, cancelled, null, void and of no further force and effect upon the one-year anniversary of the Retirement Date. Company shall award no additional stock options to Executive on or after Retirement Date.

 

  C.

Savings Plan. Company maintains the Kohl’s Savings Plan (the 401(k) Plan) for the benefit of eligible associates. The 401(k) Plan is composed of two (2) accounts for each eligible associate: (i) a savings account to which eligible associates are permitted to make voluntary contributions which are matched by

 

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Company as provided in the 401(k) Plan; and (ii) a retirement account to which Company makes contributions to eligible associates. In the event Executive has an interest in Company’s 401(k) Plan, Executive’s interest is subject to the terms and conditions of the 401(k) Plan in effect from time to time. Executive authorizes Company to discontinue Executive’s voluntary contributions to Executive’s savings account in the 401(k) Plan, effective as of Retirement Date and Company shall make no additional matching contributions to Executive’s savings account in the 401(k) Plan effective on or after Retirement Date. Executive understands that Company shall make no distribution from Executive’s 401(k) Plan savings account on or prior to the Retirement Date. For purposes of Executive’s 401(k) Plan retirement account and matching contributions to Executive’s savings account, Company shall credit Executive with employment service commencing on the date Executive was hired by Company and ending on the Retirement Date in accordance with the 401(k) Plan terms and conditions.

 

  D. Deferred Compensation. In the event Executive has an interest in Company’s Deferred Compensation Plan (“Deferred Compensation Plan”), Executives interest is subject to the terms contained in the Deferred Compensation Plan.

 

  E. Medical Insurance. Company shall continue to provide Executive and Executive’s Eligible Dependents with health insurance and a supplemental executive medical plan with coverage for Executive and Executive’s Eligible Dependants (as defined in such insurance and medical plans), substantially the same as that covering the Executive and Executive’s Eligible Dependants as of the date of this Agreement (collectively the “Health Insurance Benefits”). In the event of Executive’s death, the Health Insurance Benefits shall continue to be provided to Executive’s Eligible Dependants, in each case for as long as each individual would have continued to qualify as an “Eligible Dependant” under the terms of the applicable insurance and medical plans had Executive been living, provided:

 

  (1) the Health Insurance Benefits are reasonably available to the Company with respect to Executive and Executive’s Eligible Dependants, as the case may be; and

 

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  (2) from and after the Retirement Date, Executive or Executive’s Eligible Dependants, as the case may be, shall reimburse the Company for all premiums paid for Executive’s retiree Health Insurance Benefits, as determined by the Company in good faith from time to time. The Company shall provide Executive a quarterly invoice for such reimbursement, and amounts due hereunder may be withheld from other amounts payable to Executive; and

 

  (3) Executive and Executive’s Eligible Dependants shall enroll in all applicable parts of Medicare upon attaining age 65. Medicare will become the primary health insurance, and the Health Insurance Benefits will serve as supplemental coverage.

 

  F. ESOP. In the event Executive has an interest in Companys Employee Stock Ownership Plan (“ESOP”), Executive’s interest is subject to the terms contained in the ESOP. Executive shall have the right to redeem all stock and receive prompt and full payment from the Company for the shares, pursuant to the terms of the ESOP.

 

  G. Bonus. Executive shall be entitled to a bonus pursuant to Company’s Executive Bonus Plan based on Company’s fiscal 2006 financial performance, as and when such payment shall have otherwise been payable, but in no event prior to March 15, 2007. Executive shall not be entitled to any bonus pursuant to Company’s Executive Bonus Plan based on Company’s performance in fiscal year 2007 or any subsequent year.

 

  H. Associate Discount. For the remainder of Executive’s life, Executive shall be entitled to participate in Company’s Associate Merchandise Discount Program, on such terms and to the extent such program continues to be made available to the Company’s senior executives.

I. Indemnification/D&O Coverage. Company shall indemnify and continue

 

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to provide Executive with directors’ and officers’ liability insurance coverage for events on or prior to Executive’s last day as an employee or director of the Company, on a basis no less favorable than that provided to any other senior executive officer of the Company.

Except as otherwise provided in this Agreement, all other Executive benefits shall cease as of the Retirement Date.

3. EXECUTIVE’S OBLIGATIONS.

 

  A. Waiver and General Release by Executive. In exchange for the benefits and payments to Executive described in this Agreement and to the extent permitted by law, Executive hereby waives and irrevocably and unconditionally releases, acquits, and fully and forever discharges Company, its related corporations and other businesses and each of their past, current and future agents, servants, officers, directors, stockholders, Executives, and attorneys and their respective successors and assigns (the “Released Parties”) from and against any and all claims, liabilities, debts, suits, demands, causes of action or controversies of any nature whatsoever, for all injuries, losses and damages (including, but not limited to, punitive damages) whether in law or in equity, contract or tort or whether judicial or administrative in nature, which arose prior to the time Executive signs this Agreement. This release covers claims, whether brought by or on behalf of Executive and whether asserted or unasserted, whether known or unknown or anticipated or unanticipated by Executive. Executive further covenants and agrees not to sue Company for any claims referred to in this paragraph. This release includes, but is not necessarily limited to:

1. Any and all liability of Company resulting from, arising out of, or connected with the employment relationship existing between Executive and Company or the termination of that relationship, including, but not necessarily limited to, any and all liability based on non-vested salary, vacation, or any other form of compensation or any and all liability related to the termination of the Employment Agreement.

2. To the extent any of the following statutes are applicable to

 

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Company, any and all liability of Company based on rights or claims arising under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Civil Rights Act of 1991, the Americans With Disabilities Act, the Rehabilitation Act of 1973, the Employee Retirement Income Security Act of 1974, the Fair Labor Standards Act, the National Labor Relations Act, the Labor Management Relations Act, the Federal Family and Medical Leave Act, the employment laws of the state in which Executive is employed by Company, and any other applicable federal, state, or local laws, regulations, and ordinances of any kind; and

3. Any and all liability of Company arising under any common law claims of wrongful discharge, breach of any express or implied contract, misrepresentation, defamation, interference with contract, intentional or negligent infliction of emotional distress, and any other tort and tort-type claims based on allegations of injury to Executives reputation and any other tort and tort-type personal injuries.

4. This release includes any and all matters in connection with or based wholly or partially upon, without limitation by enumeration, acts of age or other discrimination, libel, slander, interference with prospective business relationships, invasion of privacy, or failure to interview, hire or appoint, allegedly committed against Executive by Company, up to and including the date on which Executive signs this Agreement, whether such claims are known or unknown at the time Executive signs this Agreement.

This waiver, release and covenant not to sue does not apply to (i) any benefits under any Company retirement plan which vested as of the Retirement Date; (ii) any worker’s compensation claim Executive may have against Company; or (iii) any benefits to be provided under this Agreement. This release shall not relieve Executive from any obligations Executive may have now or may incur in the future on Executive’s Kohl’s retail charge account.

 

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  B. Forfeiture of Litigation Benefits. Executive agrees to waive any monetary or other benefits which may be conferred on Executive in any litigation brought against Company or any of the Released Parties respecting any claims waived or released hereunder.

 

  C. Non-Disparagement. Executive agrees not to disparage the reputation of the Company or any of the Company’s former or current officers, directors or other Executives.

 

  D. Non-Competition. Executive agrees that, for a period of two (2) years following the Retirement Date (the “Restricted Period”), she shall not either directly or indirectly, whether as agent, stockholder (except as the holder of not more than five percent (5%) of the stock of a publicly held company, provided Executive does not participate in the business of such company or render advice or assistance to it), employee, officer, director, trustee, partner, consultant, proprietor or otherwise:

 

  (1) Engage in, render advice or assistance to, or in any way be connected with any Competitive Entity (as hereinafter defined) located in the Restricted Area (as hereinafter defined).

 

  (2) Except on behalf of the Company, entice or attempt to entice any of the suppliers or customers of the Company, so as to cause, or attempt to cause, any of said suppliers or customers not to do business with the Company or to reduce or adversely change the nature of the business done with the Company.

 

  (3) For purposes of this Section 3(E), the following definitions shall apply:

 

  (a) A “Competitive Entity” shall be defined as any business, person, firm, association, partnership, corporation or other entity which (x) is engaged directly or indirectly in the retail department store business or (y) which competes with the business of the Company as such business is conducted from time to time during the course of Executive’s employment.

 

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  (b) The term “Restricted Area” shall be defined during Executive’s employment as fifty (50) miles from any store operated by the Company from time to time during the course of Executive’s employment, and after the termination of Executive’s employment it shall be defined as fifty (50) miles from any store operated by the Company during the one (1) year period prior to the Retirement Date.

4. ACCEPTANCE AND REVOCATION RIGHTS.

Company desires to ensure that Executive voluntarily agrees to the terms contained in this Agreement and does so only after Executive fully understands them. Accordingly, the following procedures shall apply:

 

  A. Executive agrees and acknowledges that Executive has read this Agreement, understands its contents, and may agree to the terms of this Agreement by signing and dating it and returning the signed and dated document, via mail, hand delivery, or overnight delivery, so that it is received by Telvin Jeffries, Executive Vice President, Human Resources, within 21 days from the date of Executive’s receipt;

 

  B. Executive agrees and acknowledges that Executive has been advised by Company to consult with an attorney prior to signing this Agreement;

 

  C. Executive understands that this agreement, at Paragraph 3, above, includes a final General Release, including a release of all claims under the Age Discrimination in Employment Act;

 

  D. Executive understands that Executive has seven (7) days after signing this Agreement to revoke her acceptance of it. This seven (7) day period is called the “Revocation Period”. Such revocation will not be effective unless written notice of the revocation is actually delivered via mail, hand delivery, or overnight delivery, to Telvin Jeffries on or before the end of the Revocation Period. If Executive gives timely notice of Executive’s intention to revoke Executive’s acceptance of the terms set forth in this Agreement, this Agreement shall become null and void, and all rights and claims of the parties which would have existed, but for the acceptance of this Agreement’s terms, shall be restored;

 

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  E. This document will not be binding or enforceable unless Executive has signed and delivered it as provided herein, and has not chosen to exercise Executive’s revocation rights, as described herein; and

 

  G. An executed original of this Agreement shall be returned to Telvin Jeffries, Executive Vice President, Human Resources, Kohl’s Department Stores, Inc., N56 W17000 Ridgewood Drive, Menomonee Falls, Wisconsin 53051.

5. REPRESENTATIONS OF EXECUTIVE.

Executive represents and warrants to Company that:

 

  A. Execution Date. Executive has executed this Agreement on the date set forth opposite Executive’s name on the signature page hereof; and

 

  B. Voluntary and Knowing. This Agreement has been carefully read by Executive following consultation with her legal counsel, and its contents are known and understood by Executive. Executive has signed this Agreement freely and voluntarily and intends to be bound by it.

6. NON-ADMISSION.

Neither the negotiations concerning this Agreement, nor the actual provision of consideration set forth in this document, nor Company’s drafting or execution of this document shall be construed as an acknowledgment or admission by Company of any liability to Executive or any other individual or entity or of any wrongdoing under federal, state or local law.

7. CONFIDENTIALITY.

Executive agrees that she will neither disclose, divulge, or communicate to anyone, including co-workers or the media, nor use in any way any of the Company’s trade secrets, practices, confidential records, employee lists, or any other non-public information or knowledge pertaining to the business of Company obtained by him during her employment with Company.

 

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8. ENTIRE AGREEMENT.

This Agreement constitutes the complete understanding between the parties concerning all matters affecting Executive’s employment with Company and the termination thereof and supersedes all prior agreements, understandings and practices concerning such matters, including, without limitation, any prior employment agreement Executive may have had with Company, the provisions of any Company personnel documents, handbooks or policies and any prior customs or practices of Company with respect to bonuses, severance pay, fringe benefits or otherwise.

9. NO PREVAILING PARTY DESIGNATION.

The parties agree that this Agreement shall not be construed to render Executive or Company a “prevailing party” within the meaning of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Fair Labor Standards Act, as amended, the laws of the State within which Executive resides or performs services for Company, Executive Retirement Income Security Act of 1974 (ERISA), as amended, or under any law, statute or ordinance allowing attorneys’ fees and/or costs to a party who “prevails” in any manner or sense, nor shall this Agreement be deemed to constitute a factor supporting an award of attorneys’ fees and/or costs under any law, statute or ordinance. Except as expressly provided herein, all parties are responsible for their own attorney’s fees in connection with the presentation and resolution of their disputes.

10. NO MODIFICATION.

No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer as may be specifically designated by Company.

11. FEES AND EXPENSES.

Each party hereto shall be solely responsible for its own legal, accounting and other professional fees and other expenses incurred in connection with the negotiation, preparation and exercising of this Agreement and the consummation of the transactions contemplated hereby.

 

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12. GOVERNING LAW, SUCCESSORS AND ASSIGNS.

This Agreement shall be governed and construed in accordance with the laws of Wisconsin without reference to the rules of conflict of law and shall be binding upon the parties hereto and their respective successors and assigns. Any action brought hereunder shall be prosecuted in the United States District Court for the Eastern District of Wisconsin or the Circuit Court of Waukesha County, Wisconsin.

13. SEVERABILITY.

If any provision of this Agreement shall under any circumstances be deemed invalid or inoperative, this Agreement shall be construed with the invalid or inoperative provisions deleted, and the rights and obligations of the parties shall be construed and enforced accordingly, provided that this provision shall not be construed to contemplate or permit restructuring of any restrictive covenant contained herein.

14. REMEDIES.

Executive expressly acknowledges and agrees that a violation of any of the covenants set forth in this Agreement will cause immediate and irreparable harm to the Company, and that if Executive shall engage in any acts in violation of this Agreement, Company shall be entitled, in addition to such other remedies and monetary damages as may be available to it, to an injunction prohibiting Executive from engaging in any such acts. Nothing in this paragraph shall be construed to prohibit Company from availing itself of any other remedy and the parties agree that all remedies available to Company are cumulative.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the last day, month and year below written.

 

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KOHL’S DEPARTMENT STORES, INC.    
KOHL’S CORPORATION    

September 1, 2006

   

/s/ R. Lawrence Montgomery

Date     R. Lawrence Montgomery
    Chairman of the Board
    Chief Executive Officer

August 31, 2006

   

/s/ Arlene Meier

Date     Arlene Meier

 

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Executive Compensation Agreement, dated October 6, 2006

Exhibit 10.4

EXECUTIVE COMPENSATION AGREEMENT

THIS EXECUTIVE COMPENSATION AGREEMENT (“Agreement”) is executed as of this 6th day of October, 2006, by and between Kohl’s Department Stores, Inc. (“Company”) and Wes McDonald (“Employee”).

RECITALS

Employee is employed as Executive Vice President and Chief Financial Officer and is a valuable employee of the Company. The Company and the Employee have agreed to make provision for certain aspects of their relationship during and after the period in which Employee is employed by the Company.

NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Company and Employee (“Parties”), the Parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 “Board” shall mean the Board of Directors of the Company.

1.2 “Cause” shall mean any of the following:

(i) Employee’s willful failure to substantially perform Employee’s duties after a written demand for performance is delivered to Employee that specifically identifies the manner in which the Company believes that Employee has not substantially performed his/her duties, and Employee has failed to demonstrate substantial efforts to resume performance of Employee’s duties on a continuous basis within thirty (30) calendar days after receiving such demand; provided, however, that failure to meet sales or financial performance objectives, by itself, will not constitute “Cause”;

(ii) Employee’s willful violation of a material provision of “Kohl’s Ethical Standards and Responsibilities” which is materially injurious to the Company, monetarily or otherwise. The term “willful” as used herein means any act or omission committed in bad faith or without a reasonable belief that the act or omission was in the best interest of the Company;


(iii) Any dishonest or fraudulent conduct by Employee which results, or is intended to result, in gain to Employee or Employee’s personal enrichment at the expense of the Company;

(iv) Any material breach of Articles IV, V, VI or VII, below of this Agreement by Employee; or

(v) Conviction of Employee, after all applicable rights of appeal have been exhausted or waived, of any crime that materially discredits the Company or is materially detrimental to the Company’s reputation or goodwill.

1.3 “Change of Control” means the occurrence of any of the following:

(i) the acquisition (other than from the Company) by any person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), other than the Company, a subsidiary of the Company or any employee benefit plan or plans sponsored by the Company or any subsidiary of the Company, directly or indirectly, of beneficial ownership (within the meaning of Exchange Act Rule 13d-3) of thirty-three percent (33%) or more of the then outstanding shares of common stock of the Company or voting securities representing thirty-three percent (33%) or more of the combined voting power of the Company’s then outstanding voting securities ordinarily entitled to vote in the election of directors unless the Incumbent Board (defined below), before such acquisition or within thirty (30) days thereafter, deems such acquisition not to be a Change of Control;

(ii) individuals who, as of the date of this Agreement, constitute the Board (as of such date, “Incumbent Board”) ceasing for any reason to constitute at least a majority of such Board; provided, however, that any person becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the shareholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be for purposes of this Agreement, considered as though such person were a member of the Incumbent Board but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest which was (or, if threatened, would have been) subject to Exchange Act Rule 14a-12(c);

(iii) the consummation of any merger, consolidation or share exchange of the Company with any other corporation, other than a merger, consolidation or share exchange which results in more than sixty percent (60%) of the outstanding shares of the common stock, and voting securities representing more than sixty percent (60%) of the combined voting power of then outstanding voting securities entitled to vote generally in the election of directors, of the surviving, consolidated or resulting corporation being then beneficially owned, directly or indirectly, by the persons who were the Company’s shareholders immediately prior to such transaction in substantially the same proportions as their ownership, immediately prior to such transaction, of the Company’s then outstanding Common Stock or then outstanding voting securities, as the case may be; or


(iv) the consummation of any liquidation or dissolution of the Company or a sale or other disposition of all or substantially all of the assets of the Company.

Following the occurrence of an event which is not a Change of Control whereby there is a successor company to the Company, or, if there is no such successor, whereby the Company is not the surviving corporation in a merger or consolidation, the surviving corporation or successor holding company (as the case may be), for purposes of this Agreement, shall thereafter be referred to as the Company.

1.4 “Company” means Kohl’s Department Stores, Inc.

1.5 “Designated Beneficiary” means the person or persons designated by the Employee, on a form provided by the Company, to receive benefits payable under this Agreement, if any, after the death of Employee.

1.6 “Disability” means the inability of Employee, due to a physical or mental impairment, to perform the essential functions of Employee’s job with the Company, with or without a reasonable accommodation and such inability has or is reasonably anticipated to continue for a period in excess of one hundred eighty (180) calendar days. A determination of Disability shall be made by the Company, which may, at its sole discretion, consult with a physician or physicians satisfactory to the Company, and Employee shall cooperate with any efforts to make such determination. Any such determination shall be conclusive and binding on the parties. Any determination of Disability under this Section 1.6 is not intended to alter any benefits any party may be entitled to receive under any disability insurance policy carried by either the Company or Employee with respect to Employee, which benefits shall be governed solely by the terms of any such insurance policy.

1.7 “Final Expenses” means reimbursement of expenses to which Employee is entitled under programs and policies which the Company has made available to senior executives of the Company and which are in effect at the Company from time to time.

1.8 “Final Pay” means any unpaid base salary with respect to the period prior to the effective date of Employee’s termination of employment together with payment of any vacation that Employee has accrued but not used through the date of Employee’s termination of employment.

1.9 “Good Reason” means any of the following: (i) a significant reduction in the Employee’s status, title, position, responsibilities or base salary which is not agreed to by Employee; (ii) any purported termination of the Employee’s employment for Cause which does not comply with the definition of Cause under this Agreement; or (iii) a


mandatory relocation of Employee’s employment with the Company more than 50 miles from the employee’s current principal place of business in Milwaukee, Wisconsin, except for travel reasonably required in the performance of Employee’s duties and responsibilities; provided, however, that no termination shall be for Good Reason unless the Employee has provided the Company with written notice of the conduct alleged to have caused Good Reason within ten (10) days of such conduct and the Company fails to demonstrate substantial efforts to cure any such alleged conduct within thirty (30) calendar days after the Company’s receipt of such written notice from Employee.

1.10 “Health Insurance Continuation” means that, if Employee, following termination from employment, is eligible for, and timely elects to participate in, the Company’s group health insurance plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company will pay the normal monthly employer’s cost of coverage under the Company’s group health insurance plans for full-time employees toward such COBRA coverage for the specified period of time, if any, set forth in Article II of this Agreement. If the specified period of time provided for in this Agreement is longer than the end of the 18-month period for which Employee is eligible for COBRA, the Company will, until the end of such longer period, pay the normal monthly employer’s cost of coverage under the Company’s group health insurance plans to, at its sole discretion, allow Employee to continue to participate in such plans (if allowed by law and the Company’s policies, plans and programs) or allow Employee to purchase reasonably comparable individual health insurance coverage through the end of such longer period. Employee acknowledges and agrees that Employee is responsible for paying the balance of any costs not paid for by the Company under this Agreement which are associated with Employee’s participation in the Company’s health insurance plans or individual health insurance and that Employee’s failure to pay such costs may result in the termination of Employee’s participation in such plans or insurance. Employee acknowledges and agrees that the Company may deduct from any Severance Payment Employee receives pursuant to this Agreement, amounts that Employee is responsible to pay for Health Insurance Continuation. Any Health Insurance Continuation provided for herein will cease on the date on which Employee becomes eligible for health insurance coverage under another employer’s group health insurance plan, and, within five (5) calendar days of Employee becoming eligible for health insurance coverage under another employer’s group health insurance plan, Employee agrees to inform the Company of such fact in writing.

1.11 “Outplacement Services” means outplacement services from an outplacement service company of the Company’s choosing at a cost not to exceed Twenty Thousand and no/100 Dollars ($20,000.00), payable directly to such outplacement service company

1.12 “Prorated Bonus” means a share of any bonus attributable to the fiscal year of the Company during which the date of termination of Employee’s employment with the Company occurs to which the Employee would be entitled if he/she had worked for the entire fiscal year, as determined in the sole discretion of the Company (pro-rated, as determined by the Company, for the portion of the fiscal year prior to the date of Employee’s termination of employment).


1.13 “Retirement Age” means an Employee is at least fifty-five (55) years old and has completed ten (10) years or more of service as an Employee of the Company.

1.14 “Unpaid Bonus” means Employee’s unpaid bonus, if any, attributable to any complete fiscal year of the Company ended before the date of Employee’s termination of employment with the Company.


ARTICLE II

COMPENSATION AND BENEFITS

UPON TERMINATION OF EMPLOYMENT

2.1 Termination By Company for Cause. If Employee’s employment is terminated by the Company for Cause, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay; (ii) Final Expenses; and (iii) Employee’s Unpaid Bonus. The payment of the Unpaid Bonus shall be made at the same time as any such bonus is paid to other similarly situated executives of the Company. Furthermore, under this Section 2.1, vesting of any Company stock options and restricted stock granted to Employee ceases on the date of termination, and any unvested stock options and restricted stock lapse and are forfeited immediately upon termination.

2.2 Termination by Employee without Good Reason. If Employee’s employment is terminated by Employee voluntarily without Good Reason, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay, (ii) Final Expenses; (iii) Employee’s Unpaid Bonus, payment of which shall be made at the same time as any such bonus is paid to other similarly situated executives of the Company; and (iv) a Severance Payment (defined below), the payment of which is contingent upon (a) Employee’s execution of a written release agreement (in a form satisfactory to the Company) containing, among other things, a general release of claims against the Company and(b) Employee’s failure to revoke such release within the statutory period permitted for such revocation. For purposes of this Section 2.2, “Severance Payment” means payment of 50 percent (50%) of Employee’s base salary in effect as of the date of Employee’s termination of employment, payable for one (1) year following the effective date of Employee’s termination pursuant to the normal payroll practices of the Company. The amount of such Severance Payment shall be reduced by the value of any compensation (including, but not limited to, the value of any cash compensation, deferred compensation or equity-based compensation, valued in the sole discretion of the Company) received by Employee from another employer or service recipient during the one-year period following Employee’s termination of employment, and Employee agrees to reimburse the Company for the amount of such reduction. Employee acknowledges and agrees that he/she has an obligation to use his/her reasonable efforts to secure other employment following his/her termination of employment from the Company and that his/her failure to do so, as determined at the sole discretion of the Company, is a breach of this Agreement subject to Section 8.6, below. Furthermore, under this Section 2.2, vesting of any Company stock options and restricted stock granted to Employee ceases on the date of termination, and any unvested stock options and restricted stock lapse and are forfeited immediately upon termination.

2.3 Termination Due to Retirement. If Employee’s employment is voluntarily terminated by Employee after he/she has reached Retirement Age and prior to the termination, Employee certifies to the Company of his/her intention not to continue employment for another employer after such termination, Employee shall have no further


rights against the Company hereunder, except for the right to receive (i) Final Pay, (ii) Final Expenses; (iii) Employee’s Unpaid Bonus, (iv) Employee’s Prorated Bonus and (v) a Severance Payment (defined below), the payment of which is contingent upon (a) Employee’s execution of a written release agreement (in a form satisfactory to the Company) containing, among other things, a general release of claims against the Company and (b) Employee’s failure to revoke such release within the statutory period permitted for such revocation. Payment of the Unpaid Bonus and the Prorated Bonus shall be made at the same time as any such bonuses for such fiscal years are paid to other similarly situated executives of the Company. For purposes of this Section 2.3, “Severance Payment” means payment of 50 percent (50%) of Employee’s base salary in effect as of the date of Employee’s termination of employment, payable for one (1) year following the effective date of Employee’s termination pursuant to the normal payroll practices of the Company. Furthermore, under this Section 2.3, vesting of any Company stock options and restricted stock granted to Employee prior to the date of termination shall be as provided in the stock option and restricted stock agreements between Employee and the Company.

2.4 Termination Due to Employee’s Death. If Employee’s employment is terminated due to Employee’s death, Employee’s Designated Beneficiary shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay; (ii) Final Expenses; (iii) Employee’s Unpaid Bonus, and (iv) Employee’s Prorated Bonus. Payment of the Unpaid Bonus and the Prorated Bonus shall be made to the Employee’s Designated Beneficiary at the same time as any such bonuses for such fiscal years are paid to other similarly situated executives of the Company. Furthermore, under this Section 2.4, vesting of any Company stock options and restricted stock granted to Employee prior to the date of termination shall be as provided in the stock option and restricted stock agreements between Employee and the Company.

2.5 Termination Due to Disability. If Employee’s employment is terminated due to Employee’s Disability, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay; (ii) Final Expenses, (iii) Employee’s Unpaid Bonus; (iv) Employee’s Prorated Bonus; and (v) a Severance Payment (defined below), the payment of which is contingent upon (a) Employee’s execution of a written release agreement (in a form satisfactory to the Company) containing, among other things, a general release of claims against the Company and (b) Employee’s failure to revoke such release within the statutory period permitted for such revocation. Payment of the Unpaid Bonus and the Prorated Bonus shall be made to the Employee at the same time as any such bonuses for such fiscal years are paid to other similarly situated executives of the Company. For purposes of this Section 2.5, “Severance Payment” means six (6) months of Employee’s base salary in effect as of the date of Employee’s termination of employment, payable in equal installments during the six (6) month period following the effective date of Employee’s termination pursuant to the normal payroll practices of the Company, in accordance with the normal payroll practices of the Company. The amount of such Severance Payment shall be reduced by (x) the value of any compensation (including, but not limited to, the value of any cash


compensation, deferred compensation or equity-based compensation, valued in the sole discretion of the Company) received by Employee from another employer or service recipient during the six (6) month period following Employee’s termination of employment and (y) any payments received by Employee under any short-term disability plans, programs or policies offered by the Company during Employee’s absence from the Company prior to Employee’s termination of employment or during the six (6) month period thereafter and employee agrees to reimburse the Company for the amount of any such reductions. Notwithstanding the foregoing, the amount of the Severance Payment under this Section 2.5 shall not be reduced by the value of any compensation payable under the Company’s Long Term Disability Program or any successor program thereto. Employee acknowledges and agrees that, upon the cessation, if any, of such Disability during the period for which the Severance Payment is to be made under this Section 2.5, he/she has an obligation to use his/her reasonable efforts to secure other employment and that his/her failure to do so, as determined at the sole discretion of the Board, is a breach of this Agreement subject to Section 8.6, below. Furthermore, under this Section 2.5, vesting of any Company stock options and restricted stock granted to Employee shall be as provided in the stock option and restricted stock agreements between Employee and the Company.

2.6 Termination By Company Without Cause or By Employee for Good Reason – No Change of Control. If Employee’s employment is terminated by the Company without Cause or voluntarily by the Employee for Good Reason and such termination does not occur within one (1) year after the occurrence of a Change of Control, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay; (ii) Final Expenses; (iii) Employee’s Unpaid Bonus, (iv) Employee’s Prorated Bonus; (v) Outplacement Services; (vi) Health Insurance Continuation for a period of two (2) years following the effective date of Employee’s termination and (vii) a Severance Payment (defined below), the payment of which is contingent upon (a) Employee’s execution of a written release agreement (in a form satisfactory to the Company) containing, among other things, a general release of claims against the Company and(b) Employee’s failure to revoke such release within the statutory period permitted for such revocation. Payments of the Unpaid Bonus and the Prorated Bonus shall be made at the same time as any such bonuses for such fiscal years are paid to other similarly situated executives of the Company. For purposes of this Section 2.6, “Severance Payment” means payment of one hundred percent (100%) of Employee’s base salary in effect as of the date of Employee’s termination of employment, payable for two (2) years following the effective date of termination pursuant to the normal payroll practices and schedule of the Company. The amount of such Severance Payment shall be reduced by the value of any compensation (including, but not limited to, the value of any cash compensation, deferred compensation or equity-based compensation, valued in the sole discretion of the Company) received by Employee from another employer or service recipient during such two-year period following the Employee’s termination and Employee agrees to reimburse the Company for the amount of any such deduction. Furthermore, under this Section 2.6, any unvested Company stock options or restricted stock granted to Employee prior to the date of termination that are scheduled to vest in the two-year period following the date of Employee’s termination of employment shall immediately vest as of the date of Employee’s termination of employment.


2.7 Termination By Company Without Cause or By Employee for Good Reason - Change of Control. If Employee’s employment is terminated by the Company without Cause or voluntarily by the Employee for Good Reason and such termination occurs within one (1) year after the occurrence of a Change of Control, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay; (ii) Final Expenses; (iii) Employee’s Unpaid Bonus (iv) a Severance Payment (defined below), the payment of which is contingent upon (a) Employee’s execution of a written release agreement (in a form satisfactory to the Company) containing, among other things, a general release of claims against the Company and(b) Employee’s failure to revoke such release within the statutory period permitted for such revocation.; (v) Health Insurance Continuation for the one-year period following the Employee’s termination of employment and (vi) Outplacement Services. The Unpaid Bonus shall be paid at the same time as any such bonuses are paid to other similarly situated executives of the Company. Except as otherwise provided in Section 2.8, below, the Severance Payment in this Section 2.7 shall be paid to the Employee in a lump sum no later than thirty (30) days following the Employee’s termination of employment. For purposes of this Section 2.7, “Severance Payment” means an amount equal to the product of (x) two (2) multiplied by (y) the sum of: (A) Employee’s base salary in effect as of the date of the Employee’s termination of employment (or, if higher, Employee’s base salary immediately prior to the Change of Control) plus (B) an amount equal to the average (calculated at the sole discretion of the Company) annual incentive compensation plan payment paid to the Employee for the three (3) fiscal years ending prior to the fiscal year which includes the date of Employee’s termination. Furthermore, under this Section 2.7, vesting of any unvested Company stock options and restricted stock granted to Employee prior to the date of determination shall occur immediately upon the date of termination.

2.8 Delay of Payments if Required by Section 409A. If amounts paid to Employee pursuant to any Section of this Article II would be subject to a penalty under Section 409A of the Internal Revenue Code because Employee is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) and no other exceptions to the penalty are available, such payments will be delayed until the earliest date permissible following the date of Employee’s termination of employment, at which point any such delayed payments will be paid to Employee in a lump sum.

ARTICLE III

RETURN OF RECORDS

Upon termination of employment, for whatever reason, or upon request by the Company at any time, Employee shall immediately return to the Company all documents, records, and materials belonging and/or relating to the Company, and all copies of all such materials. Upon termination of employment, for whatever reason, or upon request by the Company at any time, Employee further agrees to destroy such records maintained by Employee on Employee’s own computer equipment.


ARTICLE IV

CONFIDENTIALITY

4.1 Acknowledgments. Employee acknowledges and agrees that, as an integral part of its business, the Company has expended a great deal of time, money and effort to develop and maintain confidential, proprietary and trade secret information to compete against similar businesses and that this information, if misused or disclosed, would be harmful to the Company’s business and competitive position in the marketplace. Employee further acknowledges and agrees that in Employee’s position with the Company, the Company provides Employee with access to its confidential, proprietary and trade secret information, strategies and other confidential business information that would be of considerable value to competitive businesses. As a result, Employee acknowledges and agrees that the restrictions contained in this Article are reasonable, appropriate and necessary for the protection of the Company’s confidential, proprietary and trade secret information.

4.2. Confidentiality Obligations. During the term of Employee’s employment with the Company, Employee will not directly or indirectly use or disclose any Confidential Information or Trade Secrets (defined below) except in the interest and for the benefit of the Company. After the termination, for whatever reason, of Employee’s employment with the Company, Employee will not directly or indirectly use or disclose any Trade Secrets unless such information ceases to be deemed a Trade Secret by means of one of the exceptions set forth in Section 4.3(c), below. For a period of two (2) years following termination, for whatever reason, of Employee’s employment with the Company, Employee will not directly or indirectly use or disclose any Confidential Information, unless such information ceases to be deemed Confidential Information by means of one of the exceptions set forth in Section 4.3(c), below.

4.3 Definitions.

(a) Trade Secret. The term “Trade Secret” shall have that meaning set forth under applicable law. This term is deemed by the Company to specifically include all Company-created computer source code and any confidential information received from a third party with whom the Company has a binding agreement restricting disclosure of such confidential information.

(b) Confidential Information. The term “Confidential Information” shall mean all non-Trade Secret or proprietary information of the Company which has value to the Company and which is not known to the public or the Company’s competitors, generally, including, but not limited to, new products, customer lists, pricing policies and strategies, employment records and policies, operational methods, marketing plans and strategies, advertising plans and strategies, product development techniques


and plans, business acquisition and divestiture plans, resources, sources of supply, suppliers and supplier contractual relationships and terms, technical processes, designs, inventions, research programs and results, source code, short-term and long-range planning, projections, information systems, sales objectives and performance, profits and profit margins, and seasonal plans, goals and objectives.

(c) Exclusions. Notwithstanding the foregoing, the terms “Trade Secret” and “Confidential Information” shall not include, and the obligations set forth in this Article IV shall not apply to, any information which: (i) can be demonstrated by Employee to have been known by Employee prior to Employee’s employment by the Company; (ii) is or becomes generally available to the public through no act or omission of Employee; (iii) is obtained by Employee in good faith from a third party who discloses such information to Employee on a non-confidential basis without violating any obligation of confidentiality or secrecy relating to the information disclosed; or (iv) is independently developed by Employee outside the scope of Employee’s employment without use of Confidential Information or Trade Secrets.

ARTICLE V

RESTRICTED SERVICES OBLIGATION

5.1 Acknowledgments. Employee acknowledges and agrees that the Company is one of the leading retail companies in the United States, with department stores throughout the United States, and that the Company compensates executives like Employee to, among other things, develop and maintain valuable goodwill and relationships on the Company’s behalf (including relationships with customers, suppliers and vendors) and to maintain business information for the Company’s exclusive ownership and use. As a result, Employee acknowledges and agrees that the restrictions contained in this Article V are reasonable, appropriate and necessary for the protection of the Company’s goodwill, customer, supplier and vendor relationships and confidential information and trade secrets. Employee further acknowledges and agrees that the restrictions contained in this Article V will not pose an undue hardship on Employee or Employee’s ability to find gainful employment.

5.2 Restricted Services Obligation. For the one (1) year period following termination, for whatever reason, of Employee’s employment with the Company, Employee will not, directly or indirectly, provide Restricted Services (defined below) for or on behalf of any Competitive Business (defined below). During such one (1) year period, Employee also will not, directly or indirectly, provide any Competitive Business with any advice or counsel in the nature of the Restricted Services.

5.3 Definitions. For purposes of this Article V, the following are defined terms:


(a) Restricted Services. “Restricted Services” shall mean services of any kind or character comparable to those Employee provided to the Company during the eighteen (18) month period immediately preceding Employee’s last date of employment with the Company.

(b) Competitive Business. “Competitive Business” shall mean any entity (including related entities) that as of the time of the determination (i) generates, in the aggregate with its related entities, more than One Billion Dollars ($1,000,000,000) in annual revenues; and (ii) operates or owns a Retail Business. “Competitive Business” shall also include a business that provides a buying office or sourcing services to a Retail Business or is a vendor of Goods to a Retail Business. “Retail Business” means any business or related businesses engaged in the sale of products at retail which derives at least twenty percent (20%) of its annual revenue from the sale of Goods in the United States and owns or operates retail stores located within twenty-five (25) miles of any store operated by Kohl’s Corporation or any of its subsidiaries.

(c) Goods. “Goods” means merchandise that comprises at least five percent (5%) of the Company’s annual revenues during the twelve (12) months prior to Employee’s last date of employment with the Company.

ARTICLE VI

BUSINESS IDEAS; NON-DISPARAGEMENT

6.1 Assignment of Business Ideas. Employee shall immediately disclose to the Company a list of all inventions, patents, applications for patent, copyrights, and applications for copyright in which Employee currently holds an interest. The Company will own, and Employee hereby assigns to the Company, all rights in all Business Ideas, as defined in Section 6.2, below. All Business Ideas which are or form the basis for copyrightable works shall be considered “works for hire” as that term is defined by United States Copyright Law. Any works that are not found to be “works for hire” are hereby assigned to the Company. While employed by the Company and for one (1) year thereafter, Employee will promptly disclose all Business Ideas to the Company and execute all documents which the Company may reasonably require to perfect its patent, copyright and other rights to such Business Ideas throughout the world. After Employee’s employment with the Company terminates, for whatever reason, Employee will cooperate with the Company to assist the Company in perfecting its rights to any Business Ideas including executing all documents which the Company may reasonably require.

6.2 Business Ideas. The term “Business Ideas” as used in this Agreement means all ideas, inventions, data, software, developments and copyrightable works, whether or not patentable or registrable, which Employee originates, discovers or


develops, either alone or jointly with others while Employee is employed by the Company and for one (1) year thereafter and which are (a) related to any business known by Employee to be engaged in or contemplated by the Company, (b) originated, discovered or developed during Employee’s working hours, or (c) originated, discovered or developed in whole or in part using materials, labor, facilities, Confidential Information, Trade Secrets, or equipment furnished by the Company.

6.3 Non-Disparagement. Employee agrees not to engage at any time in any form of conduct or make any statements or representations, or direct any other person or entity to engage in any conduct or make any statements or representations, that disparage, criticize or otherwise impair the reputation of the Company, its affiliates, parents and subsidiaries and their respective past and present officers, directors, stockholders, partners, members, agents and employees. Nothing contained in this Section 6.3 shall preclude Employee from providing truthful testimony or statements pursuant to subpoena or other legal process or in response to inquiries from any government agency or entity.

ARTICLE VII

EMPLOYEE NON-SOLICITATION

During the term of Employee’s employment with the Company and for one (1) year thereafter, Employee shall not directly or indirectly encourage any Company employee to terminate his/her employment with the Company.

ARTICLE VIII

GENERAL PROVISIONS

8.1 Notices. Any and all notices, consents, documents or communications provided for in this Agreement shall be given in writing and shall be personally delivered, mailed by registered or certified mail (return receipt requested) or sent by courier, confirmed by receipt, and addressed as follows (or to such other address as the addressed party may have substituted by notice pursuant to this Section 8.1):

(a) If to the Company:

Kohl’s Department Stores, Inc.

N56 W17000 Ridgewood Drive

Menomonee Falls, WI 53051

Attn: General Counsel

(b) If to Employee:

Any notice to be given to the Employee may be addressed to him/her at the address as it appears on the payroll records of the Company or any subsidiary thereof.

Such notice, consent, document or communication shall be deemed given upon personal delivery or receipt at the address of the party stated above or at any other address specified by such party to the other party in writing, except that if delivery is refused or cannot be made for any reason, then such notice shall be deemed given on the third day after it is sent.


8.2 Employee Disclosures and Acknowledgments.

(a) Prior Obligations. Following is a list of prior obligations (written and oral), such as confidentiality agreements or covenants restricting future employment or consulting, that Employee has entered into which may restrict Employee’s ability to perform Employee’s duties as an Employee for the Company:

 


 


 


(b) Confidential Information of Others. Employee certifies that Employee has not, and will not, disclose or use during Employee’s time as an employee of the Company, any confidential information which Employee acquired as a result of any previous employment or under a contractual obligation of confidentiality or secrecy before Employee became an employee of the Company.

(c) Scope of Restrictions. By entering into this Agreement, Employee acknowledges the nature of the Company’s business and the nature and scope of the restrictions set forth in Articles IV, V and VII, above, including specifically Wisconsin’s Uniform Trade Secrets Act, presently § 134.90, Wis. Stats. Employee acknowledges and represents that the scope of such restrictions are appropriate, necessary and reasonable for the protection of the Company’s business, goodwill, and property rights. Employee further acknowledges that the restrictions imposed will not prevent Employee from earning a living in the event of, and after, termination, for whatever reason, of Employee’s employment with the Company. Nothing herein shall be deemed to prevent Employee, after termination of Employee’s employment with the Company, from using general skills and knowledge gained while employed by the Company.

(d) Prospective Employers. Employee agrees, during the term of any restriction contained in Articles IV, V and VII, above, to disclose such provisions to any future or prospective employer. Employee further agrees that the Company may send a copy of this Agreement to, or otherwise make the provisions hereof known to, any such employer.


8.3 Effect of Termination. Notwithstanding any termination of this Agreement, the Employee, in consideration of his employment hereunder, shall remain bound by the provisions of this Agreement which specifically relate to periods, activities or obligations upon or subsequent to the termination of the Employee’s employment.

8.4 Confidentiality of Agreement. Employee agrees that, with the exception of disclosures pursuant to Section 8.2(d), above, Employee will not disclose, directly or indirectly, the terms of this Agreement to any third party; provided, however, that following Employee’s obtaining a promise of confidentiality for the benefit of the Company from Employee’s tax preparer, accountant, attorney and spouse, Employee may disclose the terms of this Agreement to such of these individuals who have made such a promise of confidentiality. This provision shall not prevent Employee from disclosing such matters in testifying in any hearing, trial or other legal proceeding where Employee is required to do so.

8.5 Cooperation. Employee agrees to take all reasonable steps during and after Employee’s employment with the Company to make himself/herself available to and to cooperate with the Company, at its request, in connection with any legal proceedings or other matters in which it is or may become involved. Following Employee’s employment with the Company, the Company agrees to pay reasonable compensation to Employee and to pay all reasonable expenses incurred by Employee in connection with Employee’s obligations under this Section 8.5.

8.6 Effect of Breach. In the event that Employee breaches any provision of this Agreement, Employee agrees that the Company may suspend all additional payments to Employee under this Agreement (including any Severance Payment), recover from Employee any damages suffered as a result of such breach and recover from Employee any reasonable attorneys’ fees or costs it incurs as a result of such breach. In addition, Employee agrees that the Company may seek injunctive or other equitable relief, without the necessity of posting bond, as a result of a breach by Employee of any provision of this Agreement.

8.7 Entire Agreement. This Agreement contains the entire understanding and the full and complete agreement of the Parties and supersedes and replaces any prior understandings and agreements among the Parties, with respect to the subject matter hereof, including, but not limited to, the Employment Agreement between the Parties dated as of January 3, 2005.

8.8 Headings. The headings of sections and paragraphs of this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any of its provisions.


8.9 Consideration. The benefits provided to Employee under this Agreement constitute the consideration for Employee’s undertakings hereunder.

8.10 Amendment. This Agreement may be altered, amended or modified only in a writing, signed by both of the Parties hereto.

8.11 409A Savings Clause. The term “termination of employment” used in this Agreement shall be construed in accordance with any guidance, rules or regulations promulgated by the Internal Revenue Service in construing the rules and regulations applicable to a “separation of service” under Section 409A of the Internal Revenue Code. It is the parties’ intention that this Agreement comply with the applicable provisions of Section 409A and any guidance issued thereunder. The Parties agree to amend this Agreement effective as of the execution date of this instrument to the minimum extent necessary to comply with Section 409A and any guidance issued thereunder such that Employee will avoid the application of the 20% penalty tax under Section 409A.

8.12 Assignability. This Agreement and the rights and duties set forth herein may not be assigned by Employee, but may be assigned by the Company, in whole or in part. This Agreement shall be binding on and inure to the benefit of each party and such party’s respective heirs, legal representatives, successors and assigns.

8.13 Severability. If any court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then such invalidity or unenforceability shall have no effect on the other provisions hereof, which shall remain valid, binding and enforceable and in full force and effect, and such invalid or unenforceable provision shall be construed in a manner so as to give the maximum valid and enforceable effect to the intent of the Parties expressed therein.

8.14 Waiver of Breach. The waiver by either party of the breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by either party.

8.15 Governing Law; Construction. This Agreement shall be governed by the internal laws of the State of Wisconsin, without regard to (i) its conflicts of law provisions and (ii) any rules of construction concerning the draftsman hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written above.


KOHL’S DEPARTMENT STORES, INC.:

 

/s/ R. Lawrence Montgomery

By:

 

R. Lawrence Montgomery , CEO

EMPLOYEE:

/s/ Wesley S. McDonald

Executive Compensation Agreement, dated November 3, 2006

Exhibit 10.5

EXECUTIVE COMPENSATION AGREEMENT

THIS EXECUTIVE COMPENSATION AGREEMENT (“Agreement”) is executed as of this 3rd day of November, 2006, by and between Kohl’s Department Stores, Inc. (“Company”) and Peggy Eskenasi (“Employee”).

RECITALS

Employee is employed as Executive Vice President of Product Development and is a valuable employee of the Company. The Company and the Employee have agreed to make provision for certain aspects of their relationship during and after the period in which Employee is employed by the Company.

NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Company and Employee (“Parties”), the Parties agree as follows:

ARTICLE I

DEFINITIONS

1.1 “Board” shall mean the Board of Directors of the Company.

1.2 “Cause” shall mean any of the following:

(i) Employee’s willful failure to substantially perform Employee’s duties after a written demand for performance is delivered to Employee that specifically identifies the manner in which the Company believes that Employee has not substantially performed his/her duties, and Employee has failed to demonstrate substantial efforts to resume performance of Employee’s duties on a continuous basis within thirty (30) calendar days after receiving such demand; provided, however, that failure to meet sales or financial performance objectives, by itself, will not constitute “Cause”;

(ii) Employee’s willful violation of a material provision of “Kohl’s Ethical Standards and Responsibilities” which is materially injurious to the Company, monetarily or otherwise. The term “willful” as used herein means any act or omission committed in bad faith or without a reasonable belief that the act or omission was in the best interest of the Company;

(iii) Any dishonest or fraudulent conduct by Employee which results, or is intended to result, in gain to Employee or Employee’s personal enrichment at the expense of the Company;


(iv) Any material breach of Articles IV, V, VI or VII, below of this Agreement by Employee; or

(v) Conviction of Employee, after all applicable rights of appeal have been exhausted or waived, of any crime that materially discredits the Company or is materially detrimental to the Company’s reputation or goodwill.

1.3 “Change of Control” means the occurrence of any of the following:

(i) the acquisition (other than from the Company) by any person, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), other than the Company, a subsidiary of the Company or any employee benefit plan or plans sponsored by the Company or any subsidiary of the Company, directly or indirectly, of beneficial ownership (within the meaning of Exchange Act Rule 13d-3) of thirty-three percent (33%) or more of the then outstanding shares of common stock of the Company or voting securities representing thirty-three percent (33%) or more of the combined voting power of the Company’s then outstanding voting securities ordinarily entitled to vote in the election of directors unless the Incumbent Board (defined below), before such acquisition or within thirty (30) days thereafter, deems such acquisition not to be a Change of Control;

(ii) individuals who, as of the date of this Agreement, constitute the Board (as of such date, “Incumbent Board”) ceasing for any reason to constitute at least a majority of such Board; provided, however, that any person becoming a director subsequent to the date of this Agreement whose election, or nomination for election by the shareholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be for purposes of this Agreement, considered as though such person were a member of the Incumbent Board but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest which was (or, if threatened, would have been) subject to Exchange Act Rule 14a-12(c);

(iii) the consummation of any merger, consolidation or share exchange of the Company with any other corporation, other than a merger, consolidation or share exchange which results in more than sixty percent (60%) of the outstanding shares of the common stock, and voting securities representing more than sixty percent (60%) of the combined voting power of then outstanding voting securities entitled to vote generally in the election of directors, of the surviving, consolidated or resulting corporation being then beneficially owned, directly or indirectly, by the persons who were the Company’s shareholders immediately prior to such transaction in substantially the same proportions as their ownership, immediately prior to such transaction, of the Company’s then outstanding Common Stock or then outstanding voting securities, as the case may be; or

(iv) the consummation of any liquidation or dissolution of the Company or a sale or other disposition of all or substantially all of the assets of the Company.


Following the occurrence of an event which is not a Change of Control whereby there is a successor company to the Company, or, if there is no such successor, whereby the Company is not the surviving corporation in a merger or consolidation, the surviving corporation or successor holding company (as the case may be), for purposes of this Agreement, shall thereafter be referred to as the Company.

1.4 “Company” means Kohl’s Department Stores, Inc.

1.5 “Designated Beneficiary” means the person or persons designated by the Employee, on a form provided by the Company, to receive benefits payable under this Agreement, if any, after the death of Employee.

1.6 “Disability” means the inability of Employee, due to a physical or mental impairment, to perform the essential functions of Employee’s job with the Company, with or without a reasonable accommodation and such inability has or is reasonably anticipated to continue for a period in excess of one hundred eighty (180) calendar days. A determination of Disability shall be made by the Company, which may, at its sole discretion, consult with a physician or physicians satisfactory to the Company, and Employee shall cooperate with any efforts to make such determination. Any such determination shall be conclusive and binding on the parties. Any determination of Disability under this Section 1.6 is not intended to alter any benefits any party may be entitled to receive under any disability insurance policy carried by either the Company or Employee with respect to Employee, which benefits shall be governed solely by the terms of any such insurance policy.

1.7 “Final Expenses” means reimbursement of expenses to which Employee is entitled under programs and policies which the Company has made available to senior executives of the Company and which are in effect at the Company from time to time.

1.8 “Final Pay” means any unpaid base salary with respect to the period prior to the effective date of Employee’s termination of employment together with payment of any vacation that Employee has accrued but not used through the date of Employee’s termination of employment.

1.9 “Good Reason” means any of the following: (i) a significant reduction in the Employee’s status, title, position, responsibilities or base salary which is not agreed to by Employee; (ii) any purported termination of the Employee’s employment for Cause which does not comply with the definition of Cause under this Agreement; or (iii) a mandatory relocation of Employee’s employment with the Company more than 50 miles from the employee’s current principal place of business in Milwaukee, Wisconsin, except for travel reasonably required in the performance of Employee’s duties and


responsibilities; provided, however, that no termination shall be for Good Reason unless the Employee has provided the Company with written notice of the conduct alleged to have caused Good Reason within ten (10) days of such conduct and the Company fails to demonstrate substantial efforts to cure any such alleged conduct within thirty (30) calendar days after the Company’s receipt of such written notice from Employee.

1.10 “Health Insurance Continuation” means that, if Employee, following termination from employment, is eligible for, and timely elects to participate in, the Company’s group health insurance plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company will pay the normal monthly employer’s cost of coverage under the Company’s group health insurance plans for full-time employees toward such COBRA coverage for the specified period of time, if any, set forth in Article II of this Agreement. If the specified period of time provided for in this Agreement is longer than the end of the 18-month period for which Employee is eligible for COBRA, the Company will, until the end of such longer period, pay the normal monthly employer’s cost of coverage under the Company’s group health insurance plans to, at its sole discretion, allow Employee to continue to participate in such plans (if allowed by law and the Company’s policies, plans and programs) or allow Employee to purchase reasonably comparable individual health insurance coverage through the end of such longer period. Employee acknowledges and agrees that Employee is responsible for paying the balance of any costs not paid for by the Company under this Agreement which are associated with Employee’s participation in the Company’s health insurance plans or individual health insurance and that Employee’s failure to pay such costs may result in the termination of Employee’s participation in such plans or insurance. Employee acknowledges and agrees that the Company may deduct from any Severance Payment Employee receives pursuant to this Agreement, amounts that Employee is responsible to pay for Health Insurance Continuation. Any Health Insurance Continuation provided for herein will cease on the date on which Employee becomes eligible for health insurance coverage under another employer’s group health insurance plan, and, within five (5) calendar days of Employee becoming eligible for health insurance coverage under another employer’s group health insurance plan, Employee agrees to inform the Company of such fact in writing.

1.11 “Outplacement Services” means outplacement services from an outplacement service company of the Company’s choosing at a cost not to exceed Twenty Thousand and no/100 Dollars ($20,000.00), payable directly to such outplacement service company

1.12 “Prorated Bonus” means a share of any bonus attributable to the fiscal year of the Company during which the date of termination of Employee’s employment with the Company occurs to which the Employee would be entitled if he/she had worked for the entire fiscal year, as determined in the sole discretion of the Company (pro-rated, as determined by the Company, for the portion of the fiscal year prior to the date of Employee’s termination of employment).


1.13 “Retirement Age” means an Employee is at least fifty-five (55) years old and has completed ten (10) years or more of service as an Employee of the Company.

1.14 “Unpaid Bonus” means Employee’s unpaid bonus, if any, attributable to any complete fiscal year of the Company ended before the date of Employee’s termination of employment with the Company.


ARTICLE II

COMPENSATION AND BENEFITS

UPON TERMINATION OF EMPLOYMENT

2.1 Termination By Company for Cause. If Employee’s employment is terminated by the Company for Cause, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay; (ii) Final Expenses; and (iii) Employee’s Unpaid Bonus. The payment of the Unpaid Bonus shall be made at the same time as any such bonus is paid to other similarly situated executives of the Company. Furthermore, under this Section 2.1, vesting of any Company stock options and restricted stock granted to Employee ceases on the date of termination, and any unvested stock options and restricted stock lapse and are forfeited immediately upon termination.

2.2 Termination by Employee without Good Reason. If Employee’s employment is terminated by Employee voluntarily without Good Reason, Employee shall have no further rights against the Company hereunder, except for the right to receive (i) Final Pay, (ii) Final Expenses; (iii) Employee’s Unpaid Bonus, payment of which shall be made at the same time as any such bonus is paid to other similarly situated executives of the Company; and (iv) a Severance Payment (defined below), the payment of which is contingent upon (a) Employee’s execution of a written release agreement (in a form satisfactory to the Company) containing, among other things, a general release of claims against the Company and(b) Employee’s failure to revoke such release within the statutory period permitted for such revocation. For purposes of this Section 2.2, “Severance Payment” means payment of 50 percent (50%) of Employee’s base salary in effect as of the date of Employee’s termination of employment, payable for one (1) year following the effective date of Employee’s termination pursuant to the normal payroll practices of the Company. The amount of such Severance Payment shall be reduced by the value of any compensation (including, but not limited to, the value of any cash compensation, deferred compensation or equity-based compensation, valued in the sole discretion of the Company) received by Employee from another employer or service recipient during the one-year period following Employee’s termination of employment, and Employee agrees to reimburse the Company for the amount of such reduction. Employee acknowledges and agrees that he/she has an obligation to use his/her reasonable efforts to secure other employment following his/her termination of employment from the Company and that his/her failure to do so, as determined at the sole discretion of the Company, is a breach of this Agreement subject to Section 8.6, below. Furthermore, under this Section 2.2, vesting of any Company stock options and restricted stock granted to Employee ceases on the date of termination, and any unvested stock options and restricted stock lapse and are forfeited immediately upon termination.

2.3 Termination Due to Retirement. If Employee’s employment is voluntarily terminated by Employee after he/she has reached Retirement Age and prior to the termination, Employee certifies to the Company of his/her intention not to continue employment for another employer after such termination, Employee shall have no further