<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST , 1996
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SPECIALTY CATALOG CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5961 04-3253301
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
21 BRISTOL DRIVE
SOUTH EASTON, MA 02375
(508) 238-0199
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
STEVEN L. BOCK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
21 BRISTOL DRIVE SOUTH
EASTON, MA 02375
(508) 238-0199
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------
COPIES TO:
ROBERT L. LAWRENCE, ESQ. DAVID A. MILLER, ESQ.
JEFFREY S. TULLMAN, ESQ. GRAUBARD MOLLEN & MILLER
KANE KESSLER, P.C. 600 THIRD AVENUE
1350 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10016
NEW YORK, NEW YORK 10019 TELEPHONE NO.:(212) 818-8800
TELEPHONE NO.: (212) 541-6222 FACSIMILE NO.: (212) 818-8881
FACSIMILE NO.: (212) 245-3009
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $.01 par
value.................. 1,437,500(2) $ 8.00 $11,500,000 $3,965.52
- --------------------------------------------------------------------------------
Underwriter's Purchase
Option................. 1 $100.00 $ 100 (3)
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Common Stock Underlying
Underwriter's Purchase
Option................. 125,000 $ 8.80 $ 1,100,000 $ 379.31
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Total................... -- -- 12,600,100 $4,344.83
</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee.
(2) Includes 187,500 shares which may be issued upon exercise of a 45-day
option granted to the Underwriter to cover over-allotments, if any. See
"Underwriting."
(3) Pursuant to Rule 457(g), no registration fee is payable.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
SPECIALTY CATALOG CORP.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED
BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM LOCATION IN PROSPECTUS
------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Front Cover Page of Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page of
Prospectus and Outside Back Cover
Page of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Prospectus Summary; Risk Factors
4. Use of Proceeds..................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price..... Underwriting
6. Dilution............................ Risk Factors; Dilution
7. Selling Security Holders............ Inapplicable
8. Plan of Distribution................ Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to Be
Registered......................... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
10. Interests of Named Experts and
Counsel............................ Inapplicable
11. Information with Respect to the
Registrant......................... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Reorganization; Risk Factors;
Dividend Policy; Capitalization;
Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Description
of Securities; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ Description of Securities
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST , 1996
PROSPECTUS
1,250,000 SHARES [LOGO OF SPECIALTY
CATALOG CORP
SPECIALTY CATALOG CORP. APPEARS HERE]
COMMON STOCK
All of the 1,250,000 shares of Common Stock ("Common Stock") offered hereby are
being sold by Specialty Catalog Corp. ("Company").
Prior to this offering ("Offering"), there has been no public market for the
Common Stock of the Company and there can be no assurance that any such market
will develop. It is currently anticipated that the initial public offering
price of the shares will be between $7.25 and $8.00. See "Underwriting" for
information relating to the factors considered in determining the initial
public offering price of the Common Stock. The Company has applied for the
Common Stock to be quoted on the Nasdaq National Market under the symbol
("CTLG").
-----------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE, INVOLVE A HIGH DEGREE
OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 9 HEREOF AND
DILUTION AT PAGE 17 HEREOF.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
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Total(3)...................................... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) Does not include a 2.5% nonaccountable expense allowance which the Company
has agreed to pay the Underwriter. The Company has also agreed to sell the
Underwriter an option ("Underwriter's Purchase Option") to purchase 125,000
shares of Common Stock and indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended ("Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $ ($ if the
Underwriter's over-allotment option is exercised in full), estimated at
$ .
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 187,500 additional
shares of Common Stock on the same terms set forth above, solely for the
purpose of covering over-allotments, if any. If such over-allotment option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The shares of Common Stock are being offered by the Underwriter, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the securities comprising the shares of
Common Stock will be made against payment therefor at the offices of the
Underwriter in New York City, on or about , 1996.
[LOGO OF GKN SECURITIES APPEARS HERE]
, 1996
<PAGE>
[PHOTOS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
This prospectus contains references to trademarks of entities other than the
Company, which have reserved all rights with respects to their respective
trademarks.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, "Company" shall include the two
operating subsidiaries of the Company, SC Corporation, doing business under the
name SC Direct ("SC Direct"), and SC Publishing, Inc. ("SC Publishing"), a
wholly-owned subsidiary of SC Direct. Each prospective investor is urged to
read this Prospectus in its entirety.
THE COMPANY
The Company is a direct marketer targeting niche consumer product categories.
SC Direct, its principal operating subsidiary, is the leading U.S. retailer of
women's wigs and hairpieces. SC Publishing, a subsidiary of SC Direct, sells
continuing education courses to nurses, real estate professionals and Certified
Public Accountants ("CPA's").
SC Direct sells wigs and hairpieces primarily to women over the age of 50,
using three distinct catalogs: Paula Young (R), Christine Jordan (TM) and
Especially Yours (TM). In 1995, SC Direct mailed 20.9 million catalogs,
generating net sales of $37.3 million. SC Direct has developed a proprietary
data base consisting of approximately 5.6 million persons, including more than
875,000 active customers and more than one million active inquirers. Due to the
fact that wig wearers are difficult to find, the Company believes that its wig
database is unique and would be very expensive to replicate. The Company
believes that this poses a substantial barrier to entry for any potential
competitor.
Women over age 50, SC Direct's target market, is projected by the U.S. Census
Bureau to grow from 38.7 million women, or 38% of the total female population
in 1995, to 51.5 million women, or 45% of the total female population in 2010.
This growth is driven primarily by aging "baby-boomers." The Company believes
that only approximately five million, or 25%, of the 20 million American women
with thinning hair currently wear wigs, and that, accordingly, there is
substantial opportunity for future growth of SC Direct's business.
SC Direct's strategy for its core business is to exploit new distribution
opportunities for wigs and hairpieces and to sell additional products to its
customers. For example, in the last three years, SC Direct has introduced its
upscale Christine Jordan catalog and its Especially Yours catalog for African-
American customers, expanded into international markets and begun a test
program selling to hair salons.
In 1995, SC Direct launched its Paula's Hatbox (TM) catalog through which it
sells a variety of fashion hats to women. The Company believes that the market
for fashion hats has niche characteristics similar to those of the wig market.
In addition, SC Direct intends to enter a new market by testing men's wigs in
the Paula Young catalog in early 1997.
The Company utilizes primarily a two-step marketing program. Step one
involves obtaining prospective customers through a targeted advertising
program. Step two, which commences when a prospective customer responds
favorably to step one of the program, involves sending such prospective
customer a series of catalogs designed to elicit an initial sale. Through this
program, the Company has been able to convert 15% to 20% of persons who request
catalogs into customers. Because this program involves targeted mailings only
to persons who have shown an interest in its products, the Company has also
been able to reduce its exposure to increases in paper, postage and other
catalog production costs.
3
<PAGE>
SC Publishing offers nurses, real estate agents and CPA's home study
continuing education through the Western Schools(R) catalogs. SC Publishing's
strategy is to build its business by offering additional products and programs
to its core customers and by expanding into new and related professional
fields. In 1995, SC Publishing mailed 8.4 million catalogs generating net sales
of $5.3 million.
The Company intends to build its existing niche markets and enter new niche
markets both by internal expansion and through acquisitions. Niche markets are
characterized by smaller market size, unique or hard to find products, or hard
to locate customers. The Company plans to implement its two-step marketing
program in new and acquired businesses where appropriate.
The catalog industry is very fragmented, with over 8,000 catalogs currently
being circulated. Many catalog retailers, especially the smaller ones, are
finding it difficult to grow due to a combination of capital constraints,
higher costs and an inability to achieve sufficient operating economies of
scale. This situation was exacerbated by substantial increases in paper and
postage costs in 1995. The Company believes that this environment will create
many acquisition opportunities, allowing it to select acquisition candidates
that provide either strategic growth to its existing businesses or an
opportunity to enter additional niche markets.
The Company was incorporated in Delaware on November 30, 1994, as a holding
company for SC Direct and SC Publishing. The principal executive offices of the
Company are located at 21 Bristol Drive, South Easton, Massachusetts 02375 and
its telephone number is (508) 238-0199.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered........................................... 1,250,000 shares
Common Stock Outstanding Prior to this Offering................ 3,201,666 shares
Common Stock to be Outstanding After this Offering............. 4,451,666 shares
Proposed Nasdaq National Market Symbol......................... CTLG
</TABLE>
USE OF PROCEEDS
The Company intends to apply the net proceeds of this Offering to repay $5.9
million of the Company's Senior Indebtedness (as defined herein), including (i)
$1.5 million to pay down the outstanding amount under the revolving credit
portion of the Senior Indebtedness; (ii) $1.8 million of the Senior
Indebtedness which is due within one year of the date hereof; and (iii) $2.6
million of the Senior Indebtedness which is due more than one year following
the date hereof. The remaining $2.0 million will be used for working capital
and general corporate purposes. See "Use of Proceeds."
RISK FACTORS
The securities offered hereby involve a high degree of risk, including
without limitation: substantial indebtedness; pledge of assets; substantial
portion of proceeds used to pay debt; broad discretion in application of
remaining proceeds; possible inability to refinance senior indebtedness;
working capital deficit; negative net worth; recent decrease in net sales and
net income; effectiveness of catalogs and advertising; postal rates, paper
prices and media costs; limited sources of fiber and limited number of wig
manufacturers. See "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The summary financial data presented below, except for the summary operating
data, as of and for the fiscal years ended January 1, 1994, December 31, 1994
and December 30, 1995 is derived from the audited financial statements of the
Company included herein. The financial data for fiscal years ended December 28,
1991 and January 2, 1993 and the financial data for the six months ended July
1, 1995 and June 29, 1996 except for the summary operating data, are derived
from the unaudited financial statements of the Company. In the opinion of
management, the summary financial data presented below as of and for the six
months ended July 1, 1995 and June 29, 1996 include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for these periods. The six month
results are not necessarily indicative of the results to be expected for the
full year. This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company, including the notes thereto, appearing
elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL AS ADJUSTED(6)
------------------------------------------------------------------- ----------------------
FISCAL YEAR ENDED SIX MONTHS ENDED FISCAL YEAR SIX MONTHS
------------------------------------------------ ----------------- ENDED ENDED
DEC. 28, JAN. 2, JAN. 1, DEC. 31, DEC. 30, JULY 1, JUNE 29, DEC. 30, JUNE 29,
1991 1993 1994 1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AVERAGE ORDER SIZE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales(1)............ $ 30,817 $ 32,430 $ 33,801 $38,179 $42,568 $22,419 $18,754 $42,568 $18,754
Interest expense, net... 3,242 3,080 431 661 1,918 958 909 1,343 623
Income (loss) before
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary item..... (5,876) (2,136) 992 710 522 554 149 872 322
Net income (loss)(2).... $ (5,897) $ (2,136) $ 9,977 $12,789 $ 522 $ 554 $ 149 $ 872 $ 322
EARNINGS (LOSS) PER
COMMON SHARE:
Income (loss) before
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary item..... $ (2.09) $ (0.76) $ 0.33 $ 0.22 $ 0.08 $ 0.13 $ 0.00 $ 0.17 $ 0.06
Net income (loss)(3).... $ (2.09) $ (0.76) $ 3.30 $ 4.22 $ 0.08 $ 0.13 $ 0.00 $ 0.17 $ 0.06
SUMMARY OPERATING DATA:
Total catalog
circulation(4)......... 17,122 17,562 18,807 22,623 29,342 15,337 12,882
Active customer file.... 762 890 941 1,094 1,096 1,254 1,222
Average order size...... $ 56.17 $ 57.98 $ 60.82 $ 60.27 $ 61.05 $ 60.05 $ 62.85
BALANCE SHEET DATA:
Working capital......... $ (3,480) $ (30) $ 157 $ 2,114 $ 649 $ 2,248 $ (185) $ 1,895
Total assets............ 10,756 6,150 19,142 17,364 18,170 18,756 17,777 20,697
Long-term debt(5)....... (28,461) 31,621 30,125 15,180 12,876 14,836 11,813 9,343
Redeemable preferred
stock.................. -- -- -- 2,249 2,249 2,249 2,249 --
Stockholders' equity
(deficiency)........... $(28,222) $(30,358) $(20,381) $(4,654) $(4,416) $(4,245) $(4,413) $ 4,118
</TABLE>
- --------
(1) Net sales for the fiscal years ended December 28, 1991 and January 2, 1993
exclude sales from subsidiaries that were sold in 1993. See the financial
statements and the notes thereto.
(2) Net income reflects for the fiscal year ended January 1, 1994, a gain of
$8,985,122 from the cumulative effect of change in accounting for income
taxes and for the fiscal year ended December 31, 1994, a gain from
extraordinary item of $12,078,489 resulting from the forgiveness of debt
upon the Company's emergence from bankruptcy.
(3) Earnings per share for each fiscal year of the Company is computed by
dividing net income after preferred dividends for such fiscal year by the
weighted average number of shares of Common Stock and common stock
equivalents outstanding during such fiscal year. See the financial
statements and the notes thereto.
6
<PAGE>
(4) Reflects number of customers who are being mailed catalogs at the end of
each period.
(5) Long term debt reflects for fiscal years ended January 2, 1993 and January
1, 1994 amounts subject to settlement under reorganization proceedings.
(6) Adjusted to reflect as of January 1, 1995: (i) the sale of 878,957 shares
by the Company in this Offering at an estimated initial public offering
price of $7.50 per share less the Underwriters discount; (ii) the
application of the estimated net proceeds therefrom to repay $5.9 of Senior
Indebtedness as described in "Use of Proceeds;" and (iii) the issuance of
the Warrants (as defined below).
Unless otherwise indicated, the information in this Prospectus does not give
effect to: (i) 500,000 shares of the Company reserved for issuance under the
Company's 1996 Stock Option Plan ("Plan"), of which options to purchase 252,150
shares of Common Stock have been granted; (ii) 187,500 shares which may be
issued upon exercise of the Underwriter's over-allotment option; (iii) 125,000
shares reserved for issuance pursuant to the Underwriter's Purchase Option;
(iv) 657,999 shares reserved for issuance upon exercise of other outstanding
options issued to Steven L. Bock and Stephen M. O'Hara, the Company's Chief
Executive Officer and President, respectively ("Officers' Options"); and (v)
265,335 shares reserved for issuance upon exercise of certain outstanding
warrants issued to a director and others ("Warrants"). Unless otherwise
indicated, the number of shares of Common Stock and all per share information
gives effect to: (x) the 325.51 for 1 stock split to be effected immediately
prior to effectiveness of the registration statement of which this prospectus
is a part ("Registration Statement") and (y) the conversion, on a pro rata
basis, of 22,491 shares ($2,249,100 face amount) of 13% preferred stock ("13%
Preferred Stock") into 375,000 (post-split) shares of Common Stock immediately
prior to this Offering ("Preferred Conversion").
7
<PAGE>
REORGANIZATION
The Company was incorporated on November 30, 1994 for the purpose of
becoming the parent company of SC Corporation. SC Corporation was incorporated
in February 1989 and in March 1989 acquired four companies engaged in the
catalog business: Wigs by Paula, Inc. ("Wigs"), the predecessor of SC Direct;
Western Schools Inc., the predecessor of SC Publishing; After the Stork, Inc.
("Stork"), a children's apparel company; and Brotman's Inc. and Fabrics in
Vogue ("Brotman"), a company selling fabrics to people who sew at home. These
companies could not support the indebtedness borrowed by SC Corporation in
order to consummate the acquisitions, and SC Corporation and each of its four
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code ("Bankruptcy") in the United States
Bankruptcy Court for the District of Connecticut ("Bankruptcy Court") on
December 28, 1992. From that date until November 23, 1994, SC Corporation
operated its business as debtor-in-possession, subject to the jurisdiction of
the Bankruptcy Court.
SC Corporation's Disclosure Statement with respect to the First Amended and
Restated Joint Plan of Reorganization of SC Corporation, Wigs and SC
Publishing ("Plan of Reorganization") was approved by the Bankruptcy Court on
September 21, 1994. The Plan of Reorganization was subsequently confirmed by
the Bankruptcy Court on October 25, 1994, and the reorganization of SC
Corporation was consummated on November 23, 1994.
The Plan of Reorganization provided for the payment of cash in settlement of
secured, unsecured and administrative claims. The gain on the discharge of
pre-petition claims was recorded as an extraordinary item of $12,078,489, net
of income taxes. The Company funded the Plan of Reorganization by issuing
Common Stock and 13% Preferred Stock, entering into a new senior credit
facility ("Senior Indebtedness") and issuing subordinated notes ("Subordinated
Indebtedness"). Subsequent to the Plan of Reorganization, certain
stockholders, who are also the holders of the subordinated notes, placed such
notes into a newly created limited liability company, SC Holdings L.L.C.
("Holdings"). Holdings serves as a guarantor of the Senior Indebtedness. See
"Certain Transactions."
Pursuant to the Plan of Reorganization, the Company emerged from bankruptcy
in November 1994, subject to one outstanding income and sales tax claim
asserted by the Commonwealth of Massachusetts. Massachusetts has claimed a
payment due of $61,000 and the Company has fully accrued this amount.
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and involve a high
degree of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider, along with the other matters
referred to herein, the following risk factors.
SUBSTANTIAL INDEBTEDNESS; PLEDGE OF ASSETS. The Company's Senior
Indebtedness consists of a $16.0 million credit facility ($14.0 million term
loan and $2.0 million revolving credit line) of which an aggregate of $11.9
million was outstanding on June 29, 1996. In addition, as of July 1, 1995,
$4.4 million of principal and accrued interest was outstanding on its
Subordinated Indebtedness and, as of August 15, 1996, approximately $495,000
of principal and interest was outstanding on its junior subordinated debt
("Junior Subordinated Indebtedness"). The Company's Senior Indebtedness
requires that approximately $3.8 million in interest and principal be paid in
1996, of which $1.7 million has been paid as of June 29, 1996, $825,000 will
be paid during the third quarter of 1996 and the balance will be paid in the
fourth quarter of 1996. Substantially all of the Company's assets are pledged
to secure the Senior Indebtedness, which, among other things, prohibits
mergers, sales of assets, payment of dividends and creation of liens, and
restricts borrowings and capital expenditures. In the event of a default,
Banque Nationale de Paris ("BNP"), the senior lender, could foreclose on its
security interest in the Company's assets. Such action would have a material
adverse effect on the Company's business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Notes to Financial Statement."
SUBSTANTIAL PORTION OF PROCEEDS USED TO PAY DEBT; BROAD DISCRETION IN
APPLICATION OF REMAINING PROCEEDS. Approximately $5.9 million, or 74.7%, of
the net proceeds from this Offering (assuming an initial public offering price
of $7.50) will be used to repay part of the Senior Indebtedness. Furthermore,
the Company will have broad discretion as to the application of the remaining
$2.0 million of proceeds allocated to working capital and general corporate
purposes. See "Use of Proceeds."
POSSIBLE INABILITY TO REFINANCE SENIOR INDEBTEDNESS. Following the
application of the proceeds of this Offering to repay a portion of the Senior
Indebtedness, approximately $5.4 million of the Senior Indebtedness will
remain outstanding. As part of its credit agreement with BNP, the Company is
obligated to pay an additional fee of $625,000, increasing periodically to
$1.0 million on November 22, 1998, upon any future default, prepayment, change
in control, or with the final loan payment ("Additional Fee"). BNP has agreed
to waive the Additional Fee if the Senior Indebtedness is repaid in full on or
before March 31, 1997. The Company intends to refinance the Senior
Indebtedness and the Subordinated Indebtedness prior to March 31, 1997.
Failure to refinance the Senior Indebtedness by March 31, 1997 will obligate
the Company to pay the Additional Fee to BNP, which will have a negative
impact on the Company's liquidity and earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
WORKING CAPITAL DEFICIT; NEGATIVE NET WORTH; RECENT DECREASE IN NET SALES
AND NET INCOME. The Company has had in the past and continues to have a
working capital deficit and a negative net worth. As of June 29, 1996 the
Company had a working capital deficit of $605,000 and a negative net worth of
$4.4 million. Results of operations for the six months ended June 29, 1996
show a decline in net sales and net income versus the prior year. Net sales
decreased $3.7 million, or 16.4%, from $22.4 million for the six months ended
July 1, 1995 to $18.7 million for the six months ended June 29, 1996. Net
income declined by $405,000, or 73.1%, from $555,000 for the six months ended
July 1, 1995 to $149,000 for the six months ended June 29, 1996. Although the
Company believes that these results are not indicative of the Company's future
performance, there can be no assurance that the Company's future results will
improve or that the decline in net sales and net income will not be reflective
of the future results of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
EFFECTIVENESS OF CATALOGS AND ADVERTISING. The Company targets potential new
customers through its advertising programs and solicits orders from existing
customers through catalog marketing campaigns. Catalog marketing campaigns and
advertising are working capital intensive and the success of such activities
depends, to
9
<PAGE>
a large extent, upon the accuracy of assumptions and judgments made by the
Company. The Company must continuously identify new customers with its
advertising programs and stimulate new purchases from existing customers with
its catalog marketing campaigns in order to be successful. There can be no
assurance that such advertising and catalog mailings will result in attracting
new customers at the rate required to maintain profitability or continue to
produce sales from its existing customers. The failure of such activities to
identify new customers or to generate new purchases from existing customers
may have a material adverse effect on the Company's business and its results
of operations. See "Business--Wigs--Marketing" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
POSTAL RATES, PAPER PRICES AND MEDIA COSTS. Postage, shipping and paper
costs are significant expenses in the operation of the Company's business. The
Company mails its catalogs and generally ships its products to customers
through the U.S. Postal Service and, at the customer's request and expense,
ships its products by overnight and second day delivery services. The Company
passes on the costs of mailing its products directly to customers as separate
shipping and handling charges, but does not directly pass on paper costs and
the costs of mailing its catalogs. Effective January 1, 1995, postal rates for
mailing the Company's catalogs increased 14.3%. The cost of paper also
increased significantly in 1995. Any future increases in postal or shipping
rates or paper costs will have an adverse effect on the Company's operating
results if the Company is unable to pass on these increases to its customers.
In addition, a rise in media costs could have a material adverse effect on the
Company's ability to generate new customers. "See Business--Wigs--Marketing."
LIMITED SOURCES OF FIBER. The majority of the Company's revenues is derived
from the sale of wigs. Virtually all of the wigs sold by the Company are made
from special synthetic fiber manufactured by only two Japanese companies,
Kaneka Corporation and Toyo Chemical Corporation. The wig manufacturers from
whom the Company purchases its inventory purchase the fiber from these two
fiber manufacturers. Should there be a permanent or long-term disruption in
the supply of fiber, the Company believes that the time required to obtain an
alternate source and the attendant delay in new production, as well as a
possibly significant increase in the price of fiber, may have a material
adverse effect on the Company's wig and hairpiece sales and profit margin. See
"Business--Wigs--Products."
LIMITED NUMBER OF WIG MANUFACTURERS. The wigs sold by the Company are
produced by a limited number of manufacturers. Each of the five largest
manufacturers represented between 8% and 25% of the Company's overall wig
purchases in the first half of 1996. The loss of one or more of these
manufacturers could materially disrupt the Company's wig operations. Although
the Company believes that it could find alternative manufacturers for its wigs
and is regularly evaluating new manufacturers, there can be no assurance that
such manufacturers could be found without considerable disruption to the
Company's purchasing cycles, inventory levels, and profit margins. The Company
does not currently have, and does not anticipate entering into in the
foreseeable future, long-term supply contracts with its manufacturers. See
"Business--Wigs--Products" and "Business--Operations--Purchasing."
RISK OF PHYSICAL DISASTER. Substantially all of the Company's telemarketing,
customer service and management information systems functions are housed in
the Company's main facility in South Easton, Massachusetts. Although the
Company has a disaster recovery program and creates a daily back-up tape of
customer list and computer information and sends such tapes on a weekly basis
for off-site storage, a significant disruption or loss affecting the telephone
or computer systems, or any significant damage to the Company's headquarters,
could have a material adverse effect on the Company's business. Although the
Company maintains $10 million of business interruption insurance, there can be
no assurance that a physical disruption to the Company's business or
operations would be adequately covered by such insurance. See "Business--
Operations."
RISK OF A CURE FOR HAIR LOSS; CANCER TREATMENT IMPROVEMENT. Millions of
American women suffer varying degrees of hair loss. These women comprise a
significant percentage of the Company's customer base for its wigs and
hairpieces. Ongoing research is conducted by numerous groups, both public and
private, seeking remedies for hair loss. One drug, Minoxidil (primarily
marketed under the name Rogaine(R)), is now available
10
<PAGE>
over the counter and is sold to men and women as a measure against hair loss.
There can be no assurance that a new drug will not be developed that could
prevent hair loss among women. Such an event could have a material adverse
effect on the Company's core wig business. In addition, any new cancer
therapies that would eliminate hair loss as a side effect of treatment could
have a material adverse effect on the Company's business. See "Business--
Wigs--Industry and Market."
DEPENDENCE UPON FOREIGN SUPPLIERS; EXCHANGE RATES; CURRENCY
FLUCTUATIONS. All of the wigs purchased by the Company, including those
purchased from domestic importers, are manufactured in Asia. The Company
expects that it will continue to purchase most of its wig merchandise from
foreign suppliers in the future. Accordingly, the Company's operations are
subject to the customary risks of doing business abroad, including
fluctuations in the value of currencies, export duties, quotas, work stoppages
and, in certain parts of the world, political instability and possible
governmental intervention. Since the Company pays for its wigs in U.S.
dollars, the cost of wigs may be adversely affected by an increase in the
relative value of the relevant foreign currencies against the U.S. dollar.
Although the Company has not, to date, experienced any significant effect on
its business operations associated with such risks, no assurance can be given
that such risks will not result in a material effect in the future. See
"Business--Wigs--Products."
RELIANCE ON KEY PERSONNEL. The Company's performance is substantially
dependent on the performance of its executive officers and key employees. The
loss of the services of any its key employees, particularly Steven L. Bock,
its Chairman and Chief Executive Officer, or Stephen M. O'Hara, its President,
could have a material adverse effect on the Company's business, financial
condition or operating results. The Company has three year employment
agreements with Messrs. Bock and O'Hara. The Company currently maintains an
$8.5 million key person life insurance policy on Mr. Bock and a $5.5 million
key person life insurance policy on Mr. O'Hara, although those amounts may be
reduced. See "Business--Employees" and "Management."
PRIOR BANKRUPTCY. SC Corporation was formed in 1989 to effect a leveraged
buy-out of four catalog companies, including the Company's present operating
subsidiaries, SC Direct and SC Publishing. Mr. Bock was a principal in the
original investment group that formed SC Direct in 1989. On December 28, 1992,
as a result of its inability to service then existing debt requirements, SC
Direct and each of its four subsidiaries filed voluntary petitions for
bankruptcy under Chapter 11 of the United States Bankruptcy Code. From that
date until November 23, 1994, SC Direct operated its business as debtor-in-
possession subject to the jurisdiction of the Bankruptcy Court. Pursuant to
the Plan of Reorganization, the Company emerged from the Bankruptcy in
November 1994, subject to one outstanding income and sales tax claim asserted
by the Commonwealth of Massachusetts. Massachusetts has claimed a payment due
of $61,000 and the Company has fully accrued this amount. Messrs. Bock and
O'Hara, who currently serve as executive officers of the Company, were, prior
to and during the Bankruptcy, executive officers of SC Direct or its
predecessors. See "Reorganization."
COMPETITION. The Company encounters competition in all segments of its
business. The Company competes directly with other direct mail catalog
retailers and numerous other retail sources of products which are the same as,
or similar to, those products sold by the Company through its catalogs. Some
of the Company's competitors have greater financial and marketing resources
than the Company. Potential competition may emerge via new distributions
channels such as the Internet and interactive television. See "Business--
Competition."
POSSIBLE TERMINATION OF LEASES. The Company leases two buildings in South
Easton, Massachusetts. Under the terms of the leases, the landlords and the
Company have the right to terminate the leases upon four month's notice. The
Company believes that, in the event that either or both landlords give the
Company notice, the Company could move to a new facility within four months.
Nonetheless, there can be no assurance that the Company will find an
appropriate space within four months or that the process of moving and
restarting operations in a new site would not have a material adverse effect
on the Company's operations. See "Business--Facilities."
UNCERTAINTY AND EXPENSE OF INTELLECTUAL PROPERTY LITIGATION. The Company
currently has several registered trademarks and may seek additional legal
protection for its products and trade names. Intellectual
11
<PAGE>
property litigation can be expensive and time-consuming. The Company does not
currently know of any lawsuit alleging the Company's infringement of
intellectual property rights that could have a material adverse effect on the
Company's business. There can be no assurance, however, that any such lawsuit
will not be filed against the Company in the future or, if such a lawsuit is
filed, that the Company would ultimately prevail. See "Legal Proceedings."
CONTINUED CONTROL BY CURRENT MANAGEMENT. Upon completion of this Offering,
the Company's directors and executive officers and their affiliates will
control approximately 72.4% of the outstanding shares of Common Stock. As a
result, current management will be able to elect the entire Board of Directors
of the Company, thereby enabling them to control all major decisions of the
Company. Furthermore, such concentration of ownership may have the effect of
preventing a change in control of the Company. See "Dilution," "Principal
Stockholders" and "Description of Securities."
MANAGEMENT OF GROWTH. The Company has experienced significant growth in
recent years, and this growth has placed significant demands on the Company's
managerial, operational and financial resources. The Company is dependent on
its ability to retain and motivate high quality personnel, especially its
management, marketing and merchandising executives and other key employees,
and the inability of the Company to do so would have a material adverse affect
on the Company's business, financial condition and operating results. In
addition, the Company's operations are dependent upon the accuracy, capability
and proper utilization of the Company's management information systems,
including its computers and telephone systems, which the Company will need to
expand and enhance on a regular basis to support its planned growth and to
remain competitive. There can be no assurance that if the Company continues to
grow, management will be effective in attracting and retaining additional
qualified personnel, expanding the Company's physical facilities, integrating
acquired businesses or otherwise managing growth. If the Company is unable to
manage growth effectively, the Company's business, results of operations and
financial condition could be materially adversely affected. See "Business" and
"Management."
ABSENCE OF PRIOR PUBLIC MARKET. Prior to this Offering, there has been no
public market for the Common Stock of the Company and there can be no
assurance that an active trading market for the Common Stock will develop or
be sustained after this Offering. The initial public offering price has been
determined solely by negotiation between the Company and the Underwriter based
on a number of factors and may not be indicative of the market price for the
Common Stock after this Offering. The trading price of the Company's Common
Stock is expected to be subject to significant fluctuations in response to
variations in quarterly operating results, changes in analysts' earnings
estimates, general conditions in the wig industry and other factors. In
addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies and that are often unrelated to
operating performance. See "Distribution" and "Underwriting."
LIMITATION ON USE OF NOL'S. The Company currently has recorded a deferred
tax asset reflecting the benefit of approximately $18 million of net operating
loss carryforwards ("NOL's") available for federal and state income tax
purposes, which expire from 2005 through 2010. The Company believes that the
present Offering will result in an "ownership change" under Section 382 of the
Internal Revenue Code and, as a result, the Company's ability to use its "pre-
change" NOL's will be limited to between $1.5 million and $2.0 million in each
fiscal year following this Offering. While realization is dependent on
generating sufficient taxable income prior to expiration of the loss
carryforwards, the Company believes it is more likely than not that all of the
deferred tax asset will be realized. However, there can be no assurance that
the Company will be able to use the NOL's. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
STATE SALES TAX COLLECTION. In 1994, the United State Supreme Court
reaffirmed an earlier decision that allowed direct marketers to make sales
into states where they do not have a physical presence without collecting
sales taxes but noted that Congress has the power to change this law. The
imposition of an obligation to collect sales taxes may have a negative effect
on the Company's response rates and may require the Company to incur
administrative costs in collecting and remitting the sales taxes. The Company
believes that Massachusetts is the only jurisdiction where it is currently
required to collect sales taxes. See "Business--Government Regulations."
12
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the
public market after this Offering could adversely affect the market price of
the Common Stock. See "Management--1996 Stock Option Plan," and "Description
of Securities" and "Shares Eligible for Future Sale."
ANTITAKEOVER MATTERS; POTENTIAL ADVERSE EFFECT OF FUTURE ISSUANCES OF
AUTHORIZED PREFERRED STOCK. The Company's Certificate of Incorporation and By-
laws contain certain provisions that may delay, defer or prevent a takeover of
the Company. The Company's Board of Directors has the authority to issue up to
1,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"), and to determine the price, rights, preferences and restrictions,
including voting rights, of those shares, without any further vote or action
by the stockholders. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue Preferred Stock, with such rates of dividends,
redemption provisions, liquidation preferences, voting rights, conversion
privileges and other characteristics as the Board of Directors may deem
necessary. The rights of holders of Common Stock will be subject to, and may
be adversely affected by, the rights of holders of any Preferred Stock that
may be issued in the future. The Company's By-laws include provisions
establishing advance notice procedures with respect to stockholder proposals
and director nominations and permit special stockholder meetings to be called
only by the Board of Directors or the Chief Executive Officer. In addition,
the Company is subject to certain anti-takeover provisions of the Delaware
General Corporation Law ("DGCL"). Such provisions could adversely affect the
holders of the Common Stock and could discourage, delay or prevent a takeover
of the Company. See "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION. The purchaser of the Common Stock
offered hereby will incur immediate and substantial dilution of $6.57 or,
87.6%, representing the difference between the net tangible book value of the
Common Stock immediately after this Offering and the assumed initial public
offering price of the Common Stock. See "Dilution."
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. Immediately after this Offering,
not including the Underwriter's Purchase Option, there will be outstanding
options and warrants to purchase, in the aggregate 1,175,484 shares of Common
Stock at per share exercise prices ranging from $0.31 to the initial public
offering price. These options and warrants consist of: (i) options to purchase
252,150 shares of common stock at the initial public offering price granted
under the Plan, 10,000 of which are currently exercisable; (ii) Officers'
Options to purchase 657,999 shares of Common Stock, consisting of options to
purchase 582,999 shares at $0.31 per share, of which options to purchase
528,444 shares are currently exercisable, and options to purchase 75,000
shares at $5.33 per share, none of which are currently exercisable; and (iii)
Warrants to purchase 265,335 shares at $1.88, all of which are currently
exercisable. The exercise of the foregoing options and warrants and the
Underwriter's Purchase Option will dilute the percentage ownership of the
Company's stockholders and any sales in the public market of shares of Common
Stock underlying such securities may adversely affect the prevailing market
price for the Common Stock. Moreover, the terms upon which the Company will be
able to obtain additional equity capital may be adversely affected since the
holders of the outstanding securities will, to the extent they are able,
likely exercise them at a time when the Company could, in all likelihood,
obtain any needed capital on terms more favorable to the Company than those
provided in the options and the warrants. See "Dilution."
NO DIVIDENDS. The Company has never paid cash dividends on the Common Stock.
The Company intends to retain any future earnings to finance its growth.
Accordingly, any potential investor who anticipates the need for current
dividends from an investment in the Common Stock should not purchase any of
the shares of Common Stock offered hereby. The Company's Senior Indebtedness
contains, and the Company anticipates that any future credit facility or other
indebtedness that the Company may enter into or incur would contain, a
prohibition against the payment of cash dividends and certain restrictions on
the payment of non-cash dividends. See "Dividend Policy."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, assuming an initial public offering price of $7.50 per share, are
estimated to be $7,900,000, or $9,159,000 if the Underwriter's over-allotment
option is exercised in full, after deducting the estimated underwriting
discounts and offering expenses payable by the Company. Of this amount, $5.9
million, or 74.7% of the net proceeds, will be used to repay a portion of the
Senior Indebtedness, including (i) $1.5 million to pay down the outstanding
amount under the revolving credit portion of the Senior Indebtedness; (ii)
$1.8 million of the Senior Indebtedness which is due within one year of the
date hereof; and (iii) $2.6 million of the Senior Indebtedness which is due
more than one year following the date hereof. The Company's Senior
Indebtedness consists of a $14.0 million term loan which bears interest at
3.5% above certain LIBOR rates and matures on May 22, 1999; and a $2.0 million
revolving credit facility, which bears interest at 2% over the prime rate and
matures on May 22, 1999. An aggregate of $11.9 million was outstanding under
the Senior Indebtedness on June 29, 1996.
The remainder of the net proceeds of this Offering, estimated to be
approximately $2.0 million, or 25.3% of the net proceeds ($3.3 million, or
35.6% of the net proceeds, if the Underwriter's over-allotment option is
exercised in full), will be used for general corporate purposes, including
capital expenditures and working capital.
The Company plans to use its available working capital, including cash flow
from operations and net proceeds of this Offering allocated to working
capital, to: (i) advertise, produce and mail catalogs and (ii) increase direct
purchasing of wigs and hairpieces. Depending on the Company's business needs
and cash flow, additional amounts of the Company's remaining Senior
Indebtedness may be repaid from the net proceeds of this Offering allocated to
working capital. In addition, if a suitable opportunity arises, the Company
may also use a portion of the net proceeds of this Offering allocated to
working capital as part of the financing for an acquisition. The Company has
no agreement or understanding, nor is it engaged in any negotiations, with
respect to any acquisition.
The Company anticipates, based on current plans and assumptions relating to
its operations, that the proceeds of this Offering, together with existing
resources and cash generated from operations, should be sufficient to satisfy
the Company's anticipated cash requirements for at least 12 months after
completion of this Offering. After that time, the Company believes that income
from operations should satisfy the Company's working capital needs; however,
there can be no assurance that this will be the case. Net proceeds not
immediately required for the purposes described above will be invested in
United States government securities, short-term certificates of deposit, money
market funds or other short-term interest-bearing government obligations.
The allocation of the net proceeds of this Offering represents the Company's
best estimate based upon its current plans and certain assumptions regarding
industry and general economic conditions and the Company's future revenues and
expenditures. If any of these factors change, the Company may find it
necessary or advisable to reallocate some of the proceeds within the above
described categories or may be required to seek additional financing. There
can be no assurance that additional financing will be available to the Company
on acceptable terms, or at all. Any failure to obtain additional financing, if
required, could have a material adverse effect on the Company.
14
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 29, 1996. The pro forma gives effect to the Junior Subordinated
Indebtedness the issuance of the Warrants, the irrevocable waiver of accrued
dividends on the 13% Preferred Stock in August 1996, the Preferred Conversion,
and the grant of Options to purchase 75,000 shares of Common Stock at an
exercise price of $5.33 per share to Steven L. Bock, the Company's Chairman
and Chief Executive Officer. The pro forma as adjusted gives effect to all of
the above, plus the sale by the Company of 1,250,000 shares of Common Stock
offered hereby at an estimated initial public offering price of $7.50 per
share and the application of the estimated net proceeds therefrom as described
in "Use of Proceeds." This table should be read in conjunction with the
financial statements of the Company, including the notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 29, 1996
----------------------------------
PRO PRO FORMA,
ACTUAL FORMA(1) AS ADJUSTED(2)
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt......... $ 2,950 $ 2,950 $ 1,352
Revolving portion of line of credit....... 1,450 1,450 --
Long-term debt:
Non-current portion of long-term debt..... 7,450 7,450 4,598
Subordinated notes (1).................... 4,363 4,744 4,744
Accrued dividends......................... 511 -- --
Stockholders' equity:
Preferred Stock, $1.00 par value;
1,000,000 shares authorized, 22,491
shares issued and outstanding (2)........ 2,249 -- --
Common Stock, $.01 par value; 10,000,000
shares authorized, 2,826,666 shares
issued and outstanding at June 29, 1996,
3,201,666 outstanding on a pro forma
basis and 4,451,666 outstanding as
adjusted................................. 28 32 45
Additional paid-in capital................ 4,496 7,534 15,421
Note from stockholder..................... (140) (140) (140)
Deferred compensation..................... -- (162) (162)
Accumulated deficit....................... (11,046) (11,046) (11,046)
-------- -------- --------
Total stockholders' equity.............. (4,413) (3,782) 4,118
-------- -------- --------
Total capitalization.................... $ 12,311 $ 12,812 $ 14,812
======== ======== ========
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid cash or other dividends on its Common
Stock and it is currently the intention of the Company not to declare or pay
cash dividends on its shares of Common Stock. The payment of cash dividends in
the future will depend on the Company's earnings, financial condition, capital
needs and other factors deemed relevant by the Board, including statutory
restrictions on the availability of capital for the payment of dividends, the
rights of holders of any series of Preferred Stock that may hereafter be
issued and the limitations, if any, on the payment of dividends under any
then-existing credit facility or other indebtedness. The Company's Senior
Indebtedness contains, and the Company anticipates that any future credit
facility or other indebtedness that the Company may enter into or incur would
contain, a prohibition against the payment of cash dividends and restrictions
on the payment of non-cash dividends. It is the current intention of the Board
to retain earnings, if any, to finance the operations and expansion of the
Company's business.
15
<PAGE>
DILUTION
The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share of Common Stock
after this Offering constitutes the dilution per share of Common Stock to
investors in this Offering. Net tangible book value per share is determined by
dividing the net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock.
At June 29, 1996, the Company had a negative net tangible book value of
$3,782,166, or approximately negative $1.18 per share of Common Stock. After
giving effect to the sale of Common Stock offered hereby (assuming a price of
$7.50 per share less underwriting discounts and estimated expenses of this
Offering), the net tangible book value of the Company will be $4,117,868, or
approximately $.93 per share. This represents an immediate increase in net
tangible book value of $2.11 per share to the existing stockholders, and an
immediate dilution of approximately $6.57 per share to investors in this
Offering (or approximately 87.6% of the initial public offering price).
The following table illustrates the per share dilution without giving effect
to results of operations of the Company subsequent to June 29, 1996.
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $7.50
Net tangible book value per share before Offering........... $(1.18)
Increase in net tangible book value per share attributable
to new investors........................................... 2.11
Net tangible book value per share adjusted after Offering..... .93
-----
Dilution to new investors..................................... $6.57
=====
</TABLE>
The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid and the average price per share paid by the existing stockholders and by
new investors pursuant to this Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 3,201,666 71.9% $ 7,566,000 44.7% $2.36
New investors................... 1,250,000 28.1 9,375,000 55.3 $7.50
--------- ----- ----------- -----
Total......................... 4,451,666 100.0% $16,941,000 100.0%
========= ===== =========== =====
</TABLE>
16
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The selected financial data presented below, except for the selected
operating data, as of and for the fiscal years ended January 1, 1994,
December 31, 1994 and December 30, 1995 is derived from the audited financial
statements of the Company included herein. The financial data for fiscal years
ended December 28, 1991 and January 2, 1995 and the financial data for the six
months ended July 1, 1995 and June 29, 1996, except for the selected operating
data, are derived from the unaudited financial statements of the Company. In
the opinion of management, the summary financial data presented below as of
and for the six months ended July 1, 1995 and June 29, 1996, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for
these periods. The six month results are not necessarily indicative of the
results to be expected for the full year. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company,
including the notes thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA,
HISTORICAL AS ADJUSTED(7)
------------------------------------------------------------------- -------------------
YEAR SIX MONTHS
FISCAL YEAR ENDED SIX MONTHS ENDED ENDED ENDED
------------------------------------------------ ----------------- -------- ----------
DEC. 28, JAN. 2, JAN. 1, DEC. 31, DEC. 30, JULY 1, JUNE 29, DEC. 30, JUNE 29,
1991 1993 1994 1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AVERAGE ORDER SIZE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales (1)........... $ 30,817 $ 32,430 $ 33,801 $38,179 $42,568 $22,419 $18,754 $42,568 $18,754
Cost of sales(1)........ 13,608 14,367 13,868 15,648 16,423 8,859 7,003 16,423 7,003
-------- -------- -------- ------- ------- ------- ------- ------- -------
Gross profit(1)......... 17,209 18,063 19,933 22,531 26,145 13,560 11,751 26,145 11,751
Selling, general and
administrative(1)...... 19,843 16,939 16,768 17,772 22,835 11,156 10,591 22,835 10,591
Restructuring charges... -- -- -- -- 513 513 -- 513 --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (2,634) 1,124 3,165 4,759 2,797 1,891 1,160 2,797 1,160
Interest expense, net... 3,242 3,080 431 661 1,918 958 909 1,343 623
Reorganization items.... -- -- 1,038 2,890 -- -- -- -- --
-------- -------- -------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary item..... (5,876) (1,956) 1,696 1,208 879 933 251 1,454 537
Income taxes............ (21) 180 704 498 357 379 102 582 215
-------- -------- -------- ------- ------- ------- ------- ------- -------
Income (loss) before
cumulative effect of
change in accounting
principle and
extraordinary item..... $ (5,897) $ (2,136) $ 992 $ 710 $ 522 $ 554 $ 149 $ 872 $ 322
======== ======== ======== ======= ======= ======= ======= ======= =======
Net income (loss)(3).... $ (5,897) $ (2,136) $ 9,977 $12,789 $ 522 $ 554 $ 149 $ 872 $ 322
======== ======== ======== ======= ======= ======= ======= ======= =======
EARNINGS (LOSS) PER
COMMON SHARE:
Income (loss) before
extraordinary items and
cumulative effect of
accounting changes..... $ (2.09) $ (0.76) $ 0.33 $ 0.22 $ 0.08 $ 0.13 $ 0.00 $ 0.17 $ 0.06
Net Income (loss)(3).... $ (2.09) $ (0.76) $ 3.30 $ 4.22 $ 0.08 $ 0.13 $ 0.00 $ 0.17 $ 0.06
BALANCE SHEET DATA:
Working capital......... $ (3,480) $ (30) $ (157) $ 2,114 $ 649 $ 2,248 $ (185) $ 1,895
Total assets............ 10,756 6,150 19,142 17,364 18,170 18,756 17,777 20,697
Long-term debt(4)....... 28,461 31,621 30,125 15,180 12,876 14,836 11,813 9,343
Preferred Stock......... -- -- -- 2,249 2,249 2,249 2,249 --
Stockholders' equity
(deficit).............. $(28,222) $(30,358) $(20,381) $(4,654) $(4,416) $(4,245) $(4,413) $ 4,118
OTHER FINANCIAL &
OPERATING DATA:
EBITDA(5)............... $ (34) $ 3,122 $ 3,942 $ 5,508 $ 3,559 $ 2,009 $ 1,302
Total catalog
circulation(6)......... 17,122 17,562 18,807 22,623 29,342 15,337 12,882
Active customer file.... 762 890 941 1,094 1,096 1,254 1,222
Average order size...... $ 56.17 $ 57.98 $ 60.82 $ 60.27 $ 61.05 $ 60.05 $ 62.85
</TABLE>
17
<PAGE>
- --------
(1) For comparative purposes, certain subsidiaries that were sold at the end
of 1992 are not included in net sales, cost of sales and gross profit for
1991 and 1992. The combined gross profits of these certain subsidiaries of
$7,643,832 in 1991 and $7,513,099 in 1992 are netted against their related
expenses in selling general & administrative.
(2) Net income reflects for the fiscal year ended January 1, 1994, a gain of
$8,985,122 from the cumulative effect of change in accounting for income
taxes, and for the fiscal year ended December 31, 1994, a gain from
extraordinary item of $12,078,489 resulting from the forgiveness of debt
upon the Company's emergence from the Bankruptcy. See financial statements
and the notes thereto.
(3) Earnings per share for each fiscal year of the Company is computed by
dividing net income after preferred dividends for such fiscal year by the
weighted average number of shares of Common Stock and common stock
equivalents outstanding during such fiscal year. See the financial
statements and the notes thereto.
(4) Long-term debt reflects for fiscal years ended January 2, 1993 and January
1, 1994 amounts subject to settlement under reorganization proceeding.
(5) "EBITDA" is defined as operating income (loss) before depreciation and
amortization expense and, in 1995, restructuring costs relating to the
move of SC Publishing. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities,
and other income or cash flow statement data prepared in accordance with
generally accepted accounting principles, or as a measure of profitability
or liquidity, management understands that it is widely used by certain
investors as one measure to evaluate the financial performance of
companies in the direct marketing industry.
(6) Reflects the number of customers who are being mailed catalogs at the end
of each period.
(7) Adjusted to reflect as of January 1, 1995: (i) the sale of 878,957 shares
by the Company in this Offering at an estimated initial public offering
price of $7.50 per share less the Underwriters discount; (ii) the
application of the estimated net proceeds therefrom to repay $5.9 of
Senior Indebtedness as described in "Use of Proceeds;" and (iii) the
issuance of the Warrants (as defined below).
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, "1995" means the Company's fiscal year ended
December 30, 1995, "1994" means the Company's fiscal year ended December 31,
1994, "1993" means the Company's fiscal year ended January 1, 1994 and "1992"
means the Company's fiscal year ended January 2, 1993. The discussion and
analysis below should be read in conjunction with the Financial Statements of
the Company and the Notes to Financial Statements included elsewhere in this
Prospectus. In addition to historical information, the following Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including
those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company is a direct marketer targeting niche consumer product
categories. SC Direct, its principal operating subsidiary, is the leading U.S.
retailer of women's wigs and hairpieces. SC Publishing, a subsidiary of SC
Direct, sells continuing education courses to nurses, real estate
professionals and Certified Public Accountants.
In 1995, SC Direct's sales of women's wigs, hairpieces, accessories and hats
represented 87.6% of the Company's net sales. Since 1992, SC Direct's sales
have grown through: (i) expansion of its core Paula Young wig business; (ii)
introduction in 1993 of the upscale Christine Jordan wig catalog; (iii)
introduction in 1994 of the Especially Yours catalog, serving African American
women; and (iv) introduction in 1995 of the Paula's Hatbox catalog. In
addition, in 1995 the Company began selling directly to consumers in Canada.
The balance of the Company's sales come from SC Publishing's catalogs, which
sell continuing education courses to nurses, real estate agents and CPA's. SC
Publishing's sales have been between $4.0 million and $5.3 million over the
past 5 years. In July 1995, the Company moved SC Publishing from San Diego,
California to the Company's South Easton, Massachusetts facilities. The
Company encountered difficulties in integrating SC Publishing into its
operations in South Easton, resulting in disruptions to SC Publishing's
operations and a reduction in its 1995 operating profitability.
As a direct marketer, an important goal of the Company is to expand the size
and prevent the "aging" of, and maximize sales to, its customer file. To
acquire new customers and prevent the "aging" of its customer file, the
Company must continually expend working capital to maintain its advertising
program and convert the recipients of its catalogs into customers. In
addition, to retain and sell more to existing customers, the Company must
expend working capital for additional catalog mailings to these customers.
Reductions in advertising lead to declines in new customer prospects and,
therefore, new customers. In addition, the Company experiences a time lag
between advertising expenditures to gain new customer prospects and the
receipt of revenues generated by new customers.
As is typical in the catalog industry, the Company's business is also
affected by increases in paper, postage, print and other catalog production
costs. During a period of rising postage and paper costs, such as 1995, the
catalog industry faced substantial pressure on operating profits. The Company
believes that its niche focus allows it to target its mailings, thereby
reducing its exposure to increases in paper, postage and other catalog
production costs.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 29, 1996 COMPARED TO SIX MONTHS ENDED JULY 1, 1995.
Net sales decreased $3.6 million, or 16.1%, from $22.4 million for the six
months ended July 1, 1995 to $18.8 million for the six months ended June 29,
1996. This decline is primarily attributable to a decline in
19
<PAGE>
SC Direct's net sales to new customers which resulted from the Company's
decision to conserve working capital by limiting its advertising expenditures
during the second half of 1995 and first half of 1996. In addition, SC
Publishing had a net sales decline of approximately $700,000 due to a decision
to mail fewer prospecting catalogs.
Gross margins increased from 60.5% in the six months ended July 1, 1995 to
62.7% in the six months ended June 29, 1996 primarily due to lower product
costs. The Company has been able to reduce its costs of goods sold by
purchasing a greater percentage of wigs directly from overseas manufacturers
rather than from importers. In the six months ended June 29, 1996, the Company
purchased 55.1% of its wigs directly from manufacturers compared to 30.7% in
the six months ended July 1, 1995.
Selling, general administrative ("SG&A") expenses declined $600,000, or
5.4%, from $11.2 million in the six months ended July 1, 1995 to $10.6 million
in the six months ended June 29, 1996, as 2.5 million fewer catalogs were
circulated and advertising expenditures decreased by $1.3 million from the
year ago period. However, this decline was significantly offset by higher
market rates for postage and paper.
Net interest expense declined 5.1% from $958,000 in the six months ended
July 1, 1995 to $909,000 in the six months ended June 29, 1996, reflecting
lower interest rates and lower principal amounts outstanding on the Senior
Indebtedness.
1995 COMPARED TO 1994.
Net sales increased $4.4 million, or 11.5%, from $38.2 million in 1994 to
$42.6 million in 1995. These gains were primarily due to an increase in sales
to the Company's existing customer base, additional sales from new catalogs
and initiation of direct marketing efforts in Canada. Offsetting these gains
was a decline in new customer sales as higher media costs reduced advertising
reach.
Gross profit increased $3.6 million from $22.5 million in 1994 to $26.1
million in 1995, an increase in percentage of net sales from 59.0% in 1994 to
61.4% in 1995. An increase in the direct purchasing of wigs accounted for the
majority of the improvement in gross profit margins.
1995 SG&A expenses increased by $5.0 million, or 28.1%, from $17.8 million
in 1994 to $22.8 million in 1995. SG&A as a percentage of sales increased from
46.6% in 1994 to 53.6% in 1995, primarily as a result of sharp increases in
paper, postage and media costs. SG&A expenses did not include $512,000 of
restructuring expense relating to the relocation of SC Publishing's operations
to the Company's headquarters in Massachusetts.
Net interest expense increased from $661,000 in 1994 to $1.9 million in
1995, reflecting a full year of debt servicing costs on the Senior and
Subordinated Indebtedness incurred as part of the Company's reorganization in
November 1994.
1994 COMPARED TO 1993.
Net sales increased $4.4 million, or 13.0%, from $33.8 million in 1993 to
$38.2 million in 1994. This increase reflects the addition of new customers as
a result of a substantial increase in advertising levels late in 1993 and
early 1994 and an increase in sales from existing customers.
The Company's gross margin remained constant at 59.0% in 1993 and in 1994,
although gross profit increased $2.6 million as a result of the increase in
sales. Although the Company had a gain in margin due to an increase in the
direct purchasing of wigs, this gain was offset by a decline in SC
Publishing's gross margin due to a change in sales mix and lower prices.
20
<PAGE>
SG&A expenses increased $1.0 million, or 6.0%, from $16.8 million in 1993 to
$17.8 million in 1994. SG&A as a percentage of sales declined from 49.6% in
1993 to 46.5% in 1994. This resulted primarily from lower media and paper
costs.
Net interest expense increased $230,000, or 53.4%, from $431,000 in 1993 to
$661,000 in 1994 as a result of the interest expense incurred during the last
six weeks of 1994 on the Senior Indebtedness and Subordinated Indebtedness
incurred to finance the Company's Plan of Reorganization.
Reorganization expense increased from $1.0 million in 1993 to $2.9 million
in 1994, reflecting the use of additional legal, accounting and other
professional services needed to emerge from Chapter 11 and an additional
compensation expense of $533,000. An extraordinary gain of $12.1 million was
recognized in 1994, reflecting the forgiveness of debt upon the execution of
the Plan of Reorganization on November 23, 1994.
1993 COMPARED TO 1992.
Net sales increased $1.3 million, or 4.2%, from $32.5 million in 1992 to
$33.8 million in 1993 due to an increase in sales to existing Paula Young
customers as a result of improved catalog circulation offset by a decline in
new customer sales due to lower response to advertising.
Gross margin increased from 55.7% in 1992 to 59.0% in 1993 as a result of
the start of SC Direct's direct purchasing program, together with a
significant shift to lower cost importers for a substantial portion of its wig
purchases. SC Publishing's gross margins declined slightly as lower margin CPA
sales increased as a percentage of total SC Publishing sales.
SG&A expenses increased $500,000, or 3.1%, from $16.3 million in 1992 to
$16.8 million in 1993. This increase was due to an increase in advertising and
catalog production expense, plus an increase in fixed costs due to additional
personnel in the finance area to help in the bankruptcy proceedings.
Net interest expense decreased from $3.1 million in 1992 to $431,000 in 1993
as a result of no interest being accrued on $26.3 million of pre-bankruptcy
debt during 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company expends significant amounts of working capital for advertising,
inventory and catalog production costs in advance of the revenues generated by
these items. The Company has met its working capital needs primarily through
funds generated from operations and short-term bank financing. Because of the
need to amortize the Senior Indebtedness, there have been limited funds
available to expand the business.
The Company's Senior Indebtedness consists of a $16 million credit facility
($14 million term loan and $2 million revolving credit line), of which an
aggregate of $11.9 million was outstanding on June 30, 1996. The term loan
portion of the Senior Indebtedness is payable in installments, with the final
installment due on May 22, 1999, and bears interest at 3.5% above certain
LIBOR rates or, at the Company's option, at 2% over the prime rate. The
revolving portion is due on the maturity of the term loan and bears interest
at 2% over the prime rate. $5.9 million of the proceeds of this Offering are
being used to repay the Senior Indebtedness, including (i) $1.5 million to pay
down the outstanding amount under the revolving credit portion of the Senior
Indebtedness; (ii) $1.8 million of the Senior Indebtedness which is due within
one year of the date hereof; and (iii) $2.6 million of the Senior Indebtedness
which is due more than one year following the date hereof. The Company will be
able to reborrow under the revolving credit line following this Offering.
21
<PAGE>
In addition to principal and interest due under the Senior Indebtedness, the
Company is obligated to pay the Additional Fee to BNP in the event of any
future default, prepayment or change in control, or upon the final principal
payment in May 1999. The Additional Fee is currently $625,000 and will rise to
$1.0 million over the term of the Senior Indebtedness. On August 14, 1996, the
Company entered into a Second Amendment, Waiver and Consent ("Second
Amendment") with BNP. Pursuant to the Second Amendment, BNP consented to this
Offering and the Use of Proceeds of this Offering, amended certain financial
covenants, and agreed to waive the Additional Fee provided that BNP's Senior
Indebtedness is repaid in full on or prior to March 31, 1997. For a more
complete description of the Company's credit facilities see "Use of Proceeds"
and note 5 to the financial statements.
Pursuant to the Plan of Reorganization, certain of the Company's current
stockholders purchased $3.6 million of Subordinated Indebtedness. The
principal of the Subordinated Indebtedness is due December 1, 2002, subject to
a subordination agreement with BNP. The Subordinated Indebtedness bears
interest at 11.5%, payable semi-annually on June 1 and December 1; and the
Company may, at its option through November 22, 1999, and, under certain
conditions, through November 22, 2002, pay interest on the Subordinated
Indebtedness with additional notes containing identical terms and conditions
as the Subordinated Indebtedness. As of June 30, 1995, approximately $4.4
million, including accrued interest, was outstanding under the Senior
Indebtedness.
The Company has high amortization payments under the Senior Indebtedness.
The Company had little cash on hand at the end of any year, except 1993 when
it was in bankruptcy. Cash generated from operations plus $1.5 million of
borrowings under the revolving credit line have been used for working capital
and to pay principal and interest on the Senior Indebtedness. The term loan
portion of the Senior Indebtedness has been reduced from the original $14.0
million outstanding when the loan was obtained in November 1994 to $10.4
million at the end of June 1996. Capital expenditures average under $400,000
per year.
Due to its working capital constraints, on June 1, 1996 the Company entered
into an agreement with a director, Martin Franklin, and two associates of Mr.
Franklin, pursuant to which Mr. Franklin and such associates loaned $495,000
to the Company. This loan was made on August 9, 1996, bears interest at 11.5%,
and is due August 9, 1999, provided that this loan will not be repaid prior to
the repayment of the Subordinated Indebtedness. In addition, in connection
with such loan Mr. Franklin and his associates purchased for $5,000 a warrant
to acquire an aggregate of 265,335 shares of the Company's Common Stock at an
aggregate exercise price of $500,000. See "Certain Transactions" and Note 13
to the Financial Statements.
The Company anticipates that following this Offering and the application of
the proceeds to repay a portion of the Senior Indebtedness, there will be
approximately $5.4 million of Senior Indebtedness outstanding. The Company
plans to refinance the remaining Senior Indebtedness and the Subordinated
Indebtedness after this Offering. Should the Company be unable to secure a
lender to refinance both the Senior and Subordinated Indebtedness, the Company
will attempt to refinance only the Senior Indebtedness. The Company
anticipates, based on current plans and assumptions relating to its
operations, that the proceeds of this Offering, together with existing
resources and cash generated from operations, should be sufficient to satisfy
the Company's anticipated cash requirements for at least 12 months after
completion of this Offering. After that time, the Company believes that income
from operations should satisfy the Company's working capital needs; however,
there can be no assurance that this will be the case.
The Company currently has recorded a deferred tax asset reflecting the
benefit of approximately $18 million of NOL's available for federal and state
income tax purposes, which expire from 2005 through 2010. The Company believes
that the present Offering will result in an "ownership change" under Section
382 of the Internal Revenue Code and, as a result, the Company's ability to
use its "pre-change" NOL's will be limited to between $1.5 million and $2.0
million in each fiscal year following this Offering. While realization is
dependent on generating sufficient taxable income prior to expiration of the
loss carryforwards, the Company believes it is more likely than not that all
of the deferred tax asset will be realized. However, there can be no assurance
that the Company will be able to use the NOL's.
22
<PAGE>
SEASONALITY AND INFLATION
The Company's sales have been generally non-seasonal. The need-based profile
of the Company's wig and continuing education customers serves to minimize
seasonality, as opposed to the traditional seasonality of want-based
consumption.
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.
23
<PAGE>
BUSINESS
GENERAL
The Company is a direct marketer targeting niche consumer product
categories. SC Direct, its principal operating subsidiary, is the leading U.S.
retailer of women's wigs and hairpieces. SC Publishing, a subsidiary of SC
Direct, sells continuing education courses to nurses, real estate
professionals and CPA's.
SC Direct sells wigs and hairpieces primarily to women over the age of 50,
using three distinct catalogs: Paula Young, Christine Jordan and Especially
Yours. In 1995, SC Direct mailed 20.9 million catalogs, generating net sales
of $37.3 million. SC Direct has developed a proprietary data base consisting
of approximately 5.6 million persons, including more than 875,000 active
customers and more than one million active inquirers. Due to the fact that wig
wearers are difficult to find, the Company believes that its wig database is
unique and would be very expensive to replicate. The Company believes that
this poses a substantial barrier to entry for any potential competitor.
Women over age 50, SC Direct's target market, is projected by the U.S.
Census Bureau to grow from 38.7 million women, or 38% of the total female
population in 1995, to 51.5 million women, or 45% of the total female
population in 2010. This growth is driven primarily by aging "baby-boomers."
The Company believes that only approximately five million, or 25%, of the 20
million American women with thinning hair currently wear wigs, and that,
accordingly, there is substantial opportunity for future growth of SC Direct's
business.
SC Direct's strategy for its core business is to exploit new distribution
opportunities for wigs and hairpieces and to sell additional products to its
customers. For example, in the last three years, SC Direct has introduced its
upscale Christine Jordan catalog and its Especially Yours catalog for African-
American customers, expanded into international markets and begun a test
program selling to hair salons.
In 1995, SC Direct launched its Paula's Hatbox catalog through which it
sells a variety of fashion hats to women. The Company believes that the market
for fashion hats has niche characteristics similar to those of the wig market.
In addition, SC Direct intends to begin test marketing men's wigs in the Paula
Young catalog in early 1997.
SC Publishing offers nurses, real estate agents and CPA's home study
continuing education through the Western Schools catalogs. SC Publishing's
strategy is to build its business by offering additional products and programs
to its core customers and by expanding into new and related professional
fields. In 1995, SC Publishing mailed 8.4 million catalogs, generating net
sales of $5.3 million.
The Company intends to build its business in existing niche markets and
enter new niche markets both by internal expansion and through acquisitions.
Niche markets are characterized by smaller market size, unique or hard to find
products, or hard to locate customers. In executing its plans, the Company
will seek to do the following:
. REFINE MARKETING PROGRAMS. The Company continually seeks to refine its
marketing programs, including the two-step marketing program which it
utilizes to identify hard to locate customers in niche markets. The
Company constantly seeks to develop new and improved marketing
techniques to increase catalog requests, convert catalog requests into
orders and increase sales to existing customers.
. OFFER BROAD PRODUCT SELECTION AT ATTRACTIVE PRICING. The Company
believes that it differentiates itself from both traditional store-front
retailers and other direct marketers by offering a broad and deep
selection of the products it offers. By virtue of its large order volume
and direct purchasing from wig manufacturers, the Company is able to
offer wigs at prices lower than most hair salons and wig shops.
24
<PAGE>
. MAINTAIN CLOSE SUPPLIER RELATIONSHIPS. The Company maintains close
relationships with many of the leading wig manufacturers. Through these
relationships, the Company is able to obtain better control over
purchasing, styles, quality and cost.
. CONTINUE TO PROVIDE SUPERIOR CUSTOMER SERVICE. By emphasizing the
training of marketing representatives, the Company seeks to maintain
high levels of customer satisfaction. The Company seeks to provide
prompt, courteous and knowledgeable service to its customers in order to
build customer loyalty and demonstrate to the customer the convenience
of catalog shopping.
. ACHIEVE ECONOMIES OF SCALE AND EFFICIENCIES. The Company believes if it
is able to achieve its growth objectives it will be able to reduce its
fixed and other costs as a percentage of sales as it achieves additional
operating economies of scale and efficiencies.
. DEVELOP NEW PRODUCTS AND ENTER NEW MARKETS. The Company intends to add
new product lines through new or expanded catalogs. To that end, the
Company carefully monitors the wig, hat and continuing education markets
to identify unfulfilled consumer demand. By developing and offering new
products to meet that demand, the Company creates additional sales
opportunities and reinforces customer loyalty to the Company's catalogs.
The Company is seeking to add complementary products to its existing
product lines that would appeal to its current customer base. The
Company is also looking for new markets to enter, either through
internal development or acquisitions.
WIGS
INDUSTRY AND MARKET
Based on U.S. Census Bureau import data, approximately five million wigs are
sold annually in the United States. The wig market is comprised of fashion wig
wearers and need-based wig wearers. Need-based wig wearers purchase wigs as an
everyday necessity due to a physical problem such as naturally thinning hair
or total hair loss, as well as temporary hair loss due to medical procedures
and conditions (i.e., cancer treatments). Many everyday wig wearers prefer to
replace their wigs every three to four months, and have a wig "wardrobe,"
consisting of several wigs of different styles and colors.
In the 1960's wigs and related products were broadly viewed as a fashion
accessory, but as styles changed the fashion-driven demand for wigs decreased.
Because of this trend, during the 1970's and 1980's the number of specialty
wig boutiques declined and department stores reduced their selling space and
inventories of wigs. The Company recognized that a base of dedicated, need-
based wig customers existed which was no longer being adequately serviced by
the remaining retail alternatives. Therefore, the Company launched its catalog
business to service this market.
The retail wig market is serviced by direct mail catalogers and retail
markets, including beauty salons, department stores and wig shops. Catalog
retailers represent 40% of the current market and offer the benefits of
privacy, convenience, lower prices and broad product selection. Retail stores
provide customers with more personalized service and allow customers to try on
the product, however, they charge higher prices and offer less convenience,
privacy and selection than catalog retailers. The retail market is highly
fragmented and the Company is unaware of any major retail store that has
greater than 1% of the market.
The Company believes it has advantages over its two principal mail order
competitors, General Wig Company (a subsidiary of Revlon, Inc.), which markets
wigs through the Beauty Trends catalog, and Vincent James Company, which
markets wigs through the TWC Catalog. The Company believes that these
advantages include economies of scale, the size of its customer list, and the
extent of its advertising program. The Company estimates that all other wig
catalog retailers represent less than 5% of the market.
The African-American wig market, unlike the Caucasian market, has yet to
undergo the transition to direct marketing from retail outlets. Currently,
only about 5% of African-American wigs are sold through catalogs, with
25
<PAGE>
the balance sold in beauty salons, department stores and wig shops. As a
result, there are no significant catalog competitors. The Company is aware of
only three other mail order catalogs targeting the African-American market--
Black is Beautiful, Naomi Simms and Gold Medal. The Company believes that
Especially Yours' sales in 1995 exceeded the sales of each of the other
African-American catalogs.
Millions of American women suffer varying degrees of hair loss. These women
comprise a significant percentage of the Company's customer base for its wigs
and hairpieces. Ongoing research is conducted by numerous groups, both public
and private, seeking remedies for hair loss. One drug, Minoxidil (primarily
marketed under the name Rogaine(R)) is available over-the-counter and is sold
to men and women as a measure against hair loss. There can be no assurance
that a new drug will not be developed that could prevent hair loss among
women. Such an event could have a material adverse effect on the Company's
core wig business. In addition, any new cancer therapies that would eliminate
hair loss as a side effect of treatment could have a material adverse effect
on the Company's business.
PRODUCTS
The Company sells a full range of wigs and hairpieces in five separate
product lines. Hairpieces include wiglets and add-ons or extensions. Wiglets
are small wigs generally worn on the top of the head to add style or cover
thinning hair on the top or crown area. Add-ons or extensions are usually
added for style reasons, generally to the back of the head. The Company offers
about 45 different wig styles per catalog in over 25 colors, including browns,
blondes, grays and reds. Most wigs are available in one or two sizes, except
for wigs in the Christine Jordan line which offers all styles in five sizes.
All of the Company's wigs, as well as the majority of all wigs sold in the
U.S., are manufactured in small, privately-owned factories in Korea, Indonesia
and China that manufacture wigs to the specifications and designs of their
customers. The Company believes that there is adequate supply to meet the
demand, and the Company is not solely dependent on any one manufacturer for
its wig supply. All wigs and hairpieces sold by the Company are made of
synthetic fibers. The wig market is dominated by synthetic fiber wigs.
Synthetic fiber has several advantages over human hair, including lower cost,
permanent styling, truer colors and cleanliness.
Wigs are manufactured out of a special modacrylic fiber, the market for
which is dominated by two Japanese firms, Kaneka Corporation and Toyo Chemical
Corporation. Modacrylic fiber is not a proprietary material, and other
manufacturers in the past have produced this material. Although the Company
believes that in the event of a disruption in the supply of fiber, alternative
sources could be found, such a transition to new fiber suppliers could
interrupt or delay wig factory production schedules potentially causing a
material adverse affect on the Company's business.
The manufacture of a wig begins with the blending of the fibers for color
and the cutting of the fiber to proper length. The fibers are then sewn to a
cotton or lace wefting, after which the predetermined curl pattern is baked
in. The wefting is then sewn together into the final pattern and styled.
During the first half of 1996, the Company purchased approximately 55% of
its wigs and hairpieces directly from foreign manufacturers and the balance
from four U.S. importers. Each of the Company's five largest manufacturers
represented between 8% and 25% of its overall wig purchases in the first half
of 1996. The Company is increasing the percentage of wigs purchased directly
from manufacturers because direct purchasing permits better control over
price, quality and style. By 1998, the Company plans to purchase 80% to 90% of
its wigs directly from the manufacturers.
The Company also sells wig accessories, including brushes and stylers,
styrofoam head forms and stands, rainhoods, wig liners, shampoos and styling
products at prices mostly under $10.
MARKETING
The Company markets its products through catalogs generally by way of a two-
step marketing program. Step one involves obtaining prospective customers by
soliciting customer interest through targeted advertising.
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The Company uses a variety of advertising media, including magazines,
newspaper tabloids, co-op mailers, package insert programs and television. The
Company places advertising based on demographics, cost and historical
experience. Historical experience is measured by cost per inquiry, cost per
customer and lifetime value of a customer and, based on this information, the
Company determines which media are effective and where future marketing
dollars should be spent.
Step two, which commences when a prospective customer responds favorably to
step one of the program, involves sending the prospective customer a series of
catalogs designed to elicit an initial sale. By pre-qualifying prospects in
this manner, SC Direct has been able to convert 15% to 20% of inquirers into
customers within one year of catalog request. If a sale is made, the customer
is put on an active list and catalogs designed to create a repeat buyer are
mailed. Inactive inquiries and customers are periodically sent a program of
targeted mailings designed to reactivate customer interest.
The Company believes that in niche markets its two-step marketing program
has several advantages over the more traditional one-step marketing approach
which entails mailing unsolicited catalogs to rented names. Since catalogs are
sent only to persons who have shown an interest in the Company's products, the
Company experiences higher conversion rates and fewer catalogs need to be
printed and mailed, which leads to savings in paper, postage and other catalog
production costs.
The Company constantly refines its marketing programs and processes for the
purpose of increasing its conversion rate and satisfying its existing
customers. The Company employs a variety of research methods, including
demographic analysis, customer surveys, test mailings and advertising, focus
groups and outside research sources. The Company's research efforts have
assisted the Company in pursuing its strategic goals by identifying new niche
markets, such as hats and wigs and hairpieces for African-American women.
BRANDS
The Company markets through three distinct wig catalogs: Paula Young,
Christine Jordan and Especially Yours. Each catalog includes detailed product
descriptions and specifications, full color photographs and pricing
information. The catalogs are published several times a year and often
different variations of each catalog are distributed. Each catalog focuses on
its namesake brand, as well as other selections of the Company's brands. The
Company markets the following brands through its catalogs:
Paula Young is the Company's flagship line, is designed to have the broadest
appeal and is available in all three catalogs. Paula Young wigs are value
priced from $29 to $59 and have a "shake and wear" styling with quality
construction. Gross sales of Paula Young brand wigs were $21.8 million in
1995, or 51% of the Company's wig sales.
Celebrity Secrets(TM) is geared toward a more sophisticated customer.
Celebrity Secrets has more contemporary styling and unique features, such as a
monofilament "partial scalp" permitting a natural looking hair part. These
wigs command slightly higher prices ranging from $49 to $69 and are available
in all three catalogs. Gross sales of Celebrity Secrets brand wigs were $3.8
million in 1995, or 9% of the Company's wig sales.
Christine Jordan is the Company's premium brand and consists of the
Company's highest quality wigs ranging in price from $69 to $99. Christine
Jordan wigs have a unique fiber blend and come in their own distinctive
colors. In addition, the wigs have comfort construction with a natural
hairline and it is the only brand in the industry to carry five sizes in all
styles. This wig line is featured in its own separate catalog as well as the
Paula Young and Especially Yours catalogs. Gross sales of Christine Jordan
brand wigs were $8.9 million in 1995, or 21% of the Company's wig sales.
Especially Yours offers styles specially designed for African-American women
and offers a variety of features, including natural hairline crimping and
fiber texture, to reflect the natural hair of African-Americans. Especially
Yours is featured in its own separate catalog with prices ranging from $29 to
$69 and is also being
27
<PAGE>
tested in selected Paula Young catalogs. Gross sales of Especially Yours wigs
were $600,000 in 1995, or 1% of the Company's wig sales.
Touch of Class features only hairpieces, including wiglets, add-ons and
extensions. Touch of Class products are sold primarily in the Paula Young
catalog. Gross sales of Touch of Class brand hairpieces were $3.4 million in
1995, or 8% of the Company's wig sales.
In addition to its own five proprietary brands, the Company also markets Eva
Gabor(R) wigs, a brand comparable in quality to Paula Young and Celebrity
Secrets, but which is owned by Eva Gabor International. Eva Gabor wigs
comprised 10% of the Company's 1995 wig sales.
NEW OPPORTUNITIES
African-American Market. Although African-American women comprise
-----------------------
approximately 13% of the U.S. female population, they purchase approximately
50% of the wigs sold. The Company estimates the African-American wig market to
be $125 million annually. African-American women wear hairpieces for fashion
reasons and are more likely to begin wearing wigs and hairpieces at a younger
age than Caucasian women. The Company's newest wig catalog, Especially Yours,
targets this market and is already the largest African-American wig catalog.
The Company plans to market actively to African-American women.
International Expansion. The Company seeks to leverage its marketing and
-----------------------
product knowledge, infrastructure and procurement ability to expand
internationally. The Company estimates the international market is at least as
large as the U.S. market. In the United Kingdom and New Zealand, the Company
has entered into license agreements which grant each licensee exclusive rights
to use the Company's trademarks to sell wigs in the licensee's territory. The
licensee uses the Company's inventory and fulfillment services, for which the
Company is reimbursed, and also receives marketing advice and catalog
development assistance. Pursuant to the license agreements, the licensees are
required to pay royalties on their net sales, including a minimum guaranteed
annual royalty, and expend a specified minimum amount of advertising
expenditures each year.
The U.K. licensee will conduct a test introduction of hats in late 1996 and
plans to enter the Netherlands market with wigs in early 1997. The Company has
targeted Europe, Japan, Scandinavia, Australia, Israel and South Africa as
potential expansion areas. In 1995, the Company purchased its Canadian
licensee's customer list and began to market directly to Canadian consumers.
The Company's Canadian net sales totaled $900,000 in 1995. There can be no
assurance that the Company will be able to achieve international success with
its products.
Business to Business. The Company launched a pilot program in 1995 to sell
--------------------
wigs to beauty salons. The program permits participating salons to offer their
customers a broad selection of styles while keeping a limited inventory of
wigs in the store.
Men's Wigs. Utilizing its two-step marketing program, the Company intends to
----------
begin test marketing men's wigs in the Paula Young catalog in early 1997.
HATS
In 1995, as part of its overall expansion strategy, the Company launched the
Paula's Hatbox catalog. The Company believed that the fashion hat market, like
the wig market, was not well served by existing retail chains of distribution,
with no major competitor offering a broad selection of quality hats. The
Company's research suggested that the marketing skills needed to capture this
niche market were similar to those the Company used in the wig market.
The women's fashion hat market is fragmented among department stores, small
boutiques, resort stores and other general merchants and catalog retailers who
offer a limited number of styles as a complement to their
28
<PAGE>
principal product lines. Although the women's fashion hat market is estimated
to be a $700 million market, no dominant hat retailer has emerged.
Paula's Hatbox The Company sells a variety of hats in over 125 styles and
colors, ranging in style and price from simple baseball caps or sun visors for
under $20 to designer hats for over $200. Paula's Hatbox also includes hat
pins and accessories, including costume jewelry, sunglasses, scarves, belts
and handbags.
The majority of the Company's hats are manufactured domestically and
purchased from domestic vendors often from top designers. Currently, with the
exception of hat boxes, the Company does not purchase hats and related
products directly from manufacturers. As sales of hats expand, the Company
expects to improve profit margins through improved sourcing.
The Company is using the two step marketing approach developed in its wig
business to sell hats. In addition, the Company is testing new one step
marketing techniques and selling hats through its Especially Yours catalog. In
1995, Paula's Hatbox represented less than 1% of the Company's sales. Although
the Company believes that the hat market presents a significant opportunity
for growth, there can be no assurance that the Company's efforts to expand its
hat business will be successful or profitable.
CONTINUING EDUCATION
SC Publishing distributes catalogs under the name of Western Schools and
specializes in providing continuing education ("CE") to nurses, real estate
brokers and salespersons, and CPA's. SC Publishing represents a relatively
small proportion of the Company's overall revenue, with net sales in 1995 of
$5.3 million, or approximately 12% of the Company's overall net sales. SC
Publishing's predecessor was organized in 1978 in California to provide real
estate continuing education courses.
Required CE frequency and the number of required hours varies from
profession to profession and from state to state depending on state laws and
association regulations. The CE industry has many small providers, including
local universities, but few large providers. In addition, some hospitals and
CPA firms educate their own employees through in-house programs and by
subsidizing outside programs. Because CE is a required product, people may not
be enthusiastic buyers. Accordingly, SC Publishing competes aggressively on
price, course content and selection, and customer service.
Nursing represented over half of SC Publishing's continuing education sales
in 1995. Twenty-one states currently require nurses to have some form of CE.
Two additional states will begin to require CE in 1997. SC Publishing is
exploring the expansion of this segment through the addition of non-CE
products and business-to-business opportunities in joint ventures, with
hospitals, nursing homes and seminar providers.
SC Publishing sells continuing education to real estate agents only in
California, which is the largest US market for real estate agents and brokers.
Although the California real estate market has been depressed in recent years,
the Company believes there are recent signs of improvement in this market. SC
Publishing is seeking to build market share by refining its circulation plan
and expanding its offerings to other related professionals such as appraisers
and new home builders. SC Publishing is also assessing opportunities to enter
new states which require real estate agents to take CE.
SC Publishing sells continuing education to CPA's, who generally are
required to obtain CE every year. SC Publishing seeks to compete in this
market by offering current CE topics in a convenient manner at competitive
prices.
SC Publishing develops its products by first identifying topics pertinent to
its target audiences of nurses, real estate agents and CPA's and then
contracting with qualified authors to develop a course text book and exam
materials. In some cases where products may change rapidly because of changing
regulations or knowledge, SC Publishing buys existing text books and contracts
with authors and/or industry experts to convert these into
29
<PAGE>
courses. All courses are reviewed by other industry experts before publishing.
SC Publishing generally prints its own materials and hence controls its own
inventory investment based on projected demand.
OPERATIONS
ORDER ENTRY AND CUSTOMER SERVICE
The Company has structured its telemarketing operation and training for its
telemarketing representatives to simplify catalog shopping by emphasizing
prompt, courteous and knowledgeable service. Customers may call toll free
telephone numbers 24 hours a day, seven days a week, to place orders or to
request a catalog. Approximately 63% of the Company's orders are placed by
telephone, with calls lasting three to four minutes. The balance of orders are
received by mail. The Company has contracted with an outside telemarketing
provider to handle calls in the event call volume exceeds the Company's
capacity during peak business hours, as well as to answer the Company's phones
during off-peak hours. Overflow situations also occur due to holidays and
operational disruptions such as poor weather.
Telemarketing representatives process orders directly into the Company's
computer system which provides customer history, product availability, product
specifications, expected ship date and order number. The telemarketing
representatives use a scripted catalog sales system, are knowledgeable in key
product specifications and features, and are trained to cross-sell accessories
and related products. In keeping with the Company's efforts to maximize
operating efficiency, representatives are trained to handle a range of
products and customer service calls, allowing the Company to shift
representatives among products as call volume requires.
The Company signed a new three year contract with AT&T in 1995 which
management believes provides the Company with long-distance rates comparable
to those enjoyed by larger users. The Company uses AT&T equipment with a 500
line capacity and presently uses about 320 lines in 86 stations. The phone
system permits flexibility in routing calls to maximize teleservice
representative efficiency.
CREDIT
Virtually all of the Company's sales are transacted by check or through
credit card, and, as a result, accounts receivable consist primarily of
amounts due from the Company's credit card processor. Credit card payments are
deposited electronically into the Company's bank account one to two days after
submission of credit card transactions. Personal checks over $200 and all
credit card charges are pre-authorized. During fiscal 1995, losses due to bad
checks amounted to less than 1% of net product sales.
In addition, purchases from SC Direct may be made by certain customers with
the Paula Young credit card, which SC Direct began testing in 1990 and in 1995
offered to all wig customers who had previously paid by check. Before
expanding the credit card program further, the Company is evaluating whether
to continue to administer the card and finance the receivables internally or
to outsource these functions.
FULFILLMENT
The Company's fulfillment goal is the prompt delivery of ordered
merchandise. The Company's investment in computer systems has resulted in
operating efficiencies in order entry and fulfillment. Orders of in-stock
merchandise received before 11:00 a.m. are shipped on the same day, usually
via bulk or priority mail. For an additional charge, the Company will ship by
overnight or second day courier. Merchandise not in stock on date of order is
shipped for delivery on the same or next business day after it is received by
the Company.
The Company uses an integrated computer picking, packing and shipping
system. The system monitors the in-stock status of each item ordered,
processes the order and generates all related packing and shipping materials,
taking into account the location of items within the distribution center.
During fiscal 1995, the Company shipped an average of approximately 3,800
orders per day, with a peak of 5,473 orders shipped in one day. The Company
currently has the capacity to ship approximately 7,800 orders per day in two
shifts.
30
<PAGE>
RETURNS
The Company's return policy allows customers to return products for prompt
refund or exchange. Returns for refund and exchange over the past three years
averaged 16% and 14%, respectively, at SC Direct and 2% and 1%, respectively,
at SC Publishing. The Company believes that these return levels are normal for
mail order products of this nature. Return experience is closely monitored at
the SKU level to identify trends in product offerings, product defects and
quality issues in an attempt to assess future purchases, enhance customer
satisfaction and reduce overall returns. Returned wigs are inspected and
returned to inventory if not worn, and if worn are donated to various
hospitals' chemotherapy departments and local chapters of the American Cancer
Society. Undamaged and unmarked SC Publishing books are also returned to
inventory.
INVENTORY MANAGEMENT
The Company's inventory management goal is a high initial fulfillment rate
with reasonable levels of inventory investment and low overstocks. To achieve
this goal, the Company seeks to schedule merchandise deliveries and inventory
amounts to conform closely to sales levels. The Company typically orders
merchandise in several lots, with the sizes of reorders dependent on customer
demand.
Initial orders for wigs and hats are placed two to four months before a
catalog mailing. Initial deliveries are scheduled to occur one or two weeks
before the first mailing. Initial purchase quantities are based on a variety
of factors, including past experience with the same or similar products,
future availability, shipping time, and, with respect to hat vendors, the
Company's ability to negotiate a reorder commitment from the vendor. The
Company analyzes the initial sales and returns for each item in a catalog.
Using this information, the Company projects gross demand and returns for such
items and, based on these projections and inventory on hand and on order,
makes decisions regarding additional purchases. The Company sells overstocks
and discontinued items through targeted mailings and sale pages bound into its
full-price catalogs.
CATALOG PRODUCTION
The Company's catalogs are created in-house by the Company's graphic arts
staff of designers and production artists using a computer desktop publishing
system. The Company's in-house preparation of catalogs provides the Company
with greater control, flexibility and creativity in catalog production and
product selection, and results in significant cost savings. The Company mailed
29.3 million catalogs in fiscal 1995, compared to 22.6 million catalogs in
fiscal 1994. The Company's most active customers receive a Company catalog as
often as every two weeks.
DATABASES
The Company has developed databases consisting in aggregate of approximately
5.9 million persons, including more than 1.2 million active customers and more
than one million active inquirers. The Company markets mailing lists derived
from its databases to non-competing businesses to provide additional sources
of income after confirming that security measures are in place to protect this
proprietary data. List rental income was $200,000 in 1995. The Company has
undertaken limited exchanges of lists of inactive customers with wig
competitors.
COMPETITION
The mail order catalog business is highly competitive. The Company believes
that it competes on the basis of quality, value, service, product offerings,
advertising effectiveness, catalog design, convenience and efficiency. The
Company's wig and hat catalogs compete with other mail order catalogs, both
specialty and general, and retail stores, including department stores,
specialty stores, discount stores and hair salons and wig shops. The Company's
CE catalogs compete with other mail order catalogs, in-house CE, professional
associations, and seminar providers. The Company believes that the Company's
catalogs have a competitive advantage in providing greater selection,
convenience and privacy than traditional retail outlets. Some of the Company's
competitors have greater financial and marketing resources than the Company.
Potential competition may emerge from new distribution channels such as the
Internet and interactive television.
31
<PAGE>
EMPLOYEES
As of July 31, 1996, the Company employed a total of 278 employees,
comprised of 63 salaried full-time employees, 138 full-time hourly employees,
and 77 part-time hourly employees. None of the Company's employees are covered
by a collective bargaining agreement. The Company believes that its relations
with its employees are good.
FACILITIES
The Company occupies a 43,000 square foot building in South Easton,
Massachusetts, which is utilized as one-third warehouse and two-thirds office
space. In addition, the Company also leases another 22,000 square foot
facility one block away, primarily utilized as additional warehouse space. In
June 1995, rent on the main facility was adjusted from $40,000 to $25,000 per
month, which management estimates to be slightly above market rates. The rent
on the 22,000 square foot facility is approximately at market rate. Under the
terms of the current leases, each landlord and the Company have the right to
terminate the respective lease upon four month's notice. In the event a
landlord gives the Company notice, the Company believes that it could move to
new appropriate space within four months. Nonetheless, there can be no
assurance that the Company will find appropriate space within four months. The
process of moving to and restarting operations in a new site could have a
material adverse effect on the Company's operations.
The Company is planning to expand to a larger facility which provides room
for growth and eliminates the inefficiencies of operating two warehouses.
Currently, the Company is investigating the lease of an appropriately sized
facility within a 10 to 15 mile radius of its present location. If the Company
does not locate a suitable site, it may enter into negotiations with its
present landlords for long-term leases. There can be no assurance that the
Company will be successful in locating a new facility or negotiating new
leases.
TRADEMARKS AND TRADE NAMES
The Company has registered 13 trademarks with the U.S. Patent and Trademark
Office. In the course of normal business, the Company often utilizes new
tradenames. When appropriate, the Company seeks to register these names.
GOVERNMENT REGULATIONS
In 1994, the United State Supreme Court reaffirmed an earlier decision that
allowed direct marketers to make sales into states where they do not have a
physical presence without collecting sales taxes, but noted that Congress has
the power to change this law. The imposition of an obligation to collect sales
taxes may have a negative effect on the Company's response rates and may
require the Company to incur administrative costs in collecting and remitting
the sales taxes. The Company believes that Massachusetts is the only
jurisdiction where it is currently required to collect sales taxes.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to routine litigation arising in
the normal course of its business. The Company believes that none of these
actions will have a material adverse effect on the financial condition or
results of operations of the Company.
The Company currently has several registered trademarks and may seek
additional legal protection for its products and trade names. Intellectual
property litigation can be expensive and time-consuming. The Company does not
currently know of any lawsuit alleging the Company's infringement of
intellectual property rights that could have a material adverse effect on the
Company's business. There can be no assurance, however, that any such lawsuit
will not be filed against the Company in the future or, if such a lawsuit is
filed, that the Company would ultimately prevail.
32
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steven L. Bock.......... 42 Chairman of the Board of Directors and Chief Executive Officer
Stephen M. O'Hara....... 41 President and Secretary
J. William Heise........ 47 Senior Vice President and Chief Financial Officer
Jerral R. Pulley........ 62 Senior Vice President
Alan S. Cooper.......... 37 Director
Martin Franklin......... 31 Director
Samuel L. Katz.......... 30 Director
Guy Naggar.............. 55 Director
</TABLE>
STEVEN L. BOCK has been Chairman of the Board and Chief Executive Officer of
the Company (or its predecessor company) since December 1990. He has been a
director of SC Direct and SC Publishing (including the years when these
companies were under bankruptcy protection of the courts) since March 1989. SC
Direct was formed by RSG Partners, a private investment and management firm
founded by Mr. Bock and two partners in 1988. Prior to founding RSG Partners,
Mr. Bock was a vice president of TSG Holdings, Inc., the investment advisor to
Transcontinental Services Group, a U.K. listed investment holding company,
where he was responsible for initiating, financing and managing business
investments. Mr. Bock is a director of Xetex Corporation, a technology
development company. Part of Xetex's business is conducted through
SOLI.FLO SM, a 50/50 joint venture with Fluor Daniel Inc., a publicly held
engineering and construction company. Mr. Bock is a Member of SOLI.FLO's
Members Committee. Mr. Bock is a member of the Young Presidents Organization.
He graduated (summa cum laude) with a B.A. degree from SUNY at Albany and
received his J.D. degree (cum laude) from Harvard Law School.
STEPHEN M. O'HARA has been President of the Company since 1994 and was
President of Wigs by Paula, Inc., a predecessor company, from November 1991 to
November 1994 (including the years Wigs By Paula, Inc. were under the
protection of the bankruptcy courts). From May 1990 to November 1991, Mr.
O'Hara was Vice President, Marketing and Vice President, Strategy of the All
American Gourmet division of Kraft General Foods. From May 1988 to May 1990,
Mr. O'Hara was President of Quantum Investments, a venture capital firm
targeting small consumer businesses, as well as a principal in Quantum
Associates, a management consulting firm. From November 1984 to May 1988 he
served in a variety of positions with CML Group ("CML"), most recently as
President of CML's subsidiary Carroll Reed, Inc., a women's apparel retailer
and direct marketer. Prior to CML, Mr. O'Hara served in Procter and Gamble's
marketing department from 1979 to 1984. Mr. O'Hara holds A.B. and M.B.A.
degrees from Harvard University.
J. WILLIAM HEISE has been Chief Financial Officer of the Company since
August 1996 and was Acting Chief Financial Officer from March 1996 to August
1996. From November 1994 to November 1995, Mr. Heise was Vice President/Chief
Financial Officer at Sun Television and Appliances, Inc., a retailer of
consumer electronics and appliances. From October 1983 to March 1994, Mr.
Heise served in a variety of positions with Victoria's Secret Catalogue, Inc.,
including Executive Vice President/Chief Financial Officer from 1989 to 1992
and Executive Vice President Operations from 1992 to 1994. Mr. Heise holds a
B.A. degree from Ohio University.
JERRAL R. PULLEY has been Senior Vice President of SC Publishing since
October 1995. From November 1994 to October 1995, Mr. Pulley worked as an
independent consultant. From 1990 to 1994, Mr. Pulley served as CEO of
Polymerics, Inc. a leading manufacturer of arts and crafts supplies. From 1970
through 1990, Mr. Pulley held a variety of senior positions at Binney & Smith,
Ryder System, Perfect Building Group, Borden Inc., Lifesavers, Inc. and Pepsi-
Cola of North America. From 1958 to 1970 Mr. Pulley worked in marketing at
Procter & Gamble. Mr. Pulley holds a B.S. degree from the University of Utah
and a M.B.A. degree from U.C.L.A.
33
<PAGE>
ALAN S. COOPER has been a director of the Company since February 1996. Mr.
Cooper has been general counsel of Dickstein Partners Inc., a private
investment firm, since March 1992. Prior to joining Dickstein Partners Inc.,
he was engaged as an attorney with Rosenman & Colin in New York City from
August 1983 to February 1992. Mr. Cooper is a director of Hills Stores
Company. Mr. Cooper received his B.S. and J.D. degrees from the University of
Pennsylvania.
MARTIN E. FRANKLIN has been a director of the Company since November 1994.
Mr. Franklin is currently Chairman and Chief Executive Officer of BEC Group,
Inc., a NYSE company, and non-executive Chairman of Eyecare Products plc, a
London Stock Exchange Company. Mr. Franklin was Chairman and Chief Executive
Officer of Benson Eyecare Corporation, the predecessor company to BEC Group,
from October 1992 through May 1996. Mr. Franklin has been the Chairman of the
Board and Chief Executive Officer of Pembridge Holdings, Inc. since 1990 and
sits on various other private company boards. From 1988 to 1990, Mr. Franklin
was Managing Director of Pembridge Associates, Inc. Both Pembridge Associates,
Inc. and Pembridge Holdings specialize in merchant banking and related
services. Mr. Franklin received a B.A. in Economics and Political Science from
the University of Pennsylvania.
SAMUEL L. KATZ has been a director of the Company since November 1994. He
has been the Senior Vice President-Acquisitions of HFS Incorporated, a public
corporation engaged in the lodging and real estate franchising businesses,
since January 1996. From July 1993 to December 1995, Mr. Katz was a Vice
President of Dickstein Partners Inc. From February 1992 to July 1993, Mr. Katz
was the Co-Chairman of Saber Capital Inc., a private investment firm. From
January 1988 to January 1992, Mr. Katz served as an Associate and then a Vice
President of the Blackstone Group, an investment and merchant bank, where he
focused on leveraged buy-out transactions. Mr. Katz is a director of Hills
Stores Company. Mr. Katz received his B.A. in Economics from Columbia
University in 1986.
GUY NAGGAR has been a director of the Company since November 1994. Since
1981 he has been Chairman of Dawnay, Day & Co. Limited, a U.K. investment
bank. From 1965 through 1980 Mr. Naggar was with Keyser Ullmann Holding, a
United Kingdom investment banking firm, most recently as Deputy Chief
Executive.
34
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company and its
subsidiaries, as well as certain other compensation paid or accrued, during
the fiscal years ended December 30, 1995 and December 31, 1994 and January 1,
1993 to the Chief Executive Officer of the Company and each of the other three
most highly compensated executive officers ("Named Officers").
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
- ------------------------------------------------------------------------------
FISCAL NUMBER OF
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS OPTIONS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven L. Bock................... 1995 $ 269,284 $ 65,960 --
Chairman and Chief Executive Of-
ficer 1994 212,116 100,000 310,226(3)
1993 215,923 -- --
Stephen M. O'Hara................ 1995 $ 194,718 $ 35,000 --
President 1994 166,424 81,850 272,773(4)
1993 157,228 -- --
J. William Heise................. (1) -- -- --
Chief Financial Officer
Jerral R. Pulley................. 1995(2) $ 25,962 $ 5,000 --
Senior Vice President
</TABLE>
(1) Mr. Heise became acting financial officer in March 1996 and on August 1,
1996 he was hired permanently at an annual salary of $130,000.
(2) Mr. Pulley was hired in October 1995 at an annual salary of $125,000.
(3) Represents options granted in 1994 at an exercise price of $0.31 per
share, all of which will become exercisable upon the effective date of
this Offering.
(4) Represents options granted in 1994 at an exercise price of $0.31 per
share, of which options to purchase 218,218 shares will become exercisable
upon the Offering, and options to purchase 54,555 shares will become
exercisable one year from the effective date of this Offering.
AGGREGATED OPTION VALUES FOR FISCAL YEAR ENDED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
NAME AT DECEMBER 30, 1995 AT DECEMBER 30, 1995($)(1)
- ----------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Steven L. Bock.......... -- 310,226 -- --
Stephen M. O'Hara....... -- 272,773 -- --
</TABLE>
(1) There was no public trading market for the Common Stock as of December 30,
1995. Accordingly, no value can be ascribed to these options.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Steven L. Bock
pursuant to which Mr. Bock will serve as the Chairman of the Board and Chief
Executive Officer of the Company for a term expiring on December 31, 1999, at
a salary of $280,000, subject to upward adjustment annually. Mr. Bock will be
eligible for a performance bonus, which will be tied to the Company's
performance against its annual plan approved by the Board. Upon executing the
employment agreement, Mr. Bock was granted options under the Plan to purchase
75,000 shares of Common Stock at the initial public offering price. Options to
purchase 15,000
35
<PAGE>
shares of Common Stock will vest and become exercisable each year for five
years, subject to accelerated vesting under certain circumstances. Mr. Bock
will receive deferred bonus compensation of $187,500 which will be paid in
three equal installments on January 1, 1997, June 30, 1997 and January 1,
1998. The Company currently maintains an $8.5 million key person life
insurance policy on Mr. Bock, although this amount may be reduced.
The Company has entered into an employment agreement with Stephen M. O'Hara
pursuant to which Mr. O'Hara will serve as President of the Company for a term
expiring on December 31, 1999 at a salary of $205,000 (subject to upward
adjustment annually). Mr. O'Hara will be eligible for a performance bonus,
which will be tied to the Company's performance against its annual plan
approved by the Board. Upon executing the employment agreement, Mr. O'Hara was
granted options under the Plan to purchase 25,000 shares of Common Stock at
the initial public offering price. Options to purchase 5,000 shares of Common
Stock will vest and be exercisable each year for five years, subject to
accelerated vesting under certain circumstances. Mr. O'Hara will receive
deferred bonus compensation of $35,000, which will be paid in three equal
installments on January 1, 1997, June 30, 1997 and January 1, 1998. The
Company currently maintains a $5.5 million key person life insurance policy on
Mr. O'Hara, although this amount may be reduced.
The Company may terminate Mr. Bock's or Mr. O'Hara's employment: (i) upon
his death or permanent disability; (ii) if he engages in conduct that
constitutes "cause"; or (iii) if, after 1996, the Company fails to meet
certain financial targets. Messrs. Bock and O'Hara may terminate their
agreements if there is a reduction of their respective responsibilities or a
breach of the agreement by the Company, or upon a change in control of the
Company.
STOCK OPTION PLAN
The Company has adopted the Plan to attract and retain officers, non-
employee directors, employees, and consultants of the Company or any of its
subsidiaries. The Plan authorizes the purchase of up to 500,000 shares of
Common Stock through the grant of stock options and awards of restricted
stock. The Company has issued 252,150 options under the Plan at the initial
public offering price. An additional 50,000 options may be issued within the
first year following the effective date of this Offering to new officers,
directors, employees or consultants not currently associated with the Company,
with the balance of the options available for issuance thereafter. The Plan
will be administered by either the Board of Directors or a committee of two or
more non-employee directors ("Administrator"). In general, the Administrator
will determine which eligible officers, directors, employees and consultants
of the Company may participate in the Plan and the type, extent and terms of
the stock option grants and awards of restricted stock. Options granted to
employees may be either incentive stock options ("ISO's") or non-ISO's. Each
option has a maximum term of ten years from the date of the grant, subject to
early termination.
At the discretion of the Administrator, the exercise price of the options
may be paid in cash, with shares of Common Stock having a fair market value
equal to the option exercise price, or with other property having a fair
market value equal to the option exercise price, including other vested but
unexercised options. In the event of a change in control, as defined in the
Plan, all options will become immediately vested and exercisable and the
restrictions with regard to restricted stock will lapse, unless the
Administrator provides otherwise.
EMPLOYEE BENEFIT PLANS
The Company maintains a qualified defined contribution plan, under the
provisions of Section 401(k) of the Internal Revenue Code, covering
substantially all employees. Under the terms of the plan, eligible employees
may make contributions up to 15% of pay, subject to statutory limitations.
Contributions not exceeding 5% of an employee's pay are matched 40% by the
Company. The Company may, at its discretion, make an additional year-end
contribution. Employee contributions are always fully vested. Company
contributions vest 20% for each completed year of service, becoming fully
vested after five years of service. Matching contributions by the Company
under the plan were $47,520, $59,594 and $67,188 in 1993, 1994 and 1995,
respectively. No discretionary contributions have been made to the plan.
36
<PAGE>
The Company established a supplemental defined contribution plan in 1994
that covers senior employees who have not been granted stock options. Under
the terms of the plan, these employees may elect to defer up to 50% of any
bonus paid for that year. The Company matches 100% of all amounts deferred. In
addition, the Company pays interest on all outstanding balances at the prime
rate as reported in the Wall Street Journal, but not in excess of 12%. A
participant's rights to the deferred amount of regular bonus and income
thereon is fully vested and nonforfeitable at all times. A participant's right
to the Company's match becomes fully vested and nonforfeitable in cumulative
increments of 20% on each of the first through fifth anniversaries of the year
end in which the bonus was earned for that year. The total cost of this plan
to the Company was $0, $65,000 and $0, in 1993, 1994 and 1995, respectively.
The $65,000 contributed in 1994 initiated the plan. The supplemental defined
contribution plan will terminate upon this Offering.
COMPENSATION OF DIRECTORS
Each current non-employee director is paid annual cash compensation of
$7,500, payable quarterly, and has received options to purchase 2,500 shares
of the Common Stock. These options are immediately exercisable at the initial
public offering price. All directors are reimbursed for expenses incurred on
behalf of the Company.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee comprised of two
non-employee directors. The Audit Committee will be responsible for
recommending to the Board of Directors the appointment of the Company's
outside auditors, examining the results of audits and reviewing internal
accounting controls. The Board of Directors has no compensation committee or
nominating committee or any committee performing the functions of such
committees, although such committees may be formed.
The Company's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. All directors hold office until the
next annual meeting of the Company or until their successors have been duly
elected or qualified. There are no family relationships among any of the
executive officers or directors of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 30, 1995, the Company did not have a
compensation committee, and all deliberations concerning executive officer
compensation for each entity were had, and all determinations with respect
thereto were made, by the Company's Board of Directors. During such period,
Mr. Bock was an executive officer and director of the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding the beneficial
ownership as of the date hereof and as adjusted to reflect the sale of Common
Stock offered hereby, by (i) each person known by the Company to own
beneficially five percent or more of the Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Officers and (iv) all directors
and executive officers as a group. Except as otherwise indicated, (x) the
Company believes that each of the beneficial owners of the Common Stock listed
in the table, based on information furnished by such owner, has sole
investment and voting power with respect to such shares, and (y) the address
of the beneficial owner is the address of the principal executive offices of
the Company. The information set forth in the table and accompanying footnotes
has been furnished by the named beneficial owners.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE(1)
SHARES -----------------
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING
- ---- ------------ -------- --------
<S> <C> <C> <C>
Steven L. Bock(2).............................. 409,160(2) 11.7% 8.6%
Stephen M. O'Hara(3)........................... 218,218(3) 6.4% 4.7%
J. William Heise............................... -- * *
Jerral R. Pulley............................... -- * *
Alan S. Cooper(4).............................. 2,500 * *
Guy Naggar(4).................................. 2,500 * *
Samuel L. Katz(4).............................. 93,075 2.8% 2.0%
HFS, Incorporated
339 Jefferson Road
Parsippany, New Jersey 07054
Martin Franklin(4)(5).......................... 230,688 6.7% 4.9%
555 Theodore Fremd Avenue
Rye, New York 10580
Dickstein & Co., L.P.(6)....................... 1,347,689 42.0% 25.1%
9 West 57th Street
New York, New York 10019
Dickstein International Limited(6)............. 1,347,689 42.0% 25.1%
9 West 57th Street
New York, NY 10019
Dickstein Focus Fund L.P.(6)................... 1,347,689 42.0% 25.1%
9 West 57th Street
New York, New York 10019
Viking Holdings Limited........................ 1,483,553 46.3% 33.3%
c/o Abacus Secretaries (Jersey Limited) Limited
La Motte Chambers
St. Helier, Jersey
JE1 1BS Channel Islands
All executive officers and directors as a group
(7 persons)................................... 956,141 24.1% 18.3%
</TABLE>
- --------
* Less than 1%
38
<PAGE>
(1) Applicable percentage of ownership is based upon 3,201,666 shares of
Common Stock outstanding. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission ("Commission")
and generally includes voting and investment power with respect to
securities. Shares of Common Stock issued upon the exercise of options and
warrants currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage ownership of any other person.
(2) Includes 310,226 shares of Common Stock underlying stock options
immediately exercisable at a price of $0.31 per share. Excludes 75,000
shares of Common Stock underlying stock options granted outside of the
Plan which are not currently exercisable and 75,000 shares of Common Stock
underlying stock options issued under the Plan which are not currently
exercisable. All of Mr. Bock's options which are not currently exercisable
vest in increments of 20% commencing on the first anniversary of the
effective date of this Offering.
(3) Includes 218,218 shares of Common Stock underlying stock options which are
immediately exercisable. Excludes 54,555 shares of Common Stock underlying
options granted outside of the Plan exercisable on the first anniversary
of the effective date of this Offering, and 25,000 shares of Common Stock
underlying options, granted under the Plan which vest in increments of 20%
per year, commencing on the first anniversary of the effective date of
this Offering.
(4) Includes 2,500 shares of Common Stock underlying stock options issued
under the Plan which are immediately exercisable.
(5) Represents 228,188 shares of Common Stock issuable upon exercise of the
Warrants.
(6) Of the 1,347,689 total shares reported, Dickstein & Co., L.P. owns
beneficially 853,153 of such shares, Dickstein Focus Fund L.P. owns
beneficially 135,881 of such shares and Dickstein International owns
beneficially 358,655 of such shares. Dickstein & Co., L.P. disclaims
beneficial ownership of 135,881 shares owned by Dickstein Focus Fund L.P.
and 358,655 shares owned by Dickstein International Limited. Dickstein
Focus Fund L.P. disclaims beneficial ownership of 853,153 shares owned by
Dickstein & Co., L.P. and 358,655 shares owned by Dickstein International
Limited. Dickstein International Limited disclaims beneficial ownership of
853,153 shares owned by Dickstein & Co., L.P. and 135,881 shares owned by
Dickstein Focus Fund L.P. Dickstein Partners, L.P. is the general partner
of Dickstein & Co., L.P. and Dickstein Focus Fund L.P. Dickstein Partners
Inc. is the general partner of Dickstein Partners, L.P. and is the advisor
to Dickstein International Limited. Mark B. Dickstein is the President and
sole director of Dickstein Partners Inc.
39
<PAGE>
CERTAIN TRANSACTIONS
As part of the Plan of Reorganization: (i) Mr. Bock acquired 98,934 shares
of the Company's Common Stock; (ii) Dickstein & Co. acquired 867,786 shares of
the Company's Common Stock, 7,272 shares of the Company's 13% Preferred Stock
and Subordinated Indebtedness in the principal amount of $1,189,926;
(iii) Dickstein International acquired 433,893 shares of the Company's Common
Stock, 3,636 shares of the Company's 13% Preferred Stock and Subordinated
Indebtedness in the principal amount of $594,964; and (iv) Viking Holdings
Limited acquired 1,301,680 shares of the Company's Common Stock, 10,908 shares
of the Company's 13% Preferred Stock and Subordinated Indebtedness in the
principal amount of $1,784,890. All of the Subordinated Indebtedness was
transferred to SC Holdings L.L.C. shortly after completion of the Plan of
Reorganization. The owners of SC Holdings L.L.C. control the majority of the
outstanding Common Stock.
On April 28, 1995, the common stock of the Company was reclassified into
three classes, Class A, Class B and Class C. The different classes of common
stock had different voting rights, with Class A, Class B, and Class C having
voting rights of one vote, one-half vote and one and one-half votes,
respectively, per share. Except for the different voting rights, the Class A,
Class B and Class C common stock had identical rights. Immediately prior to
this Offering all outstanding Class A, Class B and Class C shares will be
reclassified into Common Stock.
On June 1, 1996, the Company entered into an agreement with Martin Franklin,
a director of the Company, and two associates of Mr. Franklin, pursuant to
which Mr. Franklin and his associates loaned the Company $495,000 in Junior
Subordinated Indebtedness. The Junior Subordinated Indebtedness has the same
interest rate as the Subordinated Indebtedness, except that it will be junior
in priority to the Subordinated Indebtedness. It is due on August 9, 1999,
provided that the Subordinated Indebtedness has been paid in full.
In connection with the Junior Subordinated Indebtedness, the Company has
issued for $5,000 to Mr. Franklin and his associates the Warrants to purchase
265,335 shares of Common Stock. The Warrants are exercisable until September
30, 1999 at an exercise price of $1.88 per share.
Effective upon this Offering, Mr. Bock will receive non-qualified options to
purchase 75,000 shares of Common Stock at a price of $5.33 per share. Options
to purchase 15,000 shares of Common Stock will vest each year for five years,
subject to accelerated vesting under certain circumstances. These options will
be exercisable for a period of ten years from the date of grant.
40
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 11,000,000 shares, consisting
of 10,000,000 shares of Common Stock, $.01 par value per share and 1,000,000
shares of Preferred Stock, $1.00 par value per share. As of the date hereof
there are 3,201,666 shares of Common Stock outstanding. After the completion
of this Offering there will be 4,451,666 shares of Common Stock outstanding.
No shares of Preferred Stock are currently outstanding.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. There is
no cumulative voting with respect to the election of directors, with the
result that the holders of more than 50% of the shares voted can elect all of
the directors then being elected. The holders of Common Stock are entitled to
receive dividends when, as and if declared by the Board of Directors out of
funds legally available therefor. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining available for distribution to them after
payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the Common Stock. Holders of shares of
Common Stock, as such, have no redemption, preemptive or other subscription
rights, and there are no conversion provisions applicable to the Common Stock.
All of the outstanding shares of Common Stock are, and the shares of Common
Stock offered hereby, when issued and paid for as set forth in this
Prospectus, will be, fully paid and nonassessable.
PREFERRED STOCK
The Company's authorized shares of Preferred Stock may be issued in one or
more series, and the Board of Directors is authorized, without further action
by the stockholders, to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate
par value, preferences in liquidation and the number of shares constituting
any series. The Company believes that the availability of Preferred Stock
issuable in series will provide increased flexibility for structuring possible
future financings and acquisitions, if any, and in meeting other corporate
needs. It is not possible to state the actual effect of the authorization and
issuance of any series of Preferred Stock upon the rights of holders of Common
Stock until the Board of Directors determines the specific terms, rights and
preferences of a series of Preferred Stock. However, such effects might
include, among other things, restricting dividends on the Common Stock,
diluting the voting power of the Common Stock, or impairing liquidation rights
of such shares without further action by holders of the Common Stock. In
addition, under various circumstances, the issuance of Preferred Stock may
have the effect of facilitating, as well as impeding or discouraging, a
merger, tender offer, proxy contest, the assumption of control by a holder of
a large block of the Company's securities or the removal of incumbent
management. Issuance of Preferred Stock could also adversely affect the market
price of the Common Stock. The Company has no present plans to issue any
shares of Preferred Stock.
WARRANTS
In connection with the Junior Subordinated Indebtedness, the Company has
issued for $5,000 to Mr. Franklin and his associates the Warrants to purchase
265,335 shares of Common Stock. The Warrants are exercisable until September
30, 1999 at an exercise price of $1.88 per share.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the DGCL, the Company's Certificate of Incorporation, as
amended, limits the personal liability of a director or officer to the Company
for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing
41
<PAGE>
violation of law, (iii) unlawful payment of dividends or stock purchases or
redemptions pursuant to Section 174 of the DGCL, or (iv) any transaction from
which the director derived an improper personal benefit.
The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited
circumstances, including on account of knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provisions may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to public
policy.
DELAWARE LAW
The Company is subject to Section 203 of the DGCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person
owning 15% or more of a corporation's outstanding voting stock) from engaging
in a "business combination" with a publicly-held Delaware corporation for
three years following the date such person became an interested stockholder,
unless: (i) before such person became an interested stockholder, the board of
directors of the corporation approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (subject to certain
exceptions); or (iii) following the transaction in which such person became an
interested stockholder, the business combination is approved by the Board of
Directors of the corporation and authorized at a meeting of stockholders by
the affirmative vote of the holders of 66% of the outstanding voting stock of
the corporation not owned by the interested stockholder. A "business
combination" includes mergers, stock or asset sales and other transactions
resulting in a financial benefit to the interested stockholder.
The provisions of Section 203 of the DGCL could have the effect of delaying,
deferring or preventing a change in control of the Company.
SHAREHOLDERS' AGREEMENT
All of the existing holders of Common Stock and options to purchase Common
Stock are parties to a Shareholders' Agreement dated November 30, 1994 which
will terminate upon the completion of this Offering. This agreement (i)
prohibits the sale, pledge, transfer or disposal of shares of Common Stock
prior to the earlier of November 24, 1997 or the date on which the Company
shall have fully utilized its Federal income tax NOL's ("Ownership Change
Date") and (ii) restricts the sale, pledge, transfer or disposal of shares of
Common Stock subsequent to the Ownership Change Date. The Shareholders'
Agreement terminates on the earliest of (i) the date of dissolution or
liquidation of the Company, (ii) such time as any one shareholder or other
person owns all the shares of Common Stock, (iii) the date of the consummation
of a public offering of Common Stock under the Securities Act or (iv) such
time as all the parties to the Shareholders' Agreement elect to terminate such
agreement.
The Shareholders' Agreement provides for Dickstein & Co., L.P., Dickstein
International Limited and Dickstein Focus Fund, L.P. (collectively
"Dickstein") and Viking Holding Limited ("Viking") to appoint two Directors.
Dickstein has appointed Messrs. Cooper and Katz to the Board and Viking has
appointed Messrs. Franklin and Naggar to the Board.
TRANSFER AGENT
The transfer agent for the Common Stock is Continental Stock Transfer &
Trust Company, New York, New York.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 4,451,666 shares of
Common Stock outstanding, not including shares of Common Stock issuable upon
exercise of the Officer's Options, Warrants and Underwriter's Purchase Option
and assuming no exercise of the over-allotment option granted to the
Underwriter and options outstanding under the Plan. Of these outstanding
shares, the 1,250,000 shares sold to the public in this Offering may be freely
traded without restriction or further registration under the Securities Act,
except that any shares that may be held by an "affiliate" of the Company (as
that term is defined in the rules and regulations under the Securities Act)
may be sold only pursuant to a registration under the Securities Act or
pursuant to an exemption from registration under the Securities Act including
the exemption provided by Rule 144 adopted under the Securities Act. 3,201,666
shares of Common Stock are "restricted securities" as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares"), and may not be sold
unless such sale is registered under the Securities Act, or is made pursuant
to an exemption from registration under the Securities Act, including the
exemption provided by Rule 144. Of such shares, 3,065,803 will be available
for sale pursuant to Rule 144 commencing 1996, and 135,863 will be
available for sale pursuant to Rule 144 commencing February 1998, in each case
subject to the lock-up agreements described below.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within
any three-month period, that number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is given to the Securities and
Exchange Commission ("Commission"), provided certain public information,
manner of sale and notice requirements are satisfied. A stockholder who is
deemed to be an affiliate of the Company, including members of the Board of
Directors and senior management of the Company, will still need to comply with
the restrictions and requirements of Rule 144, other than the two-year holding
period requirement, in order to sell shares of Common Stock that are not
Restricted Securities, unless such sale is registered under the Securities
Act. A stockholder (or stockholders whose shares are aggregated) who is deemed
not to have been an affiliate of the Company at any time during the 90 days
preceding a sale by such stockholder, and who has beneficially owned
Restricted Shares for at least three years, will be entitled to sell such
shares under Rule 144 without regard to the volume limitations described
above. The Commission is currently considering a reduction in the required
holding periods under Rule 144.
No predictions can be made of the effect, if any, that future sales of
shares of the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of
the Common Stock in the public market could adversely affect the then-
prevailing market price.
All of the officers and directors of the Company and all other existing
stockholders of the Company as of August, 1996, have agreed that for a period
of 12 months from the date of this Prospectus, they will not sell any of such
shares without the prior written approval of the Underwriter. Such lock-up
only extends for a period of 6 months from the date of this Prospectus with
respect to the 375,000 shares of Common Stock acquired in the Preferred
Conversion.
In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701
under the Securities Act ("Rule 701"). Rule 701 permits affiliates to sell
their shares which are subject to Rule 701 ("Rule 701 shares") under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell Rule 701 shares in reliance on
Rule 144 without having to comply with the public information, volume
limitation or notice provisions of Rule 144. In both cases, a holder of Rule
701 shares is required to wait until 90 days after the date of this
Prospectus. All holders of stock options under the Plan will be required to
agree not to dispose of Rule 701 shares for a period of 24 months from the
date of this Prospectus without the consent of the Underwriter.
43
<PAGE>
REGISTRATION RIGHTS
The Company has entered into a registration rights agreement with Dickstein
and Viking. Under this registration rights agreement, the Company has provided
to each of Dickstein and Viking, for so long as it owns at least 15% of the
outstanding Common Stock, (i) "demand" registration rights whereby each of
Dickstein and Viking can, with certain restrictions, on one occasion require
the Company to register under the Securities Act the Company's equity
securities it holds and that of certain other shareholders and
(ii) "piggyback" registration rights whereby each of Dickstein and Viking can,
with certain restrictions, require the Company to include the Company's equity
securities it holds in any registration statement filed by the Company. The
Company will pay all registration expenses related to any demand registration
excluding underwriting commissions. The Company will pay certain of the
expenses relating to piggyback registrations, with the remainder of such
expenses to be divided pro rata between Dickstein and Viking based on the
number of securities each has registered in the offering. In connection with
this Offering, Dickstein and Viking have waived their registration rights for
a period of one year following this Offering. The Company will register
securities pursuant to the Registration Rights Agreement on Form S-3 or any
other available form.
The Company intends to file one or more registration statements on Form S-8
under the Securities Act to register approximately 500,000 shares underlying
options granted or to be granted under the Plan for resale under the
Securities Act. The Company has agreed with the Underwriter that it will not
file any Form S-8 registration statement for one year following the date of
this Prospectus. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets to the extend applicable.
44
<PAGE>
UNDERWRITING
GKN Securities Corp. ("Underwriter"), has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,250,000 shares of Common Stock. The obligations of the Underwriter under
the Underwriting Agreement are subject to approval of certain legal matters by
counsel and various other conditions precedent, and the Underwriter is
obligated to purchase all of the shares of Common Stock offered by this
Prospectus (other than the shares of Common Stock covered by the over-
allotment option described below), if any are purchased.
The Underwriter has advised the Company that it proposes to offer the shares
of Common Stock to the public at the initial public offering price set forth
on the cover page of this Prospectus and to certain dealers at that price less
a concession not in excess of $ per share of Common Stock. The Underwriter
may allow, and such dealers may reallow, a concession not in excess of $
per share of Common Stock to certain other dealers. After this Offering, the
offering price and other selling terms may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a nonaccountable
basis equal to 2.5% of the gross proceeds derived from the sale of the shares
of Common Stock underwritten (including the sale of any shares of Common Stock
subject to the Underwriter's over-allotment option), $50,000 of which has been
paid to date. The Company also has agreed to pay all expenses in connection
with qualifying the shares of Common Stock offered hereby for sale under the
laws of such states as the Underwriter may designate and register this
Offering with the National Association of Securities Dealers, Inc., including
fees and expenses of counsel retained for such purposes by the Underwriter.
The Company has granted to the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase from the Company
at the offering price, less underwriting discounts and the non-accountable
expense allowance, up to an aggregate of 187,500 additional shares of Common
Stock for the sole purpose of covering over-allotments, if any.
In connection with this Offering, the Company has agreed to sell to the
Underwriter for an aggregate of $100, the Underwriter's Purchase Option,
consisting of the right to purchase up to an aggregate of 125,000 shares of
Common Stock. The Underwriter's Purchase Option is exercisable at $ , for a
period of four years, commencing on the first and ending on the fifth
anniversary of the effective date ("Effective Date") of the Registration
Statement. The Underwriter's Purchase Option may not be transferred, sold,
assigned or hypothecated during the one-year period following the date of this
Prospectus except to officers of the Underwriter and the selected dealers and
their officers or partners. The Underwriter's Purchase Option grants to the
holders thereof certain "piggyback" and demand rights for periods of seven and
five years, respectively, from the date of this Prospectus with respect to the
registration under the Securities Act of the securities directly and
indirectly issuable upon exercise of the Underwriter's Purchase Option.
Pursuant to the Underwriting Agreement, all of the officers, directors and
stockholders of the Company as of the date of this Prospectus have agreed not
to sell any of their shares of Common Stock until the expiration of 12 months
from the date of this Prospectus without the prior consent of the Underwriter,
provided, however, that holders of 375,000 shares of Common Stock issued in
the Preferred Conversion shall be permitted to sell such shares commencing six
months after the Effective Date. During the three year period following the
date of this Prospectus, the Underwriter shall have the right to purchase for
the Underwriter's account or to sell for the account of such persons any
securities sold by any of such persons in the open market.
The Underwriting Agreement provides that, for a period of three years from
the date of this Prospectus, the Underwriter may send a non-voting
representative to observe each meeting of the Board of Directors.
Prior to this Offering, there has been no public market for any of the
Company's Common Stock. Accordingly, the initial public offering price of the
Common Stock has been arbitrarily determined by negotiation
45
<PAGE>
between the Company and the Underwriter and does not necessarily bear any
relation to established valuation criteria. Factors considered in determining
such price, in addition to prevailing market conditions, include an assessment
of the prospects for the industry in which the Company competes, the Company's
management and the Company's capital structure.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Kane Kessler, P.C., New York, New York. Graubard Mollen & Miller,
New York, New York, has served as counsel to the Underwriter in connection
with this Offering.
EXPERTS
The consolidated financial statements as of December 30, 1995, December 31,
1994 and January 1, 1994 and for each of the three years in the period ended
December 30, 1995 included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere. Such consolidated financial statements have been included
herein in reliance upon the reports of such firm given upon their authority as
experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto, certain portions having been omitted from
this Prospectus in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, the
securities offered by this Prospectus and such omitted information, reference
is made to the Registration Statement, including any and all exhibits and
amendments thereto. Statements contained in this Prospectus concerning the
provisions of any documents filed as an exhibit are of necessity brief
descriptions thereof and are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
this reference.
Following the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and 7 World Trade Center, New York, New York 10048.
Copies of such material, including the Registration Statement, can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements, quarterly reports containing
unaudited financial information and such other periodic reports as the Company
may determine to be appropriate or as may be required by law.
46
<PAGE>
SPECIALTY CATALOG CORP.
CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 30, 1995 AND DECEMBER 31, 1994 AND FOR THE
THREE YEARS ENDED DECEMBER 30, 1995,
DECEMBER 31, 1994 AND JANUARY 1, 1993
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 29, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 29, 1996 AND JULY 1, 1995, AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
SPECIALTY CATALOG CORP.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF DECEMBER 30, 1995
AND DECEMBER 31, 1994 AND FOR THE THREE
YEARS ENDED DECEMBER 30, 1995,
DECEMBER 31, 1994 AND JANUARY 1, 1993
UNAUDITED FINANCIAL STATEMENTS AS OF
JUNE 29, 1996 AND FOR THE SIX MONTHS ENDED
JUNE 29, 1996 AND JULY 1, 1995:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Deficit 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-16
<PAGE>
SPECIALTY CATALOG CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Financial Statements as of December 30, 1995 and December 31, 1994 and
for the Three Years Ended December 30, 1995, December 31, 1994 and
January 1, 1993 Unaudited Financial Statements as of June 29, 1996 and
for the Six Months Ended June 29, 1996 and July 1, 1995:
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations.................................. F-4
Consolidated Statements of Stockholders' Deficit....................... F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements............................. F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The accompanying consolidated financial statements give effect to the
completion of the 325.51-for-one split of the Company's outstanding common
stock which will take place on the effective date of the offering. The
following report is in the form which will be furnished by Deloitte & Touche
on completion of the stock split of the Company's common stock described in
Note 13 to the consolidated financial statements and assuming that from August
16, 1996 to the date of such completion no other material events have occurred
that would affect the accompanying consolidated financial statements or
required disclosure therein.
To the Board of Directors of
Specialty Catalog Corp.
We have audited the accompanying consolidated balance sheets of Specialty
Catalog Corp. as of December 30, 1995 and December 31, 1994 and the related
consolidated statements of operations and consolidated statements of
stockholders' deficit and cash flows for the three years ended December 30,
1995, December 31, 1994 and January 1, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Specialty Catalog Corp. as of
December 30, 1995 and December 31, 1994 and the results of its operations and
its cash flows for the three years ended December 30, 1995, December 31, 1994
and January 1, 1994, in conformity with generally accepted accounting
principles.
April 19, 1996 (except for Note 13,
for which the date is August 16, 1996)
New York, New York
F-2
<PAGE>
SPECIALTY CATALOG CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, JUNE 29, JUNE 29,
1994 1995 1996 1996
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ 946,280 $ 113,364 $ 864,176 $ 1,364,176
Accounts receivable,
less allowance for
doubtful accounts of
$42,000, $160,000 and
$51,000 at December
31, 1994, December 30,
1995 and June 29,
1996, respectively.... 579,148 1,367,929 1,138,469 1,138,469
Inventories............ 4,221,266 5,073,743 4,090,560 4,090,560
Prepaid expenses....... 3,174,543 3,462,818 3,586,891 3,586,891
------------ ------------ ------------ ------------
Total current assets.... 8,921,237 10,017,854 9,680,096 10,180,096
------------ ------------ ------------ ------------
Fixed assets:
Property and equipment. 3,787,949 3,982,348 4,118,407 4,118,407
Less accumulated
depreciation and
amortization.......... (3,011,164) (3,040,751) (3,178,992) (3,178,992)
------------ ------------ ------------ ------------
Total fixed assets...... 776,785 941,597 939,415 939,415
------------ ------------ ------------ ------------
Deferred income taxes... 7,130,175 6,779,356 6,779,356 6,779,356
------------ ------------ ------------ ------------
Other assets............ 536,154 431,553 377,857 377,857
------------ ------------ ------------ ------------
Total assets............ $ 17,364,351 $ 18,170,360 $ 17,776,724 $ 18,276,724
============ ============ ============ ============
LIABILITIES AND STOCK-
HOLDERS' DEFICIT
Current liabilities:
Line of credit......... $ -- $ 1,050,000 $ 1,450,000 $ 1,450,000
Accounts payable and
accrued expenses...... 2,928,018 4,730,936 4,601,486 4,601,486
Liabilities to
customers............. 1,267,752 755,902 630,800 630,800
Income taxes........... 111,450 81,945 232,930 232,930
Current portion of
long-term debt........ 2,500,000 2,750,000 2,950,000 2,950,000
------------ ------------ ------------ ------------
Total current liabili-
ties................... 6,807,220 9,368,783 9,865,216 9,865,216
------------ ------------ ------------ ------------
Long-term debt.......... 11,500,000 8,750,000 7,450,000 7,450,000
Subordinated debt-re-
lated party............ 3,680,186 4,125,519 4,362,735 4,743,674
Other long-term liabili-
ties................... 31,241 341,939 511,542 --
Commitments and contin-
gencies
Stockholders' deficit:
13% preferred stock,
$100 par value: 30,000
shares authorized;
22,491 shares issued
and outstanding....... 2,249,100 2,249,100 2,249,100
Common stock, $.01 par
value: 10,000,000
shares authorized;
2,826,666 shares is-
sued and outstanding
at December 31, 1994.. 28,267 32,017
Class A common stock,
$.01 par value; 16,000
shares authorized;
6,017.77 shares issued
and outstanding at De-
cember 30, 1995....... -- 19,589 19,589
Class B common stock,
$.01 par value; 2,000
shares authorized;
1,332.94 shares issued
and outstanding at De-
cember 30, 1995....... -- 4,339 4,339
Class C common stock,
$.01 par value; 2,000
shares authorized;
1,332.94 shares issued
and outstanding at De-
cember 30, 1995....... -- 4,339 4,339
Additional paid-in cap-
ital.................. 4,934,157 4,641,774 4,495,586 7,534,289
Deferred compensation... -- -- -- (162,750)
Note receivable--stock-
holder................. (148,710) (140,174) (140,174) (140,174)
Accumulated deficit..... (11,717,110) (11,194,848) (11,045,548) (11,045,548)
------------ ------------ ------------ ------------
Total stockholders' def-
icit................... (4,654,296) (4,415,881) (4,412,769) (3,782,166)
------------ ------------ ------------ ------------
Total liabilities and
stockholders' deficit.. $ 17,364,351 $ 18,170,360 $ 17,776,724 $ 18,276,724
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SPECIALTY CATALOG CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------- ------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JULY 1, JUNE 29,
1994 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $33,801,265 $38,178,792 $42,568,120 $22,419,386 $18,754,741
Cost of sales (including
buying, occupancy and
order
fulfillment costs)..... 13,867,938 15,648,066 16,423,590 8,859,075 7,003,241
----------- ----------- ----------- ----------- -----------
Gross profit............ 19,933,327 22,530,726 26,144,530 13,560,311 11,751,500
----------- ----------- ----------- ----------- -----------
Operating expenses:
Selling, general and
administrative
expenses............. 16,767,738 17,771,721 22,835,086 11,155,582 10,590,938
Restructuring charges. -- -- 512,943 512,943 --
----------- ----------- ----------- ----------- -----------
Total operating ex-
penses................. 16,767,738 17,771,721 23,348,029 11,668,525 10,590,938
----------- ----------- ----------- ----------- -----------
Income from operations.. 3,165,589 4,759,005 2,796,501 1,891,786 1,160,562
----------- ----------- ----------- ----------- -----------
Interest expense--net... (431,322) (661,022) (1,917,664) (958,197) (909,216)
----------- ----------- ----------- ----------- -----------
Income before
reorganization items,
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary item..... 2,734,267 4,097,983 878,837 933,589 251,346
Reorganization items.... 1,037,979 2,889,707 -- -- --
----------- ----------- ----------- ----------- -----------
Income before income
taxes, cumulative
effect of change in
accounting principle
and extraordinary item. 1,696,288 1,208,276 878,837 933,589 251,346
Income taxes............ 704,017 497,954 356,575 379,037 102,046
----------- ----------- ----------- ----------- -----------
Income before cumulative
effect of change in
accounting principle
and extraordinary item. 992,271 710,322 522,262 554,552 149,300
Cumulative effect of
change in accounting
for income taxes....... 8,985,122 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income before extraordi-
nary item.............. 9,977,393 710,322 522,262 554,552 149,300
Extraordinary item--gain
on debt discharge--net
of income taxes of
$1,094,649............. -- 12,078,489 -- -- --
----------- ----------- ----------- ----------- -----------
Net income.............. $ 9,977,393 $12,788,811 $ 522,262 $ 554,552 $ 149,300
----------- ----------- ----------- ----------- -----------
Preferred Stock Divi-
dends.................. -- (31,241) (292,383) (146,191) (146,188)
----------- ----------- ----------- ----------- -----------
Net income available to
common
shareholders........... $ 9,977,393 $12,757,570 $ 229,879 $ 408,361 $ 3,112
=========== =========== =========== =========== ===========
Per common share
Income before extraor-
dinary items......... $ 0.33 $ 0.22 $ 0.08 $ 0.13 $ 0.00
Income from cumulative
effect............... 2.97 -- -- -- --
Net income per share.... $ 3.30 $ 4.22 $ 0.08 $ 0.13 $ 0.00
----------- ----------- ----------- ----------- -----------
Weighted average shares
outstanding............ 3,025,334 3,025,334 3,025,334 3,025,334 3,584,453
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SPECIALTY CATALOG CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK CLASS A CLASS B CLASS C PREFERRED STOCK ADDITIONAL
-------------------- ----------------- -------------- -------------- ----------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
2, 1993.......... 1,000,000 $ 10,000 -- $ -- -- $ -- -- $ -- -- $ -- $4,115,300
Net income...... -- -- -- -- -- -- -- -- -- -- --
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, January
1, 1994.......... 1,000,000 10,000 -- -- -- -- -- -- -- -- 4,115,300
Cancellation of
SC Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings..... (1,000,000) (10,000) -- -- -- -- -- -- -- -- 10,000
Issuance of SC
Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings..... 868,365 8,684 -- -- -- -- -- -- -- -- 859,681
Issuance of
preferred stock. -- -- -- -- -- -- -- -- 22,491 2,249,100 --
Exchange of SC
Corporation
common shares
for Specialty
Catalog Corp.
common shares at
the rate of
1/100 share of
Specialty
Catalog Corp.
stock for each
share of SC
Corporation
common stock for
one............. 1,958,301 19,583 -- -- -- -- -- -- -- -- (19,583)
Net income...... -- -- -- -- -- -- -- -- -- -- --
Redeemable
preferred stock
dividends....... -- -- -- -- -- -- -- -- -- -- (31,241)
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, December
31, 1994......... 2,826,666 28,267 -- -- -- -- -- -- 22,491 2,249,100 4,934,157
Exchange of
common shares
for Class A,
Class B, and
Class C shares.. (2,826,666) (28,267) 1,958,880 19,589 433,893 4,339 433,893 4,339 -- -- --
Net income...... -- -- -- -- -- -- -- -- -- -- --
Redeemable
preferred stock
dividends....... -- -- -- -- -- -- -- -- -- -- (292,383)
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, December
30, 1995......... -- -- 1,958,880 19,589 433,893 4,339 433,893 4,339 22,491 2,249,100 4,641,774
Net income
(unaudited)..... -- -- -- -- -- -- -- -- -- -- --
Redeemable
preferred stock
dividends
(unaudited)..... -- -- -- -- -- -- -- -- -- -- (146,188)
---------- -------- --------- ------- ------- ------ ------- ------ ------ ---------- ----------
Balance, June 29,
1996 (unaudited). -- $ -- 1,958,880 $19,589 433,893 $4,339 433,893 $4,339 22,491 $2,249,100 $4,495,586
========== ======== ========= ======= ======= ====== ======= ====== ====== ========== ==========
<CAPTION>
ACCUMULATED
DEFICIT
-------------
<S> <C>
Balance, January
2, 1993.......... $(34,483,314)
Net income...... 9,977,393
-------------
Balance, January
1, 1994.......... (24,505,921)
Cancellation of
SC Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings.....
Issuance of SC
Corporation
common shares in
connection with
reorganization
and settlement
of bankruptcy
proceedings.....
Issuance of
preferred stock.
Exchange of SC
Corporation
common shares
for Specialty
Catalog Corp.
common shares at
the rate of
1/100 share of
Specialty
Catalog Corp.
stock for each
share of SC
Corporation
common stock for
one.............
Net income...... 12,788,811
Redeemable
preferred stock
dividends....... --
-------------
Balance, December
31, 1994......... (11,717,110)
Exchange of
common shares
for Class A,
Class B, and
Class C shares..
Net income...... 522,262
Redeemable
preferred stock
dividends....... --
-------------
Balance, December
30, 1995......... (11,194,848)
Net income
(unaudited)..... 149,300
Redeemable
preferred stock
dividends
(unaudited)..... --
-------------
Balance, June 29,
1996 (unaudited). $(11,045,548)
=============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SPECIALTY CATALOG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------- ------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JUNE 29, JULY 1,
1993 1994 1995 1996 1995
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERAT-
ING ACTIVITIES:
Net income............. $ 9,977,393 $ 12,788,811 $ 522,262 $ 149,300 $ 554,552
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Interest paid through
issuance of debt..... -- -- 445,333 237,216 211,611
Depreciation and amor-
tization............. 776,440 748,628 249,127 141,536 116,878
Deferred income taxes. 415,004 1,439,943 350,819 -- --
Cumulative effect of
change in accounting
for income taxes..... (8,985,122) -- -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable.. (196,662) 155,040 (788,781) 229,460 (287,647)
Inventories.......... (1,145,222) (817,280) (852,477) 983,183 4,714
Prepaid expenses..... (1,600,109) (120,628) (288,275) (124,073) (1,358,709)
Other assets......... (205,745) (383,072) 104,935 53,122 57,528
Accounts payable and
accrued expenses.... 1,818,219 (1,944,118) 1,802,918 (129,450) 1,265,962
Liabilities to cus-
tomers.............. (159,141) 141,645 (511,850) (125,102) (484,900)
Income taxes......... (79,971) (43,077) (29,505) 150,985 337,984
Other long-term
liabilities......... -- -- 18,315 23,415 5,422
Change due to
reorganization
activities:
Extraordinary gain on
debt discharge...... -- (13,173,138) -- -- --
----------- ------------ ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 615,084 (1,207,246) 1,022,821 1,589,592 423,395
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM INVEST-
ING ACTIVITIES:
Purchases of property
and equipment......... (268,037) (447,919) (413,146) (138,780) (206,639)
Repayments of note re-
ceivable.............. -- -- 7,409 -- --
----------- ------------ ----------- ----------- -----------
Net cash used in invest-
ing activities......... (268,037) (447,919) (405,737) (138,780) (206,639)
----------- ------------ ----------- ----------- -----------
CASH FLOWS FROM FINANC-
ING ACTIVITIES:
Issuance of common
stock................. -- 827,042 -- -- --
Issuance of redeemable
preferred stock....... -- 2,142,840 -- -- --
Settlement of long-term
obligations........... -- (20,237,480) -- -- --
Issuance of long-term
debt.................. -- 17,680,186 -- -- --
Repayments of notes
payable............... -- -- (2,500,000) (1,100,000) (500,000)
Advances on line of
credit................ 2,972,147 -- 1,050,000 400,000 --
----------- ------------ ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............. 2,972,147 412,588 (1,450,000) (700,000) (500,000)
----------- ------------ ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SPECIALTY CATALOG CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
--------------------------------------- -----------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, JUNE 29, JULY 1,
1993 1994 1995 1996 1995
----------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM REORGA-
NIZATION ACTIVITIES:
Decrease in obligations
subject to settlement
under reorganization
proceedings........... $(1,495,935) $ -- $ -- $ -- $ --
----------- ------------ ----------- ----------- -----------
Increase (decrease) in
cash................... 1,823,259 (1,242,577) (832,916) 750,812 (283,244)
Cash, beginning of year. 365,598 2,188,857 946,280 113,364 946,280
----------- ------------ ----------- ----------- -----------
Cash, end of year....... $ 2,188,857 $ 946,280 $ 113,364 $ 864,176 $ 663,036
----------- ------------ ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION:
Cash paid during the
year for:
Interest.............. $ 382,754 $ 493,624 $ 1,533,826 $ 592,851 $ 712,748
=========== ============ =========== =========== ===========
Income taxes.......... $ 316,837 $ 174,735 $ 35,261 $ 42,669 $ 41,053
=========== ============ =========== =========== ===========
</TABLE>
SUMMARY OF NONCASH TRANSACTIONS:
During the six-month periods ended June 29, 1996 and July 1, 1995 and the
year ended December 30, 1995, the Company issued $237,216, $211,611 and
$445,333 of subordinated debt in lieu of payment of interest.
During the six-month periods ended June 29, 1996 and July 1, 1995 and the
years ended December 30, 1995 and December 31, 1994, the Company declared
dividends on preferred stock of $146,188, $146,191, $292,383 and $31,241
which have not been paid at June 29, 1996.
In 1994 the Company issued a note receivable in the amount of $147,583 in
exchange for common and preferred stock.
See notes to consolidated financial statements.
F-7
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND JANUARY 1, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Nature of Business--Specialty Catalog Corp. ("Company" ) is a direct
marketer targeting niche consumer product categories, including women's
wigs and hairpieces and continuing education courses for nurses, real
estate professionals and Certified Public Accountants.
b. Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its subsidiary SC
Corporation, doing business under the name SC Direct, and SC Corporation's
wholly-owned subsidiary SC Publishing. All material intercompany balances
and transactions have been eliminated in consolidation.
c. Pro Forma Balance Sheet--The June 29, 1996 pro forma balance sheet gives
effect to the conversion of 13% Preferred Stock ("13% Preferred Stock")
into 375,000 shares of common stock, the waiver of all accrued dividends
and interest on the 13% Preferred Stock, the issuance of the stock options
described in note 13 and the issuance of debt and related warrants also
described at note 13.
d. Accounts Receivable--The Company records an allowance to provide for
uncollectible accounts receivable. In 1995 and 1994 the Company had write-
offs of accounts receivable against this allowance of $34,221 and $34,180,
respectively. Bad debt expense for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994 was $146,004, $34,180, and $26,004,
respectively.
e. Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
f. Inventories--Inventories are stated at the lower of first-in, first-out
cost or market.
g. Prepaid and Deferred Expenses--Catalog production and mailing costs
included in prepaid expenses are amortized over their related revenue
stream. Catalog production and related mailing costs that result in
probable future economic benefit are amortized over two-month to four-month
periods following the mailing of the catalogs to customers based on
historical response rates.
h. Property and Equipment--Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed on the
straight-line method over the estimated useful lives of the respective
assets. Amortization is computed on the straight-line method over the
lesser of the estimated useful lives of the related assets or the lease
terms.
i. Other Assets--Trademarks are stated at cost less accumulated amortization.
Amortization is computed on a straight-line basis over 37 years. At
December 31, 1995 and 1994, the Company had $33,870 and $21,482 of
unamortized trademarks included in other assets.
Deferred financing costs which were incurred by the Company in connection
with the Banque Nationale de Paris ("BNP") note (Note 5) are charged to
operations as additional interest expense over the life of the underlying
indebtedness.
j. Income Taxes--In 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109").
SFAS 109 requires that deferred income taxes be determined based on the
expected future tax consequences of temporary differences between the
financial reporting and tax bases of assets and liabilities. Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred income tax assets and liabilities. A
valuation allowance is recorded when realization of a deferred tax asset is
not assured. In connection with the adoption of this statement, the Company
recognized a cumulative effect of $8,985,122 in 1993.
F-8
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
k. Revenue--The Company recognizes sales and the related costs of sales at the
time the merchandise is shipped to customers. The Company allows for
merchandise returns at the customer's discretion within the period stated
in the Company's sales policy. An allowance is provided for returns based
on estimated merchandise returns.
l. Fair Value of Financial Instruments--SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments," requires disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not
recognized in the consolidated balance sheet of the Company, for which it
is practicable to estimate fair value. The estimated fair value of
financial instruments which are presented herein have been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting
market data to develop estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of amounts the Company
could realize in a current market exchange.
The fair value of the Company's cash and cash equivalents, accounts
receivable, accounts payable, and line of credit approximate their carrying
values at December 30, 1995, due to the short-term maturities of these
investments. The carrying value and fair value of the Company's note
receivable at December 30, 1995 was $140,174. The fair value of the note
receivable is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. The fair
value of the Company's long-term debt at December 30, 1995 was $15,636,397.
The carrying value of the Company's long term debt at December 30, 1995 was
$15,625,519. The fair value of the Company's long-term debt is based on
discounted future cash flows using current interest rates for financial
instruments with similar characteristics and maturity.
m. Net Income Per Share--Net income per share is calculated using the weighted
average number of common shares outstanding during each of the periods
retroactively restated to give effect to the 325.51-for-one stock split.
n. Newly Adopted Accounting Statements--In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which
was effective for the Company beginning January 1, 1996. SFAS No. 123
requires expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to be
measured based on fair value of the equity instruments awarded. Companies
are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25
to its stock-based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." This statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles which are to be disposed of.
The adoption of this statement had no effect on the financial position, or
results of operations or cash flows of the Company.
o. Fiscal Year--The Company is on a 52/53 week fiscal year, ending on the
Saturday closest to December 31. The fiscal years ended December 30, 1995,
December 31, 1994 and January 1, 1994 consisted of 52 weeks.
p. Reclassifications--Certain amounts in the 1993 and 1994 financial
statements have been reclassified to conform to the 1995 presentation.
F-9
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
q. Unaudited Financial Statements--In the opinion of management of the
Company, the accompanying unaudited financial statements reflect all
adjustments which were of a normal recurring nature necessary for a fair
presentation of the Company's financial position, results of operations and
cash flows for the six months ended June 30, 1996 and June 30 1995.
2. CORPORATE ORGANIZATION AND BANKRUPTCY PROCEEDINGS
On December 28, 1992, SC Corporation and its subsidiaries Wigs by Paula,
Inc. ("Wigs"), Western Schools, Inc., the predecessor of SC Publishing, After
the Stork, Inc. ("Stork") and Brotman Acquisition Corp. ("Brotman") filed
voluntary petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy") in the United States Bankruptcy Court for the
District of Connecticut, Bridgeport Division ("Bankruptcy Court"). From that
date until November 23, 1994, SC Corporation operated its business as a
debtor-in-possession subject to the jurisdiction of the Bankruptcy Court.
During that period, the Company did not pay $1,030,757 and $1,688,592 of
contractual interest for the years ended December 31, 1994 and January 1, 1994
while under the protection of Bankruptcy.
SC Corporation's Disclosure Statement with respect to the First Amended and
Restated Joint Plan of Reorganization of SC Corporation and its subsidiaries
Wigs and SC Publishing ("Plan of Reorganization") was approved by the
Bankruptcy Court on September 21, 1994. The Plan of Reorganization was
subsequently confirmed by the Bankruptcy Court on October 26, 1994 and the
reorganization of SC Corporation was consummated on November 23, 1994.
The Plan of Reorganization provided for the payment of $15,508,726 in cash,
$1,673,453 in subordinated notes, 10,227 shares of preferred stock valued at
$1,022,700 and 295,121 shares of common stock valued at $295,121 in settlement
of $24,102,851 of secured claims, and $3,345,066 in cash, $354,247 in
subordinated notes, 2,164 shares of preferred stock valued at $216,400 and
179,353 shares of common stock valued at $179,353 in settlement of $11,665,353
of unsecured claims. The gain on such discharge of pre-petition claims has
been recorded as an extraordinary item, net of income taxes of $1,094,649. The
Company funded the Plan of Reorganization by selling additional shares of
common stock ("Common Stock") and 13% Preferred Stock, entering into a new
senior credit facility, and issuing subordinated notes ("Subordinated Notes").
Subsequent to the consummation of the reorganization, certain stockholders of
the Company purchased the subordinated notes and 13% Preferred Stock from the
holder of the secured claims at their face values and the common stock from
the holders of the secured and unsecured claims at its fair market value.
Reorganization items consist of the following:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Interest income................................... $ 103,308 $ 24,473
Professional fees................................. (2,133,117) (1,062,452)
Executive and employee compensation............... (533,840) --
Other............................................. (326,058) --
----------- -----------
$(2,889,707) $(1,037,979)
=========== ===========
</TABLE>
The Company was incorporated on November 30, 1994 for the purpose of
becoming the parent company of SC Corporation. On that date, the Company
issued 2,826,666 shares of its Common Stock ("Common Stock") and 22,491 shares
of 13% Preferred Stock to the stockholders of SC Corporation in exchange for
their shares of SC Corporation Common Stock and 13% Preferred Stock.
F-10
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PREPAID EXPENSES
Prepaid expenses at December 30, 1995 and December 31, 1994 consists of the
following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred catalog costs................................ $2,320,261 $1,747,152
Prepaid advertising................................... 825,064 1,068,566
Other................................................. 317,493 358,825
---------- ----------
$3,462,818 $3,174,543
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 30, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
USEFUL
LIFE 1995 1994
------- ----------- -----------
<S> <C> <C> <C>
Furniture and equipment.................. 7 years $ 1,139,016 $ 1,326,389
Data processing equipment................ 5 years 2,734,186 2,363,330
Leasehold improvements................... (i) 109,146 98,230
----------- -----------
3,982,348 3,787,949
Less accumulated depreciation and amorti-
zation.................................. (3,040,751) (3,011,164)
----------- -----------
$ 941,597 $ 776,785
=========== ===========
</TABLE>
(i) Lesser of the estimated useful lives of the related assets or the lease
term.
5. LONG-TERM DEBT
Long-term debt consists of the following at December 30, 1995 and December
31, 1994:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Banque Nationale de Paris Term Advance, Prime Rate
plus 2% or Eurodollar Rate plus 3.5%, payable
quarterly in amounts between $500,000 and
$1,500,000 through May 22, 1999.................... $11,500,000 $14,000,000
SC Holdings LLC Subordinated Note, 11.5%,
payable November 22, 2002.......................... 3,680,186 3,680,186
SC Holdings LLC PIK Note, 11.5%, payable November
22, 2002........................................... 445,333 --
----------- -----------
15,625,519 17,680,186
Less current portion................................ 2,750,000 2,500,000
----------- -----------
$12,875,519 $15,180,186
=========== ===========
</TABLE>
The Credit Agreement between "BNP" and the Company ("Agreement") has
covenants which prohibit the payment of cash dividends on the Company's Common
Stock and 13% Preferred Stock and any principal or interest payments on the
Subordinated Notes and require that various financial limits and ratios be
maintained. In addition, the Agreement requires an annual prepayment of
outstanding principal equal to 75% of the Company's excess cash flow, as
defined. Each prepayment reduces pro rata the remaining scheduled Term Advance
principal payments.
F-11
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Agreement is secured by all assets of the Company and its subsidiaries.
In addition, the Company has pledged the shares of common stock of SC
Corporation, and SC Holdings LLC ("Holdings") has pledged its subordinated
note, to BNP as additional collateral, and the Company, its subsidiaries,
(except Stork and Brotman) and Holdings each have jointly, severally and
unconditionally guaranteed the borrowings under the Agreement, up to a certain
percentage of each guarantor's adjusted net assets, as defined. The Agreement
also provides the Company with a line of credit up to $2,000,000 for working
capital and letters of credit. The line of credit may be automatically and
permanently reduced each year by a portion of the Company's excess cash flow,
as defined. The Company had $1,050,000 and $0 outstanding under the line of
credit and $536,000 and $2,000,000 available under the line of credit at
December 30, 1995 and December 31, 1994. Borrowings under the line of credit
were at the prime rate plus 2%, which was 10.5% at December 30, 1995 due
within three months are at the three-month Eurodollar rate plus 3.5% while the
remainder of the borrowings are at the six-month Eurodollar rate plus 3.5%.
Borrowings under the term advance at December 30, 1995 due within three months
are at the three-month Eurodollar rate plus 3.5% while the remainder of the
borrowings are at the six-month Eurodollar rate plus 3.5%. Such Eurodollar
rates were 9.38% and 9.19%, respectively.
The Company is obligated to pay various fees under the Agreement, including
an unused line of credit fee of 1/2 of 1% of the unused amount under the line.
Holdings is a limited liability company whose stockholders own all the
issued and outstanding shares of 13% Preferred Stock of the Company and
certain of the issued and outstanding shares of Common Stock of the Company.
The Company may, at its option through November 22, 1999, and, under certain
conditions, through November 22, 2002, pay interest on the Subordinated Notes
by issuing additional Subordinated Notes with identical terms and conditions
with an aggregate principal amount equal to the amount of interest then
payable. In 1995, the Company issued $445,333 of additional Subordinated Notes
as payment of interest for the period November 1994 through December 1995.
The aggregate maturities of long-term debt after December 30, 1995 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- -----------
<S> <C>
1996............................................................. $ 2,750,000
1997............................................................. 3,250,000
1998............................................................. 3,750,000
1999............................................................. 1,750,000
2000............................................................. --
2001 and thereafter.............................................. 4,125,519
-----------
$15,625,519
===========
</TABLE>
As described in Note 13, the Company intends to have a public offering of
its common shares in late 1996 in order to pay down its outstanding debt. In
the event that this offering is not successful, the Company believes that its
present cash flows from operations are sufficient in order to meet the above
debt service requirements, however, if necessary, the Company has the intent
and ability to refinance.
6. PREFERRED STOCK
On November 30, 1994, the Company issued 22,491 shares of 13% Preferred
Stock.
The 13% Preferred Stock dividends are cumulative and payable quarterly at
the end of each calendar quarter. In addition to the Credit Agreement's
prohibition of the payment of cash dividends on the Company's
F-12
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Common Stock and 13% Preferred Stock, the Company may not pay any dividends on
any class of its capital stock other than the 13% Preferred Stock or purchase,
redeem or otherwise acquire any shares of any class of its capital stock so
long as there are any accrued but unpaid dividends on any shares of the 13%
Preferred Stock. At December 30, 1995, there were $323,624 of cumulative 13%
Preferred Stock dividends in arrears, which is included in other long-term
liabilities.
Prior to 1995, the Company had to redeem all the outstanding shares of 13%
Preferred Stock on November 30, 2004 at a price equal to the par value of the
outstanding shares plus any accrued but unpaid dividends ("Redemption Price").
In 1995, the Board and 13% Preferred Stock shareholders elected to amend the
Company's charter by removing the mandatory redemption provision of the 13%
Preferred Stock. In addition, at any time prior to November 30, 2004, the
Company may, at its option, redeem any or all shares of the 13% Preferred
Stock at the Redemption Price.
The holders of the 13% Preferred Stock have no voting rights except as
provided by law.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the 13% Preferred Stock shall be
entitled to receive the Redemption Price before any distribution shall be made
to holders of Common Stock or other capital stock of the Company. If the
assets of the Company at such time are insufficient to pay such amounts, such
assets shall be distributed pro rata to the holders of the 13% Preferred
Stock.
7. COMMON STOCK
a. Issuance of Common Stock--As part of the Company's reorganization and
settlement of its bankruptcy proceedings, on November 23, 1994 SC issued
868,365 shares of Common Stock and canceled 1,000,000 shares of old common
stock that had been issued prior to the date that SC Corporation filed for
reorganization under Chapter 11. On November 30, 1994, the stockholders
exchanged their shares of SC Corporation common stock for the Company's
Common Stock at the rate of approximately 100 shares of SC Corporation's
common stock for each share of the Company's Common Stock.
In 1995, the Company's Board of Directors and holders of common stock
elected to recapitalize the common stock into three classes, Class A, Class
B and Class C. Holders of Class A shares are entitled to one vote per share
while holders of Class B and Class C shares are entitled to one-half vote
per share and one and one-half votes per share, respectively. All dividend
and liquidation rights remain unchanged. Upon sale, disposition or other
transfer of any share(s) of Class B common stock by the original holder
thereof, (i) such share(s) shall automatically and immediately convert into
an equal number of shares of Class A common stock, and (ii) an equal number
of shares of Class C common stock shall automatically and immediately
convert into an equal number of shares of Class A common stock. All
shareholders received one share of Class A for each share of common with
the exceptions of one shareholder who received one-half of share of Class A
and one-half share of Class B for each share of common and another
shareholder who received one-half share of Class A and one-half share of
Class C for each share of common.
b. Shareholders' Agreement--All holders of Common Stock and options to
purchase Common Stock are parties to a Shareholders' Agreement dated
November 30, 1994 which (i) prohibits the sale, pledge, transfer or
disposal of shares of common stock prior to the earlier of November 24,
1997 or the date on which the Company shall have fully utilized its Federal
income tax net operating loss carryovers ("Ownership Change Date") and (ii)
restricts the sale, pledge, transfer or disposal of shares of Common Stock
subsequent to the Ownership Change Date by granting to the other holders of
shares of common stock the right of first refusal on any bona fide offer to
purchase common shares. The Shareholders' Agreement terminates on the
earliest
F-13
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of (i) the date of dissolution or liquidation of the Company, (ii) such
time as any one shareholder or other person owns all the shares of Common
Stock, (iii) the date of the consummation of a public offering of Common
Stock under the Securities Act of 1933 ("Act") or (iv) such time as all the
parties to the Shareholders' Agreement elect to terminate such agreement.
c. Registration Rights Agreement--The Company and all holders of Common Stock
are parties to a Registration Rights Agreement dated November 30, 1994
which requires the Company, if it proposes to file a registration statement
with respect to its Common Stock under the Act, to give all holders of
Common Stock the opportunity to include their shares in such registration.
In addition, the Registration Rights Agreement requires the Company, upon
request from either of its major shareholders, to use its best efforts to
effect the registration under the Act of the shares of such major
stockholder and (i) to notify all other holders of common stock of such
major stockholder's request, and (ii) to use its best efforts to effect the
registration under the Act of the shares of all other shareholders who
desire such registration.
d. Stock Option Agreements--On November 30, 1994, the Company granted a total
of 582,999 options to purchase shares of common stock to two executive
officers. The exercise price of the options is $0.3072 per share. At
December 30, 1995 and December 31, 1994, 60,618 and 30,309 options were
vested, respectively. The remaining options vest over varying periods, with
143,530 options ("Vesting Options") vesting between November 23, 1996 and
November 23, 1997, and 378,851 options ("Performance Options") vesting on
November 1, 2003. The Performance Options may vest earlier than November 1,
2003 if certain earnings or internal rate of return thresholds are met.
8. RESTRUCTURING CHARGES
During 1995, the Company restructured by consolidating its operations to one
location in order to reduce costs and utilize resources more efficiently.
Specifically, restructuring charges include:
<TABLE>
<S> <C>
Office Closure Costs................................................ $212,860
Employee Severances................................................. 300,083
--------
Total............................................................. $512,943
========
</TABLE>
Actual termination benefits paid in 1995 totaled $214,007. Included in
accrued expenses at December 30, 1995 are accrued restructuring related
charges of $151,976.
9. INCOME TAXES
The provision for income taxes consists of the following at December 30,
1995 and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ 5,046 $ --
State........................................... 5,756 147,614 289,013
-------- -------- --------
5,756 152,660 289,013
-------- -------- --------
Deferred:
Federal......................................... 298,196 293,500 352,753
State........................................... 52,623 51,794 62,251
-------- -------- --------
350,819 345,294 415,004
-------- -------- --------
Total......................................... $356,575 $497,954 $704,017
</TABLE>
F-14
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income tax assets and liabilities consist of the following at
December 30, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards.................... $7,229,484 $7,726,848
Operating reserves.................................. 200,165 983,769
Inventory........................................... 226,990 106,103
Other............................................... 5,044 5,046
---------- ----------
7,661,683 8,821,766
---------- ----------
Deferred income tax liabilities:
Extraordinary gain on debt discharge................ -- 1,094,649
Deferred catalog costs.............................. 850,259 551,271
Other............................................... 32,068 45,671
---------- ----------
882,327 1,691,591
---------- ----------
Net deferred income tax asset......................... $6,779,356 $7,130,175
========== ==========
</TABLE>
Reconciliation of the statutory Federal income tax rate and the effective
rate of the provision for income taxes for the years ended December 30, 1995,
December 31, 1994 and January 1, 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate.......................... 34.0% 34.0% 34.0%
State taxes, net of Federal income tax benefits............ 6.6 7.2 7.5
---- ---- ----
40.6% 41.2% 41.5%
==== ==== ====
</TABLE>
The Company has recorded a deferred tax asset of $6,779,356 reflecting the
benefit of $18,073,209 of net operating loss carryforwards which expire in
varying amounts between 2005 and 2010. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely
than not that all of the deferred tax asset will be realized.
The use of the net operating losses may be subject to certain limitations
upon a change in control of the Company.
10. RELATED PARRY TRANSACTIONS
The Company has a note receivable from a stockholder in the amount of
$140,174 at December 30, 1995. The note bears interest at 9.25% and is
repayable in varying annual installments between December 31, 1996 and
December 31, 1999.
The note was issued in November 1994 in exchange for shares of Common Stock
and 13% Preferred Stock and is collateralized by 18,365 shares of Common
Stock, 490 shares of 13% Preferred Stock and $80,186 of Subordinated Notes.
11. COMMITMENTS AND CONTINGENCIES
a. Operating Leases--The Company leases certain administrative, warehousing
and other facilities and equipment under operating leases. The following is
a schedule of future minimum rental payments under noncancelable operating
leases as of December 30, 1995:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996................................................................ $193,500
1997................................................................ 31,168
--------
$224,668
========
</TABLE>
F-15
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Management expects that, in the normal course of business, expiring leases
will be renewed or replaced by other leases. Rent expense under operating
leases for the year ended December 30, 1995, December 31, 1994 and January
1, 1994 was $438,450, $569,212 and $562,907, respectively.
b. Employment and Bonus Agreements--The Company has employment and bonus
agreements with two executive officers through December 31, 1999. The
Company's salary commitment under these agreements aggregates $2,060,000 at
December 30, 1995 as follows:.
<TABLE>
<S> <C>
1996 $ 485,000
1997 505,000
1998 525,000
1999 545,000
----------
$2,060,000
==========
</TABLE>
In addition, the two executive officers may earn certain other bonuses
based on the Company's achievement of certain operating criteria.
12. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified defined contribution plan, under the
provisions of Section 401(k) of the Internal Revenue Code, covering
substantially all employees. Under the terms of the plan, eligible employees
may make contributions up to 15% of pay, subject to statutory limitations.
Contributions not exceeding 5% of an employee's pay are matched 40% by the
Company. The Company may, at its discretion, make an additional year-end
contribution. Employee contributions are always fully vested. Company
contributions vest 20% for each completed year of service, becoming fully
vested after five years of service. Matching contributions by the Company
under the plan were $67,188, $59,594 and $47,520 in 1995, 1994 and 1993,
respectively. No discretionary contributions have been made to the plan.
The Company established a supplemental defined contribution plan in 1994
that covers certain employees. Under the terms of the plan, these employees
may elect to defer up to 50% of any bonus paid for that year. The Company
matches 100% of all amounts deferred. In addition, the Company pays interest
on all outstanding balances at the prime rate but not in excess of 12%. A
participant's rights to the deferred amount of regular bonus and income
thereon shall be fully vested and nonforfeitable at all times. A participant's
right to the Company's match shall become fully vested and nonforfeitable in
cumulative increments of 20% on each of the first through fifth anniversaries
of the bonus date for that year. The total cost of the plan to the Company was
$0, $65,000 and $0, in 1993, 1994 and 1995, respectively. The $65,000
contributed in 1994 initiated the plan.
13. SUBSEQUENT EVENTS
On June 1, 1996, the Company entered into an agreement with a director and
two associates of the director to issue a junior subordinated note for
$495,000 payable on November 22, 2002 and bearing interest at 11.5%. In
connection with the issuance of this note, the Company agreed to issue a
warrant for $5,000 to purchase 265,335 shares of Class A common stock for an
aggregate exercise price of $500,000 ($1.8844 per share). The warrant expires
on September 30, 1999. The note and related warrants were issued on August 12,
1996. The note has been discounted using an effective interest rate of 21.5%,
which represented the Company's borrowing rate for junior subordinated debt at
the date of the transaction. The remainder of the value representing $114,061
was assigned to the warrants.
F-16
<PAGE>
SPECIALTY CATALOG CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In July 1996, the Company signed a letter of intent with an underwriter for
an initial public offering of 1.25 million shares of the Company's Common
Stock. At the effective date of the offering, the Company will increase the
number of authorized shares of Common Stock from 20,000 to 10,000,000 and
preferred stock from 30,000 to 1,000,000 and effect a 325.51-for-one split.
The effect of the stock split will be to transfer $19,583 representing the par
value of the additional shares issued from additional paid in capital to
Common Stock. All numbers of common shares and per share data in the
accompanying consolidated financial statements have been retroactively
adjusted to effect the stock split. Immediately after the stock split, all
outstanding shares of preferred stock will be converted into 375,000 shares of
Common Stock. All accumulated dividends and accrued interest on those
dividends through the date of the offering have been irrevocably waived by the
13% Preferred Stockholders as of August 13, 1996. In addition, at the date of
the offering, the Company will adopt the 1996 Stock Option Plan ("Plan"). It
is anticipated that 500,000 authorized but unissued shares of Common Stock
will be reserved for issuance under the Plan. The per share exercise price of
options granted under the Plan will be not less than 100% of the fair market
value of a share of the Company's Common Stock on the date of the grant.
In August 1996, the Company amended its Credit Agreement with BNP. This
amendment included revisions of certain financial limits and ratios that must
be maintained by the Company and is retroactive to December 31, 1995.
In August 1996, the Board of Directors granted a total of 175,000 options to
purchase shares of Common Stock to two executive officers contingent on the
occurrence of the offering. The exercise prices of the options are 75,000
options at $5.33 per share and the remainder of the shares at the initial
public offering price. The options vest equally over five years subject to
acceleration under certain contingencies.
14. PRO FORMA AND SUPPLEMENTAL EARNINGS PER SHARE (UNAUDITED)
Pro forma earnings per share of the Company give effect to the conversion of
all preferred stock into 375,000 Common Shares, and the exercise of options to
purchase 657,999 shares of Common Stock more fully described in Notes 7 and
13. Historical net income has been adjusted to give effect to the elimination
of accrued dividends on the 13% Preferred Stock. Pro forma earnings per share
for the periods ended December 30, 1995 and June 29, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, JUNE 29,
1995 1996
------------ --------
<S> <C> <C>
Pro forma earnings per share........................... $0.14 $0.04
===== =====
</TABLE>
Supplemental pro forma earnings per share gives effect to the number of
shares necessary for the Company to sell at a purchase price of $7.50 per
share less the Underwriters' discount, to raise sufficient proceeds (net of
estimated offering expenses) to retire $5,900,000 of the Company's
indebtedness to the BNP. The number of supplemental pro forma shares
outstanding also gives effect to the conversion of all shares of 13% Preferred
Stock for 375,000 of Common Stock, the exercise of a warrant for 265,335
shares of Common Stock (See note 13) and the exercise of options for 657,999
shares of Common Stock (See notes 7 and 13). Historical net income has been
adjusted to give effect to the reduction of interest expense on the BNP
indebtedness as a result of repayment of such debts, and to the elimination of
accrued dividends on the preferred stock and any interest expense accrued on
unpaid accumulated dividends. Supplemental pro forma earnings per share for
the periods ended December 30, 1995 and June 29, 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 30, JUNE 29,
1995 1996
------------ --------
<S> <C> <C>
Supplemental pro forma earnings per share.............. $0.17 $0.06
===== =====
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURI-
TIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OF-
FER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS PRO-
SPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PRO-
SPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Reorganization............................................................ 8
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 14
Capitalization............................................................ 15
Dividend Policy........................................................... 15
Dilution.................................................................. 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................ 19
Business.................................................................. 24
Management................................................................ 33
Principal Stockholders.................................................... 38
Certain Transactions...................................................... 40
Description of Securities................................................. 41
Shares Eligible for Future Sale........................................... 43
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Available Information..................................................... 46
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,250,000 SHARES
LOGO
SPECIALTY CATALOG CORP.
COMMON STOCK
-------------
PROSPECTUS
-------------
LOGO
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates of the expenses to be
incurred by it in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 4,344.83
NASD registration fee........................................... 1,760.00
Nasdaq listing fee.............................................. 31,718.00
Printing registration statement and other documents............. 100,000.00*
Fees and expenses of Registrant's counsel....................... 200,000.00*
Underwriter's expense allowance................................. 234,375.00*
Accounting fees and expenses.................................... 75,000.00*
Blue Sky expenses and counsel fees.............................. 25,000.00*
Engraving....................................................... 5,000.00*
Miscellaneous................................................... 47,802.17*
-----------
Total......................................................... $725,000.00
===========
</TABLE>
- --------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of Delaware, as amended ("DGCL"),
authorizes a Delaware corporation to indemnify its officers, directors,
employees and agents against expenses and liabilities incurred in legal
proceedings involving such persons because of their holding or having held
such positions with the corporation and to purchase and maintain insurance for
such indemnification. The Company's By-Laws and Article Seventh of its
Certificate of Incorporation, as amended, substantively provide that the
Company indemnify its officers, directors, employees and agents to the fullest
extent permitted by Section 145 of the DGCL.
In accordance with Section 102(b)(7) of the DGCL, Article 8 of the Company's
Certificate of Incorporation, as amended, eliminates the personal liability of
directors to the Company or its stockholders for monetary damages for breach
of fiduciary duty as a director with certain limited exceptions set forth in
Section 102(b)(7).
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand and the Underwriters
and their respective controlling persons on the other hand against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended ("Securities Act").
The Company has also entered into indemnification agreements with each of
its directors and executive officers. The indemnification agreements provide
that the directors and executive officers will be indemnified to the fullest
extent permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines and amounts reasonably paid or incurred by them for
settlement in any threatened, pending or completed action, suit or proceeding,
including any derivative action, on account of their services as a director or
officer of the Company or of any subsidiary of the Company or of any other
company or enterprise in which they are serving at the request of the Company.
No indemnification will be provided under the indemnification agreements,
however, to any director or executive officer in certain limited
circumstances, including on account of knowingly fraudulent, deliberately
dishonest or willful misconduct. To the extent the provisions of the
indemnification agreements exceed the indemnification permitted by applicable
law, such provisions may be unenforceable or may be limited to the extent they
are found by a court of competent jurisdiction to be contrary to public
policy.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Described below is information regarding all securities that have been
issued by the Company in the past three years.
1. On November 23, 1994, SC Corporation, a predecessor of the Company,
pursuant to the First Amended and Restated Joint Plan of Reorganization of SC
Corporation, Wigs by Paula, Inc., and SC Publishing, undertook a
reorganization ("Reorganization") and left the protection of the bankruptcy
court. As part of the Reorganization, on November 23, 1994, SC Corporation
issued 868,365 shares of new common stock and canceled 1,000,000 shares of old
common stock that had been issued prior to the date that SC Corporation filed
for Reorganization under Chapter 11 of the Bankruptcy Code. In addition, as
part of this transaction, the Company issued to certain stockholders
$3,680,000 of subordinated indebtness, ("Subordinated Indebtness"). The
Subordinated Indebtness bears interest at 11.5% per annum and is due on
December 1, 2002. The issuance of the shares and the Subordinated Indebtness
was exempt from the registration provisions of the Securities Act pursuant to
Section 3(a)(7) of the Securities Act.
2. On November 30, 1994, all of the outstanding shares of SC Corporation
common stock were exchanged for shares of Common Stock and 13% Preferred Stock
at the rate of 1/100 share of the Company's common stock for each outstanding
share of SC Corporation common stock. The forgoing transactions were exempt
from the registration provisions of the Securities Act pursuant to Section
4(2)(a) of the Securities Act.
The following table sets forth the number of shares of the Company's Common
Stock and the amount of subordinated indebtness each stockholder received
pursuant to the Reorganization. The numbers of shares owned and the conversion
of the 13% Preferred Stock into Common Stock reflect a recapitalization of the
Company whereby each share of Preferred Stock was converted into 16.67 shares
of Common Stock.
<TABLE>
<CAPTION>
AMOUNT OF
COMMON STOCK PREFERRED SUBORDINATED
NAME SHARES ISSUED SHARES ISSUED INDEBTNESS
---- ------------- ------------- ------------
<S> <C> <C> <C>
Steven L. Bock.................... 303.93 0 --
Bruce Pollack..................... 121.57 0 --
Wigs, L.P......................... 260.51 675 $ 110,406
Dickstein & Co., L.P.............. 2,665.88 7,272 $1,189,926
9 West 57th Street
New York, NY 10019
Dickstein International Limited... 1,332.94 3,636 $ 594,964
9 West 57th Street
New York, NY 10019
Viking Holdings Limited........... 3,998.82 10,908 $1,784,390
c/o Abacus Secretaries (Jersey)
Limited
La Motte Chambers
St. Helier, Jersey
JE1 1BS Channel Islands
</TABLE>
3. Mark Brodsky and Samuel Katz acquired their shares of Common Stock and
13% Preferred Stock as set forth in the following table in February 1996 from
Dickstein International. The transaction was exempt from the registration
requirements of the Securities Act pursuant to the so-called "Section 4 (1
1/2)" exemption. The following table sets forth the number of shares of common
stock and 13% Preferred each stockholder received. The numbers of shares owned
and the conversion of the 13% Preferred Stock into Common Stock reflect a
recapitalization of the Company whereby each share of Preferred Stock was
converted into 16.67 shares of Common Stock.
II-2
<PAGE>
<TABLE>
<CAPTION>
COMMON
STOCK PREFERRED
NAME ISSUED STOCK ISSUED
---- ------ ------------
<S> <C> <C>
Mark Brodsky............................................. 122.07 332.98
Samuel Katz.............................................. 244.14 665.96
</TABLE>
4. On June 1, 1996, the Company entered into an agreement with Martin
Franklin, a director of the Company, and two associates of Mr. Franklin,
pursuant to which Mr. Franklin and his associates loaned the Company $495,000
in junior subordinated indebtedness. This loan was made on August 9, 1996,
bears interest at 11.5%, and is due August 9, 1999, provided that this loan
will not be repaid prior to the repayment of the Subordinated Indebtedness. In
connection with this loan, the Company has issued for $5,000 to Mr. Franklin
and his associates warrants to purchase 265,335 shares of Common Stock. The
warrants are exercisable until September 30, 1999 at an exercise price of
$1.88 per share.
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities
Act pursuant to Section 4(2) thereof.
5. On August 1, 1996, Dickstein Focus Fund acquired 366.17 shares of Common
Stock from Dickstein & Co., L.P. The transaction was exempt from the
registration requirements of the Securities Act pursuant to the so-called
"Section 4 (1 1/2)" exemption.
No underwriter was engaged in connection with the foregoing sales of
securities. The Company has reason to believe that all of the foregoing
purchasers were familiar with or had access to information concerning the
operations and financial conditions of the Company, and all of those
individuals purchasing securities represented that they were accredited
investors, acquiring the shares for investment and without a view to the
distribution thereof. At the time of issuance, all of the foregoing securities
were deemed to be restricted securities for purposes of the Securities Act and
the certificates representing such securities bore legends to that effect.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
**1.01 --Preliminary form of Underwriting Agreement.
**1.03 --Form of Selected Dealer Agreement.
*3.01 --Certificate of Incorporation of the Registrant, as amended.
**3.02 --By-Laws of the Registrant, as amended.
**4.01 --Specimen Certificate representing the Common Stock, par value $0.01
per share.
**5.01 --Opinion of Kane Kessler, P.C.
**10.01 --1996 Stock Option Plan.
**10.02 --Employment Agreement dated as of , 1996 between the Registrant
and Steven L. Bock ("Bock Employment Agreement").
**10.03 --Employment Agreement dated as of , 1996 between the Registrant
and Steven M. O'Hara ("O'Hara Employment Agreement").
*10.04 --Credit Agreement dated , 1994 between Bank Nationale de Paris
("BNP") Wigs By Paula, Inc., predecessor to the Registrant ("Wigs").
*10.05 --First Amendment, Waiver and Consent to the Credit Agreement dated
August 16, 1995 between BNP and the Registrant.
*10.06 --Second Amendment, Waiver and Consent to the Credit Agreement dated
August 14, 1996 between BNP and the Registrant.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
*10.07 --Security Agreement dated as of November 23, 1994 between Wigs and
BNP.
*10.08 --Trademark and Copyright Security Agreement dated as of November 23,
1994 between WIGS, BNP and other guarantors named therein.
*10.09 --Pledge Agreement dated as of November 23, 1994 between SC
Corporation and BNP.
*10.10 --Pledge Agreement dated as of November 23, 1994 between the
Registrant, SC Holdings, L.L.C. and BNP.
*10.11 --Guaranty dated November 23, 1994 between the Registrant, Western
Schools, Inc., Royal Advertising & Marketing, Inc., BNP and the Hedge
Banks.
*10.12 --Guaranty dated November 23, 1994 between SC Corporation, BNP, and
the Hedge Banks.
*10.13 --Guaranty dated November 30, 1994 between the Registrant, SC Holdings
L.L.C., BNP, and the Hedge Banks.
*10.14 --Agreement dated June 1, 1996 between SC Direct, Inc., the Registrant
and Martin Franklin.
*10.15 --Debtor Securities Purchase Agreement dated November 23, 1994 between
WIGS, L.P. and SC Corporation.
*10.16 --Pledge and Security Agreement dated November 30, 1994 between WIGS,
L.P. and SC Corporation.
*10.17 --Promissory Note dated November 23, 1994 in the principal amount of
$147,583 from WIGS, L.P. to SC Corporation.
*10.18 --Lease dated July 10, 1985 between Simon D. Young, Trustee of the
Sandpy Realty Trust, ("Trustee"), and Wigs for premises located at 21
Bristol Drive, South Easton, MA.
*10.19 --First Amendment of Lease, dated March 15, 1986, between the Trustee
and Wigs.
*10.20 --Second Amendment to Lease, dated March 1, 1989 between the Trustee
and Wigs By Paula, Inc.
*10.21 --Third Amendment to Lease, dated October 22, 1993 between the Trustee
and Wigs By Paula, Inc.
*10.22 --Letter Agreement, dated February 21, 1995 between the Trustee and SC
Corporation.
*10.23 --Lease, dated October 20, 1995 between Fredric Snyderman as Trustee
of JV Realty Trust and SC Direct Inc. for the premises at 23 Norfolk
Avenue.
*10.24 --Printing Agreement, dated January 1, 1995 between Quebecor Printing
(USA) Corp. and the Registrant, as amended.
**10.25 --Registration Rights Agreement, dated November 30, 1994 between the
Registrant and certain of the Registrant's stockholders, as amended.
*10.26 --First Amended and Restated Joint Plan of Reorganization of SC
Corporation, Western Schools, Inc. and Wigs by Paula dated September
21, 1994.
*10.27 --AT&T Contract Tariff Order dated February 9, 1995 between AT&T and
the Registrant.
*10.28 --Shareholders' Agreement dated as of November 30, 1994 between the
Registrant, SC Holdings L.L.C., SC Corporation and certain
shareholders. ("Shareholders' Agreement").
*10.29 --Amendment No. 1 to Shareholders' Agreement.
*10.30 --SC Holdings L.L.C. Limited Liability Company Agreement, dated as of
.
**10.31 --Supplemental Defined Contribution Plan.
**10.32 --Form of Indemnification Agreement of Directors.
*11.01 --Statement Regarding Computation of per share earnings.
**21.01 --Subsidiaries of the Registrant.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
**23.01 --Consent of Kane Kessler, P.C. (included in Exhibit 5)
*23.02 --Consent of Deloitte and Touche
*24.01 --Power of Attorney (contained on page II-7)
*27.01 --Financial Data Schedule
</TABLE>
- --------
* Filed herewith
** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) and to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) to provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser;
(5) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue;
II-5
<PAGE>
(6) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(7) for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF NEW YORK, STATE OF NEW
YORK, ON AUGUST 23, 1996.
Specialty Catalog Corp.
By: /s/ Steven L. Bock
---------------------------------
Steven L. Bock,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Steven Bock and Stephen O'Hara, jointly
and severally, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement and all documents relating
thereto, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Steven L. Bock Director and Chief August 12, 1996
- ------------------------------------- Executive Officer
(Principal
Executive Officer)
/s/ Stephen M. O'Hara President August 12, 1996
- -------------------------------------
/s/ J. William Heise Chief Financial August 12, 1996
- ------------------------------------- Officer (Principal
Financial and
Accounting Officer)
/s/ Alan S. Cooper Director August 6, 1996
- -------------------------------------
II-7
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Martin Franklin Director August 6, 1996
- -------------------------------------
/s/ Samuel L. Katz Director August 5, 1996
- -------------------------------------
/s/ Guy Naggar Director August 6, 1996
- -------------------------------------
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NO.
------- ---------------------- ----
<C> <S> <C>
**1.01 --Preliminary form of Underwriting Agreement.
**1.03 --Form of Selected Dealer Agreement.
*3.01 --Certificate of Incorporation of the Registrant, as amended.
**3.02 --By-Laws of the Registrant, as amended.
**4.01 --Specimen Certificate representing the Common Stock, par value
$0.01 per share.
**5.01 --Opinion of Kane Kessler, P.C.
**10.01 --1996 Stock Option Plan.
**10.02 --Employment Agreement dated as of , 1996 between the
Registrant and Steven L. Bock ("Bock Employment Agreement").
**10.03 --Employment Agreement dated as of , 1996 between the
Registrant and Steven M. O'Hara ("O'Hara Employment
Agreement").
*10.04 --Credit Agreement dated , 1994 between Bank Nationale de
Paris ("BNP") Wigs By Paula, Inc., predecessor to the
Registrant ("Wigs").
*10.05 --First Amendment, Waiver and Consent to the Credit Agreement
dated August 16, 1995 between BNP and the Registrant.
*10.06 --Second Amendment, Waiver and Consent to the Credit Agreement
dated August 14, 1996 between BNP and the Registrant.
*10.07 --Security Agreement dated as of November 23, 1994 between Wigs
and BNP.
*10.08 --Trademark and Copyright Security Agreement dated as of
November 23, 1994 between WIGS, BNP and other guarantors named
therein.
*10.09 --Pledge Agreement dated as of November 23, 1994 between SC
Corporation and BNP.
*10.10 --Pledge Agreement dated as of November 23, 1994 between the
Registrant, SC Holdings, L.L.C. and BNP.
*10.11 --Guaranty dated November 23, 1994 between the Registrant,
Western Schools, Inc., Royal Advertising & Marketing, Inc.,
BNP and the Hedge Banks.
*10.12 --Guaranty dated November 23, 1994 between SC Corporation, BNP,
and the Hedge Banks.
*10.13 --Guaranty dated November 30, 1994 between the Registrant, SC
Holdings L.L.C., BNP, and the Hedge Banks.
*10.14 --Agreement dated June 1, 1996 between SC Direct, Inc., the
Registrant and Martin Franklin.
*10.15 --Debtor Securities Purchase Agreement dated November 23, 1994
between WIGS, L.P. and SC Corporation.
*10.16 --Pledge and Security Agreement dated November 30, 1994 between
WIGS, L.P. and SC Corporation.
*10.17 --Promissory Note dated November 23, 1994 in the principal
amount of $147,583 from WIGS, L.P. to SC Corporation.
*10.18 --Lease dated July 10, 1985 between Simon D. Young, Trustee of
the Sandpy Realty Trust, ("Trustee"), and Wigs for premises
located at 21 Bristol Drive, South Easton, MA.
*10.19 --First Amendment of Lease, dated March 15, 1986, between the
Trustee and Wigs.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBIT NO.
------- ---------------------- ----
<C> <S> <C>
*10.20 --Second Amendment to Lease, dated March 1, 1989 between the
Trustee and Wigs By Paula, Inc.
*10.21 --Third Amendment to Lease, dated October 22, 1993 between the
Trustee and Wigs By Paula, Inc.
*10.22 --Letter Agreement, dated February 21, 1995 between the Trustee
and SC Corporation.
*10.23 --Lease, dated October 20, 1995 between Fredric Snyderman as
Trustee of JV Realty Trust and SC Direct Inc. for the premises
at 23 Norfolk Avenue.
*10.24 --Printing Agreement, dated January 1, 1995 between Quebecor
Printing (USA) Corp. and the Registrant, as amended.
**10.25 --Registration Rights Agreement, dated November 30, 1994
between the Registrant and certain of the Registrant's
stockholders, as amended.
*10.26 --First Amended and Restated Joint Plan of Reorganization of SC
Corporation, Western Schools, Inc. and Wigs by Paula dated
September 21, 1994.
*10.27 --AT&T Contract Tariff Order dated February 9, 1995 between
AT&T and the Registrant.
*10.28 --Shareholders' Agreement dated as of November 30, 1994 between
the Registrant, SC Holdings L.L.C., SC Corporation and certain
shareholders. ("Shareholders' Agreement").
*10.29 --Amendment No. 1 to Shareholders' Agreement.
*10.30 --SC Holdings L.L.C. Limited Liability Company Agreement, dated
as of .
**10.31 --Supplemental Defined Contribution Plan.
**10.32 --Form of Indemnification Agreement of Directors.
*11.01 --Statement Regarding Computation of per share earnings.
**21.01 --Subsidiaries of the Registrant.
**23.01 --Consent of Kane Kessler, P.C. (included in Exhibit 5)
*23.02 --Consent of Deloitte and Touche
*24.01 --Power of Attorney (contained on page II-7)
*27.01 --Financial Data Schedule
</TABLE>
- --------
* Filed herewith
** To be filed by amendment.
<PAGE>
EXHIBIT 3.01
CERTIFICATE OF INCORPORATION
OF
SPECIALTY CATALOG CORP.
--------------------
The undersigned, for the purposes of organizing a corporation pursuant to
the General Corporation Law of the State of Delaware, does make and file this
Certificate of Incorporation with the Secretary of the State of Delaware and
does hereby certify as follows:
FIRST: The name of the corporation is Specialty Catalog Corp. (hereinafter
referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation is to be
located at 32 Loockerman Square, Suite L-100, in the City of Dover, in the
County of Kent, in the State of Delaware 19904. The name of its registered agent
at such address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 50,000 consisting of:
A. 20,000 shares of common stock, par value of one cent ($0.01) per
share (hereinafter referred to as "Common Stock").
(1) Subject to the restrictions set forth in Paragraph B of this
Article FOURTH, the holders of Common Stock shall be entitled to
receive such dividends as may be declared from time to time by the
Board of Directors.
(2) After distribution in full of the preferential amount (fixed in
accordance with the provisions of Paragraph B of this Article FOURTH),
if any, to be distributed to the holders of Preferred Stock in the
event of voluntary or involuntary liquidation, distribution or sale of
assets, dissolution or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all the remaining assets
of the Corporation, tangible and intangible, or whatever kind
available for distribution to stockholders ratably in proportion to
the number of shares of Common Stock held by them, respectively.
B. 30,000 shares of preferred stock, par value one hundred dollars
($100.00) per share (hereinafter referred to as "Preferred Stock").
<PAGE>
(1) Dividends. Each holder of Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds at the time legally available therefor, dividends at the rate of
(i) $13.00 per annum per share and (ii) 13% per annum (compounded
quarterly) on any accrued dividends on such shares, whether or not
declared, that remain unpaid beyond the next succeeding Dividend
Payment Date (as defined herein). Dividends on shares of Preferred
Stock shall accrue and be cumulative from the date of issuance of such
shares. Dividends shall be payable quarterly in cash in arrears on
March 31, June 30, September 30 and December 31 of each year
commencing December 31, 1994 (except that if any such date is a
Saturday, Sunday or legal holiday, then such dividend shall be payable
on the next day that is not a Saturday, Sunday or legal holiday) (each
such date a "Dividend Payment Date") to holders of record as they
appear on the stock books of the Corporation on such record dates as
are fixed by the Board of Directors. For purposes hereof, the term
"legal holiday" shall mean any day on which banking institutions are
authorized to close in New York. The amount of dividends payable per
share of Preferred Stock for each quarterly dividend period shall be
computed by dividing the annual amount by four. The amount of
dividends payable for the initial dividend period and any period
shorter than a full semi-annual dividend period shall be computed on
the basis of a 365-day year and the number of days actually elapsed in
such period. Dividends in arrears may be declared and paid at any time
to holders of record on the record date therefor.
So long as any Preferred Stock shall remain outstanding, the
Corporation shall not, directly or indirectly, (i) pay, declare or set
apart for payment any dividend or make any other distribution (in each
case, whether payable in cash, in property, in securities of the
Corporation or otherwise) on or in respect of any class of capital
stock of the Corporation other than the Preferred Stock, and (ii)
purchase, redeem or otherwise acquire (or pay or make available any
monies for a sinking fund for the purchase, redemption or acquisition
of) any shares of any class of capital stock of the Corporation, in
each case if there shall then be any accrued dividends on any shares
of Preferred Stock accrued to the date of such action that have not
been declared and paid or set apart for payment; except that this
subparagraph shall not prohibit a dividend or distribution payable in
Common Stock or in rights or warrants to purchase Common Stock.
If at any time the Corporation pays less than the total amount of
dividends then accrued with respect to Preferred Stock, such payment
shall be distributed pro rata to the holders of Preferred Stock based
upon the aggregate accrued and unpaid dividends no the shares held by
each such holder.
(2) Redemption. The Corporation, at its option, may redeem at any
time in whole or from time to time in part, the Preferred Stock on any
date set by the Board of Directors, at a price equal to the par value
per share of any share redeemed, plus, in each case, an amount in cash
equal to all dividends on the Preferred Stock accrued and unpaid
thereon, whether or not declared or due,
-2-
<PAGE>
pro rata to the date fixed for redemption, such sum being hereinafter
referred to as the "Redemption Price". Unless earlier called for
redemption in accordance with the provisions hereof, on tenth
anniversary of date of issuance, or, if such date is not a business
day, the next succeeding day that is a business day, each outstanding
share of Preferred Stock shall be mandatorily redeemed at the
Redemption Price, payable in cash.
In case of the optional redemption of less than all of the then
outstanding Preferred Stock, the Corporation shall effect such
redemption pro rata.
Not more than 60 nor less than 10 days prior to any redemption
date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Preferred Stock to be redeemed, at such
holder's address as it shall appear upon the stock transfer books of
the Corporation. Each such notice of redemption shall specify (i) the
date fixed for redemption, (ii) the Redemption Price, (iii) the place
or places of payment, (iv) that payment will be made upon presentation
and surrender of the certificate(s) evidencing the shares of Preferred
Stock to be redeemed) the number of shares of Preferred Stock to be
redeemed and, if fewer than all of the shares to be redeemed from such
holder, and (vi) that on and after the redemption date, dividends will
cease to accrue on such shares.
Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the
holder of the Preferred Stock receives such notice; and failure to
give such notice by mail, or any defect in such notice, to the holders
of any shares designated for redemption shall not (a) affect the
validity of the proceedings for the redemption of any other shares of
Preferred Stock or (b) prejudice the rights of any holders of
Preferred Shares to cause the Corporation to redeem any such shares
held by them. On or after the date fixed for redemption as stated in
such notice, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at
the place designated in such notice and shall thereupon be entitled to
receive payment of the Redemption Price. If less than all the shares
represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. If, on
the date fixed for redemption, funds necessary for the redemption
shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing
any shares so called for redemption shall not have been surrendered,
the dividends with respect to the shares so called shall cease to
accrue after the date fixed for redemption, the shares shall no longer
be deemed outstanding, the holders thereof shall cease to be
stockholders with respect to the shares so called and all rights
whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the Redemption Price without
interest upon surrender of their certificates therefor) shall
terminate.
The holder of any shares of Preferred Stock redeemed upon any
exercise of the Corporation's redemption right shall not be entitled
to receive
-3-
<PAGE>
payment of the Redemption Price for such shares until such holder
shall cause to be delivered to the place specified in the notice given
with respect to such redemption (i) the certificate(s) representing
such shares of Preferred Stock redeemed and (ii) transfer
instrument(s) satisfactory to the Corporation and sufficient to
transfer such shares of Preferred Stock to the Corporation free of any
adverse interest. No interest shall accrue on the Redemption Price of
any share of Preferred Stock after its redemption date.
(3) Voting Rights. The holders of shares of Preferred Stock shall not
be entitled to any voting rights except as provided by law.
(4) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of
the Corporation, the holders of the Preferred Stock shall be entitled
to receive, out of the assets of the Corporation, the amount of
$100.00 in cash for each share of Preferred Stock, plus the dividends
accrued and unpaid thereon to the date of final distribution to such
holders, before any distribution shall be made to the holders of any
Common Stock or other capital stock of the Corporation ranking junior
to the Preferred Stock as to the distribution of assets upon the
liquidation, dissolution or winding up of the Corporation. If, upon
any liquidation, dissolution or winding up of the Corporation, the
assets distributable among the holders of the Preferred Stock shall be
insufficient to permit the payment in full to the holders of the
Preferred Stock of all preferential amounts payable to all such
holders, then the distributable assets of the Corporation shall be
distributed ratably among the holders of the Preferred Stock in
proportion to the respective amounts that would have been payable per
share if such assets had been sufficient to permit payment in full.
Except as otherwise provided in this Paragraph B(4) of this Article
FOURTH, holders of Preferred Stock shall not be entitled to any
distribution in the event of liquidation, dissolution or winding up of
the affairs of the Corporation. For the purposes of this Paragraph
B(4) of this Article FOURTH, neither the voluntary sale, lease,
conveyance, exchange or transfer (for cash, securities or other
consideration) of all or substantially all the property or assets of
the Corporation, nor the consolidation, merger or business combination
of the Corporation with or into one or more other corporations, shall
be deemed to be a liquidation, dissolution or winding up of the
Corporation (unless in connection therewith the liquidation of the
Corporation is specifically approved). No interest shall accrue on any
payment upon liquidation after the due date thereof.
(5) Cancellation of Reacquired Preferred Stock. Shares of Preferred
Stock that have been issued and reacquired by the Corporation in any
manner, including shares purchased or redeemed, shall be canceled on
the books of the Corporation and shall not be reissued.
-4-
<PAGE>
FIFTH: A. The business and affairs of the Corporation shall be managed
by the Board of Directors, and the directors need not be elected by ballot
unless required by the By-Laws of the Corporation.
B. The Board of Directors is expressly authorized to adopt, amend
or repeal the By-Laws of the Corporation subject to the power of the
stockholders to alter or repeal the By-Laws made or altered by the Board of
Directors.
C. The name and address of the sole incorporator is as follows:
John Hoffman
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue
New York, New York 10022
SIXTH: A. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation law is amended after this
Certificate of Incorporation becomes effective to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
B. No repeal or modification of the foregoing Paragraph A of this
Article SIXTH and no amendment, repeal or termination of any law authorizing
such Paragraph shall adversely affect any right or protection of any director of
the Corporation for or with respect to any act or omission occurring prior to
such amendment, repeal or termination of effectiveness.
SEVENTH: A. The Corporation shall, to the fullest extent to which it is
empowered to do so by the General Corporation Law of Delaware or any other
applicable laws as may from time to time be in effect, indemnify any person, or
the personal representative thereof, who was or is a party to any or threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director or officer of the Corporation,
against losses, liabilities, judgments, fines (including excise tax assessed on
such a person in connection with service to an employee benefit plan or
otherwise), amounts paid in settlement and expenses (including, without
limitation, court costs, attorneys' fees and disbursements and those of
accountants and other experts and consultants), actually and reasonably incurred
by such person as a result of or in connection with such action, suit or
proceeding or any appeal therein all of which expenses as incurred shall be
advanced by the Corporation pending the final disposition of such action, suit
or
-5-
<PAGE>
proceeding upon receipt of an undertaking by or on behalf of the director or
officer who may be entitled to such indemnification, to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation. The Corporation's obligation to indemnify and to
prepay expenses hereunder (i) shall inure to the benefit of the heirs, executors
and administrators of any person who has ceased to be a director or officer of
the Corporation, (ii) shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of this Certificate
of Incorporation, By-Law, agreement, vote of stockholders or directors or
otherwise, and (iii) shall arise, and all rights granted to directors and
officers hereunder shall vest, at the time of the occurrence of the transaction
or event to which such action, suit or proceeding relates, or at the time that
the action or conduct to which such action, suit or proceeding relates was first
taken or engaged in (or omitted to be taken or engaged in), regardless of when
such action, suit or proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of this Certificate of Incorporation or the
By-Laws of the Corporation, no action taken by the Corporation, either by
amendment of this Certificate of Incorporation or the By-Laws of the
Corporation, or otherwise, shall diminish or adversely affect any rights to
indemnification or prepayment of expenses granted under this Article SEVENTH
that shall have become vested as aforesaid prior to the date such amendment or
other corporate action is taken. Nothing contained in this Article SEVENTH shall
be construed in such a manner as to prohibit the Corporation from granting any
additional right of indemnification to any director or officer of the
Corporation by agreement, vote of stockholders or directors or otherwise.
B. If the Delaware General Corporation Law is amended hereafter
to expand or limit the indemnification a corporation may provide to a director
or officer, then the indemnification of a director or officer of the Corporation
shall be expanded to the fullest extent so permitted or limited to the least
extent so required by the Delaware General Corporation Law, as so amended.
C. The Corporation may, by agreement, vote of stockholders or
directors or otherwise, indemnify its employees and agent and the personal
representatives thereof to the fullest extent permitted under Delaware Law.
IN WITNESS WHEREOF, the undersigned, being the sole incorporator,
hereby declares and certifies that the facts herein stated are true, and
accordingly has hereto set his hand this 30th day of November, 1994.
By: /s/ John Hoffman
--------------------
John Hoffman
Incorporator
-6-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SPECIALTY CATALOG CORP.
Adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware
It is hereby certified that:
1. The present name of the corporation is Specialty Catalog Corp.
(the "Corporation").
2. The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on November 29, 1994.
3. Article FOURTH of the Certificate of Incorporation is hereby
amended to read in its entirety as follows:
"FOURTH: The total number of shares of stock that the Corporation is
authorized to issue is 50,000, consisting of:
(a) 30,000 shares of preferred stock, par value one hundred
dollars ($100.00) per share (the "Preferred Stock"); and
(b) 16,000 shares of Class A Common Stock, par value of one
cent ($.01) per share (the "Class A Common Stock"), 2,000 shares of
Class B Common Stock, par value of one cent ($.01) per share (the "Class
B Common Stock"), and 2,000 shares of Class C Common Stock, par value of
one cent ($0.1) per share (the "Class C Common Stock"; collectively,
with the Class A Common Stock and the Class B Common Stock, the "Common
Stock").
The following is a statement of the designations, rights,
preferences, qualifications, limitations and restrictions in respect of
each class of capital stock of the Corporation.
<PAGE>
A. PREFERRED STOCK
(1) Dividends. Each holder of Preferred Stock shall be entitled to
---------
receive, when, as and if declared by the Board of Directors out of funds
at the time legally available therefor, dividends at the rate of (i)
$13.00 per annum per share and (ii) 13% per annum (compounded quarterly)
on any accrued dividends on such shares, whether or not declared, that
remain unpaid beyond the next succeeding Dividend Payment Date (as
defined herein). Dividends on shares of Preferred Stock shall accrue and
be cumulative from November 23, 1994, except that dividends on shares of
Preferred Stock that are issued after January 1, 1995 shall accrue and
be cumulative from the date of issuance of such shares. Dividends shall
be payable quarterly in cash in arrears on March 31, June 30, September
30 and December 31 of each year commencing December 31, 1994 (except
that if any such date is a Saturday, Sunday or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday
or legal holiday) (each such date a "Dividend Payment Date") to holders
of record as they appear on the stock books of the Corporation on such
record dates as are fixed by the Board of Directors. For purposes
hereof, the term "legal holiday" shall mean any day on which banking
institutions are authorized to close in New York. The amount of
dividends payable per share of Preferred Stock for each quarterly
dividend period pursuant to clause (i) of the first sentence of this
paragraph shall be computed by dividing the annual amount by four. The
amount of dividends payable for the initial dividend period and any
period shorter than a full quarterly dividend period shall be computed
on the basis of a 365-day year and the number of days actually elapsed
in such period. Dividends in arrears may be declared and paid at any
time to holders of record on the record date therefor.
So long as any Preferred Stock shall remain outstanding, the
Corporation shall not, directly or indirectly, (i) pay, declare or set
apart for payment any dividend or make any other distribution (in each
case, whether payable in cash, in property, in securities of the
Corporation or otherwise) on or in respect of any class of capital stock
of the Corporation other than the Preferred Stock, and (ii) purchase,
redeem or otherwise acquire (or pay or make available any monies for a
sinking fund for the purchase, redemption or acquisition of) any shares
of any class of capital stock of the Corporation, in each case if there
shall then be any accrued dividends on any shares of Preferred Stock
accrued to the date of such action that have not been declared and paid
or set apart for payment; except that this subparagraph shall not
prohibit a dividend or distribution payable in Common Stock or in rights
or warrants to purchase Common Stock.
If at any time the Corporation pays less than the total amount
of dividends then accrued with respect to Preferred Stock, such payment
<PAGE>
shall be distributed pro rata to the holders of Preferred Stock based
upon the aggregate accrued and unpaid dividends on the shares held by
each such holder.
(2) Redemption. The Corporation, at its option, may redeem at any time
----------
in whole or from time to time in part, the Preferred Stock on any date
set by the Board of Directors, at a price equal to the par value per
share of any share redeemed, plus, in each case, an amount in cash equal
to all dividends on the Preferred Stock accrued and unpaid thereon,
whether or not declared or due, pro rata to the date fixed for
redemption, such sum being hereinafter referred to as the "Redemption
Price".
In case of the redemption of less than all of the then
outstanding Preferred Stock, the Corporation shall effect such
redemption pro rata.
Not more than 60 nor less than 10 days prior to any redemption
date, notice by first class mail, postage prepaid, shall be given to
each holder of record of the Preferred Stock to be redeemed, at such
holder's address as it shall appear upon the stock transfer books of the
Corporation. Each such notice of redemption shall specify (i) the date
fixed for redemption, (ii) the Redemption Price, (iii) the place or
places of payment, (iv) that payment will be made upon presentation and
surrender of the certificate(s) evidencing the shares of Preferred Stock
to be redeemed, (v) the number of shares of Preferred Stock to be
redeemed and, if fewer than all of the shares held by such holder are to
be redeemed from such holder, the number of shares to be redeemed from
such holder, and (vi) that on and after the redemption date, dividends
will cease to accrue on such shares.
Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder
of the Preferred Stock receives such notice; and failure to give such
notice by mail, or any defect in such notice, to the holders of any
shares designated for redemption shall not (a) affect the validity of
the proceedings for the redemption of any other shares of Preferred
stock or (b) prejudice the rights of any holders of Preferred Shares to
cause the Corporation to redeem any such shares held by them. On or
after the date fixed for redemption as stated in such notice, each
holder of the shares called for redemption shall surrender the
certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price. If less than all the shares represented
by any such surrendered certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares. If, on the date
fixed for redemption, funds necessary for the redemption shall be
available therefor and shall have been irrevocably deposited or set
aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends
with respect
<PAGE>
to the shares so called shall cease to accrue after the date fixed for
redemption, the shares shall no longer be deemed outstanding, the
holders thereof shall cease to be stockholders with respect to the
shares so called and all rights whatsoever with respect to the shares so
called for redemption (except the right of the holders to receive the
Redemption Price without interest upon surrender of their certificates
therefor) shall terminate.
The holder of any shares of Preferred Stock redeemed upon any
exercise of the Corporation's redemption right shall not be entitled to
receive payment of the Redemption Price for such shares until such
holder shall cause to be delivered to the place specified in the notice
given with respect to such redemption (i) the certificate(s)
representing such shares of Preferred Stock redeemed and (ii) transfer
instrument(s) satisfactory to the Corporation and sufficient to transfer
such shares of Preferred Stock to the Corporation free of any adverse
interest. No interest shall accrue on the Redemption Price of any share
of Preferred Stock after its redemption date.
(3) Voting Rights. The holders of shares of Preferred Stock shall not
-------------
be entitled to any voting rights except as provided by law.
(4) Liquidation Preference. In the event of any voluntary or
----------------------
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of the Preferred Stock shall be entitled to
receive, out of the assets of the Corporation, the amount of $100.00 in
cash for each share of Preferred Stock, plus the dividends accrued and
unpaid thereon to the date of final distribution to such holders, before
any distribution shall be made to the holders of any Common Stock or
other capital stock of the Corporation ranking junior to the Preferred
Stock as to the distribution of assets upon the liquidation, dissolution
or winding up of the Corporation. If, upon any liquidation, dissolution
or winding up of the Corporation, the assets distributable among the
holders of the Preferred Stock shall be insufficient to permit the
payment in full to the holders of the Preferred Stock of all
preferential amounts payable to all such holders, then the distributable
assets of the Corporation shall be distributed ratably among the holders
of the Preferred Stock in proportion to the respective amounts that
would have been payable per share if such assets had been sufficient to
permit payment in full. Except as otherwise provided in this Paragraph
A(4) of this Article FOURTH, holders of Preferred Stock shall not be
entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation . For the purposes of this
Paragraph A(4) of this Article FOURTH, neither the voluntary sale,
lease, conveyance, exchange or transfer (for cash, securities or other
consideration) of all or substantially all the property or assets of the
Corporation, nor the consolidation, merger or business combination of
<PAGE>
the Corporation with or into one or more other corporations, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation
(unless in connection therewith the liquidation of the Corporation is
specifically approved). No interest shall accrue on any payment upon
liquidation after the due date thereof.
(5) Cancellation of Reacquired Preferred Stock. Shares of Preferred
------------------------------------------
Stock that have been issued and reacquired by the Corporation in any
manner, including shares purchased or redeemed, shall be cancelled on
the books of the Corporation and shall not be reissued.
B. COMMON STOCK:
(1) Dividends. Subject to the restrictions set forth in Paragraph A of
---------
this Article FOURTH, the holders of Common Stock shall be entitled to
receive, ratably on all shares, regardless of whether such shares are
shares of Class A Common Stock, Class B Common Stock or Class C Common
Stock, such dividends as may be declared from time to time by the Board
of Directors.
(2) Voting Rights. The holders of Class A Common Stock, Class B Common
-------------
Stock and Class C Common Stock shall have the right to vote on all
matters to be voted on by the stockholders of the Corporation and shall
vote as a single class; provided, however, that on every matter that may
-------- -------
be voted on by the holders of the Common Stock, (i) each holder of Class
A Common Stock shall be entitled to one vote per share, (ii) each holder
of Class B Common Stock shall be entitled to one-half vote per share and
(iii) each holder of Class C Common Stock shall be entitled to one and
one-half votes per share.
(3) Liquidation. After distribution in full of the preferential amount
-----------
(fixed in accordance with the provisions of Paragraph A of this Article
FOURTH), if any, to be distributed to the holders of Preferred Stock in
the event of voluntary or involuntary liquidation, distribution or sale
of assets, dissolution or winding-up of the Corporation, the holders of
the Common Stock shall be entitled to receive all the remaining assets
of the Corporation, tangible and intangible, of whatever kind available
for distribution to stockholders ratably on all shares, regardless of
whether such shares of Class A Common Stock, Class B Common Stock or
Class C Common Stock.
(4) Conversion. Upon the sale, disposition or other transfer of any
----------
share(s) of Class B Common Stock by the original holder thereof, (i)
such share(s) of Class B Common Stock shall automatically and
immediately convert (and be deemed to be converted) into an equal
<PAGE>
number of shares of Class A Common Stock, and (ii) an equal number of
shares of Class C Common Stock shall automatically and immediately
convert (and be deemed to be converted) into an equal number of shares
of Class A Common Stock, and the Corporation promptly shall give notice
of such conversion to the holder or holders thereof. If more than one
such holder exists, then the conversion of shares of Class C Common
Stock into shares of Class A Common Stock shall be effected pro rata
among the shares of Class C Common Stock owned by such holders. The
notice delivered by the Corporation to the holder(s) of Class C Common
Stock shall (x) state that the certificate(s) representing such shares
are cancelled effective as of the date of the disposition or other
transfer of the shares of Class B Common Stock, representing from that
date forward only the right to receive new certificates, as set forth
herein, and (y) set forth the number of shares of Class A Common Stock
and the number of shares of Class C Common Stock, if any, to be received
by such holder(s) upon such holder(s) surrender of the certificate(s)
representing the shares of Class C Common Stock owned by such holder(s).
Promptly after any sale, disposition or other transfer of shares
of Class B Common Stock by the original holder thereof, such original
holder shall deliver notice thereof to the Corporation and shall cause
the transferee(s) of such shares to surrender the certificate(s)
representing such shares to the Corporation at its principal office at
any time during its usual business hours, stating in such notice the
name or names in which the certificate(s) for Class A Common Stock (and
the certificate(s) for Class B Common Stock, if less than all shares of
Class B Common Stock represented by the surrendered certificate have
been transferred) shall be issued and the address to which such
certificate(s) shall be delivered. As soon as practicable after such
surrender of such certificate(s), (i) the Corporation shall issue and
deliver at such address as is specified by such transferee(s)
certificate(s) for the number of shares of Class A Common Stock to which
such transferee(s) shall be entitled as aforesaid, and (ii) if less than
all shares of Class B Common Stock represented by the surrendered
certificate(s) have been transferred, the Corporation shall issue and
deliver to the original holder of such shares a certificate for the
number of shares of Class B Common Stock that such original holder still
owns.
Promptly after its receipt of notice from the Corporation as
provided above of any conversion of its shares of Class C Common Stock
into shares of Class A Common Stock, the holder(s) thereof promptly
shall surrender the certificate(s) representing such shares of Class C
Common Stock to the Corporation at its principal office at any time
during its usual business hours, stating in a notice the name or names
in which the certificate(s) for Class A Common Stock and the
certificate(s) for Class C Common Stock, if any, shall be issued and the
address(es) to which such certificate(s) shall be delivered. As soon as
<PAGE>
practicable after such surrender of such certificate(s), the Corporation
shall issue and deliver at such address(es) as is specified by such
holder(s) a certificate or certificates for the number of shares of
Class A Common Stock and the number of shares of Class C Common Stock,
if any, to which such holder(s) shall be entitled as aforesaid.
The Corporation shall at all times reserve and keep available,
out of its authorized and unissued shares, shares of Class A Common
Stock, solely for issuance upon the conversion of shares of Class B
Common Stock or shares of Class C Common Stock as herein provided. All
shares of Class A Common Stock issuable upon any conversion described
herein shall, when issued, be duly and validly issued and fully paid and
non-assessable. The Corporation will take such action as may be
necessary to assure that all such shares of Class A Common Stock may be
so issued without violation of any applicable requirements of any
national stock exchange upon which the shares of Class A Common Stock of
the Corporation may be listed. The issuance of certificates for shares
of Class A Common Stock upon conversion of shares of Class B Common
Stock or shares of Class C Common Stock shall be made without charge to
the holders of such converted shares for any issuance tax in respect
thereof.
All shares of Class B Common Stock and all shares of Class C
Common Stock that are converted into shares of Class A Common Stock
shall be retired and cancelled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the number of authorized shares of Class B Common
Stock and/or Class C Common Stock accordingly."
4. The foregoing amendment to the Certificate of Incorporation of the
Corporation was declared advisable by the Board of Directors of the Corporation
pursuant to a resolution duly adopting the amendment on April __, 1995, and was
duly adopted in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware by the affirmative vote of the
holders of all of the outstanding stock of the Corporation entitled to vote
thereon.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steven L. Bock, its Chief Executive Officer, and Stephen O'Hara, its
Secretary, this ___ day of ________, 1995.
[CORPORATE SEAL]
SPECIALTY CATALOG CORP.
/s/ Steven L. Bock
---------------------------
Steven L. Bock
Chief Executive Officer
Attest:
/s/ Stephen O'Hara
- ------------------------
Stephen O'Hara
Secretary
<PAGE>
EXHIBIT 10.4
EXECUTION COPY
--------------
$16,000,000
CREDIT AGREEMENT
Dated as of November 23, 1994
Among
WIGS BY PAULA, INC.,
as Borrower
-- --------
and
THE BANKS NAMED HEREIN
as Banks
-- -----
and
BANQUE NATIONALE DE PARIS, NEW YORK BRANCH
as Agent
-- -----
<PAGE>
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
SECTION PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C>
1.01. Certain Defined Terms............................................... 2
1.02. Computation of Time Periods......................................... 26
1.03. Accounting Terms.................................................... 26
</TABLE>
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
<TABLE>
<CAPTION>
<S> <C>
2.01. The Advances 26
2.02. Making the Advances................................................. 27
2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit.. 29
2.04. Repayment of Advances............................................... 30
2.05. Reduction of the Commitments........................................ 32
2.06. Prepayments......................................................... 33
2.07. Interest............................................................ 36
2.08. Fees................................................................ 36
2.09. Conversion of Advances.............................................. 37
2.10. Increased Costs, Etc................................................ 38
2.11. Payments and Computations........................................... 40
2.12. Taxes............................................................... 41
2.13. Sharing of Payments, Etc............................................ 43
2.14. Use of Proceeds..................................................... 44
2.15. Defaulting Lenders.................................................. 44
</TABLE>
ARTICLE III
CONDITIONS OF LENDING
<TABLE>
<CAPTION>
<S> <C>
3.01. Conditions Precedent to Initial Borrowing or Initial Issuance....... 47
3.02. Conditions Precedent to Each Borrowing and Issuance................. 53
3.03. Determinations Under Section 3.01................................... 54
</TABLE>
<PAGE>
ii
SECTION PAGE
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C>
4.01. Representations and Warranties of the Borrower.............. 54
</TABLE>
ARTICLE V
COVENANTS OF THE BORROWER
<TABLE>
<S> <C>
5.01. Affirmative Covenants...................................... 61
5.02. Negative Covenants......................................... 64
5.03. Reporting Requirements..................................... 70
5.04. Financial Covenants........................................ 74
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
<TABLE>
<S> <C>
6.01. Events of Default.......................................... 77
6.02. Actions in Respect of the Letters of Credit upon Default... 80
</TABLE>
ARTICLE VII
THE AGENT
<TABLE>
<S> <C>
7.01. Authorization and Action................................... 81
7.02. Agent's Reliance, Etc...................................... 81
7.03. BNP and Affiliates......................................... 82
7.04. Lender Credit Decision..................................... 82
7.05. Indemnification............................................ 82
7.06. Successor Agents........................................... 84
</TABLE>
ARTICLE VIII
MISCELLANEOUS
<TABLE>
<S> <C>
8.01. Amendments, Etc............................................ 85
8.02. Notices, Etc............................................... 85
8.03. No Waiver; Remedies........................................ 86
8.04. Costs and Expenses......................................... 86
8.05. Right of Setoff............................................ 87
</TABLE>
<PAGE>
iii
SECTION PAGE
<TABLE>
<S> <C>
8.06. Binding Effect..................................... 88
8.07. Assignments and Participations..................... 88
8.08. Execution in Counterparts.......................... 91
8.09. No Liability of the Issuing Bank................... 91
8.10. Confidentiality.................................... 92
8.11. Jurisdiction, Etc.................................. 92
8.12. Governing Law...................................... 92
8.13. Waiver of Jury Trial............................... 92
</TABLE>
<PAGE>
iv
<TABLE>
<S> <C> <C>
Schedule I -- Commitments and Applicable Lending Offices
Schedule II -- Capital Stock
Schedule III -- Subsidiaries
Schedule IV -- Plans, Multiemployer Plans, Welfare Plans
Schedule V -- Open Years
Schedule VI -- Leases
Schedule VII -- Material Contracts
Schedule VIII -- Investments
Schedule IX -- Intellectual Property
Schedule X -- Plan of Reorganization
Schedule XI -- Taxes
Exhibit A-1 -- Form of Term Note
Exhibit A-2 -- Form of Working Capital Note
Exhibit B -- Form of Notice of Borrowing
Exhibit C -- Form of Assignment and Acceptance
Exhibit D -- Form of Borrowing Base Certificate
Exhibit E -- Form of Security Agreement
Exhibit F -- Form of Trademark and Copyright Security Agreement
Exhibit G -- Form of Pledge Agreement
Exhibit H-H1 -- Form of Guaranty
Exhibit I -- Form of Opinion of Borrower's Counsel
</TABLE>
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of November 23, 1994 among WIGS BY PAULA,
INC., a Massachusetts corporation ("Wigs", and also the "Borrower"), the bank
---- --------
(the "Bank") listed on the signature pages hereof, and BANQUE NATIONALE DE
----
PARIS, NEW YORK BRANCH ("BNP"), as agent (together with any successor appointed
---
pursuant to Article VII, the "Agent") for the Lenders (as hereinafter defined).
-----
PRELIMINARY STATEMENTS:
(1) The Borrower, together with SC Corporation, a Delaware corporation
("SC Corporation") and Western Schools, Inc., a California corporation
--------------
("Western") and certain other Affiliates, filed a voluntary petition under
-------
chapter 11 of the Bankruptcy Code on December 28, 1992. Each of the Borrower,
SC Corporation and Western is a proponent of the First Amended and Restated
Joint Plan of Reorganization of SC Corporation, the Borrower and Western dated
September 21, 1994 (as amended by the Bankruptcy Court having jurisdiction over
the chapter 11 bankruptcy case of the Borrower, SC Corporation and Western on
October 26, 1994, the "Plan of Reorganization") and the related First Amended
----------------------
and Restated Disclosure Statement with respect thereto (the "Disclosure
----------
Statement"). The Plan of Reorganization and the Disclosure Statement provide
- ---------
for, among other things, certain distributions to creditors of SC Corporation,
the Borrower and Western, the discharge of certain claims against SC
Corporation, the Borrower and Western, and the entering into of certain
agreements in respect of financing for SC Corporation, the Borrower and Western
(together with all other transactions contemplated by the Plan of Reorganization
and the Disclosure Statement, the "Reorganization").
--------------
(2) In connection with the Reorganization, the Borrower will be
capitalized with a minimum of $6,650,000 in the aggregate of Subordinated Debt,
Preferred Stock and common equity.
(3) Pursuant to the Plan of Reorganization and the Disclosure
Statement, the Borrower, SC Corporation and Western have requested that, upon
the effectiveness of the Plan of Reorganization and the consummation of the
Reorganization, the Lenders lend to the Borrower up to $16,000,000 to finance
certain distributions under the Plan of Reorganization, to pay certain
transaction costs incurred in connection with the Reorganization and to provide
for the working capital requirements of the Borrower and Western. In connection
therewith, SC Corporation and Western will enter into certain security
agreements securing, and certain guaranties of, obligations under this
Agreement, as more fully described herein.
(4) The Borrower has advised the Bank and the Agent that, following
the date hereof, the Borrower may be merged with and into SC Corporation,
with SC
<PAGE>
2
Corporation thereby succeeding to all of the obligations of the Borrower
hereunder (the "Merger"). In such event, following the Merger such merged
------
corporation shall be the Borrower hereunder. In connection with the Merger, the
Equity Investors may form one or two holding companies ("Newco(s)") to hold some
--------
or all of the securities of SC Corporation, subject to the pledges contemplated
by this Agreement. If such holding companies are formed, Newco(s) shall enter
into guaranties of, and security agreements securing, obligations under this
Agreement comparable to those being entered into on the date hereof by SC
Corporation.
(5) The Lenders have indicated their willingness to agree to lend such
amounts on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Actual Basis" means the following method which shall be used to
------------
adjust any calculation of EBITDA for each Rolling Period consisting of less
than twelve full months following the date hereof:
The results during such Rolling Period shall be calculated as the
actual results during the twelve month period ending on the last day
of such Rolling Period.
"Advance" means a Term Advance, a Working Capital Advance or a Letter
-------
of Credit Advance.
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling,"
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the
<PAGE>
3
ownership of Voting Stock, by contract or otherwise; provided that any
--------
Person other than any Loan Party as to which the Equity Investors possess,
directly or indirectly, the power to vote less than 20% of the Voting Stock
of such Person and do not otherwise possess the power to direct or cause
the direction of the Management and policies of such Person, shall be
deemed not to be controlled by the Equity Investors.
"Agent" has the meaning specified in the recital of parties to this
-----
Agreement.
"Agent's Account" means the account of the Agent maintained by the
---------------
Agent at the Federal Reserve Bank of New York, 33 Liberty Street, New York,
New York 10048, Account No. 19225300157, or such other account maintained
by the Agent and designated by the Agent in a written notice to the
Lenders, the Issuing Bank and the Borrower.
"Annualized Basis" means the following method which shall be used to
----------------
adjust any calculation of any item for each Rolling Period consisting of
less than twelve full months following the date hereof:
(i) the Rolling Period shall be determined beginning with the first
full month following the closing; and
(ii) the results during such Rolling Period shall be multiplied by a
fraction, the numerator of which shall be 12 and the denominator of which
shall be the actual number of months included in such Rolling Period under
clause (i) above.
"Applicable Lending Office" means, with respect to each Lender and the
-------------------------
Issuing Bank, such Lender's or the Issuing Bank's Domestic Lending Office
in the case of a Base Rate Advance and such Lender's Eurodollar Lending
Office in the case of a Eurodollar Rate Advance.
"Applicable Margin" means 2.00% per annum for Base Rate Advances and
-----------------
3.50% per annum for Eurodollar Rate Advances.
"Appropriate Lender" means, at any time, with respect to (a) any of
------------------
the Letter of Credit, Term or Working Capital Facilities, a Lender or the
Issuing Bank that has a Commitment with respect to such Facility at such
time.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and/or the Issuing Bank and an Eligible Assignee, and
accepted by the Agent, in accordance with Section 8.07 and in substantially
the form of Exhibit C hereto.
<PAGE>
4
"Available Amount" of any Letter of Credit means, at any time, the
----------------
maximum amount available to be drawn under such Letter of Credit at such
time (assuming compliance at such time with all conditions to drawing).
"Bank" has the meaning specified in the recital of parties to this
----
Agreement.
"Base Rate" means a fluctuating interest rate per annum in effect from
---------
time to time, which rate per annum shall at all times be equal to the
higher of:
(a) the rate of interest announced publicly by BNP in New York
City, from time to time as its prime rate (and such term shall not be
construed to be its best or most favorable rate); and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
"Base Rate Advance" means an Advance that bears interest as provided
-----------------
in Section 2.07(a)(i).
"Blocked Accounts" has the meaning specified in the Security
----------------
Agreement.
"BNP" has the meaning specified in the recital of parties to this
---
Agreement.
"Borrower" has the meaning specified in the recital of parties to this
--------
Agreement; provided that, if the Merger shall occur, the Borrower shall
--------
mean SC Corporation.
"Borrower's Account" means the account of the Borrower maintained by
------------------
the Borrower with BNP at its office at 499 Park Avenue, New York, New York
10022, Account No. 20178600152.
"Borrowing" means a Term Borrowing or a Working Capital Borrowing.
---------
"Borrowing Base Certificate" means a certificate in substantially the
--------------------------
form of Exhibit D hereto, duly certified by the chief financial officer of
the applicable Borrower.
"Borrowing Base Deficiency" means, at any time, the failure of (a) the
-------------------------
Loan Value of the Eligible Inventory at such time to equal or exceed (b)
the sum of (i) the aggregate principal amount of the Working Capital
Advances and the Letter of Credit Advances outstanding at such time plus
----
(ii) the aggregate of the respective Corresponding Percentages of each
Available Amount under each Letter of Credit outstanding at such time.
<PAGE>
5
"Business Day" means a day of the year on which banks are not required or
------------
authorized by law to close in New York City and, if the applicable Business
Day relates to any Eurodollar Rate Advances, on which dealings are carried
on in the London interbank market.
"Capital Expenditures" means, for any period, the sum of (a) all
--------------------
expenditures (other than the payments made pursuant to a Capitalized Lease
or other lease arrangement) during such period to acquire equipment, fixed
assets, real property or improvements, or to acquire replacements or
substitutions therefor or additions thereto, that have a useful life of
more than one year plus (b) the aggregate principal amount of all Debt
(including obligations under Capitalized Leases) assumed or incurred during
such period in connection with any such expenditures.
"Capitalized Leases" means all leases that have been or should be, in
------------------
accordance with GAAP, recorded as capitalized leases.
"Cash Equivalents" means any of the following, to the extent owned by
----------------
the Borrower free and clear of all Liens other than Liens created under the
Collateral Documents and having a maturity of not greater than 90 days from
the date of acquisition thereof: (a) readily marketable direct obligations
of the Government of the United States or any agency or instrumentality
thereof or obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States, (b) certificates of deposit
of, or time or demand deposits with, (i) any commercial bank that is a
Lender or a member of the Federal Reserve System, issues (or the parent of
which issues) commercial paper rated as described in clause (c), is
organized under the laws of the United States or any State thereof and has
combined capital and surplus of at least $1 billion, (ii) Fleet Bank or
(iii) any other institution acceptable to the Agent or (c) commercial paper
in an aggregate amount of no more than $100,000 per issuer outstanding at
any time, issued by any corporation organized under the laws of any State
of the United States and rated at least "Prime-1" (or the then equivalent
grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent
grade) by Standard & Poor's Corporation.
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
-------
and Liability Information System maintained by the U.S. Environmental
Protection Agency.
<PAGE>
6
"Clean-down Period" means a period of 30 consecutive days commencing
-----------------
no earlier than August 1 and ending no later than October 31 of each fiscal
year of the Borrower through the Termination Date.
"Collateral" means all "Collateral" referred to in the Collateral
----------
Documents and all other property that is or is intended to be subject to
any Lien in favor of the Agent for its benefit and the benefit of the
Lenders and the Issuing Bank.
"Collateral Documents" means the Security Agreement, the Pledge
--------------------
Agreement, the Trademark and Copyright Security Agreement and any other
agreement that creates or purports to create a Lien in favor of the Agent
for its benefit and the benefit of the Lenders and the Issuing Bank.
"Collateral Grantor" means each of the Borrower and the Guarantors.
------------------
"Commitment" means a Term Commitment, a Working Capital Commitment or
----------
a Letter of Credit Commitment.
"Commitment Letter" means the commitment letter dated October 20, 1994
-----------------
from the Agent to Dickstein Partners Inc. and Viking Holdings Limited.
"Confidential Information" means information that the Borrower
------------------------
furnishes to the Agent, any Lender or the Issuing Bank in a writing
designated as confidential, but does not include any such information that
is or becomes generally available to the public.
"Consolidated" refers to the consolidation of accounts in accordance
------------
with GAAP.
"Conversion", "Convert" and "Converted" each refer to a conversion of
---------- ------- ---------
Advances of one Type into Advances of the other Type pursuant to Section
2.09 or 2.10.
"Current Assets" of any Person means all assets of such Person that
--------------
would, in accordance with GAAP, be classified as current assets of a
company conducting a business the same as or similar to that of such
Person, after deducting adequate reserves in each case in which a reserve
is proper in accordance with GAAP.
"Current Liabilities" of any Person means (a) all Debt of such Person
-------------------
that by its terms is payable on demand or matures within one year after the
date of its creation (excluding any Debt renewable or extendible, at the
option of such Person, to a date more than one year from such date or
arising under a revolving credit or
<PAGE>
7
similar agreement that obligates the lender or lenders to extend credit
during a period of more than one year from such date) and (b) all other
items (including taxes accrued as estimated) that in accordance with GAAP
would be classified as current liabilities of such Person.
"Debt" of any Person means, without duplication, (a) all indebtedness
----
of such Person for borrowed money, (b) all Obligations of such Person for
the deferred purchase price of property or services other than trade
payables incurred in the ordinary course of business (i) not over due by
more than 60 days or (ii) over due by more than 60 days (x) so long as they
are being contested in good faith by appropriate proceedings and (y) to the
extent the amounts so contested are less than $100,000 in the aggregate,
(c) all Obligations of such Person evidenced by notes, bonds, debentures or
other similar instruments, (d) all Obligations of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
Obligations of such Person as lessee under Capitalized Leases, (f) all
Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of such Person
to purchase, redeem, retire, defease or otherwise make any payment in
respect of any capital stock of or other ownership or profit interest in
such Person or any other Person or any warrants, rights or options to
acquire such capital stock, valued, in the case of Redeemable Preferred
Stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Obligations of such
Person in respect of Hedge Agreements, (i) all Debt of others referred to
in clauses (a) through (h) above guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly by
such Person through an agreement (i) to pay or purchase such Debt or to
advance or supply funds for the payment or purchase of such Debt, (ii) to
purchase, sell or lease (as lessee or lessor) property, or to purchase or
sell services, primarily for the purpose of enabling the debtor to make
payment of such Debt or to assure the holder of such Debt against loss,
(iii) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (iv)
otherwise to assure a creditor against loss, and (j) all Debt referred to
in clauses (a) through (i) above of another Person secured by (or for which
the holder of such Debt has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person
has not assumed or become liable for the payment of such Debt.
"Default" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
<PAGE>
8
"Defaulted Advance" means, with respect to any Lender at any time, the
-----------------
portion of any Advance required to be made by such Lender to the Borrower
pursuant to Section 2.01 or Section 2.02 at or prior to such time which has
not been made by such Lender or by the Agent for the account of such Lender
pursuant to Section 2.02(d) as of such time. In the event that a portion
of a Defaulted Advance shall be deemed made pursuant to Section 2.15(a),
the remaining portion of such Defaulted Advance shall be considered a
Defaulted Advance originally required to be made pursuant to Section 2.01
on the same date as the Defaulted Advance so deemed made in part.
"Defaulted Amount" means, with respect to any Lender at any time, any
----------------
amount required to be paid by such Lender to the Agent, any other Lender or
the Issuing Bank hereunder or under any other Loan Document at or prior to
such time which has not been so paid as of such time, including, without
limitation, any amount required to be paid by such Lender to (a) the
Issuing Bank pursuant to Section 2.03(c) to purchase a portion of a Letter
of Credit Advance made by the Issuing Bank, (b) the Agent pursuant to
Section 2.02(d) to reimburse the Agent for the amount of any Advance made
by the Agent for the account of such Lender, (c) any other Lender pursuant
to Section 2.13 to purchase any participation in Advances owing to such
other Lender or the Issuing Bank and (d) the Agent or the Issuing Bank
pursuant to Section 7.05 to reimburse the Agent or the Issuing Bank for
such Lender's ratable share of any amount required to be paid by the
Lenders to the Agent or the Issuing Bank as provided therein. In the event
that a portion of a Defaulted Amount shall be deemed paid pursuant to
Section 2.15(b), the remaining portion of such Defaulted Amount shall be
considered a Defaulted Amount originally required to be paid hereunder or
under any other Loan Document on the same date as the Defaulted Amount so
deemed paid in part.
"Defaulting Lender" means, at any time, any Lender that, at such time,
-----------------
(a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take or be
the subject of any action or proceeding of a type described in Section
6.01(f).
"Disclosure Statement" has the meaning specified in the Preliminary
--------------------
Statements.
"Domestic Lending Office" means, with respect to any Lender or the
-----------------------
Issuing Bank, the office of such Lender or the Issuing Bank specified as
its "Domestic Lending Office" opposite its name on Schedule I hereto or in
the Assignment and Acceptance pursuant to which it became a Lender and/or
the Issuing Bank, as the case may be, or such other office of such Lender
or Issuing Bank as such Lender or Issuing Bank may from time to time
specify to the Borrower and the Agent.
<PAGE>
9
"EBITDA" means, for any Person for any period, (a) net income (or net
------
loss) plus (b) the sum of (i) Interest Expense, (ii) interest expense in
----
respect of Subordinated Notes and Redeemable Preferred Stock, (iii) income
tax expense, (iv) depreciation expense, (v) amortization expense and (vi)
extraordinary or unusual losses deducted in calculating net income less
----
extraordinary or unusual gains added in calculating net income, in each
case adjusted for noncash charges relating to employee options and
determined in accordance with GAAP for such Person for such period.
"Eligible Assignee" means (a) with respect to any Facility (other than
-----------------
the Letter of Credit Facility), (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having a combined capital and surplus in
excess of $250,000,000; (iv) a savings and loan association or savings bank
organized under the laws of the United States, or any State thereof, and
having a combined capital and surplus in excess of $250,000,000; (v) a
commercial bank organized under the laws of any other country that is a
member of the OECD or has concluded special lending arrangements with the
International Monetary Fund associated with its General Arrangements to
Borrow, or a political subdivision of any such country, and having a
combined capital and surplus in excess of $250,000,000, so long as such
bank is acting through a branch or agency located in the country in which
it is organized or another country that is described in this clause (v);
(vi) a finance company, insurance company or other financial institution or
fund (whether a corporation, partnership, trust or other entity) that is
engaged in making, purchasing or otherwise investing in commercial loans in
the ordinary course of its business and having a combined capital and
surplus of at least $250,000,000 or with respect to a fund with total
assets under its management in excess of $250,000,000; and (vii) any other
Person approved by the Agent and the Borrower, such approval not to be
unreasonably withheld or delayed, and (b) with respect to the Letter of
Credit Facility, a Person that is an Eligible Assignee under subclause
(iii) or (v) of clause (a) of this definition and who (1) becomes the
Issuing Bank hereunder and (2) is approved by the Agent and the Borrower,
such approval not to be unreasonably withheld or delayed; provided,
--------
however, that (x) neither the Borrower, any Loan Party nor any Affiliate of
-------
the Borrower or any Loan Party shall qualify as an Eligible Assignee under
this definition and (y) at no time may there be more than one Issuing Bank
hereunder.
"Eligible Inventory" means any Inventory owned by the Borrower free
------------------
and clear of all Liens (other than Liens in favor of the Agent, the
Lenders, the Issuing Bank and the Hedge Banks securing the Secured
Obligations) other than the following:
(a) Inventory consisting of "perishable agricultural commodities"
within the meaning of the Perishable Agricultural Commodities Act of
1930,
<PAGE>
10
as amended, and the regulations thereunder, or on which a Lien has
arisen or may arise in favor of agricultural producers under
comparable state or local laws;
(b) Inventory located on leaseholds as to which the lessor has
not entered into a consent and agreement providing the Agent with the
right to receive notice of default, the right to repossess such
Inventory at any time and such other rights as may be reasonably
requested by the Agent;
(c) Inventory in respect of which the Security Agreement, after
giving effect to the related filings of financing statements that have
then been made, if any, does not or has ceased to create a valid and
perfected first priority Lien in favor of the Agent, the Lenders and
the Issuing Bank securing the Secured Obligations;
(d) Inventory with respect to which the representations and
warranties set forth in Section 8 of the Security Agreement that are
applicable to Inventory are not true and correct;
(e) Inventory consisting of promotional and marketing materials
and supplies, packaging materials and supplies and/or shipping
materials and supplies;
(f) Inventory that fails to meet all standards imposed by any
governmental agency, or department or division thereof, having
regulatory authority over such Inventory, its use or its sale;
(g) Inventory that is subject to any licensing, patent, royalty,
trademark, trade name or copyright agreements with any third party
from whom the Borrower or such Subsidiary has received notice of a
dispute in respect of any such agreement;
(h) Inventory that is not in the possession of or under the sole
control of the Borrower or such Subsidiary;
(i) Inventory located outside the United States;
(j) Inventory consisting of work in progress; and
(k) Inventory that is obsolete, unusable or otherwise unavailable
for sale in the ordinary course of business of the Borrower or such
Subsidiary.
<PAGE>
11
The value of such Eligible Inventory shall be its book value determined in
accordance with GAAP unless the Agent determines, in its reasonable
discretion (taking into consideration, among other factors, its cost and
its liquidation value), that such Eligible Inventory shall be valued at a
lower value.
"Employment Agreements" has the meaning specified in Section
---------------------
3.01(l)(xiii).
"Environmental Action" means any administrative, regulatory or
--------------------
judicial action, suit, demand, demand letter, claim, notice of non-
compliance or violation, notice of liability or potential liability,
investigation, proceeding, consent order or consent agreement relating in
any way to any Environmental Law, any Environmental Permit or Hazardous
Material or arising from alleged injury or threat to health, safety or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial
or other actions or damages and (b) by any governmental or regulatory
authority or third party for damages, contribution, indemnification, cost
recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, decree, or judicial or agency interpretation, policy or
guidance relating to the environment, health, safety or Hazardous
Materials.
"Environmental Permit" means any permit, approval, identification
--------------------
number, license or other authorization required under any Environmental
Law.
"Equity Investors" means Dickstein & Co., L.P., Dickstein
----------------
International, Limited, Viking Holdings Limited and any other Person that
is an investment entity and is directly or indirectly controlled or managed
by (i) Dickstein Partners Inc. or (ii) any other Person controlled by or
under common control with Dickstein Partners Inc.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" of any Person means any other Person that for
---------------
purposes of Title IV of ERISA is a member of such Person's controlled
group, or under common control with such Person, within the meaning of
Section 414 of the Internal Revenue Code.
<PAGE>
12
"ERISA Event" with respect to any Person means (a) the occurrence of a
-----------
reportable event, within the meaning of Section 4043 of ERISA, with respect
to any Plan of such Person or any of its ERISA Affiliates unless the 30-day
notice requirement with respect to such event has been waived by the PBGC;
(b) the provision by the administrator of any Plan of such Person or any of
its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant
to Section 4041(a)(2) of ERISA (including any such notice with respect to a
plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation
of operations at a facility of such Person or any of its ERISA Affiliates
in the circumstances described in Section 4062(e) of ERISA; (d) the
withdrawal by such Person or any of its ERISA Affiliates from a Multiple
Employer Plan during a plan year for which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person
or any of its ERISA Affiliates to make a payment to a Plan required under
Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of
such Person or any of its ERISA Affiliates requiring the provision of
security to such Plan, pursuant to Section 307 of ERISA; or (g) the
institution by the PBGC of proceedings to terminate a Plan of such Person
or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that could constitute grounds for the termination of, or the appointment of
a trustee to administer, such Plan.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
------------------------
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the
-------------------------
office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant
to which it became a Lender (or, if no such office is specified, its
Domestic Lending Office), or such other office of such Lender as such
Lender may from time to time specify to the Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for all Eurodollar
---------------
Rate Advances comprising part of the same Borrowing, an interest rate per
annum equal to the rate per annum obtained by dividing (a) the rate per
annum at which deposits in U.S. dollars are offered by the principal office
of BNP in London, England to prime banks in the London interbank market at
11:00 A.M. (London time) two Business Days before the first day of such
Interest Period in an amount substantially equal to BNP's Eurodollar Rate
Advance comprising part of such Borrowing to be outstanding during such
Interest Period and for a period equal to such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for
-----
such Interest Period.
<PAGE>
13
"Eurodollar Rate Advance" means an Advance that bears interest as
-----------------------
provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
----------------------------------
Eurodollar Rate Advances comprising part of the same Borrowing means the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation,
any emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
(or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate
Advances is determined) having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"Excess Cash Flow" means, for any period, the sum of (a) Consolidated
----------------
net income (or net loss) of the Borrower and its Subsidiaries for such
period plus (b) an amount equal to the aggregate amount of all noncash
----
charges deducted in arriving at such Consolidated net income (or net loss)
for such period plus (c) an amount (whether positive or negative) equal to
----
the change in Consolidated Current Liabilities of the Borrower and its
Subsidiaries during such period less (d) any gain from the sale, lease,
----
transfer or other disposition of any assets of the Borrower or any of its
Subsidiaries (other than sales of Inventory in the ordinary course of
business) the Net Cash Proceeds of which are used to repay Funded Debt less
----
(e) an amount equal to the aggregate amount of all noncash credits and
other noncash items of income included in arriving at such Consolidated net
income (or net loss) for such period less (f) an amount (whether positive
----
or negative) equal to the change in Consolidated Current Assets (excluding
cash and Cash Equivalents) of the Borrower and its Subsidiaries during such
period less (g) an amount equal to the amount of all Capital Expenditures
----
of the Borrower and its Subsidiaries paid in cash during such period to the
extent permitted by this Agreement less (h) an amount equal to the
----
aggregate amount of (i) all regularly scheduled principal payments of
Funded Debt made during such period, (ii) all mandatory and optional
prepayments during such period of Funded Debt that was incurred to finance
Capital Expenditures and (iii) any optional prepayments of any Term
Advances made during such period in accordance with Section 2.06(a).
"Facility" means the Term Facility, the Working Capital Facility or
--------
the Letter of Credit Facility.
<PAGE>
14
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period (i) to the rate
published by the Telerate service on page five of its daily report as the
"New York Offered Rate" as of 10:00 A.M. (New York City time) for such day
(or, if such day is not a Business Day, for the immediately preceding
Business Day) or (ii) if the Telerate service shall cease to publish or
otherwise shall not publish such rates for any day that is a Business Day,
to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that is
a Business Day, the average of the quotations for such day for such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
---------------------------
any period, the ratio of (a) Consolidated EBITDA for such Person and its
Subsidiaries for such period on an Actual Basis less Capital Expenditures
----
of such Person and its Subsidiaries during such period on an Annualized
Basis (for purposes of this calculation limited to $400,000 in the first
fiscal year following the date hereof) less income taxes of such Person
----
and its Subsidiaries that have been paid in cash during such period on an
Annualized Basis to (b) the sum of (i) Interest Expense of such Person and
its Subsidiaries for such period on an Annualized Basis and (ii) regularly
scheduled cash principal payments of Funded Debt of such Person and its
Subsidiaries made during such period on an Annualized Basis.
"Funded Debt" of any Person means Debt in respect of the Advances, in
-----------
the case of the Borrower, and all other Debt of such Person that by its
terms finally matures more than one year after the date of creation or
matures within one year from such date but is renewable or extendible, at
the option of such Person, to a date more than one year after such date or
arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year
after such date.
"GAAP" has the meaning specified in Section 1.03.
----
"Guarantors" means SC Corporation, Royal and Western; provided that,
---------- --------
if the Merger shall occur, Guarantors means Newco(s), Royal and Western.
"Guaranty" has the meaning specified in Section 3.01(l)(xi); provided
-------- --------
that, if the Merger shall occur, Guaranty shall in addition mean all
guaranties entered into pursuant to Section 5.02(d) in connection with the
Merger.
<PAGE>
15
"Hazardous Materials" means (a) petroleum or petroleum products,
-------------------
radioactive materials, asbestos-containing materials and radon gas and (b)
any other chemicals, materials or substances designated, classified or
regulated as being "hazardous" or "toxic" or words of similar import under
any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
----------------
interest rate future or option contracts, currency swap agreements,
currency future or option contracts and other similar agreements.
"Hedge Banks" has the meaning specified in the Security Agreement.
-----------
"Indemnified Party" has the meaning specified in Section 8.04(b).
-----------------
"Insufficiency" means, with respect to any Plan, the amount, if any,
-------------
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
ERISA.
"Interest Coverage Ratio" means, with respect to any Person for any
-----------------------
period, the ratio of (a) Consolidated EBITDA of such Person and its
Subsidiaries for such period on an Actual Basis to (b) Interest Expense of
such Person and its Subsidiaries for such period on an Annualized Basis.
"Interest Expense" means, with respect to any Person for any period,
----------------
interest expense (including the interest component on obligations under
Capitalized Leases but excluding interest expense, if any, in respect of
Subordinated Notes and Redeemable Preferred Stock), whether paid or
accrued, on all Debt of such Person and its Subsidiaries for such period,
including, without limitation, (a) interest expense in respect of Debt
resulting from Advances, (b) commissions, discounts and other fees and
charges payable in connection with letters of credit (including, without
limitation, any Letters of Credit) and (c) any net payment payable in
connection with Hedge Agreements less any net credits received in
----
connection with Hedge Agreements.
"Interest Period" means, for each Eurodollar Rate Advance comprising
---------------
part of the same Borrowing, the period commencing on the date of such
Eurodollar Rate Advance or the date of the Conversion of any Base Rate
Advance into such Eurodollar Rate Advance, and ending on the last day of
the period selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three or six
months, as the Borrower may, upon notice received by the Agent not later
than 11:00 A.M. (New York City time) on the third Business Day prior to the
first day of such Interest Period, select; provided, however, that:
-------- -------
<PAGE>
16
(a) the Borrower may not select any Interest Period with respect
to any Eurodollar Rate Advance under a Facility that ends after any
principal repayment installment date for such Facility unless, after
giving effect to such selection, the aggregate principal amount of
Base Rate Advances and of Eurodollar Rate Advances having Interest
Periods that end on or prior to such principal repayment installment
date for such Facility shall be at least equal to the aggregate
principal amount of Advances under such Facility due and payable on or
prior to such date;
(b) Interest Periods commencing on the same date for Eurodollar
Rate Advances comprising part of the same Borrowing shall be of the
same duration;
(c) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
-------- -------
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on
the immediately preceding Business Day; and
(d) whenever the first day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Inventory" has the meaning specified in the Security Agreement.
---------
"Investment" in any Person means any loan or advance to such Person,
----------
any purchase or other acquisition of any capital stock or other ownership
or profit interest, warrants, rights, options, obligations or other
securities of such Person, any capital contribution to such Person or any
other investment in such Person, including, without limitation, any
arrangement pursuant to which the investor incurs Debt of the types
referred to in clause (i) or (j) of the definition of "Debt" in respect of
----
such Person.
"Issuing Bank" means BNP, as issuer of a Letter of Credit or any
------------
Eligible Assignee that shall become the Issuing Bank hereunder pursuant to
Section 8.07.
<PAGE>
17
"L/C Cash Collateral Account" has the meaning specified in the
---------------------------
Security Agreement.
"L/C Related Documents" has the meaning specified in Section
---------------------
2.04(c)(ii)(A).
"Lenders" means the Banks and each Eligible Assignee of a Lender that
-------
shall become a party hereto pursuant to Section 8.07.
"Letters of Credit" has the meaning specified in Section 2.01(c).
-----------------
"Letter of Credit Advance" means an advance made by the Issuing Bank
------------------------
or any Lender pursuant to Section 2.03(c).
"Letter of Credit Agreement" has the meaning specified in Section
--------------------------
2.03(a).
"Letter of Credit Commitment" means, with respect to the Issuing Bank
---------------------------
at any time, the amount set forth opposite the Issuing Bank's name on
Schedule I hereto under the caption "Letter of Credit Commitment" or, if
the Issuing Bank has entered into an Assignment and Acceptance in favor of
another Issuing Bank, set forth for such other Issuing Bank in the Register
maintained by the Agent pursuant to Section 8.07(e) as such other Issuing
Bank's "Letter of Credit Commitment", as such amount may be reduced at or
prior to such time pursuant to Section 2.05.
"Letter of Credit Facility" means the amount of the Letter of Credit
-------------------------
Commitment of the Issuing Bank.
"Leverage Ratio" means, with respect to any Person at any date of
--------------
determination, the ratio of (a) Funded Debt (excluding Subordinated Debt
and Redeemable Preferred Stock) of such Person and its Subsidiaries at such
date to (b) Consolidated EBITDA of such Person and its Subsidiaries during
the most recently completed Rolling Period, on an Actual Basis.
"Lien" means any lien, security interest or other charge or
----
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Loan Documents" means this Agreement, the Notes, each Guaranty, the
--------------
Collateral Documents, each Letter of Credit Agreement, the letter dated the
date hereof from the Borrower to the Agent relating to certain post-closing
undertakings of the Borrower and each other agreement evidencing the
payment of obligations secured by the Collateral Documents.
<PAGE>
18
"Loan Parties" means the Borrower, each Guarantor and each Collateral
------------
Grantor.
"Loan Value" means with respect to all Eligible Inventory, 50% of the
----------
value of any item of Eligible Inventory; provided, however, that the Agent
-------- -------
may, in its reasonable discretion following an audit field examination and
based on its analysis of potential factors arising after the date hereof
that may dilute the value of Eligible Inventory, revise from time to time
the percentage of the value of any individual item of Eligible Inventory
that shall be used in determining Loan Value.
"Margin Stock" has the meaning specified in Regulation U.
------------
"Material Adverse Change" means any material adverse change in the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries, (b)
the rights and remedies of the Agent, any Lender or the Issuing Bank under
any Loan Document or Related Document or (c) the ability of any Loan Party
to perform its Obligations under any Loan Document or Related Document to
which it is or is to be a party.
"Material Contract" means, with respect to any Person, each contract
-----------------
(other than any employee benefit plan or the Employment Agreements) to
which such Person is a party the absence of which would be material to the
business, condition (financial or otherwise), operations, performance,
properties or prospects of such Person.
"Merger" has the meaning specified in the Preliminary Statements.
------
"Multiemployer Plan" of any Person means a multiemployer plan, as
------------------
defined in Section 4001(a)(3) of ERISA, to which such Person or any of its
ERISA Affiliates is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" of any Person means a single employer plan,
----------------------
as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and at least one
Person other than such Person and its ERISA Affiliates or (b) was so
maintained and in respect of which such Person or any of its ERISA
Affiliates could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
<PAGE>
19
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
-----------------
or other disposition of any asset or the incurrence or issuance of any Debt
or capital stock, any securities convertible into or exchangeable for
capital stock or any warrants, rights or options to acquire capital stock
by any Person, the aggregate amount of cash received from time to time by
or on behalf of such Person in connection with such transaction after
deducting therefrom only (a) reasonable and customary registration fees,
brokerage commissions, underwriting fees and discounts, legal fees,
finder's fees and other similar fees and commissions and (b) the amount of
taxes payable in connection with or as a result of such transaction, in
each case to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Worth" means, at any date of determination, an amount equal to
---------
$3,050,000 plus cumulative net income (or net loss) of the Borrower and its
----
Subsidiaries on a Consolidated basis, excluding (a) extraordinary or
unusual losses or gains deducted or added, as the case may be, in
calculating net income, in each case adjusted for any tax impact and (b)
noncash charges relating to employee options, following the date hereof.
"Newco(s)" has the meaning specified in the Preliminary Statements.
--------
"Nonratable Assignment" means an assignment by a Lender pursuant to
---------------------
Section 8.07(a) of a portion of its rights and obligations under this
Agreement, other than an assignment of a uniform, and not a varying,
percentage of all of the rights and obligations of such Lender under and in
respect of all of the Facilities.
"Note" means a Term Note or a Working Capital Note.
----
"Notice of Borrowing" has the meaning specified in Section 2.02(a).
-------------------
"Notice of Issuance" has the meaning specified in Section 2.03(a).
------------------
"NPL" means National Priorities List under the Comprehensive
---
Environmental Response, Compensation and Liability Act of 1980, as amended.
"Obligation" means, with respect to any Person, any payment,
----------
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected
<PAGE>
20
by any proceeding referred to in Section 6.01(f). Without limiting the
generality of the foregoing, the Obligations of the Loan Parties under the
Loan Documents include (a) the obligation to pay principal, interest,
Letter of Credit commissions, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by any Loan Party
under any Loan Document and (b) the obligation of any Loan Party to
reimburse any amount in respect of any of the foregoing that any Lender, in
its sole discretion, may elect to pay or advance on behalf of such Loan
Party.
"OECD" means the Organization for Economic Cooperation and
----
Development.
"Open Year" has the meaning specified in Section 4.01(x).
---------
"Other Taxes" has the meaning specified in Section 2.12(b).
-----------
"Payroll Accounts" has the meaning specified in the Security
----------------
Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under Section
5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations that
(i) are not overdue for a period of more than 30 days and (ii) either
individually or when aggregated with all other Permitted Liens outstanding
on any date of determination, do not materially affect the use or value of
the property to which they relate; (c) pledges or deposits to secure
obligations under workers' compensation laws, social security laws or
similar legislation or to secure public or statutory obligations; and (d)
easements, rights of way and other encumbrances on title to real property
that do not render title to the property encumbered thereby unmarketable or
materially adversely affect the use of such property for its present
purposes.
"Person" means an individual, partnership, corporation (including a
------
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----
<PAGE>
21
"Plan of Reorganization" has the meaning specified in the Preliminary
----------------------
Statements.
"Pledge Agreement" has the meaning specified in Section 3.01(l)(x);
----------------
provided that, if the Merger shall occur, Pledge Agreement shall mean in
--------
addition all pledge agreements entered into pursuant to Section 5.02(d) in
connection with the Merger.
"Preferred Stock" means, with respect to any corporation, capital
---------------
stock issued by such corporation that is entitled to a preference or
priority over any other capital stock issued by such corporation upon any
distribution of such corporation's assets, whether by dividend or upon
liquidation.
"Pro Rata Share" of any amount means, with respect to any Working
--------------
Capital Lender at any time, the product of such amount times a fraction the
-----
numerator of which is the amount of such Lender's Working Capital
Commitment at such time and the denominator of which is the Working Capital
Facility at such time.
"Receivables" has the meaning specified in the Security Agreement.
-----------
"Redeemable" means, with respect to any capital stock or other
----------
ownership interest, Debt or other right or Obligation, any such right or
Obligation that (a) the issuer has undertaken to redeem at a fixed or
determinable date or dates, whether by operation of a sinking fund or
otherwise, or upon the occurrence of a condition not solely within the
control of the issuer or (b) is redeemable at the option of the holder.
"Register" has the meaning specified in Section 8.07(e).
--------
"Regulation U" means Regulation U of the Board of Governors of the
------------
Federal Reserve System, as in effect from time to time.
"Related Documents" means the documents effecting the Reorganization,
-----------------
the Subordinated Debt Documents, any Tax Sharing Agreements and the Wigs
Note.
"Reorganization" has the meaning specified in the Preliminary
--------------
Statements.
"Required Lenders" means at any time Lenders owed or holding at least
----------------
60% of the sum of (a) the aggregate principal amount of the Advances
outstanding at such time, (b) the aggregate Available Amount of all Letters
of Credit outstanding at such time and (c) the aggregate Unused Working
Capital Commitments at such time; provided, however, that if any Lender
-------- -------
shall be a Defaulting Lender at such time, (i) the aggregate principal
amount of the Advances made by such Lender and outstanding at such time,
(ii) such Lender's Pro Rata Share of the aggregate Available
<PAGE>
22
Amount of all Letters of Credit outstanding at such time and (iii) the
aggregate unused Commitments of such Lender under all the Facilities at
such time shall be excluded from the determination of Required Lenders at
such time. For purposes of this definition, the Available Amount of each
Letter of Credit shall be considered to be owed to the Working Capital
Lenders and the Issuing Bank ratably in accordance with their respective
Working Capital Commitments.
"Rolling Period" means (a) with respect to any month ending prior to
--------------
December 1, 1995, the period commencing on December 1, 1994 and ending on
the last day of such month and (b) with respect to any month ending
thereafter, the consecutive 12-month period ending on the last day of such
month.
"Royal" means Royal Advertising & Marketing, Inc.
-----
"SC Corporation" has the meaning specified in the Preliminary
--------------
Statements.
"Secured Obligations" has the meaning specified in the Security
-------------------
Agreement.
"Security Agreement" has the meaning specified in Section
------------------
3.01(l)(viii).
"Single Employer Plan" of any Person means a single employer plan, as
--------------------
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and no Person other
than such Person and its ERISA Affiliates or (b) was so maintained and in
respect of which such Person or any of its ERISA Affiliates could have
liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
"Solvent" and "Solvency" mean, with respect to any Person on a
------- --------
particular date, that on such date (a) the fair value of the property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the light
of all the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured
liability.
<PAGE>
23
"Standby Letter of Credit" means any Letter of Credit issued under the
------------------------
Letter of Credit Facility, other than a Trade Letter of Credit.
"Subordinated Debt" means the Subordinated Notes and any other Debt of
-----------------
SC Corporation, or if the Merger occurs, of the Borrower, that is
subordinated to the Obligations of SC Corporation or the Borrower, as the
case may be, under the Loan Documents on, and that otherwise contains,
terms and conditions satisfactory to the Required Lenders.
"Subordinated Debt Documents" means the Subordinated Notes and all
---------------------------
other agreements, indentures and instruments pursuant to which Subordinated
Debt is issued.
"Subordinated Notes" means the subordinated notes issued by SC
------------------
Corporation on terms satisfactory to the Lenders on the date hereof.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such limited liability company, partnership or joint venture or
(c) the beneficial interest in such trust or estate is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries; provided that (a) Western shall be deemed a Consolidated
--------
Subsidiary of the Borrower for all purposes and (b) After the Stork, Inc.
and Brotman Acquisition Corp. and their respective Subsidiaries shall be
deemed not to be Subsidiaries of the Borrower.
"Tax Certificate" has the meaning specified in Section 5.03(n).
---------------
"Tax Sharing Agreements" means any tax sharing agreements entered into
----------------------
by the Borrower and any of its Affiliates after the date hereof in
compliance with Section 5.02(l).
"Taxes" has the meaning specified in Section 2.12(a).
-----
"Term Advance" has the meaning specified in Section 2.01(a).
------------
"Term Borrowing" means a borrowing consisting of simultaneous Term
--------------
Advances of the same Type made by the Term Lenders.
<PAGE>
24
"Term Commitment" means, with respect to any Term Lender at any time,
---------------
the amount set forth opposite such Lender's name on Schedule I hereto under
the caption "Term Commitment" or, if such Lender has entered into one or
more Assignments and Acceptances, set forth for such Lender in the Register
maintained by the Agent pursuant to Section 8.07(e) as such Lender's "Term
Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.05.
"Term Facility" means, at any time, the aggregate amount of the Term
-------------
Lenders' Term Commitments at such time.
"Term Lender" means any Lender that has a Term Commitment.
-----------
"Term Note" means a promissory note of the Borrower payable to the
---------
order of any Term Lender, in substantially the form of Exhibit A-1 hereto,
evidencing the indebtedness of the Borrower to such Lender resulting from
the Term Advance made by such Lender.
"Termination Date" means the earlier of May 22, 1999 and the date of
----------------
termination in whole of the Total Commitments pursuant to Section 2.05 or
6.01.
"Total Commitment" means, with respect to each Lender at any time, the
----------------
aggregate of such Lender's Term Commitment and Working Capital Commitment
at such time.
"Trade Letter of Credit" means any Letter of Credit that is issued
----------------------
under the Letter of Credit Facility for the benefit of a supplier of
Inventory to the Borrower or any of its Subsidiaries to effect payment for
such Inventory, the conditions to drawing under which include the
presentation to the Issuing Bank of negotiable bills of lading, invoices
and related documents sufficient, in the judgment of the Issuing Bank, to
create a valid and perfected lien or security interest on such Inventory.
"Trademark and Copyright Security Agreement" has the meaning specified
------------------------------------------
in Section 3.01(l)(ix).
"Type" refers to the distinction between Advances bearing interest at
----
the Base Rate and Advances bearing interest at the Eurodollar Rate.
"Unused Working Capital Commitment" means, with respect to any Working
---------------------------------
Capital Lender at any time, (a) such Lender's Working Capital Commitment at
such time minus (b) the sum of (i) the aggregate principal amount of all
-----
Working Capital Advances and Letter of Credit Advances made by such Lender
and outstanding at such time, plus (ii) such Lender's Pro Rata Share of (A)
----
the aggregate Available
<PAGE>
25
Amount of all Letters of Credit outstanding at such time and (B) to the
extent not included in clause (b)(i) of this definition, the aggregate
principal amount of all Letter of Credit Advances made by the Issuing Bank
pursuant to Section 2.03(c) and outstanding at such time.
"Voting Stock" means capital stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening of
such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
------------
ERISA.
"Western" has the meaning specified in the Preliminary Statements.
-------
"Wigs" has the meaning specified in the recital of parties to this
----
Agreement.
"Wigs Note" means a subordinated promissory note made by the Borrower
---------
payable to Western evidencing Debt of the Borrower owed to Western from
time to time.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
--------------------
E of Title IV of ERISA.
"Working Capital Advance" has the meaning specified in Section
-----------------------
2.01(b).
"Working Capital Borrowing" means a borrowing consisting of
-------------------------
simultaneous Working Capital Advances of the same Type made by the Working
Capital Lenders.
"Working Capital Commitment" means, with respect to any Working
--------------------------
Capital Lender at any time, the amount set forth opposite such Lender's
name on Schedule I hereto under the caption "Working Capital Commitment"
or, if such Lender has entered into one or more Assignments and
Acceptances, set forth for such Lender in the Register maintained by the
Agent pursuant to Section 8.07(e) as such Lender's "Working Capital
Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.05.
"Working Capital Facility" means, at any time, the aggregate amount of
------------------------
the Working Capital Lenders' Working Capital Commitments at such time.
"Working Capital Lender" means any Lender that has a Working Capital
----------------------
Commitment.
<PAGE>
26
"Working Capital Note" means a promissory note of the Borrower payable to
--------------------
the order of any Working Capital Lender, in substantially the form of
Exhibit A-2 hereto, evidencing the aggregate indebtedness of the Borrower
to such Lender resulting from the Working Capital Advances made by such
Lender.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
----
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. The Advances. (a) The Term Advances. Each Term
------------ -----------------
Lender severally agrees, on the terms and conditions hereinafter set forth, to
make a single advance (a "Term Advance") to the Borrower on the date hereof in
------------
an amount not to exceed such Lender's Term Commitment on such Business Day.
Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be
reborrowed.
(b) The Working Capital Advances. Each Working Capital Lender
----------------------------
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "Working Capital Advance") to the Borrower from time to time on
-----------------------
any Business Day during the period from the date hereof until the Termination
Date in an amount for each such Advance not to exceed such Lender's Unused
Working Capital Commitment on such Business Day. Each Working Capital Borrowing
shall be in an aggregate amount of $100,000 or an integral multiple of $50,000
in excess thereof (other than a Borrowing the proceeds of which shall be used
solely to repay or prepay in full outstanding Letter of Credit Advances made by
the Issuing Bank) and shall consist of Working Capital Advances made by the
Working Capital Lenders ratably according to their Working Capital Commitments.
Within the limits of each Working Capital Lender's Unused Working Capital
Commitment in effect from time to time, the Borrower may borrow under this
Section 2.01(b), prepay pursuant to Section 2.06(a) and reborrow under this
Section 2.01(b).
<PAGE>
27
(c) Letters of Credit. The Issuing Bank agrees, on the terms and
-----------------
conditions hereinafter set forth, to issue letters of credit (the "Letters of
----------
Credit") for the account of the Borrower from time to time on any Business Day
- ------
during the period from the date of the initial Borrowing until the Termination
Date (i) in an aggregate Available Amount for all Letters of Credit not to
exceed at any time the Issuing Bank's Letter of Credit Commitment, (ii) in an
Available Amount for each such Letter of Credit not to exceed the Unused Working
Capital Commitments of the Working Capital Lenders on such Business Day and
(iii) in an aggregate Available Amount for all Standby Letters of Credit not to
exceed at any time $100,000. No Letter of Credit shall have an expiration date
(including all rights of the Borrower or the beneficiary to require renewal)
later than the earlier of the Termination Date and (A) in the case of a Standby
Letter of Credit, one year after the date of issuance thereof, but may by its
terms be renewable annually with the consent of the Issuing Bank and the Agent,
and (B) in the case of a Trade Letter of Credit, 60 days after the date of
issuance thereof. The Borrower shall maintain on deposit in the L/C Cash
Collateral Account an amount equal to 103% of the aggregate Available Amount of
all Letters of Credit outstanding during the period within 60 days prior to the
Termination Date. Within the limits of the Letter of Credit Facility, and
subject to the limits referred to above, the Borrower may request the issuance
of Letters of Credit under this Section 2.01(c), repay any Letter of Credit
Advances resulting from drawings thereunder pursuant to Section 2.03(c) and
request the issuance of additional Letters of Credit under this Section 2.01(c).
(d) Clean-down. Notwithstanding the provisions of Sections 2.01(b)
----------
and 2.01(c), no Borrowings may be made under Section 2.01(b) during any Clean-
down Period.
SECTION 2.02. Making the Advances. (a) Except as otherwise provided
-------------------
in Section 2.02, each Borrowing shall be made on notice, given not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate
Advances, or the first Business Day prior to the date of the proposed Borrowing
in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to
the Agent, which shall give to each Appropriate Lender prompt notice thereof by
telex or telecopier. Each such notice of a Borrowing (a "Notice of Borrowing")
-------------------
shall be by telex or telecopier, confirmed immediately in writing, in
substantially the form of Exhibit B hereto, specifying therein the requested (i)
date of such Borrowing, (ii) Facility under which such Borrowing is to be made,
(iii) Type of Advances comprising such Borrowing, (iv) aggregate amount of such
Borrowing and (v) in the case of a Borrowing consisting of Eurodollar Rate
Advances, initial Interest Period for each such Advance. In the case of a
proposed Borrowing comprised of Eurodollar Rate Advances, the Agent shall
promptly notify each Appropriate Lender of the applicable interest rate under
Section 2.07(a)(ii). Each Appropriate Lender shall, before 11:00 A.M. (New York
City time) on the date of such Borrowing, make available for the account of its
Applicable Lending Office to the Agent at the Agent's Account, in same day
funds, such Lender's
<PAGE>
28
ratable portion of such Borrowing in accordance with the respective Commitments
under the applicable Facility of such Lender and the other Appropriate Lenders.
After the Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Agent will make such funds available to
the Borrower by crediting the Borrower's Account; provided, however, that, in
-------- -------
the case of any Working Capital Borrowing, the Agent shall first make a portion
of such funds equal to the aggregate principal amount of any Letter of Credit
Advances made by the Issuing Bank and by any other Working Capital Lender and
outstanding on the date of such Working Capital Borrowing, plus interest accrued
and unpaid thereon to and as of such date, available to the Issuing Bank, as the
case may be, and such other Working Capital Lenders for repayment of such Letter
of Credit Advances.
(b) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances for the initial
Borrowing hereunder or for any Borrowing if the aggregate amount of such
Borrowing is less than $1,000,000 or if the obligation of the Appropriate
Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to
Section 2.10 and (ii) the Advances may not be outstanding as part of more than 4
separate Borrowings.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall
indemnify each Appropriate Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Advance to be made by such Lender as part of such Borrowing
when such Advance, as a result of such failure, is not made on such date.
(d) Unless the Agent shall have received notice from an Appropriate
Lender prior to the date of any Borrowing under a Facility under which such
Lender has a Commitment that such Lender will not make available to the Agent
such Lender's ratable portion of such Borrowing, the Agent may assume that such
Lender has made such portion available to the Agent on the date of such
Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender shall not
have so made such ratable portion available to the Agent, such Lender and the
Borrower severally agree to repay or pay to the Agent forthwith on demand such
corresponding amount and to pay interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid or paid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at such time under Section 2.07 to Advances comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If
<PAGE>
29
such Lender shall pay to the Agent such corresponding amount, such amount so
paid shall constitute such Lender's Advance as part of such Borrowing for
purposes of this Agreement.
(e) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under
------------------------------------------------
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
- ----------------- --------------------
issued upon notice, given not later than 11:00 A.M. (New York City time) on the
fifth Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank, which shall give to the Agent and
each Working Capital Lender prompt notice thereof by telex or telecopier. Each
such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be
------------------
by telex or telecopier, confirmed immediately in writing, specifying therein the
requested (A) date of such issuance (which shall be a Business Day), (B)
Available Amount of such Letter of Credit, (C) expiration date of such Letter of
Credit, (D) name and address of the beneficiary of such Letter of Credit and (E)
form of such Letter of Credit, and shall be accompanied by such application and
agreement for letter of credit (a "Letter of Credit Agreement") as the Issuing
--------------------------
Bank may specify to the Borrower for use in connection with such requested
Letter of Credit. If (x) the requested form of such Letter of Credit is
acceptable to the Issuing Bank in its sole discretion and (y) it has not
received notice of objection to the form of such Letter of Credit from Lenders
holding at least 60% of the Working Capital Commitments, the Issuing Bank will,
upon fulfillment of the applicable conditions set forth in Article III, make
such Letter of Credit available to the Borrower at its office referred to in
Section 8.02 or as otherwise agreed with the Borrower in connection with such
issuance. In the event and to the extent that the provisions of any Letter of
Credit Agreement shall conflict with this Agreement, the provisions of this
Agreement shall govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish (A) to
------------------------
the Agent on the first Business Day of each week a written report summarizing
issuance and expiration dates of Letters of Credit issued during the previous
week and drawings during such week under all Letters of Credit, (B) to each
Working Capital Lender on the first Business Day of each month a written report
summarizing issuance and expiration dates of Letters of Credit issued during the
preceding month and drawings during such month under all Letters of Credit and
(C) to the Agent and each Working Capital Lender on the first Business Day of
each calendar quarter a written report setting forth the average daily aggregate
Available Amount during the preceding calendar quarter of all Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a
-------------------------
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the
<PAGE>
30
making by the Issuing Bank of a Letter of Credit Advance, which shall be a Base
Rate Advance, in the amount of such draft. Upon written demand by the Issuing
Bank, with a copy of such demand to the Agent, each Working Capital Lender shall
purchase from the Issuing Bank, and the Issuing Bank shall sell and assign to
each such Working Capital Lender, such Lender's Pro Rata Share of such
outstanding Letter of Credit Advance as of the date of such purchase, by making
available for the account of its Applicable Lending Office to the Agent for the
account of the Issuing Bank, by deposit to the Agent's Account, in same day
funds, an amount equal to the portion of the outstanding principal amount of
such Letter of Credit Advance to be purchased by such Lender. Promptly after
receipt thereof, the Agent shall transfer such funds to the Issuing Bank. The
Borrower hereby agrees to each such sale and assignment. Each Working Capital
Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit
Advance on (i) the Business Day on which demand therefor is made by the Issuing
Bank, provided that notice of such demand is given not later than 11:00 A.M.
--------
(New York City time) on such Business Day or (ii) the first Business Day next
succeeding such demand if notice of such demand is given after such time. Upon
any such assignment by the Issuing Bank to any other Working Capital Lender of a
portion of a Letter of Credit Advance, the Issuing Bank represents and warrants
to such other Lender that the Issuing Bank is the legal and beneficial owner of
such interest being assigned by it, but makes no other representation or
warranty and assumes no responsibility with respect to such Letter of Credit
Advance, the Loan Documents or any Loan Party. If and to the extent that any
Working Capital Lender shall not have so made the amount of such Letter of
Credit Advance available to the Agent, such Working Capital Lender agrees to pay
to the Agent forthwith on demand such amount together with interest thereon, for
each day from the date of demand by the Issuing Bank until the date such amount
is paid to the Agent, at the Federal Funds Rate for its account or the account
of the Issuing Bank, as applicable. If such Lender shall pay to the Agent such
amount for the account of the Issuing Bank on any Business Day, such amount so
paid in respect of principal shall constitute a Letter of Credit Advance made by
such Lender on such Business Day for purposes of this Agreement, and the
outstanding principal amount of the Letter of Credit Advance made by the Issuing
Bank shall be reduced by such amount on such Business Day.
(d) Failure to Make Letter of Credit Advances. The failure of any
-----------------------------------------
Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
SECTION 2.04. Repayment of Advances. (a) Term Advances. The
--------------------- -------------
Borrower shall repay to the Agent for the ratable account of the Term Lenders
the aggregate outstanding principal amount of the Term Advances on the following
dates in the amounts indicated:
<PAGE>
31
<TABLE>
<CAPTION>
Date Amount
------------------ ----------
<S> <C>
March 31, 1995 $ 500,000
June 30, 1995 500,000
September 30, 1995 500,000
December 31, 1995 1,000,000
March 31, 1996 550,000
June 30, 1996 550,000
September 30, 1996 550,000
December 31, 1996 1,100,000
March 31, 1997 650,000
June 30, 1997 650,000
September 30, 1997 650,000
December 31, 1997 1,300,000
March 31, 1998 750,000
June 30, 1998 750,000
September 30, 1998 750,000
December 31, 1998 1,500,000
March 31, 1999 875,000
May 22, 1999 875,000
</TABLE>
(b) Working Capital Advances. The Borrower shall repay to the Agent
------------------------
for the ratable account of the Working Capital Lenders on the Termination Date
the aggregate outstanding principal amount of the Working Capital Advances then
outstanding.
(c) Letter of Credit Advances. (i) The Borrower shall repay to the
-------------------------
Agent for the account of the Issuing Bank and each other Working Capital Lender
that has made a Letter of Credit Advance on demand the outstanding principal
amount of each Letter of Credit Advance made by each of them.
(ii) The Obligations of the Borrower under this Agreement, any Letter
of Credit Agreement and any other agreement or instrument relating to any Letter
of Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms
<PAGE>
32
of this Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:
(A) any lack of validity or enforceability of this Agreement, any
Letter of Credit Agreement, any Letter of Credit or any other agreement or
instrument relating thereto (this Agreement and all of the other foregoing
being, collectively, the "L/C Related Documents");
---------------------
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of the Borrower in respect of
any L/C Related Document or any other amendment or waiver of or any consent
to departure from all or any of the L/C Related Documents;
(C) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee
of a Letter of Credit (or any Persons for whom any such beneficiary or any
such transferee may be acting), the Issuing Bank or any other Person,
whether in connection with the transactions contemplated by the L/C Related
Documents or any unrelated transaction;
(D) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(E) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any Collateral or other
collateral, or any release or amendment or waiver of or consent to
departure from the Guaranty or any other guarantee, for all or any of the
Obligations of the Borrower in respect of the L/C Related Documents; or
(G) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower, any Guarantor or any other guarantor.
SECTION 2.05. Reduction of the Commitments. (a) Optional. (i) The
---------------------------- --------
Borrower may, upon at least five Business Days' notice to the Agent, terminate
in whole or reduce in part the unused portions of the Letter of Credit
Commitments and the Unused Working Capital Commitments; provided, however, that
-------- -------
each partial reduction of a Facility (A) shall be in an aggregate amount of
$100,000 or an integral multiple of $50,000 in excess
<PAGE>
33
thereof and (B) shall be made ratably among the Appropriate Lenders in
accordance with their Commitments with respect to such Facility.
(ii) Upon any such optional Commitment reduction, the Borrower shall
pay to the Agent for the account of each Appropriate Lender (other than any
Lender that is, at such time, a Defaulting Lender) a reduction premium equal to
the percentage set forth below opposite the period in which such Commitment
reduction occurs multiplied by the dollar amount by which such Lender's
Commitment is so reduced, payable on the date of such reduction:
<TABLE>
<CAPTION>
Commitment Reduction Date Premium
--------------------------- --------
<S> <C>
November 23, 1994 through 3.00%
November 22, 1995
November 23, 1995 through 2.00%
November 22, 1996
After November 22, 1996 1.00%
</TABLE>
provided, however, that no such premium shall be payable (A) to the extent that
- -------- -------
such Commitment reduction is accomplished by obtaining new commitments under a
new financing facility provided by BNP, as agent, or (B) if such reduction
occurs in connection with the acquisition by any Loan Party of a related
business, including, without limitation, any direct marketing business, and (x)
BNP is given notice thereof and at least 10 Business Days to respond with an
offer, subject to committee approval, of terms for such refinancing, (y) BNP
either elects not to make such an offer after receipt of such notice or makes
such an offer but does not obtain committee approval for such transaction within
20 Business Days of such notice and (z) such transaction is refinanced with a
commercial bank or banks other than BNP on substantially the terms specified in
such notice.
(b) Mandatory. The Working Capital Facility and the Letter of Credit
---------
Facility shall be automatically and permanently reduced on the date on which any
prepayment is, or would have been if Term Advances had then been outstanding,
required to be made pursuant to Section 2.06(b) by (i) the amount of any Excess
Cash Flow in excess of the amounts required to pay the Term Advances pursuant to
Section 2.06(b)(i) and (ii) any Net Cash Proceeds in excess of the amounts
required to prepay the Term Advances pursuant to Section 2.06(b)(ii).
SECTION 2.06. Prepayments. (a) Optional. (i) The Borrower may,
----------- --------
upon at least three Business Days' notice, in the case of Eurodollar Rate
Advances, or upon at least one Business Day's notice, in the case of Base Rate
Advances, in each case to the Agent stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given the Borrower
shall, prepay the outstanding aggregate principal amount of
<PAGE>
34
the Advances comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the aggregate
principal amount prepaid unless such prepayment is with respect to a Working
Capital Advance or Letter of Credit Advance which is a Base Rate Advance;
provided, however, that (x) each partial prepayment shall be in an aggregate
- -------- -------
principal amount of $100,000 or an integral multiple of $50,000 in excess
thereof, (y) if any prepayment of a Eurodollar Rate Advance is made on a date
other than the last day of an Interest Period for such Advance the Borrower
shall also pay any amounts owing pursuant to Section 8.04(c). Each such
prepayment of any Term Advances shall be applied pro rata to the remaining
installments thereof.
(ii) Upon any such optional prepayment of any Term Advance, the
Borrower shall pay to the Agent for the account of each Appropriate Lender
(other than any Lender that is, at such time, a Defaulting Lender) a prepayment
premium equal to the percentage set forth below opposite the period in which
such prepayment occurs multiplied by the dollar amount of such prepayment,
payable on the date of such prepayment:
<TABLE>
<CAPTION>
Prepayment Date Premium
--------------------------- --------
<S> <C>
November 23, 1994 through 3.00%
November 22, 1995
November 23, 1995 through 2.00%
November 22, 1996
After November 22, 1996 1.00%
</TABLE>
provided, however, that no such premium shall be payable (A) to the extent such
- -------- -------
prepayment is accomplished with funds generated from operations of the Borrower
and its subsidiaries in the ordinary course of business, (B) to the that extent
such prepayment is accomplished by obtaining new commitments under a new
financing facility provided by BNP, as agent, or (C) if such prepayment occurs
in connection with the acquisition by the Loan Parties of a related business,
including, without limitation, any direct marketing business, and (x) BNP is
given notice thereof and at least 10 Business Days to respond with an offer,
subject to committee approval, of terms for such refinancing, (y) BNP either
elects not to make such an offer after receipt of such notice or makes such an
offer but does not obtain committee approval for such transaction within 20
Business Days of such notice and (z) such transaction is refinanced with a
commercial bank or banks other than BNP on substantially the terms specified in
such notice.
(b) Mandatory. (i) Commencing with the 1995 fiscal year, the
---------
Borrower shall, on the 30th day following the date of delivery of the annual
financial statements of the Borrower and its Subsidiaries pursuant to Section
5.03(d), but in any event not more than 125 days after the end of each fiscal
year, prepay an aggregate principal amount of the Advances comprising part of
the same Borrowings equal to 75% of the amount of Excess
<PAGE>
35
Cash Flow for such fiscal year. Each such prepayment shall be applied first to
-----
the Term Facility, pro rata to the remaining installments thereof and second to
------
the permanent reduction of the Working Capital Facility; provided that the
--------
Borrower shall not be required to make any prepayment with respect to the first
$200,000 of Excess Cash Flow.
(ii) The Borrower shall, within one Business Day following the date of
receipt of the Net Cash Proceeds by any Loan Party or any of its Subsidiaries
from (A) the sale, lease, transfer or other disposition of any material assets
of the Borrower or any of its Subsidiaries (other than sales of Inventory in the
ordinary course of business), (B) the incurrence or issuance by the Borrower or
any of its Subsidiaries of any Debt (except Debt permitted pursuant to Section
5.02(b)) and (C) the sale or issuance by any Loan Party or any of its
Subsidiaries of any capital stock or other ownership or profit interest, any
securities convertible into or exchangeable for capital stock or other ownership
or profit interest or any warrants, rights or options to acquire capital stock
or other ownership or profit interest, excluding any sales or issuances referred
to in the foregoing clause (C) that are required to fund puts and calls under
the terms of the Employment Agreements, prepay an aggregate principal amount of
the Advances comprising part of the same Borrowings equal to the amount of such
Net Cash Proceeds. Each such prepayment shall be applied first to the Term
-----
Facility, pro rata to the remaining installments thereof and second to the
------
permanent reduction of the Working Capital Facility.
(iii) The Borrower shall, on each Business Day, prepay an aggregate
principal amount of the Working Capital Advances comprising part of the same
Borrowings and the Letter of Credit Advances equal to the amount by which (A)
the sum of the aggregate principal amount of (x) the Working Capital Advances
and (y) the Letter of Credit Advances plus the aggregate of the respective
Available Amounts under each Letter of Credit then outstanding exceeds (B) the
lesser of the Working Capital Facility and the Loan Value of Eligible Inventory
on such Business Day.
(iv) The Borrower shall, on each Business Day, pay to the Agent for
deposit in the L/C Cash Collateral Account an amount sufficient to cause the
aggregate amount on deposit in such Account to equal the amount by which the
aggregate Available Amount of all Letters of Credit then outstanding exceeds the
Letter of Credit Facility on such Business Day.
(v) The Borrower shall, on the first day of each Clean-down Period,
prepay in full all Working Capital Advances and on each day of each Clean-down
Period prepay in full any Letter of Credit Advances then outstanding and shall
deposit in the L/C Cash Collateral Account an amount equal to 103% of the excess
of the aggregate Available Amounts of all Letters of Credit then outstanding
over $750,000.
<PAGE>
36
(vi) All prepayments under this subsection (b) shall be made together
with accrued interest to the date of such prepayment on the principal amount
prepaid.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall
-------- ------------------
pay interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a Base
------------------
Rate Advance, a rate per annum equal at all times to the sum of (A) the
Base Rate in effect from time to time plus (B) the Applicable Margin,
----
payable in arrears (1) quarterly on the last day of each December, March,
June and September during such periods, (2) on the date such Base Rate
Advance shall be Converted and (3) on the Termination Date.
(ii) Eurodollar Rate Advances. During such periods as such Advance is
------------------------
a Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (A) the Eurodollar Rate for
such Interest Period for such Advance plus (B) the Applicable Margin,
----
payable in arrears on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day that
occurs during such Interest Period every three months from the first day of
such Interest Period.
(b) Default Interest. Upon the occurrence and during the continuance
----------------
of an Event of Default, the Borrower shall pay interest on (i) the unpaid
principal amount of each Advance owing to each Lender, payable in arrears on the
dates referred to in clause (a)(i) or (a)(ii) above and on demand, at a rate per
annum equal at all times to 2% per annum above the rate per annum required to be
paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the
fullest extent permitted by law, the amount of any interest, fee or other amount
payable hereunder that is not paid when due, from the date such amount shall be
due until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid, in the case
of interest, on the Type of Advance on which such interest has accrued pursuant
to clause (a)(i) or (a)(ii) above, and, in all other cases, on Base Rate
Advances pursuant to clause (a)(i) above.
SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay to
---- --------------
the Agent for the account of the Lenders a commitment fee on the average daily
unused portion of each Appropriate Lender's Term Commitment and on the average
daily Unused Working Capital Commitment of such Lender from the date hereof in
the case of each Bank and from the effective date specified in the Assignment
and Acceptance pursuant to which it became a Lender in the case of each other
Lender until the Termination Date at the rate of 1/2 of 1%
<PAGE>
37
per annum, payable in arrears on the date of the initial Borrowing hereunder,
thereafter quarterly on the last Business Day of each December, March, June and
September, commencing December 31, 1994, and on the Termination Date; provided,
--------
however, that any commitment fee accrued with respect to any of the Commitments
- -------
of a Defaulting Lender during the period prior to the time such Lender became a
Defaulting Lender and unpaid at such time shall not be payable by the Borrower
so long as such Lender shall be a Defaulting Lender except to the extent that
such commitment fee shall otherwise have been due and payable by the Borrower
prior to such time; and provided further that no commitment fee shall accrue on
-------- -------
any of the Commitments of a Defaulting Lender so long as such Lender shall be a
Defaulting Lender.
(b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the
--------------------------
Agent for the account of each Working Capital Lender a commission on such
Lender's Pro Rata Share of the average daily aggregate Available Amount of (A)
all Standby Letters of Credit outstanding from time to time at the rate of 3.50%
per annum, and (B) all Trade Letters of Credit then outstanding at the rate of
2.00% per annum, in each case payable in arrears quarterly on the last Business
Day of each December, March, June and September, commencing December 31, 1994,
and on the earliest to occur of the full drawing, expiration, termination or
cancellation of any such Letter of Credit and on the Termination Date.
(ii) The Borrower shall pay to the Issuing Bank, for its own account,
such commissions, issuance fees, fronting fees, transfer fees and other fees and
charges in connection with the issuance or administration of each Letter of
Credit as the Borrower and the Issuing Bank shall agree.
(c) Agent's Fees. The Borrower shall pay to the Agent for its own
------------
account such fees as may from time to time be agreed between the Borrower and
the Agent.
SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower
---------------------- --------
may on any Business Day, upon notice given to the Agent not later than 11:00
A.M. (New York City time) on the third Business Day prior to the date of the
proposed Conversion and subject to the provisions of Section 2.07 and 2.10,
Convert all or any portion of the Advances of one Type comprising the same
Borrowing into Advances of the other Type; provided, however, that any
-------- -------
Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
only on the last day of an Interest Period for such Eurodollar Rate Advances,
any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in
an amount not less than the minimum amount specified in Section 2.02(b) and no
Conversion of any Advances shall result in more separate Borrowings than
permitted under Section 2.02(b). Each such notice of Conversion shall, within
the restrictions specified above, specify (i) the date of such Conversion, (ii)
the Advances to be Converted and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period
<PAGE>
38
for such Advances. Each notice of Conversion shall be irrevocable and binding
on the Borrower.
(b) Mandatory. (i) On the date on which the aggregate unpaid
---------
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $1,000,000, such
Advances shall automatically Convert into Base Rate Advances.
(ii) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Appropriate Lenders, whereupon each
such Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance.
(iii) Upon the occurrence and during the continuance of any Default,
(x) each Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (y) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.
SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the
--------------------
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender of agreeing to make or of
making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue
or of issuing or maintaining Letters of Credit or of agreeing to make or of
making or maintaining Letter of Credit Advances, then the Borrower shall from
time to time, upon demand by such Lender (with a copy of such demand to the
Agent), pay to the Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost; provided, however,
-------- -------
that a Lender claiming additional amounts under this Section 2.10(a) agrees to
use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to designate a different Applicable Lending Office if
the making of such a designation would avoid the need for, or reduce the amount
of, such increased cost that may thereafter accrue and would not, in the
reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.
A certificate as to the amount of such increased cost, submitted to the Borrower
by such Lender, shall be conclusive and binding for all purposes, absent
manifest error.
(b) If any Lender or the Issuing Bank determines that compliance with
any law or regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of
<PAGE>
39
capital required or expected to be maintained by such Lender or the Issuing Bank
or any corporation controlling such Lender or the Issuing Bank and that the
amount of such capital is increased by or based upon the existence of such
Lender's Commitment to lend or the Issuing Bank's commitment to issue Letters of
Credit hereunder and other commitments of such type or the issuance or
maintenance of the Letters of Credit (or similar contingent obligations), then,
upon demand by such Lender or the Issuing Bank (with a copy of such demand to
the Agent), the Borrower shall pay to the Agent for the account of such Lender
or the Issuing Bank, from time to time as specified by such Lender or the
Issuing Bank, additional amounts sufficient to compensate such Lender or the
Issuing Bank in the light of such circumstances, to the extent that such Lender
or the Issuing Bank reasonably determines such increase in capital to be
allocable to the existence of such Lender's commitment to lend or the Issuing
Bank's commitment to issue Letters of Credit hereunder or to the issuance or
maintenance of any Letters of Credit. A certificate as to such amounts
submitted to the Borrower by such Lender or the Issuing Bank shall be conclusive
and binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances, Lenders owed at
least 60% of the then aggregate unpaid principal amount thereof notify the Agent
that the Eurodollar Rate for any Interest Period for such Advances will not
adequately reflect the cost to such Lenders of making, funding or maintaining
their Eurodollar Rate Advances for such Interest Period, the Agent shall
forthwith so notify the Borrower and the Appropriate Lenders, whereupon (i) each
such Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the
obligation of the Appropriate Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended until the Agent shall notify the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Agent, (i) each Eurodollar Rate Advance under each Facility under
which such Lender has a Commitment will automatically, upon such demand, Convert
into a Base Rate Advance and (ii) the obligation of the Appropriate Lenders to
make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended
until the Agent shall notify the Borrower that such Lender has determined that
the circumstances causing such suspension no longer exist; provided, however,
-------- -------
that, before making any such demand, such Lender agrees to use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Eurodollar Lending Office if the making
of such a
<PAGE>
40
designation would allow such Lender or its Eurodollar Lending Office to continue
to perform its obligations to make Eurodollar Rate Advances or to continue to
fund or maintain Eurodollar Rate Advances and would not, in the judgment of such
Lender, be otherwise disadvantageous to such Lender.
SECTION 2.11. Payments and Computations. (a) The Borrower shall
-------------------------
make each payment hereunder and under the Notes not later than 11:00 A.M. (New
York City time) on the day when due in U.S. dollars to the Agent at the Agent's
Account in same day funds. The Agent will promptly thereafter cause like funds
to be distributed (i) if such payment by the Borrower is in respect of
principal, interest, commitment fees or any other Obligation then payable
hereunder and under the Notes to more than one Lender and/or Issuing Bank, to
such Lenders and/or Issuing Banks for the account of their respective Applicable
Lending Offices ratably in accordance with the amounts of such respective
Obligations then payable to such Lenders and (ii) if such payment by the
Borrower is in respect of any Obligation then payable hereunder to one Lender or
the Issuing Bank, to such Lender or the Issuing Bank for the account of its
Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance
and recording of the information contained therein in the Register pursuant to
Section 8.07(e), from and after the effective date of such Assignment and
Acceptance, the Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Lender assignee or Issuing Bank
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) If the Agent receives funds for application to the Obligations
under the Loan Documents under circumstances for which the Loan Documents do not
specify the Advances or the Facility to which, or the manner in which, such
funds are to be applied, the Agent may, but shall not be obligated to, elect to
distribute such funds to each Lender ratably in accordance with such Lender's
proportionate share of the principal amount of all outstanding Advances and the
Available Amount of all Letters of Credit then outstanding, in repayment or
prepayment of such of the outstanding Advances or other Obligations owed to such
Lender, and for application to such principal installments, as the Agent shall
direct.
(c) The Borrower hereby authorizes each Lender and the Issuing Bank,
if and to the extent payment owed to such Lender or the Issuing Bank is not made
when due hereunder or, in the case of a Lender, under the Note held by such
Lender, to charge from time to time against any or all of the Borrower's
accounts with such Lender or the Issuing Bank any amount so due.
(d) All computations of interest, fees and Letter of Credit
commissions shall be made by the Agent on the basis of a year of 360 days, in
each case for the actual number of days (including the first day but excluding
the last day) occurring in the period for
<PAGE>
41
which such interest, fees or commissions are payable. Each determination by the
Agent of an interest rate, fee or commission hereunder shall be conclusive and
binding for all purposes, absent manifest error.
(e) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, that, if such extension would cause payment of
-------- -------
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to any Lender or the Issuing Bank
hereunder that the Borrower will not make such payment in full, the Agent may
assume that the Borrower has made such payment in full to the Agent on such date
and the Agent may, in reliance upon such assumption, cause to be distributed to
each such Lender or the Issuing Bank, as the case may be on such due date an
amount equal to the amount then due such Lender or the Issuing Bank, as the case
may be. If and to the extent the Borrower shall not have so made such payment
in full to the Agent, each such Lender or the Issuing Bank, as the case may be,
shall repay to the Agent forthwith on demand such amount distributed to such
Lender or the Issuing Bank, as the case may be, together with interest thereon,
for each day from the date such amount is distributed to such Lender or the
Issuing Bank, as the case may be until the date such Lender or the Issuing Bank,
as the case may be, repays such amount to the Agent, at the Federal Funds Rate.
SECTION 2.12. Taxes. (a) Any and all payments by the Borrower
-----
hereunder or under the Notes shall be made, in accordance with Section 2.11,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender, the Issuing Bank and the
---------
Agent, net income taxes that are imposed by the United States and franchise
taxes and net income taxes that are imposed on such Lender, the Issuing Bank or
the Agent by the state or foreign jurisdiction under the laws of which such
Lender, the Issuing Bank or the Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender and the Issuing
Bank, franchise taxes and net income taxes that are imposed on such Lender or
the Issuing Bank by the state or foreign jurisdiction of such Lender's or the
Issuing Bank's Applicable Lending Office or any political subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "Taxes"). If the Borrower
-----
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder or under any Note to any Lender, the Issuing Bank or the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to
<PAGE>
42
additional sums payable under this Section 2.12) such Lender, the Issuing Bank
or the Agent (as the case may be) receives an amount equal to the sum it would
have received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or the
Notes (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower shall indemnify each Lender, the Issuing Bank and
the Agent for the full amount of Taxes and Other Taxes, and for the full amount
of taxes imposed by any jurisdiction on amounts payable under this Section 2.12,
paid by such Lender, the Issuing Bank or the Agent (as the case may be) and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date such Lender, the Issuing Bank or the Agent (as the case may
be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent, at its address referred to in Section 8.02,
the original receipt of payment thereof or a certified copy of such receipt. In
the case of any payment hereunder or under the Notes by or on behalf of the
Borrower through an account or branch outside the United States or on behalf of
the Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to the Agent, at such address, an
opinion of counsel acceptable to the Agent stating that such payment is exempt
from Taxes. For purposes of this subsection (d) and subsection (e), the terms
"United States" and "United States person" shall have the meanings specified in
- -------------- --------------------
Section 7701 of the Internal Revenue Code.
(e) Each Lender or Issuing Bank organized under the laws of a
jurisdiction outside the United States shall, on or prior to the date of its
execution and delivery of this Agreement in the case of each Bank or initial
Issuing Bank, and on the date of the Assignment and Acceptance pursuant to which
it became a Lender in the case of each other Lender or the Issuing Bank in the
case of each other Issuing Bank, and from time to time thereafter if requested
in writing by the Borrower or the Agent (but only so long thereafter as such
Lender or Issuing Bank remains lawfully able to do so), provide the Agent and
the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or
any successor or other form prescribed by the Internal Revenue Service,
certifying that such Lender or Issuing Bank, as the case may be, is exempt from
or is entitled to a reduced rate of United
<PAGE>
43
States withholding tax on payments under this Agreement or the Notes or
certifying that the income receivable pursuant to this Agreement or the Notes is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Lender or Issuing Bank at the time such
Lender or Issuing Bank first becomes a party to this Agreement indicates a
United States interest withholding tax rate in excess of zero, withholding tax
at such rate shall be considered excluded from Taxes unless and until such
Lender or Issuing Bank, as the case may be, provides the appropriate form
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date of the Assignment and Acceptance
-------- -------
pursuant to which a Lender or the Issuing Bank assignee becomes a party to this
Agreement, the Lender assignor or Issuing Bank assignor was entitled to payments
under subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender assignee or Issuing Bank assignee on such
date. If any form or document referred to in this subsection (e) requires the
disclosure of information, other than information necessary to compute the tax
payable and information required on the date hereof by Internal Revenue Service
form 1001 or 4224, that the Lender or the Issuing Bank reasonably considers to
be confidential, the Lender or Issuing Bank shall give notice thereof to the
Borrower and shall not be obligated to include in such form or document such
confidential information.
(f) For any period with respect to which a Lender or the Issuing Bank
has failed to provide the Borrower with the appropriate form described in
subsection (e) (other than if such failure is due to a change in law occurring
----- ----
after the date on which a form originally was required to be provided or if such
form otherwise is not required under subsection (e)), such Lender or the Issuing
Bank shall not be entitled to indemnification under subsection (a) or (c) with
respect to Taxes imposed by the United States; provided, however, that should a
-------- -------
Lender or the Issuing Bank become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Lender or the Issuing Bank shall reasonably request to assist such Lender or the
Issuing Bank to recover such Taxes.
SECTION 2.13. Sharing of Payments, Etc. If any Lender or the Issuing
------------------------
Bank shall obtain at any time any payment (whether voluntary, involuntary,
through the exercise of any right of setoff, or otherwise) (a) on account of
Obligations due and payable to such Lender or Issuing Bank hereunder and under
the Notes at such time in excess of its ratable share (according to the
proportion of (i) the amount of such Obligations due and payable to such Lender
or Issuing Bank at such time to (ii) the aggregate amount of the Obligations due
and payable to all Lenders and the Issuing Bank hereunder and under the Notes at
such time) of payments on account of the Obligations due and payable to all
Lenders and the Issuing Bank hereunder and under the Notes at such time obtained
by all the Lenders
<PAGE>
44
at such time or (b) on account of Obligations owing (but not due and payable) to
such Lender or Issuing Bank hereunder and under the Notes at such time in excess
of its ratable share (according to the proportion of (i) the amount of such
Obligations owing to such Lender or Issuing Bank at such time to (ii) the
aggregate amount of the Obligations owing (but not due and payable) to all
Lenders and the Issuing Bank hereunder and under the Notes at such time) of
payments on account of the Obligations owing (but not due and payable) to all
Lenders and the Issuing Bank hereunder and under the Notes at such time obtained
by all the Lenders and the Issuing Bank at such time, such Lender or Issuing
Bank shall forthwith purchase from the other Lenders and the Issuing Bank such
participations in the Obligations due and payable or owing to them, as the case
may be, as shall be necessary to cause such purchasing Lender or Issuing Bank to
share the excess payment ratably with each of them; provided, however, that if
-------- -------
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender or Issuing Bank, such purchase from each other Lender or
Issuing Bank shall be rescinded and such other Lender or Issuing Bank shall
repay to the purchasing Lender or Issuing Bank the purchase price to the extent
of such Lender's or Issuing Bank's ratable share (according to the proportion of
(A) the purchase price paid to such Lender or Issuing Bank to (B) the aggregate
purchase price paid to all Lenders or Issuing Banks) of such recovery together
with an amount equal to such Lender's or Issuing Bank's ratable share (according
to the proportion of (1) the amount of such other Lender's or Issuing Bank's
required repayment to (2) the total amount so recovered from the purchasing
Lender or Issuing Bank) of any interest or other amount paid or payable by the
purchasing Lender or Issuing Bank in respect of the total amount so recovered.
The Borrower agrees that any Lender or Issuing Bank so purchasing a
participation from another Lender or Issuing Bank pursuant to this Section 2.13
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of setoff) with respect to such participation as fully as
if such Lender or Issuing Bank were the direct creditor of the Borrower in the
amount of such participation.
SECTION 2.14. Use of Proceeds. The proceeds of the Advances shall be
---------------
available (and the Borrower agrees that they shall use such proceeds) solely to
finance the Reorganization and the transactions contemplated thereby, pay
transaction costs incurred in connection with the Reorganization and provide
working capital for the Borrower and its Subsidiaries.
SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one
------------------
time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender
shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be
required to make any payment hereunder or under any other Loan Document to or
for the account of such Defaulting Lender, then the Borrower may, so long as no
Default shall occur or be continuing at such time and to the fullest extent
permitted by applicable law, set off and otherwise apply the Obligation of the
Borrower to make such payment to or for the account of such Defaulting Lender
against the Obligation of such Defaulting Lender to make such
<PAGE>
45
Defaulted Advance. In the event that the Borrower shall so set off and
otherwise apply its obligation to make any such payment against the obligation
of such Defaulting Lender to make any such Defaulted Advance on any date, the
amount so set off and otherwise applied by the Borrower shall constitute for all
purposes of this Agreement and the other Loan Documents an Advance by such
Defaulting Lender made on such date under the Facility pursuant to which such
Defaulted Advance was originally required to have been made pursuant to Section
2.01. Such Advance shall be a Base Rate Advance and shall be considered, for
all purposes of this Agreement, to comprise part of the Borrowing in connection
with which such Defaulted Advance was originally required to have been made
pursuant to Section 2.01, even if the other Advances comprising such Borrowing
shall be Eurodollar Advances on the date such Advance is deemed to be made
pursuant to this subsection (a). The Borrower shall notify the Agent at any
time the Borrower exercises its right of set-off pursuant to this subsection (a)
and shall set forth in such notice (A) the name of the Defaulting Lender and the
Defaulted Advance required to be made by such Defaulting Lender and (B) the
amount set off and otherwise applied in respect of such Defaulted Advance
pursuant to this subsection (a). Any portion of such payment otherwise required
to be made by the Borrower to or for the account of such Defaulting Lender which
is paid by the Borrower, after giving effect to the amount set off and otherwise
applied by the Borrower pursuant to this subsection (a), shall be applied by the
Agent as specified in subsection (b) or (c) of this Section 2.15.
(b) In the event that, at any one time, (i) any Lender shall be a
Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to
the Agent or any of the other Lenders and (iii) the Borrower shall make any
payment hereunder or under any other Loan Document to the Agent for the account
of such Defaulting Lender, then the Agent may, on its behalf or on behalf of
such other Lenders and to the fullest extent permitted by applicable law, apply
at such time the amount so paid by the Borrower to or for the account of such
Defaulting Lender to the payment of each such Defaulted Amount to the extent
required to pay such Defaulted Amount. In the event that the Agent shall so
apply any such amount to the payment of any such Defaulted Amount on any date,
the amount so applied by the Agent shall constitute for all purposes of this
Agreement and the other Loan Documents payment, to such extent, of such
Defaulted Amount on such date. Any such amount so applied by the Agent shall be
retained by the Agent or distributed by the Agent to such other Lenders, ratably
in accordance with the respective portions of such Defaulted Amounts payable at
such time to the Agent and such other Lenders and, if the amount of such payment
made by the Borrower shall at such time be insufficient to pay all Defaulted
Amounts owing at such time to the Agent and the other Lenders, in the following
order of priority:
(i) first, to the Agent for any Defaulted Amount then owing to the
-----
Agent; and
<PAGE>
46
(ii) second, to any other Lenders for any Defaulted Amounts then owing
------
to such other Lenders, ratably in accordance with such respective Defaulted
Amounts then owing to such other Lenders.
Any portion of such amount paid by the Borrower for the account of such
Defaulting Lender remaining, after giving effect to the amount applied by the
Agent pursuant to this subsection (b), shall be applied by the Agent as
specified in subsection (c) of this Section 2.15.
(c) In the event that, at any one time, (i) any Lender shall be a
Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance
or a Defaulted Amount and (iii) the Borrower, the Agent or any other Lender
shall be required to pay or distribute any amount hereunder or under any other
Loan Document to or for the account of such Defaulting Lender, then the Borrower
or such other Lender shall pay such amount to the Agent to be held by the Agent,
to the fullest extent permitted by applicable law, in escrow or the Agent shall,
to the fullest extent permitted by applicable law, hold in escrow such amount
otherwise held by it. Any funds held by the Agent in escrow under this
subsection (c) shall be deposited by the Agent in an account with BNP, in the
name and under the control of the Agent, but subject to the provisions of this
subsection (c). The terms applicable to such account, including the rate of
interest payable with respect to the credit balance of such account from time to
time, shall be BNP's standard terms applicable to escrow accounts maintained
with it. Any interest credited to such account from time to time shall be held
by the Agent in escrow under, and applied by the Agent from time to time in
accordance with the provisions of, this subsection (c). The Agent shall, to the
fullest extent permitted by applicable law, apply all funds so held in escrow
from time to time to the extent necessary to make any Advances required to be
made by such Defaulting Lender and to pay any amount payable by such Defaulting
Lender hereunder and under the other Loan Documents to the Agent or any other
Lender, as and when such Advances or amounts are required to be made or paid
and, if the amount so held in escrow shall at any time be insufficient to make
and pay all such Advances and amounts required to be made or paid at such time,
in the following order of priority:
(i) first, to the Agent for any amount then due and payable by such
-----
Defaulting Lender to the Agent hereunder;
(ii) second, to any other Lenders for any amount then due and payable
------
by such Defaulting Lender to such other Lenders hereunder, ratably in
accordance with such respective amounts then due and payable to such other
Lenders; and
(iii) third, to the Borrower for any Advance then required to be made
-----
by such Defaulting Lender pursuant to a Commitment of such Defaulting
Lender.
<PAGE>
47
In the event that such Defaulting Lender shall, at any time, cease to be a
Defaulting Lender, any funds held by the Agent in escrow at such time with
respect to such Defaulting Lender shall be distributed by the Agent to such
Defaulting Lender and applied by such Defaulting Lender to the Obligations owing
to such Lender at such time under this Agreement and the other Loan Documents
ratably in accordance with the respective amounts of such Obligations
outstanding at such time.
(d) The rights and remedies against a Defaulting Lender under this
Section 2.15 are in addition to other rights and remedies which the Borrower may
have against such Defaulting Lender with respect to any Defaulted Advance and
which the Agent or any Lender may have against such Defaulting Lender with
respect to any Defaulted Amount.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Initial Borrowing or Initial
----------------------------------------------------
Issuance. The obligation of each Lender to make an Advance on the occasion of
- --------
the initial Borrowing is subject to the satisfaction of the following conditions
precedent before or concurrent with the initial Borrowing:
(a) The Lenders shall have received copies of any modifications or
amendments to the Plan of Reorganization and the Disclosure Statement and
consented thereto in writing.
(b) The Plan of Reorganization shall have been confirmed and the order
confirming the Plan of Reorganization shall be in form and substance
satisfactory to the Lenders and shall be final and nonappealable.
(c) The Plan of Reorganization as confirmed shall be consummated
strictly in accordance with the terms thereof, without any waiver,
amendment or change of any term or provision thereof not consented in
writing to by the Lenders.
(d) The Lenders shall be satisfied with the final terms and conditions
of the transaction, including, without limitation, all legal and tax
aspects thereof; and all documentation relating to the transaction shall be
in form and substance satisfactory to the Lenders.
(e) The Lenders and the Issuing Bank shall be satisfied with the
corporate and legal structure and capitalization of each Loan Party and
each of its Subsidiaries,
<PAGE>
48
including the terms and conditions of the charter, bylaws and each class of
capital stock of each Loan Party and each such Subsidiary and of each
agreement or instrument relating to such structure or capitalization.
(f) The Borrower will be capitalized with a minimum of $6,650,000, in
the aggregate, of Subordinated Debt, Preferred Stock and common equity.
The amount of the Subordinated Notes, Preferred Stock and common equity, as
well as all terms thereof (including, without limitation, all terms
relating to subordination, repayment and voting rights) shall be
satisfactory in all respects to the Lenders.
(g) Before giving effect to the Reorganization and the other
transactions contemplated by this Agreement, there shall have occurred no
Material Adverse Change since January 1, 1994.
(h) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of its Subsidiaries pending or
threatened before any court, governmental agency or arbitrator that (i)
could have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of the Reorganization, this Agreement,
any Note, any other Loan Document, any Related Document or the consummation
of the transactions contemplated hereby.
(i) The Lenders and the Issuing Bank shall have completed a due
diligence investigation of the Borrower and its Affiliates in scope, and
with results, satisfactory to the Lenders and the Issuing Bank, and nothing
shall have come to the attention of the Lenders and the Issuing Bank during
the course of such due diligence investigation to lead them to believe (i)
that, following the consummation of the Reorganization, the Borrower and
its Affiliates would not have good and marketable title to all material
assets of the Borrower and its Affiliates and (ii) that the Reorganization
will have a Material Adverse Effect; without limiting the generality of the
foregoing, the Lenders and the Issuing Bank shall have been given such
access to the management, records, books of account, contracts and
properties of the Borrower and its Affiliates as they shall have requested.
(j) The Lenders shall be satisfied with the Borrower's management and
its plans to manage and operate the Borrower.
(k) The Borrower shall have paid all accrued fees and expenses of the
Agent, the Lenders and the Issuing Bank (including the facility fee and the
accrued fees and expenses of counsel to the Agent and any other fees and
expenses required to be paid pursuant to the Commitment Letter).
<PAGE>
49
(l) The Agent shall have received on or before the day of the initial
Borrowing or the initial Issuance the following, each dated such day
(unless otherwise specified), in form and substance satisfactory to the
Agent (unless otherwise specified) and (except for the Notes) in sufficient
copies for each Lender and the Issuing Bank:
(i) The Notes to the order of the Lenders.
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower and each other Loan Party approving the
Reorganization, this Agreement, the Notes, each other Loan Document
and each Related Document to which it is or is to be a party, and of
all documents evidencing other necessary corporate action and
governmental approvals, if any, with respect to the Reorganization,
this Agreement, the Notes, each other Loan Document and each Related
Document.
(iii) A copy of the charter of the Borrower and each other Loan
Party and each amendment thereto, certified (as of a date reasonably
near the date of the initial Borrowing) by the Secretary of State of
the jurisdiction of its incorporation as being a true and correct copy
thereof or otherwise confirmed to have been filed and to be in effect
in a manner satisfactory to the Agent.
(iv) A copy of a certificate of the Secretary of State of the
applicable jurisdictions of incorporation, dated reasonably near the
date of the initial Borrowing or initial Issuance, listing the charter
of the Borrower and each other Loan Party and each amendment thereto
on file in his office and certifying that (A) such amendments are the
only amendments to the Borrower's or such other Loan Party's charter
on file in his office, (B) the Borrower or such other Loan Party has
paid all franchise taxes to the date of such certificate except as set
forth therein and (C) the Borrower or such other Loan Party is duly
incorporated and in good standing under the laws of the jurisdiction
of its incorporation except as set forth therein.
(v) Copies of certificates of the Secretary of State of the
States of Massachusetts, California, Connecticut and Delaware, dated
reasonably near the date of the initial Borrowing or initial issuance,
stating that the applicable Loan Parties are duly qualified and in
good standing as foreign corporations in such States and have filed
all annual reports required to be filed to the date of such
certificate except as set forth therein.
(vi) A certificate of the Borrower and each other Loan Party,
signed on behalf of the Borrower and such other Loan Party by its
Chief Executive Officer or President or a Vice President and its
Secretary or any Assistant
<PAGE>
50
Secretary, dated the date of the initial Borrowing or initial issuance
(the statements made in which certificate shall be true on and as of
the date of the initial Borrowing), certifying as to (A) the absence
of any amendments to the charter of the Borrower or such other Loan
Party since the date of the Secretary of State's certificate referred
to in Section 3.01(l)(iv), (B) a true and correct copy of the bylaws
of the Borrower and such other Loan Party as in effect on the date of
the initial Borrowing or initial issuance, (C) the due incorporation
and good standing of the Borrower and such other Loan Party as a
corporation organized under the laws of the State of its
incorporation, and the absence of any proceeding for the dissolution
or liquidation of the Borrower or such other Loan Party, (D) the truth
of the representations and warranties contained in the Loan Documents
as though made on and as of the date of the initial Borrowing or
initial issuance and (E) the absence of any event occurring and
continuing, or resulting from the initial Borrowing or initial
issuance, that constitutes a Default.
(vii) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each other Loan Party certifying the names and
true signatures of the officers of the Borrower and such other Loan
Party authorized to sign this Agreement, the Notes, each other Loan
Document and each Related Document to which they are or are to be
parties and the other documents to be delivered hereunder and
thereunder.
(viii) A security agreement in substantially the form of Exhibit
E (as amended, supplemented or otherwise modified from time to time
in accordance with its terms, the "Security Agreements"), duly
-------------------
executed by the Borrower and each other party thereto, together with:
(A) certificates representing the Pledged Shares referred to
therein accompanied by undated stock powers executed in blank and
instruments evidencing the Pledged Debt referred to therein
endorsed in blank,
(B) copies of proper financing statements, for filing under
the Uniform Commercial Code of all jurisdictions that the Agent
may deem necessary or desirable in order to perfect and protect
the Liens created by the Security Agreement, covering the
Collateral described in the Security Agreement,
(C) completed requests for information, dated on or before
the date of the initial Borrowing or initial Issuance, listing
all other effective financing statements filed in the
jurisdictions referred to in
<PAGE>
51
clause (B) above that name the Borrower or any other Loan Party
as debtor, together with copies of such other financing
statements,
(D) evidence of the completion of all other recordings and
filings of or with respect to the Security Agreement that the
Agent may deem necessary or desirable in order to perfect and
protect the Liens created thereby,
(E) evidence of the insurance required by the terms of the
Security Agreement,
(F) evidence that all other action that the Agent may deem
necessary or desirable in order to perfect and protect the Liens
created by the Security Agreement has been taken.
(ix) A trademark and copyright security agreement in
substantially the form of Exhibit F (as amended, supplemented or
otherwise modified from time to time in accordance with its terms, the
"Trademark and Copyright Security Agreement"), duly executed by the
------------------------------------------
Borrower and each other Collateral Grantor, together with evidence
that all action that the Agent may deem necessary or desirable in
order to perfect and protect the Liens created under the Trademark and
Copyright Security Agreement has been taken.
(x) A pledge agreement in substantially the form of Exhibit G (as
amended, supplemented or otherwise modified from time to time, the
"Pledge Agreement") duly executed by SC Corporation.
-----------------
(xi) A guaranty in substantially the form of Exhibit H (as
amended, supplemented or otherwise modified from time to time in
accordance with its terms, a "Guaranty"), duly executed by each
--------
Guarantor.
(xii) Certified copies of each of the Related Documents, duly
executed by the parties thereto and in form and substance satisfactory
to the Lenders, together with all agreements, instruments and other
documents delivered in connection therewith.
(xiii) Certified copies of employment agreements with Steven
Bock and Steve O'Hara, in form and substance satisfactory to the
Lenders and the Issuing Bank (the "Employment Agreements"), duly
---------------------
executed by the parties thereto.
<PAGE>
52
(xiv) Such financial, business and other information regarding
each Loan Party and its Subsidiaries as the Lenders and the Issuing
Bank shall have requested, including, without limitation, information
as to possible contingent liabilities, tax matters, environmental
matters, obligations under ERISA and Welfare Plans, collective
bargaining agreements and other arrangements with employees, annual
financial statements dated December 28, 1991, January 2, 1993 and
January 1, 1994 and for the fiscal years then ended, interim financial
statements dated October 1, 1994 and for the 39 weeks then ended (or,
in the event the Lenders' and the Issuing Bank's due diligence review
reveals material changes since such financial statements, as of a
later date within 45 days of the date hereof), pro forma financial
statements as to the Loan Parties and forecasts prepared by management
of the Loan Parties, in form and substance satisfactory to the Lenders
and the Issuing Bank, of balance sheets, income statements and cash
flow statements on a monthly basis for the first year following the
date hereof and on a quarterly basis for each year thereafter until
the Termination Date.
(xv) An environmental assessment report conducted in accordance
with current ASTM standards from Environmental and Safety Designs,
Inc. as to any hazards, costs or liabilities under Environmental Laws
to which the Borrower may be subject, the amount and nature of which
and the Borrower's plans with respect to which shall be acceptable to
the Lenders and the Issuing Bank.
(xvi) A letter, in form and substance satisfactory to the Agent,
from the Borrower to Deloitte & Touche, its independent certified
public accountants, advising such accountants that the Agent, the
Lenders and the Issuing Bank have been authorized to exercise all
rights of the Borrower to require such accountants to disclose any and
all financial statements and any other information of any kind that
they may have with respect to the Borrower and its Subsidiaries and
directing such accountants to comply with any reasonable request of
the Agent, any Lender or the Issuing Bank for such information.
(xvii) Evidence of insurance naming the Agent as insured and
loss payee with such responsible and reputable insurance companies or
associations, and in such amounts and covering such risks, as is
satisfactory to the Lenders and the Issuing Bank.
(xviii) Certified copies of any Material Contracts of the
Borrower and its Subsidiaries.
<PAGE>
53
(xix) A Borrowing Base Certificate.
(xx) A favorable opinion of Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel, counsel for the Borrower, in substantially the form
of Exhibit I hereto and as to such other matters as any Lender or the
Issuing Bank through the Agent may reasonably request.
(xxi) A favorable opinion of Shearman & Sterling, counsel for
the Agent, in form and substance satisfactory to the Agent.
SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance.
---------------------------------------------------
The obligation of each Appropriate Lender to make an Advance (other than a
Letter of Credit Advance) on the occasion of each Borrowing (including the
initial Borrowing), and the right of the Borrower to request the issuance of
Letters of Credit, shall be subject to the further conditions precedent that on
the date of such Borrowing or issuance (a) the following statements shall be
true (and each of the giving of the applicable Notice of Borrowing, or Notice of
Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or
of such Letter of Credit shall constitute a representation and warranty by the
Borrower that both on the date of such notice and on the date of such Borrowing
or issuance such statements are true):
(i) the representations and warranties contained in each Loan Document
are correct on and as of such date, before and after giving effect to such
Borrowing or issuance and to the application of the proceeds therefrom, as
though made on and as of such date;
(ii) no event has occurred and is continuing, or would result from
such Borrowing or issuance or from the application of the proceeds
therefrom, that constitutes a Default; and
(iii) for each Working Capital Advance or issuance of any Letter of
Credit, the aggregate Loan Value of the Eligible Inventory exceeds the
aggregate principal amount of the Working Capital Advances to be
outstanding plus the Letter of Credit Advances outstanding plus the
---- ----
aggregate of the Available Amounts under each Letter of Credit to be
outstanding, after giving effect to such Advance or issuance, respectively;
and (b) the Agent shall have received such other approvals, opinions or
documents as any Appropriate Lender or the Issuing Bank, in each case through
the Agent, may reasonably request.
<PAGE>
54
SECTION 3.03. Determinations Under Section 3.01. For purposes of
---------------------------------
determining compliance with the conditions specified in Section 3.01, each
Lender and the Issuing Bank shall be deemed to have consented to, approved or
accepted or to be satisfied with each document or other matter required
thereunder to be consented to or approved by or acceptable or satisfactory to
the Lenders and the Issuing Bank unless an officer of the Agent responsible for
the transactions contemplated by the Loan Documents shall have received notice
from such Lender or the Issuing Bank prior to the initial Borrowing or issuance
specifying its objection thereto and in the case of the initial Borrowing, such
Lender shall not have made available to the Agent such Lender's ratable portion
of such Borrowing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The
----------------------------------------------
Borrower represents and warrants as follows:
(a) Except as set forth on Schedule II, each Loan Party (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, (ii) is duly qualified and
in good standing as a foreign corporation in each other jurisdiction in
which it owns or leases property or in which the conduct of its business
requires it to so qualify or be licensed and (iii) has all requisite
corporate power and authority to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted. All of the outstanding capital stock of the Loan Parties has
been validly issued, is fully paid and non-assessable and is owned by the
Persons and in the amounts specified on Schedule II free and clear of all
Liens, except those created under the Collateral Documents or as shown on
Schedule II.
(b) Set forth on Schedule III hereto is a complete and accurate list
of all Subsidiaries of each Loan Party, showing as of the date hereof (as
to each such Subsidiary) the jurisdiction of its incorporation, the number
of shares of each class of capital stock authorized, and the number
outstanding, on the date hereof and the percentage of the outstanding
shares of each such class owned (directly or indirectly) by such Loan Party
and the number of shares covered by all outstanding options, warrants,
rights of conversion or purchase and similar rights at the date hereof.
All of the outstanding capital stock of all of such Subsidiaries has been
validly issued, is fully paid and non-assessable and is owned by such Loan
Party or one or more of its Subsidiaries free and clear of all Liens,
except those created by the Collateral Documents. Each such Subsidiary (i)
is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, (ii) is duly
<PAGE>
55
qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the conduct of
its business requires it to so qualify or be licensed and (iii) has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to
be conducted.
(c) The execution, delivery and performance by each Loan Party of this
Agreement, the Notes, each other Loan Document and each Related Document to
which it is or is to be a party, and the consummation of the Reorganization
and the other transactions contemplated hereby, are within such Loan
Party's corporate powers, have been duly authorized by all necessary
corporate action, and do not (i) contravene such Loan Party's charter or
by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934 and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award, (iii) conflict with or result
in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting any Loan Party, any of its Subsidiaries or any of
their properties or (iv) except for the Liens created under the Collateral
Documents, result in or require the creation or imposition of any Lien upon
or with respect to any of the properties of any Loan Party or any of its
Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of
any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument, the
violation or breach of which could reasonably be expected to have a
Material Adverse Effect.
(d) Except for (A) filing of the UCC-1 financing statements delivered
to the Agent on the date hereof and (B) filing the Trademark and Copyright
Security Agreement with the United States Copyright Office, no
authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body or any other third
party is required for (i) the due execution, delivery, recordation, filing
or performance by any Loan Party of this Agreement, the Notes, any other
Loan Document or any Related Document to which it is or is to be a party,
or for the consummation of the Reorganization or the other transactions
contemplated hereby, (ii) the grant by any Loan Party of the Liens granted
by it pursuant to the Collateral Documents, (iii) the perfection or
maintenance of the Liens created by the Collateral Documents (including the
first priority nature thereof) or (iv) the exercise by the Agent, any
Lender or the Issuing Bank of its rights under the Loan Documents or the
remedies in respect of the Collateral pursuant to the Collateral Documents.
All applicable waiting periods in connection with the Reorganization and
<PAGE>
56
the other transactions contemplated hereby have expired without any action
having been taken by any competent authority restraining, preventing or
imposing materially adverse conditions upon the Reorganization or the
rights of the Loan Parties or its Subsidiaries freely to transfer or
otherwise dispose of, or to create any Lien on, any properties now owned or
hereafter acquired by any of them. No consent is necessary under the Plan
of Reorganization and the Disclosure Statement concerning the terms and the
description of the Subordinated Debt and capital stock to be issued
pursuant to the Plan of Reorganization other than the consents listed on
Schedule X, which have been obtained and are in full force and effect.
(e) This Agreement has been, and each of the Notes, each other Loan
Document and each Related Document when delivered hereunder will have been,
duly executed and delivered by each Loan Party thereto. This Agreement is,
and each of the Notes, each other Loan Document and each Related Document
when delivered hereunder will be, the legal, valid and binding obligation
of each Loan Party thereto, enforceable against such Loan Party in
accordance with its terms.
(f) The pro forma Consolidated and consolidating balance sheets of the
Loan Parties and their Subsidiaries as at December 28, 1991, January 2,
1993 and January 1, 1994, and the related pro forma Consolidated and
Consolidating statements of income of the Loan Parties and their
Subsidiaries for the fiscal years then ended and the related pro forma
Consolidated and Consolidating statements of cash flows of the Loan Parties
and their Subsidiaries for the fiscal years ended January 2, 1993 and
January 1, 1994, and the unaudited Consolidated and Consolidating balance
sheets of the Loan Parties and its Subsidiaries as at October 1, 1994, and
the related unaudited Consolidated and consolidating statements of income
and cash flows of the Loan Parties and its Subsidiaries for the 39 weeks
then ended, duly certified by the chief financial officer of each Loan
Party, copies of which have been furnished to each Lender and the Issuing
Bank, fairly present, subject, in the case of said balance sheets as at
October 1, 1994, and said statements of income and cash flows for the 39
weeks then ended, to year-end audit adjustments, the Consolidated and
Consolidating financial condition of the Loan Parties and its Subsidiaries
as at such dates and the Consolidated and Consolidating results of the
operations of the Loan Parties and its Subsidiaries for the periods ended
on such dates, all in accordance with generally accepted accounting
principles applied on a consistent basis, and since January 1, 1994, there
has been no Material Adverse Change.
(g) The Consolidated and consolidating forecasted balance sheets,
income statements and cash flow statements of the Borrower and its
Subsidiaries delivered to the Lenders and the Issuing Bank pursuant to
Section 3.01(l)(xiv) or 5.03 were prepared in good faith on the basis of
the assumptions stated therein, which assumptions were fair in the light of
conditions existing at the time of delivery of such
<PAGE>
57
forecasts, and represented, at the time of delivery, the Borrower's best
estimate of their future financial performance.
(h) No information, exhibit or report furnished by any Loan Party or
the Agent, any Lender or the Issuing Bank in connection with the
negotiation of the Loan Documents or pursuant to the terms of the Loan
Documents contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements made therein not
misleading.
(i) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries, including any
Environmental Action, pending or threatened before any court, governmental
agency or arbitrator that (i) could reasonably be expected to have a
Material Adverse Effect or (ii) purports to affect the legality, validity
or enforceability of the Reorganization, this Agreement, any Note, any
other Loan Document or any Related Document or the consummation of the
transactions contemplated hereby.
(j) No proceeds of any Advance will be used to acquire any equity
security of a class that is registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
(k) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying Margin Stock, and no proceeds of
any Advance will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin
Stock.
(l) Set forth on Schedule IV hereto is a complete and accurate list of
all Plans, Multiemployer Plans and Welfare Plans with respect to any
employees of any Loan Party or any of its Subsidiaries.
(m) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan of any Loan Party or any of its ERISA Affiliates
that has resulted or could reasonably be expected to result in a material
liability of any Loan Party or any of its ERISA Affiliates.
(n) Schedule B (Actuarial Information) to the most recently completed
annual report (Form 5500 Series) for each Plan of any Loan Party or any of
its ERISA Affiliates, copies of which have been filed with the Internal
Revenue Service and furnished to the Lenders, is complete and accurate and
fairly presents the funding status of such Plan, and since the date of such
Schedule B there has been no material adverse change in such funding
status.
<PAGE>
58
(o) Neither any Loan Party nor any of its ERISA Affiliates has
incurred or is reasonably expected to incur any material Withdrawal
Liability to any Multiemployer Plan.
(p) Neither any Loan Party nor any of its ERISA Affiliates has been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
has been terminated, within the meaning of Title IV of ERISA, which
reorganization or termination could reasonably be expected to result in a
material liability of any Loan Party or any of its ERISA Affiliates and no
such Multiemployer Plan is reasonably expected to be in reorganization or
to be terminated, within the meaning of Title IV of ERISA which
reorganization or termination could reasonably be expected to result in a
material liability of any Loan Party or any of its ERISA Affiliates.
(q) Except as set forth in the financial statements referred to in
Section 5.03, the Borrower and its Subsidiaries have no material liability
with respect to "expected post retirement benefit obligations" within the
meaning of Statement of Financial Accounting Standards No. 106.
(r) Neither the business nor the properties of any Loan Party or any
of its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that could reasonably be expected to have a Material Adverse
Effect.
(s) The operations and properties of each Loan Party and each of its
Subsidiaries comply in all material respects with all Environmental Laws,
all necessary Environmental Permits have been obtained and are in effect
for the operations and properties of each Loan Party and its Subsidiaries,
each Loan Party and its Subsidiaries are in compliance in all material
respects with all such Environmental Permits, and no circumstances exist
that could (i) form the basis of an Environmental Action against any Loan
Party or any of its Subsidiaries or any of their properties that could
reasonably be expected to have a Material Adverse Effect or (ii) cause any
such property to be subject to any restrictions on ownership, occupancy,
use or transferability under any Environmental Law that could reasonably be
expected to have a Material Adverse Effect.
(t) None of the properties currently or formerly owned or operated by
any Loan Party or any of its Subsidiaries is listed or proposed for listing
on the NPL or on the CERCLIS or any analogous foreign, state or local list,
and to the best knowledge of each Loan Party and its Subsidiaries no
underground storage tanks, as such term is defined in 42 U.S.C.(S) 6991,
are located on any property currently or
<PAGE>
59
formerly owned or operated by any Loan Party or any of its Subsidiaries and
to the best knowledge of each Loan Party and its Subsidiaries Hazardous
Materials have not been released or disposed of on any property currently
or formerly owned or operated by any Loan Party or any of its Subsidiaries.
(u) Neither any Loan Party nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Materials to any
location that is listed or proposed for listing on the NPL or on the
CERCLIS or any analogous foreign, state or local list, and all Hazardous
Materials generated, used, treated, handled or stored at, or transported to
or from, any property currently or formerly owned or operated by any Loan
Party or any of its Subsidiaries, during the period in which it owned or
operated such property, have been disposed of in a manner not reasonably
expected to result in material liability to any Loan Party or any of its
Subsidiaries.
(v) Neither any Loan Party nor any of its Subsidiaries is a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction that could
reasonably be expected to have a Material Adverse Effect.
(w) Each Loan Party and each of its Subsidiaries has filed, has caused
to be filed or has been included in all tax returns (Federal, state, local
and foreign) required to be filed and has paid all taxes shown thereon to
be due, together with applicable interest and penalties except as set forth
on Schedule XI.
(x) Set forth on Schedule V hereto is a complete and accurate list, as
of the date hereof, of each taxable year of the Loan Parties for which
Federal income tax returns have been filed and for which the expiration of
the applicable statute of limitations for assessment or collection has not
occurred by reason of extension or otherwise (an "Open Year").
---------
(y) The aggregate unpaid amount, as of the date hereof, of adjustments
to the Federal income tax liability of the Loan Parties proposed by the
Internal Revenue Service with respect to Open Years does not exceed
$100,000. No issues have been raised by the Internal Revenue Service in
respect of Open Years that, in the aggregate, could reasonably be expect to
have a Material Adverse Effect.
(z) The aggregate unpaid amount, as of the date hereof, of adjustments
to the state, local and foreign tax liability of the Loan Parties and its
Subsidiaries proposed by all state, local and foreign taxing authorities
(other than amounts arising from adjustments to Federal income tax returns)
does not exceed $80,000. No issues
<PAGE>
60
have been raised by such taxing authorities that, in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(aa) The Reorganization will not be taxable to any Loan Party or any
of its Subsidiaries or Affiliates.
(bb) No "ownership change" as defined in Section 382(g) of the
Internal Revenue Code, and no event that would result in the application of
the "separate return limitation year" or "consolidated return change of
ownership" limitations under the Federal income tax consolidated return
regulations, has occurred with respect to any Loan Party. The Loan Parties
and its Subsidiaries have, as of the date hereof, net operating loss
carryforwards for U.S. Federal income tax purposes equal in the aggregate
to at least $10,000,000.
(cc) Neither any Loan Party nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended. Neither the
making of any Advances, nor the issuance of any Letters of Credit, nor the
application of the proceeds or repayment thereof by the Borrower, nor the
consummation of the other transactions contemplated hereby, will violate
any provision of such Act or any rule, regulation or order of the
Securities and Exchange Commission thereunder.
(dd) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(ee) Set forth on Schedule VI hereto is a complete and accurate list
of all leases of real property under which any Loan Party or any of its
Subsidiaries is the lessee, showing as of the date hereof the street
address, county or other relevant jurisdiction, state, lessor, lessee,
expiration date and annual rental cost thereof. Each such lease is the
legal, valid and binding obligation of the lessor thereof, enforceable in
accordance with its terms.
(ff) Set forth on Schedule VII hereto is a complete and accurate list
of all Material Contracts of each Loan Party and its Subsidiaries, showing
as of the date hereof the parties, subject matter and term thereof. Each
such Material Contract has been duly authorized, executed and delivered by
all parties thereto, has not been amended or otherwise modified, is in full
force and effect and is binding upon and enforceable against all parties
thereto in accordance with its terms, and there exists no default under any
Material Contract by any party thereto.
<PAGE>
61
(gg) Set forth on Schedule VIII hereto is a complete and accurate list
of all Investments held by any Loan Party or any of its Subsidiaries,
showing as of the date hereof the amount, obligor or issuer and maturity,
if any, thereof.
(hh) Set forth on Schedule IX hereto is a complete and accurate list
of all patents, trademarks, trade names, service marks and copyrights, and
all applications therefor and licenses thereof, of each Loan Party or any
of its Subsidiaries, showing as of the date hereof the jurisdiction in
which registered, the registration number, the date of registration and the
expiration date.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall
---------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender or the
Issuing Bank shall have any Commitment hereunder, the Borrower will:
(a) Compliance with Laws, Etc. Comply, and cause each of its
-------------------------
Subsidiaries to comply, with all applicable laws, rules, regulations and
orders, such compliance to include, without limitation, compliance with
ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the
Organized Crime Control Act of 1970, except where the failure to so comply
would not have a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
---------------------
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided, however, that neither the
-------- -------
Borrower nor any of its Subsidiaries shall be required to pay or discharge
any such tax, assessment, charge or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(c) Compliance with Environmental Laws. Comply, and cause each of its
----------------------------------
Subsidiaries and all lessees and other Persons operating or occupying its
properties to comply, with all applicable Environmental Laws and
Environmental Permits, except where the failure to so comply would not have
a Material Adverse Effect; obtain and renew and cause each of its
Subsidiaries to obtain and renew all Environmental Permits necessary for
its operations and properties; and conduct, and cause each of its
<PAGE>
62
Subsidiaries to conduct, any investigation, study, sampling and testing,
and undertake any cleanup, removal, remedial or other action necessary to
remove and clean up all Hazardous Materials from any of its properties, in
accordance with the requirements of all Environmental Laws; provided,
--------
however, that neither the Borrower nor any of its Subsidiaries shall be
-------
required to undertake any such cleanup, removal, remedial or other action
to the extent that its obligation to do so is being contested in good faith
and by proper proceedings and appropriate reserves are being maintained
with respect to such circumstances.
(d) Maintenance of Insurance. Maintain, and cause each of its
------------------------
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks
as is usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Subsidiary operates.
(e) Preservation of Corporate Existence, Etc. Preserve and maintain,
----------------------------------------
and cause each of its Subsidiaries to preserve and maintain, its corporate
existence, rights (charter and statutory) and franchises except as
permitted pursuant to Section 5.02(d).
(f) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit the Agent, any of the Lenders or the Issuing Bank or any agents or
representatives thereof, to examine and make copies of and abstracts from
the records and books of account of, and visit the properties of, the
Borrower and any of its Subsidiaries, and to discuss the affairs, finances
and accounts of the Borrower and any of its Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(g) Preparation of Environmental Reports. At the request of the
------------------------------------
Agent, if at any time the Agent reasonably believes that a material risk
exists that the Borrower or any of its Subsidiaries is not in substantial
compliance with Environmental Laws, from time to time, provide to the
Lenders and the Issuing Bank within 60 days after such request, at the
expense of the Borrower, an environmental site assessment report, conducted
in accordance with current ASTM standards, for its or such Subsidiary's
property, as the case may be, prepared by an environmental consulting firm
acceptable to the Agent, indicating the presence or absence of Hazardous
Materials and the estimated cost of any compliance, removal or remedial
action in connection with any Hazardous Materials on such properties;
without limiting the generality of the foregoing, if the Agent determines
at any time that a material risk exists that any such report will not be
provided within the time referred to above, the Agent may retain an
environmental consulting firm to prepare such report at the reasonable
expense of the Borrower, and the Borrower hereby grants to the Agent, the
Lenders, the Issuing Bank, such firm and any agents or representatives
thereof an
<PAGE>
63
irrevocable non-exclusive license, subject to the rights of tenants, to
enter onto its properties to undertake such an assessment.
(h) Keeping of Books. Keep, and cause each of its Subsidiaries to
----------------
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Borrower and each such Subsidiary in accordance with GAAP.
(i) Maintenance of Properties, Etc. Maintain and preserve, and cause
------------------------------
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
(j) Compliance with Terms of Leaseholds. Make all payments and
-----------------------------------
otherwise perform all obligations in respect of all leases of real
property, keep such leases in full force and effect and not allow such
leases to lapse or be terminated or any rights to renew such leases to be
forfeited or cancelled (in each case without first obtaining a replacement
on comparable terms), notify the Agent of any default by any party with
respect to such leases and cooperate with the Agent in all respects to cure
any such default, and cause each of its Subsidiaries to do so.
(k) Performance of Related Documents. Perform and observe all of the
--------------------------------
terms and provisions of each Related Document to be performed or observed
by it, maintain each such Related Document in full force and effect,
enforce such Related Document in accordance with its terms, take all such
action to such end as may be from time to time requested by the Agent and,
upon request of the Agent, make to each other party to each such Related
Document such demands and requests for information and reports or for
action as the Borrower is entitled to make under such Related Document.
(l) Performance of Material Contracts. Perform and observe all the
---------------------------------
terms and provisions of each Material Contract to be performed or observed
by it, maintain each such Material Contract in full force and effect,
enforce each such Material Contract in accordance with its terms, take all
such action to such end as may be from time to time requested by the Agent
and, upon request of the Agent, make to each other party to each such
Material Contract such demands and requests for information and reports or
for action as the Borrower is entitled to make under such Material
Contract, and cause each of its Subsidiaries to do so.
(m) Transactions with Affiliates. Conduct, and cause each of its
----------------------------
Subsidiaries to conduct, all transactions otherwise permitted under the
Loan Documents with any of their Affiliates on terms that are fair and
reasonable and no
<PAGE>
64
less favorable to the Borrower or such Subsidiary than it would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
(n) Covenant to Give Security. Upon the request of the Agent
-------------------------
following the occurrence and during the continuance of a Default, and at
the expense of the Borrower, (i) within 10 days after such request, furnish
to the Agent a description of the real and personal properties of the
Borrower and its Subsidiaries in detail satisfactory to the Agent, (ii)
within 15 days after such request, duly execute and deliver to the Agent
mortgages, pledges, assignments and other security agreements, as specified
by and in form and substance satisfactory to the Agent, securing payment of
all the Obligations of the Borrower under the Loan Documents and
constituting Liens on all such properties, (iii) within 30 days after such
request, take whatever action (including, without limitation, the recording
of mortgages, the filing of Uniform Commercial Code financing statements,
the giving of notices and the endorsement of notices on title documents)
may be necessary or advisable in the opinion of the Agent to vest in the
Agent (or in any representative of the Agent designated by it) valid and
subsisting Liens on the properties purported to be subject to the security
agreements delivered pursuant to this Section 5.01(n), enforceable against
all third parties in accordance with their terms, (iv) within 60 days after
such request, deliver to the Agent a signed copy of a favorable opinion,
addressed to the Agent, of counsel for the Borrower acceptable to the Agent
as to the matters contained in clauses (i), (ii) and (iii) above, as to
such security agreements being legal, valid and binding obligations of the
Borrower and its Subsidiaries enforceable in accordance with their terms
and as to such other matters as the Agent may reasonably request and (v) at
any time and from time to time, promptly execute and deliver any and all
further instruments and documents and take all such other action as the
Agent may deem desirable in obtaining the full benefits of, or in
preserving the Liens of, such security agreements.
(o) Interest Rate Hedging. Enter into within 60 days following the
---------------------
date hereof, interest rate Hedge Agreements with Persons and on terms
acceptable to the Agent.
SECTION 5.02. Negative Covenants. So long as any Advance shall
------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender or
Issuing Bank shall have any Commitment hereunder, the Borrower will not, at any
time:
(a) Liens, Etc. Create, incur, assume or suffer to exist, or permit
----------
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties of any character
(including, without limitation, accounts) whether now owned or hereafter
acquired, or sign or file, or permit any of its Subsidiaries to sign or
file, under the Uniform Commercial Code of any jurisdiction,
<PAGE>
65
a financing statement that names the Borrower or any of its Subsidiaries as
debtor, or sign, or permit any of its Subsidiaries to sign, any security
agreement authorizing any secured party thereunder to file such financing
statement, or assign, or permit any of its Subsidiaries to assign, any
accounts or other right to receive income, excluding, however, from the
--------- -------
operation of the foregoing restrictions the following:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens;
(iii) purchase money Liens upon or in equipment acquired or held
by the Borrower or any of its Subsidiaries in the ordinary course of
business to secure the purchase price of such property or to secure
Debt incurred solely for the purpose of financing the acquisition of
any such property to be subject to such Liens, or Liens existing on
any such property at the time of acquisition, or extensions, renewals
or replacements of any of the foregoing for the same or a lesser
amount; provided, however, that no such Lien shall extend to or cover
-------- -------
any property other than the property being acquired, and no such
extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended, renewed
or replaced; and provided further that the aggregate principal amount
-------- -------
of the Debt secured by Liens permitted by this clause (iii) shall not
exceed $50,000 at any time outstanding and that any such Debt shall
not otherwise be prohibited by the terms of the Loan Documents;
(iv) Liens arising in connection with Capitalized Leases; and
(v) the replacement, extension or renewal of any Lien permitted
by clauses (iii) and (iv) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
(b) Debt. Create, incur, assume or suffer to exist, or permit any of
----
its Subsidiaries to create, incur, assume or suffer to exist, any Debt
other than:
(i) in the case of the Borrower,
(A) Debt under the Loan Documents,
<PAGE>
66
(B) if the Merger occurs, Subordinated Debt evidenced by the
Subordinated Notes and the Redeemable Preferred Stock of the
Borrower,
(C) Debt in respect of Hedge Agreements required to be
maintained under Section 5.01(o) with one or more Hedge Banks,
and
(D) Debt consisting of loans to the Borrower from Western
evidenced by the Wigs Note; and
(ii) in the case of the Borrower and any of its Subsidiaries,
(A) Debt secured by Liens permitted by Section 5.02(a)(iii)
not to exceed in the aggregate the amount set forth in such
Section,
(B) unsecured Debt incurred in the ordinary course of
business for the deferred purchase price of property or services,
maturing within one year from the date created, and aggregating,
on a Consolidated basis, not more than $100,000 at any one time
outstanding,
(C) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business, and
(D) Capitalized Leases in an aggregate amount not to exceed
$250,000 in the aggregate at any one time outstanding.
(c) Lease Obligations. Create, incur, assume or suffer to exist, or
-----------------
permit any of its Subsidiaries to create, incur, assume or suffer to exist,
any obligations as lessee for the rental or hire of real or personal
property of any kind under leases or agreements to lease including
Capitalized Leases having an original term of one year or more that would
cause the anticipated or actual lease payments (excluding operating and
maintenance payments) of the Borrower and its Subsidiaries, on a
Consolidated basis, in respect of all such leases and agreements to exceed
$725,000 payable in any period of 12 consecutive months.
(d) Mergers, Etc. Merge into or consolidate with any Person or permit
------------
any Person to merge into it, or permit any of its Subsidiaries to do so,
except that (i) any Subsidiary of the Borrower may merge into or
consolidate with any other Subsidiary of the Borrower provided that, in the
case of any such consolidation, the Person formed by such consolidation
shall be a Subsidiary of the Borrower and (ii) Wigs may merge into SC
Corporation; provided, however, that immediately after
-------- -------
<PAGE>
67
giving effect thereto, no event shall occur and be continuing that
constitutes a Default and SC Corporation shall, at the effective time of
such merger or consolidation, (A) assume Wigs' Obligations on the Notes and
Wigs' Obligations and performance of Wigs' covenants under the Loan
Documents to which it is or is to be a party in a writing satisfactory in
form and substance to the Required Lenders and (B) take or have taken all
action required by Section 9 (relating to further assurances) of the
Security Agreement, and take or have taken such other action as may be
necessary or desirable, or as the Agent may request, in order to preserve
the Liens, and continue the perfection thereof with the same priority, as
granted and provided for or purported to be granted and provided for by the
Security Agreement, and in addition to the foregoing, Wigs and SC
Corporation shall take all such action in connection therewith and enter
into or provide all such documentation, including opinions of counsel, as
the Agent may request, in each case in form and substance satisfactory to
the Agent.
(e) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose
---------------------
of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise
dispose of, any assets, or grant any option or other right to purchase,
lease or otherwise acquire any Collateral (other than Inventory to be sold
in the ordinary course of its business), except (i) sales of Inventory in
the ordinary course of its business, (ii) sales of assets for cash and for
fair value in an aggregate amount not to exceed $50,000 in any year, (iii)
dispositions for cash and fair value of obsolete equipment and of excess or
worn out equipment (e.g., equipment that is no longer used in the conduct
of the Borrower's or such Subsidiary's business).
(f) Investments in Other Persons. Make or hold, or permit any of its
----------------------------
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments not to exceed $100,000 in the aggregate by the
Borrower in connection with the repurchase of its distribution and
licensing rights in Canada;
(ii) Investments in the Payroll Accounts, provided such funds are
used only to pay employees' salaries and bonuses in the ordinary
course of business;
(iii) Investments consisting of advances to employees for travel
and entertainment expenses not to exceed $25,000 in the aggregate at
any time;
(iv) If the Merger occurs, an Investment consisting of a loan to
Wigs, L.P. in an amount not to exceed $150,000;
<PAGE>
68
(v) Investments consisting of guarantees of Debt of the Borrower
and its Subsidiaries permitted under Section 5.02(b);
(vi) Investments existing on the date hereof listed on Schedule
VIII;
(vii) (A) Investments by the Borrower and its Subsidiaries in
Cash Equivalents in Blocked Accounts and (B) Investments in Hedge
Agreements required to be maintained under Section 5.01(o);
(viii) Upon and after delivering an opinion of Kramer, Levin,
Naftalis, Nessen, Kumin & Frankel, counsel to the Borrower, in
substantially the form of Exhibit I and including Royal as a "Loan
Party" therein Investments in Royal solely to pay expenses incurred by
Royal for the benefit of the Borrower;
(ix) Investments in other Loan Parties solely to pay franchise
taxes not to exceed $20,000 in the aggregate in any fiscal year; and
(x) Investments consisting of loans to SC Corporation or, if the
Merger occurs, Newco(s), of the proceeds of any key man life insurance
solely for the purpose of funding the exercise of the put and call
provisions of the Employment Agreements.
(g) Dividends, Etc. Declare or pay any dividends, purchase, redeem,
--------------
retire, defease or otherwise acquire for value any of its capital stock or
any warrants, rights or options to acquire such capital stock, now or
hereafter outstanding, return any capital to its stockholders as such, make
any distribution of assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders as such or issue or sell any
capital stock or any warrants, rights or options to acquire such capital
stock, or permit any of its Subsidiaries to purchase, redeem, retire,
defease or otherwise acquire for value any capital stock of the Borrower or
any warrants, rights or options to acquire such capital stock or to issue
or sell any capital stock or any warrants, rights or options to acquire
such capital stock, except that, so long as no Default shall have occurred
and be continuing, (i) the Borrower may declare and pay dividends and
distributions payable only in capital stock of the Borrower, (ii) any
wholly owned Subsidiary of the Borrower may declare and pay dividends or
distributions in cash to the Borrower or to another wholly owned Subsidiary
of the Borrower that is a Guarantor and (iii) the Borrower and its
Subsidiaries may declare and pay dividends and distributions in cash (A) to
pay franchise taxes of other Loan Parties in an amount not to exceed
$20,000 in the aggregate in any fiscal year and (B) to SC Corporation or,
if the Merger occurs, to Newco(s), consisting of the proceeds
<PAGE>
69
of any key man life insurance solely for the purpose of funding the
exercise of the put and call provisions of the Employment Agreements.
(h) Change in Nature of Business. Make, or permit any of its
----------------------------
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof.
(i) Charter Amendments. Amend, or permit any of its Subsidiaries to
------------------
amend, its certificate of incorporation or bylaws if such amendment could
adversely affect the interest or rights of the Agent, the Issuing Bank or
the Lenders in any manner.
(j) Accounting Changes. Make or permit, or permit any of its
------------------
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required by generally accepted accounting
principles.
(k) Prepayments, Etc. of Debt. Prepay, redeem, purchase, defease or
-------------------------
otherwise satisfy prior to the scheduled maturity thereof in any manner, or
make any payment in violation of any subordination terms of, any Debt,
other than the prepayment of the Advances in accordance with the terms of
this Agreement, any prepayment of the Wigs Note in accordance with the
terms thereof and prepayment of Funded Debt incurred to finance Capital
Expenditures, or amend, modify or change in any manner any term or
condition of any Subordinated Debt, or permit any of its Subsidiaries to do
any of the foregoing other than to prepay any Debt payable to the Borrower
or to prepay any Funded Debt incurred to finance Capital Expenditures.
(l) Amendment, Etc. of Related Documents. Enter into any Tax Sharing
------------------------------------
Agreement that is not in form and substance satisfactory to the Agent, or
cancel or terminate any Related Document or consent to or accept any
cancellation or termination thereof, amend, modify or change in any manner
any term or condition of any Related Document or give any consent, waiver
or approval thereunder, waive any default under or any breach of any term
or condition of any Related Document, agree in any manner to any other
amendment, modification or change of any term or condition of any Related
Document or take any other action in connection with any Related Document
that would impair the value of the interest or rights of the Borrower
thereunder or that would impair the rights or interests of the Agent, any
Lender or the Issuing Bank, or permit any of its Subsidiaries to do any of
the foregoing.
(m) Amendment, Etc. of Material Contracts. Cancel or terminate any
-------------------------------------
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any
consent, waiver or
<PAGE>
70
approval thereunder, waive any default under or breach of any Material
Contract, agree in any manner to any other amendment, modification or
change of any term or condition of any Material Contract or take any other
action in connection with any Material Contract that would impair the value
of the interest or rights of the Borrower thereunder or that would impair
the interest or rights of the Agent, any Lender or the Issuing Bank, or
amend Section 13 of the Employment Agreements, or permit any of its
Subsidiaries to do any of the foregoing.
(n) Ownership Change. Take, or permit any of its Subsidiaries to
----------------
take, any action that would result in an "ownership change" (as defined in
Section 382 of the Internal Revenue Code) with respect to the Borrower or
any of its Subsidiaries or the application of the "separate return
limitation year" or "consolidated return change of ownership" limitations
under the Federal income tax consolidated return regulations with respect
to the Borrower or any of its Subsidiaries.
(o) Negative Pledge. Enter into or suffer to exist, or permit any of
---------------
its Subsidiaries to enter into or suffer to exist any agreement prohibiting
or conditioning the creation or assumption of any Lien upon any of its
property or assets other than (i) in favor of the Agent and the Lenders or
(ii) pursuant to Capitalized Leases or other purchase money Debt agreements
otherwise permitted under this Agreement that prohibit the creation or
assumption of any Lien upon the property or assets that are the subject
thereof.
(p) Partnerships. Become a general partner in any general or limited
------------
partnership, or permit any of its Subsidiaries to do so.
SECTION 5.03. Reporting Requirements. So long as any Advance
----------------------
shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender or the Issuing Bank shall have any Commitment hereunder, the
Borrower will furnish to the Lenders and the Issuing Bank:
(a) Default Notice. As soon as possible and in any event within two
--------------
Business Days after any of the management of the Borrower becomes aware of
the occurrence of each Default continuing on the date of such statement, a
statement of the chief financial officer of the Borrower setting forth
details of such Default and the action that the Borrower has taken and
proposes to take with respect thereto.
(b) Monthly Financials. As soon as available and in any event within
------------------
45 days after the end of October 1994 and within 30 days after the end of
each subsequent month, Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such month and Consolidated
and consolidating statements of income and cash flows of the Borrower and
its Subsidiaries for the
<PAGE>
71
period commencing at the end of the previous month and ending with the end
of such month, and commencing at the end of the previous fiscal year and
ending with the end of such month, setting forth in each case in
comparative form the corresponding figures for (i) the corresponding month
and year-to-date period of the preceding fiscal year and (ii) the
corresponding month and year-to-date period of the most recent annual
forecast delivered pursuant to Section 5.03(e), all in reasonable detail
and duly certified by the chief financial officer of the applicable
Borrower, together with a schedule in form satisfactory to the Agent of the
computations used by the Borrower in determining compliance with the
covenants contained in Sections 5.02 and 5.04.
(c) Quarterly Financials. As soon as available and in any event
--------------------
within 45 days after the end of each of the first three quarters of each
fiscal year of the Borrower, Consolidated and consolidating balance sheets
of the Borrower and its Subsidiaries as of the end of such quarter and
Consolidated and consolidating statements of income and cash flows of the
Borrower and its Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, and
commencing at the end of the previous fiscal quarter and ending with the
end of such quarter, setting forth in each case in comparative form the
corresponding figures for (i) the corresponding quarter and year-to-date
period of the preceding fiscal year and (ii) the corresponding quarter and
year-to-date period of the most recent annual forecast delivered pursuant
to Section 5.03(e), all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief financial officer of the Borrower
as having been prepared in accordance with GAAP, together with (i) a
certificate of said officer stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a statement as
to the nature thereof and the action that the Borrower has taken and
proposes to take with respect thereto and (ii) a schedule in form
satisfactory to the Agent of the computations used by the Borrower in
determining compliance with the covenants contained in Sections 5.02 and
5.04.
(d) Annual Financials. As soon as available and in any event within
-----------------
120 days after the end of each fiscal year of the Borrower, a copy of the
annual audit report for such year for the Borrower and its Subsidiaries,
including therein Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such fiscal year and
Consolidated and consolidating statements of income and cash flows of the
Borrower and its Subsidiaries for such fiscal year, in each case
accompanied by an independent auditor's report reasonably acceptable to the
Required Lenders of Deloitte & Touche or other independent public
accountants of recognized standing acceptable to the Required Lenders,
together with (i) a certificate of such accounting firm to the Lenders
stating that in the course of the regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted by such accounting
firm in accordance with generally accepted auditing standards, nothing has
come to the attention of such accounting firm that has caused
<PAGE>
72
them to believe that the Borrower and its Subsidiaries are not in
compliance with the covenants contained in Section 5.04, (ii) a schedule in
form satisfactory to the Agent of the computations used by such accountants
in determining, as of the end of such fiscal year, compliance with the
covenants contained in Sections 5.04 and (iii) a certificate of the chief
financial officer of the Borrower stating that no Default has occurred and
is continuing or, if a default has occurred and is continuing, a statement
as to the nature thereof and the action that the Borrower has taken and
proposes to take with respect thereto.
(e) Annual Forecasts. As soon as available and in any event no later
----------------
than 15 days before the end of each fiscal year of the Borrower, forecasts
prepared by management of the Borrower, in form satisfactory to the Agent,
of balance sheets, income statements and cash flow statements on a monthly
basis for the fiscal year following such fiscal year then ended and on a
quarterly basis for each fiscal year thereafter until the Termination Date.
(f) ERISA Events. Promptly and in any event within 10 days after any
------------
Loan Party or any of its ERISA Affiliates knows or has reason to know that
any ERISA Event with respect to any Loan Party or any of its ERISA
Affiliates has occurred, a statement of the chief financial officer of the
applicable Borrower describing such ERISA Event and the action, if any,
that such Loan Party or such ERISA Affiliate has taken and proposes to take
with respect thereto.
(g) Plan Terminations. Promptly and in any event within two Business
-----------------
Days after receipt thereof by any Loan Party or any of its ERISA
Affiliates, copies of each notice from the PBCG stating its intention to
terminate any Plan of any Loan Party or any of its ERISA Affiliates or to
have a trustee appointed to administer any such Plan.
(h) Plan Annual Reports. Promptly and in any event within 30 days
-------------------
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
with respect to each Plan of each Loan Party or any of its ERISA
Affiliates.
(i) Multiemployer Plan Notices. Promptly and in any event within five
--------------------------
Business Days after receipt thereof by any Loan Party or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan of any Loan Party or
any of its ERISA Affiliates, copies of each notice concerning (i) the
imposition of Withdrawal Liability by any such Multiemployer Plan, (ii) the
reorganization or termination, within the meaning of Title IV of ERISA, of
any such Multiemployer Plan or (iii) the amount of liability incurred, or
that may be incurred, by such Loan Party or any of its ERISA Affiliates in
connection with any event described in clause (i) or (ii), if such
<PAGE>
73
imposition, reorganization, termination or amount could reasonably be
expected to result in a material liability of any Loan Party or any of its
ERISA Affiliates.
(j) Litigation. Promptly after the commencement thereof, notice of
----------
all actions, suits, investigations, litigation and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of
its Subsidiaries.
(k) Securities Reports. Promptly after the sending or filing thereof,
------------------
copies of all proxy statements, financial statements and reports that any
Loan Party or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all registration
statements, that any Loan Party or any of its Subsidiaries files with the
Securities and Exchange Commission or any governmental authority that may
be substituted therefor, or with any national securities exchange.
(l) Agreement Notices. Promptly upon receipt thereof, copies of all
-----------------
notices, requests and other documents received by any Loan Party or any of
its Subsidiaries under or pursuant to any Related Document or Material
Contract and, from time to time upon request by the Agent, such information
and reports regarding the Related Documents and the Material Contracts as
the Agent may reasonably request.
(m) Revenue Agent Reports. Within 10 days after receipt, copies of
---------------------
all Revenue Agent Reports (Internal Revenue Service Form 886), or other
written proposals of the Internal Revenue Service, that propose, determine
or otherwise set forth positive adjustments to the Federal income tax
liability of the affiliated group (within the meaning of Section 1504(a)(1)
of the Internal Revenue Code) of which the Borrower is a member.
(n) Tax Certificates. Promptly, and in any event within five Business
----------------
Days after the due date (with extensions) for filing the final Federal
income tax return in respect of each taxable year, a certificate (a "Tax
---
Certificate"), signed by the President or the chief financial officer of
-----------
the Borrower, stating that the common parent of the affiliated group
(within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of
which the Borrower is a member has paid to the Internal Revenue Service or
other taxing authority, or to the Borrower, the full amount that is shown
on the return that the affiliated group is required to file in respect of
Federal income tax for such year and that the Borrower and its Subsidiaries
have received any amounts payable to them, and have not paid amounts in
respect of taxes (Federal, state, local or foreign) in excess of the amount
they are required to pay, under the Tax Sharing Agreements in respect of
such taxable year.
<PAGE>
74
(o) Environmental Conditions. Promptly after the occurrence thereof,
------------------------
notice of any condition or occurrence on any property of any Loan Party or
any of its Subsidiaries that results in a material noncompliance by any
Loan Party or any of its Subsidiaries with any Environmental Law or
Environmental Permit or could (i) form the basis of an Environmental Action
against any Loan Party or any of its Subsidiaries or such property that
could reasonably be expected to have a Material Adverse Effect or (ii)
cause any such property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law that could
reasonably be expected to have a Material Adverse Effect.
(p) Insurance. As soon as available and in any event within 30 days
---------
after the end of each Fiscal Year, a report summarizing the insurance
coverage (specifying type, amount and carrier) in effect for each Loan
Party and its Subsidiaries and containing such additional information as
any Lender or the Issuing Bank may reasonably specify. The first such
report shall include evidence satisfactory to Agent that the provisions of
Section 5.01(d) are satisfied.
(q) Borrowing Base Certificate. As soon as available and in any event
--------------------------
within 10 days after the end of each month, a Borrowing Base Certificate,
as at the end of the previous month (or the previous week, if furnished
more often than monthly), certified by the chief financial officer of the
Borrower; provided, however, that the Agent may, in its sole discretion,
-------- -------
require the Borrower to furnish a Borrowing Base Certificate to the Lenders
at any time upon notice to the Borrower.
(r) Inventory Report. As soon as available and in any event within 30
----------------
days after the end of each month, a report prepared by the chief financial
officer of the Borrower, in form and substance satisfactory to the Agent
(and, if the Agent so requests, in a form capable of being processed by the
Agent's computers), setting forth all Inventory of the Borrower and its
Subsidiaries by general category; provided, however, that if the first of
-------- -------
such reports made available to the Agent in accordance with this Section
5.03(r) is not in form and substance satisfactory to the Agent, the
Borrower shall use its best efforts to conform such report to the Agent's
requirements within 60 days of the date of the initial Borrowing.
(s) Other Information. Such other information respecting the
-----------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as any
Lender or the Issuing Bank may from time to time reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance shall
-------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender or the
Issuing Bank shall have any Commitment hereunder, the Borrower will:
<PAGE>
75
(a) Minimum Net Worth. Maintain on a Consolidated basis for the
-----------------
Borrower and its Subsidiaries a Net Worth at all times during each period
set forth below of not less than the amount set forth below for such
period:
<TABLE>
<CAPTION>
Period From Through Amount
- -------------------------------- ------------- ----------
<S> <C> <C>
The date hereof February 1995 $2,700,000
March 1995 May 1995 2,800,000
June 1995 August 1995 3,100,000
September 1995 November 1995 3,700,000
December 1995 May 1996 4,050,000
June 1996 August 1996 4,350,000
September 1996 November 1996 5,100,000
December 1996 May 1997 5,500,000
June 1997 August 1997 5,900,000
September 1997 November 1997 6,700,000
December 1997 May 1998 7,200,000
June 1998 August 1998 7,700,000
September 1998 November 1998 8,650,000
December 1998 May 1999 9,350,000
</TABLE>
(b) Leverage Ratio. Maintain on a Consolidated basis for the Borrower
--------------
and its Subsidiaries a Leverage Ratio at all times during each Rolling
Period set forth below of not more than the amount set forth below for such
Rolling Period:
<TABLE>
<CAPTION>
Rolling Periods Ending From Through Ratio
- -------------------------------- ------------- -----
<S> <C> <C>
The date hereof August 1995 3.60
September 1995 November 1995 3.15
December 1995 February 1996 2.50
March 1996 May 1996 2.40
June 1996 August 1996 2.25
September 1996 November 1996 2.10
December 1996 February 1997 1.85
March 1997 May 1997 1.70
June 1997 August 1997 1.55
September 1997 November 1997 1.40
December 1997 February 1998 1.15
March 1998 May 1999 1.00
</TABLE>
<PAGE>
76
(c) Interest Coverage Ratio. Maintain on a Consolidated basis for the
-----------------------
Borrower and its Subsidiaries an Interest Coverage Ratio for each Rolling
Period set forth below of not less than the amount set forth below for such
Rolling Period:
<TABLE>
<CAPTION>
Rolling Periods Ending From Through Ratio
- -------------------------------- ------------- -----
<S> <C> <C>
The date hereof August 1995 2.55
September 1995 November 1995 2.80
December 1995 February 1996 3.25
March 1996 May 1996 3.35
June 1996 August 1996 3.45
September 1996 November 1996 3.70
December 1996 February 1997 3.95
March 1997 May 1997 4.20
June 1997 May 1999 4.50
</TABLE>
(d) Fixed Charge Coverage Ratio. Maintain on a Consolidated basis for
---------------------------
the Borrower and its Subsidiaries a Fixed Charge Coverage Ratio for each
Rolling Period set forth below of not less than the amount set forth below
for such Rolling Period:
<TABLE>
<CAPTION>
Rolling Periods Ending From Through Ratio
- -------------------------------- ------------- -----
<S> <C> <C>
The date hereof August 1995 0.90
September 1995 November 1995 1.00
December 1995 August 1996 1.05
September 1996 August 1998 1.10
September 1998 May 1999 1.14
</TABLE>
(e) Capital Expenditures. Not make, or permit any of its Subsidiaries
--------------------
to make, any Capital Expenditures (other than one-time expenses of the
Borrower relating to the move of its principal facility not to exceed
$250,000 in the aggregate) that would cause the aggregate of all Capital
Expenditures made by the Borrower and its Subsidiaries on a Consolidated
basis in any fiscal year to exceed $400,000; provided that Capital
--------
Expenditures in an additional amount not greater than $400,000 less the
----
aggregate amount of Capital Expenditures (other than such one-time moving
expenses) made by the Borrower and its Subsidiaries on a Consolidated basis
in any fiscal year following the date hereof shall be permitted to be made
by the Borrower and its Subsidiaries on a Consolidated basis in the next
following fiscal year, but shall not be carried over into any subsequent
fiscal year.
<PAGE>
77
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
-----------------
("Events of Default") shall occur and be continuing:
- -------------------
(a) the Borrower shall fail to pay any principal of, or interest on,
any Advance, or shall fail to pay any fee under Section 2.08, in each case
when the same becomes due and payable or any Loan Party shall fail to make
any other payment under any Loan Document within 3 Business Days of when
the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 5.01(b), 5.01(g), 5.01(n), 5.01(o), 5.02,
5.03 or 5.04; or
(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 10 days after written
notice thereof shall have been given to the Borrower by the Agent, any
Lender or the Issuing Bank; or
(e) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Debt that is outstanding in a principal or notional amount of at
least $50,000 in the aggregate (but excluding Debt outstanding hereunder)
of such Loan Party or such Subsidiary (as the case may be), when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise); or any other event shall
occur or condition shall exist under any agreement or instrument relating
to any such Debt, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt or
otherwise to cause, or to permit the holder thereof to cause, such Debt to
mature; or (except for Capitalized Leases or other purchase money Debt
required to be prepaid if the assets covered thereby are sold) any such
Debt shall be declared to be due and payable or required to be prepaid or
redeemed (other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem, purchase
or defease such Debt shall be required to be made, in each case prior to
the stated maturity thereof; or
<PAGE>
78
(f) any Loan Party or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
any Loan Party or any of its Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property and, in the case of any such
proceeding instituted against it (but not by it) that is being contested
diligently and in good faith by it, either such proceeding shall remain
undismissed or unstayed for a period of 30 days or any of the relief sought
in such proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee, custodian or
other similar official for it or any substantial part of its property)
shall occur; or any Loan Party or any of its Subsidiaries shall take any
corporate action to authorize any of the actions set forth above in this
subsection (f); or
(g) any one or more judgments or orders for the payment of money that,
either individually or in the aggregate, exceed $100,000 shall be rendered
against any Loan Party or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and shall not have been stayed or (ii) there shall be any
period of 10 consecutive Business Days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(h) any non-monetary judgment or order shall be rendered against any
Loan Party or any of its Subsidiaries that could reasonably be expected to
have a Material Adverse Effect, and there shall be any period of 10
consecutive Business Days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect and shall not have been vacated or discharged; or
(i) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against any Loan Party to it, or any such Loan Party shall so
state in writing; or
(j) any Collateral Document after delivery thereof pursuant to Section
3.01 shall for any reason (other than pursuant to the terms thereof) cease
to create a valid and perfected first priority lien and security interest
on any Collateral purported to be covered thereby having an aggregate book
value in excess of $50,000 (subject to the Liens permitted under this
Agreement); or
<PAGE>
79
(k) Steven Bock and Steve O'Hara shall at any time for any reason
cease to be active in the management of the Borrower and shall not have
been replaced by another person or persons reasonably acceptable to the
Required Lenders; or
(l) Following consummation of the Signal Securities Purchase Agreement
(as defined in the Plan of Reorganization) on the date hereof, the Equity
Investors shall at any time cease to own, directly or indirectly, (i)
capital stock representing an aggregate of 70% or more of each class of
capital stock of the Borrower and (ii) Subordinated Notes representing an
aggregate of 70% or more of the aggregate principal amount of all
Subordinated Notes of SC Corporation; or (iii) any Person or two or more
Persons acting in concert other than the Equity Investors shall have
acquired by contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their
acquisition, prior to the repayment in full of all Obligations and the
termination of all Commitments hereunder, of the power to exercise,
directly or indirectly, a controlling influence over the management or
policies of the Borrower; or
(m) any ERISA Event shall have occurred with respect to a Plan of any
Loan Party or any of its ERISA Affiliates and the sum (determined as of the
date of occurrence of such ERISA Event) of the Insufficiency of such Plan
and the Insufficiency of any and all other Plans of the Loan Parties and
their ERISA Affiliates with respect to which an ERISA Event shall have
occurred and then exist (or the liability of the Loan Parties and their
ERISA Affiliates related to such ERISA Event) exceeds $100,000; or
(n) any Loan Party or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that it has incurred Withdrawal Liability to such
Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Loan Parties and
their ERISA Affiliates as Withdrawal Liability (determined as of the date
of such notification), exceeds $100,000 or requires payments exceeding
$50,000 per annum; or
(o) any Loan Party or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
is being terminated, within the meaning of Title IV of ERISA, and as a
result of such reorganization or termination the aggregate annual
contributions of the Loan Parties and their ERISA Affiliates to all
Multiemployer Plans that are then in reorganization or being terminated
have been or will be increased over the amounts contributed to such
Multiemployer Plans for the plan years of such Multiemployer Plans
immediately preceding the plan year in which such reorganization or
termination occurs by an amount exceeding $100,000;
<PAGE>
80
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Appropriate Lender to make Advances (other than Letter of
Credit Advances ) and of the Issuing Bank to issue Letters of Credit to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, (A) by notice to the
Borrower, declare the Notes, all interest thereon and all other amounts payable
under this Agreement and the other Loan Documents to be forthwith due and
payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Borrower and (B) by notice to each party required under the terms of any
agreement in support of which a Standby Letter of Credit is issued, request that
all Obligations under such agreement be declared to be due and payable;
provided, however, that in the event of an actual or deemed entry of an order
- -------- -------
for relief with respect to any Loan Party or any of its Subsidiaries under the
Federal Bankruptcy Code, (x) the obligation of each Lender to make Advances
(other than Letter of Credit Advances and of the Issuing Bank to issue Letters
of Credit shall automatically be terminated and (y) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon
------------------------------------------------
Default. If any Event of Default shall have occurred and be continuing, the
- -------
Agent may, irrespective of whether it is taking any of the actions described in
Section 6.01 or otherwise, make demand upon the Borrower to, and forthwith upon
such demand the Borrower will, pay to the Agent on behalf of the Lenders and the
Issuing Bank in same day funds at the Agent's office designated in such demand,
for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate
Available Amount of all Letters of Credit then outstanding. If at any time the
Agent determines that any funds held in the L/C Cash Collateral Account are
subject to any right or claim of any Person other than the Agent and the Lenders
or that the total amount of such funds is less than the aggregate Available
Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the
Agent, pay to the Agent, as additional funds to be deposited and held in the L/C
Cash Collateral Account, an amount equal to the excess of (a) such aggregate
Available Amount over (b) the total amount of funds, if any, then held in the
L/C Cash Collateral Account that the Agent determines to be free and clear of
any such right and claim.
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ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender and the Issuing
------------------------
Bank hereby appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement and
the other Loan Documents as are delegated to the Agent by the terms hereof and
thereof, together with such powers and discretion as are reasonably incidental
thereto. As to any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the Notes), the
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding upon all Lenders, the Issuing
Banks and all holders of Notes; provided, however, that the Agent shall not be
-------- -------
required to take any action that exposes the Agent to personal liability or that
is contrary to this Agreement or applicable law. The Agent agrees to give to
each Lender and the Issuing Bank prompt notice of each notice given to it by the
Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of
---------------------
its directors, officers, agents or employees shall be liable for any action
taken or omitted to be taken by it or them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (a) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (b) may consult with legal counsel (including counsel for any Loan
Party), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Lender or the Issuing Bank and shall
not be responsible to any Lender or the Issuing Bank for any statements,
warranties or representations (whether written or oral) made in or in connection
with the Loan Documents; (d) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of any Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender or the Issuing Bank for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, any Loan Document or any other
instrument or document furnished pursuant thereto; (f) shall incur no liability
under or in respect of any Loan Document by acting upon any notice, consent,
certificate or other instrument or writing (which may be by telegram, telecopy
or telex) believed by it to be genuine and signed or sent by the proper party or
parties; and (g) shall incur no liability as a result of any determination
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82
whether the transactions contemplated by the Loan Documents constitute a "highly
leveraged transaction" within the meaning of the interpretations issued by the
Comptroller of the Currency, the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System.
SECTION 7.03. BNP and Affiliates. With respect to its Commitments,
------------------
the Advances made by it and the Notes issued to it, BNP shall have the same
rights and powers under the Loan Documents as any other Lender and may exercise
the same as though it were not the Agent; and the term "Lender" or "Lenders"
shall, unless otherwise expressly indicated, include BNP in its individual
capacity. BNP and its Affiliates may accept deposits from, lend money to, act
as trustee under indentures of, accept investment banking engagements from and
generally engage in any kind of business with, any Loan Party, any of its
Subsidiaries and any Person who may do business with or own securities of any
Loan Party or any such Subsidiary, all as if BNP were not the Agent and without
any duty to account therefor to the Lenders or the Issuing Bank.
SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that
----------------------
it has, independently and without reliance upon the Agent or any other Lender or
the Issuing Bank and based on the financial statements referred to in Section
4.01 and such other documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent, any other Lender or the Issuing Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 7.05. Indemnification. (a) Each Lender severally agrees to
---------------
indemnify the Agent (to the extent not promptly reimbursed by the Borrower) from
and against such Lender's ratable share (determined as provided below) of any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against the Agent in
any way relating to or arising out of the Loan Documents or any action taken or
omitted by the Agent under the Loan Documents; provided, however, that no Lender
-------- -------
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Agent promptly
upon demand for its ratable share of any costs and expenses (including, without
limitation, fees and expenses of counsel) payable by the Borrower under Section
8.04, to the extent that the Agent is not promptly reimbursed for such costs and
expenses by the Borrower. For purposes of this Section 7.05, the Lenders'
respective ratable shares of any amount shall be determined, at any time,
according to the sum of (a) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lenders, (b) their
respective Pro Rata Shares of the aggregate
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83
Available Amount of all Letters of Credit outstanding at such time, (c) the
aggregate unused portions of their respective Term Commitments and Letter of
Credit Commitments at such time plus (d) their respective Unused Working Capital
----
Commitments at such time. In the event that any Defaulted Advance shall be
owing by any Defaulting Lender at any time, such Lender's Commitment with
respect to the Facility under which such Defaulted Advance was required to have
been made shall be considered to be unused for purposes of this Section 7.05(a)
to the extent of the amount of such Defaulted Advance. The failure of any
Lender to reimburse the Agent promptly upon demand for its ratable share of any
amount required to be paid by the Lenders to the Agent as provided herein shall
not relieve any other Lender of its obligation hereunder to reimburse the Agent
for its ratable share of such amount, but no Lender shall be responsible for the
failure of any other Lender to reimburse the Agent for such other Lender's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any Lender hereunder, the agreement and obligations of each Lender
contained in this Section 7.05(a) shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the other
Loan Documents.
(b) Each Lender severally agrees to indemnify Issuing Bank (to the
extent not promptly reimbursed by the Borrower) from and against such Lender's
ratable share (determined as provided below) of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Issuing Bank in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the Issuing
Bank under the Loan Documents; provided, however, that no Lender shall be liable
-------- -------
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Issuing Bank's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse the Issuing Bank promptly upon
demand for its ratable share of any costs and expenses (including, without
limitation, fees and expenses of counsel) payable by the Borrower under Section
8.04, to the extent that the Issuing Bank is not promptly reimbursed for such
costs and expenses by the Borrower. For purposes of this Section 7.05(b), the
Lenders' respective ratable shares of any amount shall be determined, at any
time, according to the sum of (a) the aggregate principal amount of the Advances
outstanding at such time and owing to the respective Lenders, (b) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters of
Credit outstanding at such time, (c) the aggregate unused portions of their
respective Term Commitments and Letter of Credit Commitments at such time plus
----
(d) their respective Unused Working Capital Commitments at such time. In the
event that any Defaulted Advance shall be owing by any Defaulting Lender at any
time, such Lender's Commitment with respect to the Facility under which such
Defaulted Advance was required to have been made shall be considered to be
unused for purposes of this Section 7.05(b) to the extent of the amount of such
Defaulted Advance. The failure of any Lender to reimburse the Issuing Bank
promptly upon demand for its ratable share of any amount required to be paid by
the Lenders to the Issuing Bank as provided herein shall not relieve any other
Lender of its obligation hereunder to reimburse the Issuing Bank for its ratable
share of such
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84
amount, but no Lender shall be responsible for the failure of any other Lender
to reimburse the Issuing Bank for such other Lender's ratable share of such
amount. Without prejudice to the survival of any other agreement of any Lender
hereunder, the agreement and obligations of each Lender contained in this
Section 7.05(b) shall survive the payment in full of principal, interest and all
other amounts payable hereunder and under the other Loan Documents.
SECTION 7.06. Successor Agents. The Agent may resign as to any or
----------------
all of the Facilities at any time by giving written notice thereof to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders shall
have the right to appoint a successor Agent as to such of the Facilities as to
which the Agent has resigned. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent,
which shall be a commercial bank organized under the laws of the United States
or of any State thereof and having a combined capital and surplus of at least
$250,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent as to all of the Facilities and upon the execution and filing or
recording of such financing statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Required
Lenders may request, in order to continue the perfection of the Liens granted or
purported to be granted by the Collateral Documents, such successor Agent shall
succeed to and become vested with all the rights, powers, discretion, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under the Loan Documents. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent as to less than all
of the Facilities and upon the execution and filing or recording of such
financing statements, or amendments thereto, and such amendments or supplements
to the Mortgages, and such other instruments or notices, as may be necessary or
desirable, or as the Required Lenders may request, in order to continue the
perfection of the Liens granted or purported to be granted by the Collateral
Documents, such successor Agent shall succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent as to
such Facilities, other than with respect to funds transfers and other similar
aspects of the administration of Borrowings under such Facilities, issuances of
Letters of Credit (notwithstanding any resignation as Agent with respect to the
Letter of Credit Facility) and payments by the Borrower in respect of such
Facilities, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement as to such Facilities, other than as aforesaid.
After any retiring Agent's resignation hereunder as Agent as to all of the
Facilities, the provisions of this Article VII shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent as to any
Facilities under this Agreement.
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85
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
---------------
provision of this Agreement or the Notes, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that (a) no amendment, waiver or consent
-------- -------
shall, unless in writing and signed by all the Lenders (other than any Lender
that is, at such time, a Defaulting Lender), do any of the following at any
time: (i) waive any of the conditions specified in Section 3.01 or, in the case
of the initial Borrowing or initial issuance, 3.02, (ii) change the percentage
of (x) the Commitments, (y) the aggregate unpaid principal amount of the
Advances or (z) the aggregate Available Amount of outstanding Letters of Credit
or the number of Lenders, that shall be required for the Lenders or any of them
to take any action hereunder, (iii) reduce or limit the obligations of any
Guarantor under Section 1 of its the Guaranty or otherwise limit such
Guarantor's liability with respect to the Obligations owing to the Agent, the
Lenders and the Issuing Bank, (iv) release all or substantially all of the
Collateral; (v) amend this Section 8.01 and (b) no amendment, waiver or consent
shall, unless in writing and signed by the Required Lenders and each Lender that
has a Commitment under the Facility affected by such amendment, waiver or
consent, (i) increase the Commitments of such Lender or subject such Lender to
any additional obligations, (ii) reduce the principal of, or interest on, the
Notes held by such Lender or any fees or other amounts payable hereunder to such
Lender, (iii) postpone any date fixed for any payment of principal of, or
interest on, the Notes held by such Lender or any fees or other amounts payable
hereunder to such Lender or (iv) change the order of application of any
prepayment set forth in Section 2.06 in any manner that materially affects such
Lender; provided further that no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by the Issuing Bank, as the case may be, in addition to the
Lenders required above to take such action, affect the rights or obligations of
the Issuing Bank under this Agreement; and provided further that no amendment,
-------- -------
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Lenders required above to take such action, affect the rights or duties
of the Agent under this Agreement.
SECTION 8.02. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telegraphic, telecopy or
telex communication) and mailed, telegraphed, telecopied, telexed or delivered,
if to the Borrower, at its address at 21 Bristol Drive, South Easton, MA 02375,
Attention: Steven Bock and Steve O'Hara; if to any Bank or the Issuing Bank
that is listed on the signature pages hereto, at its Domestic Lending Office
specified opposite its name on Schedule I hereto; if to any other Lender or any
other Issuing Bank, at its Domestic Lending Office specified in the Assignment
and Acceptance pursuant to which it became a Lender or Issuing Bank; and if to
the Agent, at its address at 499 Park Avenue, New York, New York 10022,
Attention: Mr.
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86
Alan Mustacchi, Assistant Vice President; or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
parties. All such notices and communications shall, when mailed, telegraphed,
telecopied or telexed, be effective when deposited in the mails, delivered to
the telegraph company, transmitted by telecopier or confirmed by telex
answerback, respectively, except that notices and communications to the Agent
pursuant to Article II, III or VII shall not be effective until received by the
Agent.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any
-------------------
Lender, the Issuing Bank or the Agent to exercise, and no delay in exercising,
any right hereunder or under any Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on
------------------
demand (i) all costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
the Loan Documents (including, without limitation, (A) all due diligence,
collateral review, syndication, transportation, computer, duplication,
appraisal, audit, insurance, consultant, search, filing and recording fees and
expenses and (B) the reasonable fees and expenses of counsel for the Agent with
respect thereto, with respect to advising the Agent as to its rights and
responsibilities, or the perfection, protection or preservation of rights or
interests, under the Loan Documents, with respect to negotiations with any Loan
Party or with other creditors of any Loan Party or any of its Subsidiaries
arising out of any Default or any events or circumstances that may give rise to
a Default and with respect to presenting claims in or otherwise participating in
or monitoring any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto) and (ii) all
costs and expenses of the Agent, the Lenders and the Issuing Bank in connection
with the enforcement of the Loan Documents, whether in any action, suit or
litigation, any bankruptcy, insolvency or other similar proceeding affecting
creditors' rights generally or otherwise (including, without limitation, the
reasonable fees and expenses of counsel for the Agent, each Lender and the
Issuing Bank with respect thereto).
(b) The Borrower agrees to indemnify and hold harmless the Agent, each
Lender, the Issuing Bank and each of their Affiliates and their officers,
directors, employees, agents and advisors (each, an "Indemnified Party") from
-----------------
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or in connection with or by reason of, or in connection with
the preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with the Reorganization or any of
the transactions contemplated thereby or (ii) the actual or alleged presence of
Hazardous Materials on any property of any Loan Party or any of its Subsidiaries
or any Environmental Action relating in
<PAGE>
87
any way to any Loan Party or any of its Subsidiaries, in each case whether or
not such investigation, litigation or proceeding is brought by any Loan Party,
its directors, shareholders or creditors or an Indemnified Party or any
Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, 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. The Borrower also
agrees not to assert any claim against the Agent, any Lender, the Issuing Bank
or any of their Affiliates, or any of their respective directors, officers,
employees, attorneys and agents, on any theory of liability, for special,
indirect, consequential or punitive damages arising out of or otherwise relating
to any of the transactions contemplated herein or in any other Loan Document or
the actual or proposed use of the proceeds of the Advances.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Advance is made by the Borrower to or for the account of a Lender other
than on the last day of the Interest Period for such Advance, as a result of a
payment or conversion pursuant to Section 2.09(b)(i) or 2.10(d), acceleration of
the maturity of the Notes pursuant to Section 6.01 or for any other reason, the
Borrower shall, upon demand by such Lender (with a copy of such demand to the
Agent), pay to the Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.
(d) If any Loan Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may be
paid on behalf of such Loan Party by the Agent or any Lender, in its sole
discretion.
(e) Without prejudice to the survival of any other agreement of any
Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section
8.04 shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Setoff. Upon (a) the occurrence and during
---------------
the continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender, the Issuing Bank and each of their respective Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and otherwise apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
<PAGE>
88
any time owing by such Lender or the Issuing Bank or such Affiliate to or for
the credit or the account of the Borrower against any and all of the Obligations
of the Borrower now or hereafter existing under this Agreement and the Note or
Notes held by such Lender, irrespective of whether such Lender or the Issuing
Bank shall have made any demand under this Agreement or such Note or Notes and
although such obligations may be unmatured. Each Lender and the Issuing Bank
agrees promptly to notify the Borrower after any such setoff and application;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such setoff and application. The rights of each Lender and the
Issuing Bank and its respective Affiliates under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
setoff) that such Lender or the Issuing Bank and its respective Affiliates may
have.
SECTION 8.06. Binding Effect. This Agreement shall become effective
--------------
when it shall have been executed by the Borrower and the Agent and when the
Agent shall have been notified by each Bank and the initial Issuing Bank that
such Bank and the Issuing Bank has executed it and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Agent, each Lender and
Issuing Bank and their respective successors and assigns, except that the
Borrower shall not have the right to assign their rights hereunder or any
interest herein without the prior written consent of the Lenders and the Issuing
Bank. The provisions of Section 8.04 of this Agreement shall supersede the
indemnities and the costs and expenses provisions set forth in the Commitment
Letter, and the Agent hereby acknowledges that upon the effectiveness of this
Agreement the indemnities and the costs and expenses provisions set forth in the
Commitment Letter shall cease to be in effect.
SECTION 8.07. Assignments and Participations. (a) Each Lender may
------------------------------
assign to one or more Eligible Assignees all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments, the Advances owing to it and the Note
or Notes held by it); provided, however, that (i) each such assignment shall be
-------- -------
of a uniform, and not a varying, percentage of all rights and obligations under
and in respect of one or more Facilities, (ii) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender
or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment (determined as of the date of the Assignment
and Acceptance with respect to such assignment) shall in no event be less than
$2,500,000, (iii) each such assignment shall be to an Eligible Assignee, and
(iv) the parties to each such assignment shall execute and deliver to the Agent,
for its acceptance and recording in the Register, an Assignment and Acceptance,
together with any Note or Notes subject to such assignment and a processing and
recordation fee of $2,000.
(b) The Issuing Bank may assign to an Eligible Assignee all of its
rights and obligations under the undrawn portion of its Letter of Credit
Commitment at any time; provided, however, that the parties to each such
-------- -------
assignment shall execute and deliver to the
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89
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with a processing and recordation fee of $2,000.
(c) Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in such Assignment and Acceptance, (x) the
assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender and/or Issuing Bank
hereunder and (y) the Lender and/or Issuing Bank assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's and/or Issuing Bank's rights and obligations under this Agreement, such
Lender or Issuing Bank shall cease to be a party hereto).
(d) By executing and delivering an Assignment and Acceptance, the
Lender and/or Issuing Bank assignor thereunder and the assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(i) other than as provided in such Assignment and Acceptance, such assigning
Lender and/or Issuing Bank makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other Loan Document or any other instrument or document
furnished pursuant hereto or thereto; (ii) such assigning Lender and/or Issuing
Bank makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or any other Loan Party or
the performance or observance by the Borrower of any of its obligations under
this Agreement or by any other Loan Party under any Loan Document or any other
instrument or document furnished pursuant hereto or thereto; (iii) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Agent, such assigning Lender and/or
Issuing Bank or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement or any other Loan Document as are delegated to
the Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of this Agreement are required to be performed by it as a Lender and/or Issuing
Bank.
<PAGE>
90
(e) The Agent shall maintain at its address referred to in Section
8.02 a copy of each Assignment and Acceptance delivered to and accepted by it
and a register for the recordation of the names and addresses of the Lenders and
the Issuing Bank and the Commitment under each Facility of, and principal amount
of the Advances owing under each Facility to, each Lender and/or Issuing Bank
from time to time (the "Register"). The entries in the Register shall be
--------
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is recorded
in the Register as a Lender and/or the Issuing Bank hereunder for all purposes
of this Agreement. The Register shall be available for inspection by the
Borrower, any Lender or the Issuing Bank at any reasonable time and from time to
time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and/or Issuing Bank and an assignee, together with any Note or
Notes subject to such assignment, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit C
hereto, (i) accept such Assignment and Acceptance, (ii) record the information
contained therein in the Register and (iii) give prompt notice thereof to the
Borrower. In the case of any assignment by a Lender, within five Business Days
after its receipt of such notice, the Borrower, at their own expense, shall
execute and deliver to the Agent in exchange for the surrendered Note or Notes a
new Note to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it under a Facility pursuant to such Assignment and
Acceptance and, if the assigning Lender has retained a Commitment hereunder
under such Facility, a new Note to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit C hereto.
(g) Each Lender may sell participations in or to all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Commitments, the Advances owing to it and the Note or
Notes held by it); provided, however, that (i) such Lender's obligations under
-------- -------
this Agreement (including, without limitation, its Commitments) shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Lender shall remain
the holder of any such Note for all purposes of this Agreement, and (iv) the
Borrower, the Agent, the other Lenders and the Issuing Bank shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement.
(h) Any Lender and/or Issuing Bank may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 8.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower furnished to such
Lender or Issuing Bank by or on
<PAGE>
91
behalf of the Borrower; provided, however, that, prior to any such disclosure,
-------- -------
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any Confidential Information received by it from
such Lender or Issuing Bank.
(i) Notwithstanding any other provision set forth in this Agreement,
any Lender or Issuing Bank may at any time create a security interest in all or
any portion of its rights under this Agreement (including, without limitation,
the Advances owing to it and the Note or Notes held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System.
(j) The Borrower and each Lender agree that, at the request of the
Agent, the Borrower or such Lender will reexecute this Agreement to reflect the
assignments that have been effected in accordance with Section 8.07.
SECTION 8.08. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.09. No Liability of the Issuing Bank. The Borrower assumes
--------------------------------
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit. Neither the
Issuing Bank nor any of its officers or directors shall be liable or responsible
for: (a) the use that may be made of any Letter of Credit or any acts or
omissions of any beneficiary or transferee in connection therewith; (b) the
validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
------
Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall
be liable to the Borrower, to the extent of any direct, but not consequential,
damages suffered by the Borrower that the Borrower prove were caused by (i) the
Issuing Bank's willful misconduct or gross negligence in determining whether
documents presented under any Letter of Credit comply with the terms of the
Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful
payment under a Letter of Credit after the presentation to it of a draft and
certificates strictly complying with the terms and conditions of the Letter of
Credit. In furtherance and not in limitation of the foregoing,the Issuing Bank
may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
<PAGE>
92
SECTION 8.10. Confidentiality. Neither the Agent, any Lender nor the
---------------
Issuing Bank shall disclose any Confidential Information to any Person without
the consent of the Borrower, other than (a) to the Agent's, such Lender's or the
Issuing Bank's Affiliates and their officers, directors, employees, agents and
advisors and to actual or prospective Eligible Assignees and participants, and
then only on a confidential basis, (b) as required by any law, rule or
regulation or judicial process and (c) as requested or required by any state,
federal or foreign authority or examiner regulating banks or banking.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto
-----------------
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
or, to the extent permitted by law, in such federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Agreement shall affect any
right that any party may otherwise have to bring any action or proceeding
relating to this Agreement or any of the other Loan Documents in the courts of
any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents to which it is a party in any New York State or federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
<PAGE>
93
SECTION 8.12. Governing Law. This Agreement and the Notes shall be
-------------
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.13. Waiver of Jury Trial. Each of the Borrower, the Agent,
--------------------
the Lenders and the Issuing Bank irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan Documents, the Advances
or the actions of the Agent, any Lender or the Issuing Bank in the negotiation,
administration, performance or enforcement thereof.
<PAGE>
94
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
WIGS BY PAULA, INC.
By /s/
--------------------------------------
Title:
BANQUE NATIONALE DE
PARIS, NEW YORK BRANCH,
as Agent
By /s/
-------------------------------------
Title:
By /s/
-------------------------------------
Title:
BANKS
BANQUE NATIONALE DE
PARIS, NEW YORK BRANCH
as Issuing Bank and as Bank
By /s/
--------------------------------------
Title:
By /s/
---------------------------------------
Title:
<PAGE>
SCHEDULE I
COMMITMENTS AND APPLICABLE LENDING OFFICES
<TABLE>
<CAPTION>
WORKING LETTER OF DOMESTIC EURODOLLAR
TERM CAPITAL CREDIT LENDING LENDING
NAME OF BANK COMMITMENT COMMITMENT COMMITMENT OFFICE OFFICE
- ---------------- ---------------- ------------------ ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Banque Nationale $14,000,000 $2,000,000 $2,000,000 Credit Matters Credit Matters
de Paris, ----------------- ---------------
New York Branch 499 Park Avenue 499 Park Avenue
New York, NY 10022 New York, NY 10022
Tel: (212) 418-8231 Tel: (212) 418-8231
Fax: (212) 418-8269 Fax: (212) 418-8269
Attn: Alan Mustacchi Attn: Alan Mustacchi
Operations Operations
------------------ ------------------
499 Park Avenue 499 Park Avenue
New York, NY 10022 New York, NY 10022
Tel: (212) 415-9807 Tel: (212) 415-9807
Fax: (212) 418-9805 Fax: (212) 418-9805
Attn: Julia Posada Attn: Julia Posada
Payments Payments
------------------ -------------------
499 Park Avenue 499 Park Avenue
New York, NY 10022 New York, NY 10022
ABA No.: 026007689 ABA No.: 026007689
Account No.: Account No.:
75042070103 75042070103
</TABLE>
<PAGE>
SCHEDULE II
GOOD STANDING DISCLOSURE
SC Corp./Wigs by Paula, Inc. and Western Schools may not be in good standing
with their respective states due to pre-petition obligations which will be
settled as part of plan process.
<TABLE>
<CAPTION>
CAPITAL STOCK
Percentage of
Stock Issued and
Class of Par Certificate Number of Outstanding
Owner Issuer Stock Value No(s). Shares Shares of Issuer
----- ------ ------- ----- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
1. SC Western Schools Common $.01 2 100 100%
Corporation Holdings, Inc.
2. Western Western Schools Common No par 7 300 100%
Schools Value
Holdings,
Inc.
3. SC Western Schools Common No par 8 300 100%
Corporation Value
4. SC Wigs By Paula, Inc. Common No par 2 100 100%
Corporation Value
5. Wigs by Eva Gabor Common $.01 17 5,461 100%
Paula, Inc. International, Inc.
6. SC SC Corporation Common $.01 C-16 868,365 100%
Corporation
7. SC SC Corporation Preferred $100 P-9 22,491 100%
Corporation
</TABLE>
<PAGE>
SCHEDULE III
SUBSIDIARIES
SC Corporation-Parent Company
Subsidiaries of SC Corp.
Wigs by Paula, Inc.
Western Schools, Inc.
After the Stork, Inc.
Brotman Acquisition Corp.
Royal Advertising & Marketing is a subsidiary of Wigs by Paula, Inc.
<PAGE>
SCHEDULE IV
PLANS, MULTIEMPLOYER PLANS, WELFARE PLANS
WIGS BY PAULA, INC./SC CORP.
1. SC Corporation & Affiliates Retirement Savings Plan (401k).
2. Wigs by Paula, Inc. and SC Corp. section 125 plans. These plans are an
insurance premium conversions plan for medical and dental insurance
premiums.
3. Employee medical insurance plans with Pilgrim Health HMO and Pilgrim Health
Advantage.
4. Employee dental insurance plan with Delta Dental of Massachusetts.
5. Employee life insurance plan with UNUM insurance.
6. Employee short term and long term disability insurance plans with UNUM
insurance.
7. Executive disability insurance with UNUM insurance.
8. Executive life insurance with Transamerica Occidental.
9. Employee bonus plan. As an amendment to this plan, SC Corporation will be
creating a key manager non-qualified plan for the purposes of retaining key
personnel sometime in the last quarter of 1994. Key employees at both the
Wigs by Paula, Inc. and Western Schools locations will be included in this
plan.
WESTERN SCHOOLS
1. Various health, dental, life, and short and long term disability insurance
policies are provided, as follows:
a. The Principal Financial Group, Group Policy No. N70259
b. The Principal Financial Group, Dental Plan
c. The Principal Financial Group, Prescription Plan
2. In additional various additional benefits are available to Management.
a. Unum Disability Insurance
b. Unum Life Insurance
<PAGE>
3. Additional benefits to top executives:
a. Company paid individual disability policy in addition to group health
plan.
4. All employees are eligible after twelve months of continuous employment to
participate in the company 401k plan at the next sign up opportunity.
5. Employee bonus plan. As an amendment to this plan, SC Corporation will be
creating a key management non-qualified plan for the purposes of retaining
key personnel sometime in the last quarter of 1994. Key employees at both
the Wigs by Paula, Inc. and Western Schools locations will be included in
this plan.
<PAGE>
SCHEDULE V
OPEN YEARS
NONE.
<PAGE>
SCHEDULE VI
REAL PROPERTY LEASES
WIGS BY PAULA, INC.
Wigs by Paula has two real property leases in effect. They are:
1. The entire building (40,000 sq. ft.) and surrounding premises at:
21 Bristol Drive
South Easton
Bristol County
Massachusetts
This lessor is Sanpy Realty. The annual lease expense is $480,000. The lease
expires 120 days subsequent to notice either by the lessee or the lessor.
Both parties have agreed not to give such notice until at least 60 days
following the Execution Date of our Reorganization.
2. A portion of the building (7,500 sq. ft.) at:
61 Norfolk Avenue
South Easton
Bristol County
Massachusetts
The lessor is Kroy Limited Partnership. The annual lease expense is $31,875.
This is a one year lease with an early cancellation clause requiring 60 day
notice by either the lessee or the lessor.
WESTERN SCHOOLS
Office Lease: 7840 El Cajon Boulevard
Suite 500
La Mesa, CA 91941
Lessor: Robert G. Westby Trust
Term: 60 months (11/1/91-10/31/96)
<PAGE>
Monthly Rent: $5,062 11/94-10/95; 4% increase on the anniversary date
each year of the lease.
Premises: Entire first and fifth floors.
<PAGE>
SCHEDULE VII
MATERIAL CONTRACTS
NONE.
<PAGE>
SCHEDULE VIII
INVESTMENTS
1. Wigs by Paula, In. owns 5,461 shares of stock in Eva Gabor International.
The stock would represent less than 5% of all Eva Gabor International stock
and is believed to have minimal value.
2. SC Corp./Wigs by Paula maintains a cash management program with Fleet Bank
which allows all available funds to be invested rather than sit idle.
3. Wigs and Western also have an account in Signal Capital's name at the Bank
of Boston as a second reserve account which earns nominal interest and will
be returned at closing.
<PAGE>
SCHEDULE IX
INTELLECTUAL PROPERTY
TRADEMARKS
WIGS BY PAULA, INC.
Wigs by Paula, Inc. currently owns trademarks for:
U.S. Trademarks Number
--------------- ------
1. Paul Young 1341870
2. Celebrity Secrets 1,853,184
Canadian Trademarks Number
------------------- ------
1. Wigs by Paula/Paula Young 392042
Hallstone Products, Ltd. is a recorded user on the Canadian trademark.
Additionally, we are in the process of obtaining trademarks for:
1. Especially Yours
2. A Touch of Class
3. Christine Jordan
Especially Yours and A Touch of Class are in the trademark search process and we
expect to own those in the near future.
The Christine Jordan (CJ) trademark process will take longer to acquire, as it
is a regular name.
Wigs by Paula regularly registers copyrights for its' periodic catalog
advertising with the Copyright Office.
<PAGE>
WESTERN SCHOOLS
TRADEMARK NUMBER
- --------- ------
1. Western School (TM) 1699003
2. Western School (SM) 1643051
3. "W" and Design (TM) 1678470
4. "W" and Design (SM) 1652660
5. California - Western Schools (TM) 037549
6. California - Western School (SM) 036679
7. California - "W" and Design (TM) 093041
8. California - "W" and Design (SM) 037550
9. Instant CPE Service (SM)
10. Nurses' Bookshelf (TM)
11. Coursefinder (TM)
12. Renewal Express (SM)
. Western Schools regularly registers copyrights for its periodic advertising
catalogs with the Copyright Office.
. Western Schools regularly registers copyrights for its publications in the
fields of nursing, real estate, and CPA's with the Copyright Office. Western
Schools currently has 80 titles copyrighted.
. Western Schools is currently licensee under agreements to reprint four books
copyrighted by their authors, for which royalties are paid.
. Western Schools is licensor under an agreement which allows Real Estate
License Services of San Diego, CA reprint certain Western Schools real
estate books, for which a royalty is paid.
. Western Schools is licensor under an agreement which allows University of
Missouri, Columbia MO to reprint certain Western Schools nursing books, for
which a royalty is paid.
<PAGE>
SCHEDULE XI
TAX RETURN FILINGS
All tax returns (Federal, state, local and foreign) have been filed in a timely
and accurate manner up to and including 1993.
All of the items listed below are pre-petition and are expected to be settled
in the reorganization process.
There are no post-petition liabilities due and unpaid.
The detailed listing, by company, of outstanding pre-petition liabilities owned
as of the last filing date (12/31/93) is shown below:
SC Corporation:
1992 State of Connecticut Corporation Tax (estimated) $1,659.00
1992 State of Delaware Franchise Tax (estimated) $5,200.00
---------
Total $6,859.00
Wigs by Paula, Inc.
1992 State of Massachusetts Excise Tax (estimated) $39,000.00
1990-1992 Massachusetts Sales Tax Audit (estimated) $11,310.00
----------
Total $50,310.00
Note: There is a $20,000 dispute on the $50,310 above with Massachusetts,
who has filed a claim for $70,000. This is being resolved via an
objection to claim process.
Western Schools, Inc.
1987-1988 State of California Franchise Tax $1,130.00
---------
Total $1,130.00
---------
Total all companies $58,299.00
==========
<PAGE>
EXHIBIT A-1
TERM NOTE
$_______________ Dated:_________ __, 199_
FOR VALUE RECEIVED, the undersigned, WIGS BY PAULA, INC., a
Massachusetts corporation ("the "Borrower"), HEREBY PROMISES TO PAY to the order
--------
of _________________________ (the "Lender") for the account of its Applicable
------
Lending Office (as defined in the Credit Agreement referred to below) the
principal amount of the Term Advances (as defined below) owing to the Lender by
the Borrower pursuant to the Credit Agreement dated as of November 23, 1994 (the
"Credit Agreement"; terms defined therein are used herein as therein defined)
----------------
among the Borrower, the Lender and certain other lenders parties thereto, and
Banque Nationale de Paris, New York Branch, as Agent for the Lender and such
other lenders.
The Borrower promises to pay interest on the unpaid principal amount of
the Term Advance from the date of such Term Advance until such principal amount
is paid in full, at such interest rate, and payable at such times, as are
specified in the Credit Agreement. The Borrower promises to repay installments
of the principal amount of this Note in the amounts and at the times specified
in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Banque Nationale de Paris, New York Branch, as Agent, at
499 Park Avenue, New York, New York, in same day funds.
This Term Note is one of the Notes referred to in, and is entitled to
the benefits of, the Credit Agreement. The Credit Agreement, among other
things, (i) provides for the making of a single term advance by the Lender to
the Borrower in an amount not to exceed the U.S. dollar amount first above
mentioned, the indebtedness of the Borrower resulting from such Term Advance
being evidenced by this Term Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The obligations of the Borrower under
this Term Note, and the
<PAGE>
obligations of the other Loan Parties under the Loan Documents, are secured by
the Collateral as provided in the Loan Documents.
WIGS BY PAULA, INC.
By__________________________________
Title:
<PAGE>
EXHIBIT A-2
WORKING CAPITAL NOTE
$___________________ Dated: _________ __, 199_
FOR VALUE RECEIVED, the undersigned, WIGS BY PAULA, INC., a
Massachusetts corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
--------
of _________________________ (the "Lender") for the account of its Applicable
------
Lending Office (as defined in the Credit Agreement referred to below) the
aggregate principal amount of the Working Capital Advances (as defined below)
owing to the Lender by the Borrower pursuant to the Credit Agreement dated as of
November 23, 1994 (the "Credit Agreement"; terms defined therein are used herein
----------------
as therein defined) among the Borrower, the Lender and certain other lenders
parties thereto, and Banque Nationale de Paris, New York Branch, as Agent for
the Lender and such other lenders.
The Borrower promises to pay interest on the unpaid principal amount of
each Working Capital Advance from the date of such Working Capital Advance until
such principal amount is paid in full, at such interest rate, and payable at
such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to Banque Nationale de Paris, New York Branch, as Agent, as
Agent, at 499 Park Avenue, New York, New York, in same day funds. Each Working
Capital Advance owing to the Lender by the Borrower and the maturity thereof,
and all payments made on account of principal thereof, shall be recorded by the
Lender and, prior to any transfer hereof, endorsed on the grid attached hereto,
which is part of this Promissory Note.
This Working Capital Note is one of the Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of working capital advances by the
Lender to the Borrower from time to time in an aggregate amount not to exceed at
any time outstanding the U.S. dollar amount first above mentioned, the
indebtedness of the Borrower resulting from each such Working Capital Advance
being evidenced by this Working Capital Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The obligations of the
Borrower under this Working
<PAGE>
Capital Note, and the obligations of the other Loan Parties under the Loan
Documents, are secured by the Collateral as provided in the Loan Documents.
WIGS BY PAULA, INC.
By__________________________________
Title:
<PAGE>
WORKING CAPITAL ADVANCES
AND PAYMENT OF PRINCIPAL
<TABLE>
<CAPTION>
Amounts of Unpaid
Amounts Principal Paid Principal Notation
Date of Advance or Prepaid Balance Made By
=======================================================
<S> <C> <C> <C> <C>
=======================================================
</TABLE>
<PAGE>
EXHIBIT B
NOTICE OF BORROWING
Banque Nationale de Paris,
New York Branch, as Agent
under the Credit Agreement
referred to below
499 Park Avenue
New York, New York 10022 [Date]
Attention: Julia Requena
Ladies and Gentlemen:
The undersigned, WIGS BY PAULA, INC. (the "Borrower"), refers to the
--------
Credit Agreement dated as of November 23, 1994 (the "Credit Agreement", the
----------------
terms defined therein being used herein as therein defined), among the
undersigned, certain Lenders parties thereto, the Issuing Bank and Banque
Nationale de Paris, New York Branch, as Agent for said Lenders, and hereby gives
you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that
the undersigned hereby requests a Borrowing under the Credit Agreement, and in
that connection sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.02(a) of the Credit Agreement:
------------------
(i) The Business Day of the Proposed Borrowing is _________ __, 199_.
(ii) The Facility under which the Proposed Borrowing is requested is
the _______________ Facility.
(iii) The Type of Advances comprising the Proposed Borrowing is [Base
Rate Advances] [Eurodollar Rate Advances].
(iv) The aggregate amount of the Proposed Borrowing is $__________.
[(v) The initial Interest Period for each Eurodollar Rate Advance made
as part of the Proposed Borrowing is __________ month[s].]
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
<PAGE>
(A) the representations and warranties contained in each Loan Document
are correct, before and after giving effect to the Proposed Borrowing and to
the application of the proceeds therefrom, as though made on and as of such
date;
(B) no event has occurred and is continuing, or would result from such
Proposed Borrowing or from the application of the proceeds therefrom, that
constitutes a Default; and
(C) the sum of the Loan Values of the Eligible Inventory exceeds the
aggregate principal amount of the Working Capital Advances to be outstanding
plus Letter of Credit Advances outstanding plus the aggregate of the
---- ----
Available Amounts under each Letter of Credit to be outstanding, after
giving effect to the Proposed Borrowing.
Very truly yours,
WIGS BY PAULA, INC.
By__________________________
Title:
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of November 23, 1994
(the "Credit Agreement") among Wigs by Paula, Inc., a Massachusetts corporation
----------------
(the "Borrower"), the Lenders (as defined in the Credit Agreement) and Banque
--------
Nationale de Paris, New York Branch, as agent for the Lenders and the Issuing
Bank (the "Agent"). Terms defined in the Credit Agreement are used herein with
-----
the same meaning.
The "Assignor" and the "Assignee" referred to on Schedule 1 agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 of all
outstanding rights and obligations under the Credit Agreement Facility or
Facilities specified on Schedule 1. After giving effect to such sale and
assignment, the Assignee's Commitments and the amount of the Advances owing to
the Assignee will be as set forth on Schedule 1.
2. The Assignor (i) represents and warrants that it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (ii) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; and (iii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any Loan
Party or the performance or observance by any Loan Party of any of its
obligations under the Loan Documents or any other instrument or document
furnished pursuant thereto; and (iv) attaches the Note or Notes held by the
Assignor and requests that the Agent exchange such Note or Notes for a new Note
or Notes payable to the order of the Assignee in an amount equal to the
Commitments assumed by the Assignee pursuant hereto or new Notes payable to the
order of the Assignee in an amount equal to the Commitments assumed by the
Assignee pursuant hereto and the Assignor in an amount equal to the Commitments
retained by the Assignor under the Credit Agreement, respectively, as specified
on Schedule 1.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.01 thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Agent, the Assignor or any other
<PAGE>
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 Credit Agreement; (iii) confirms that it is an Eligible
Assignee; (iv) appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit Agreement
as are delegated to the Agent by the terms thereof, together with such powers
and discretion as are reasonably incidental thereto; (v) agrees that it will
perform in accordance with their terms all of the obligations that by the terms
of the Credit Agreement are required to be performed by it as a Lender; and (vi)
attaches any U.S. Internal Revenue Service forms required under Section 2.12.
4. Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for acceptance and recording by the Agent. The
effective date for this Assignment and Acceptance (the "Effective Date") shall
--------------
be the date of acceptance hereof by the Agent, unless otherwise specified on
Schedule 1.
5. Upon such acceptance and recording by the Agent, as of the
Effective Date, (i) the Assignee shall be a party to the Credit Agreement and,
to the extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Agent, from and after
the Effective Date, the Agent shall make all payments under the Credit Agreement
and the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest and commitment fees with respect
thereto) to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Credit Agreement and the Notes for periods
prior to the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
As to each Facility in respect of which an interest is being assigned:
Percentage interest assigned: ________%
Assignee's Commitment: $_______
Aggregate outstanding principal amount of Advances
assigned: $_______
Principal amount of Note payable to Assignee: $_______
Principal amount of Note payable to Assignor: $_______
Effective Date (if other than date of acceptance by Agent):
_______ __, 1999_.
[NAME OF ASSIGNOR], as Assignor
By: _____________________________
Title:
Dated: ________ __, 199_
<PAGE>
[NAME OF ASSIGNEE], as Assignee
By: ____________________________
Title:
Domestic Lending Office:
Eurodollar Lending Office:
Accepted this ________________ day
of __________ __, 199_
BANQUE NATIONAL DE PARIS,
as Agent
By:_______________________________
Title:
By: ______________________________
Title:
<PAGE>
EXHIBIT D
BORROWING BASE CERTIFICATE
To: Banque Nationale de Paris,
New York Branch
499 Park Avenue
New York, New York 10022
Attn: Mr. Alan Mustacchi
Telecopy: (212) 418-8269
BORROWING BASE CERTIFICATE
--------------------------
Date: November __, 1994
(1) Borrowing Base Availability
Total from Schedule 1 _____________
(2) Working Capital Advances Outstanding _____________
(3) Aggregate Principal Amount of
Letter of Credit Advances Outstanding _____________
(4) Total Available Amount of all
Letters of Credit Outstanding _____________
(5) Total Working Capital Availability
[(1) less (2) less (3) less (4)] _____________
---- ---- ----
This report is submitted pursuant to the Credit Agreement dated as of
November 23, 1994 among Wigs by Paula, Inc., the lenders (the "Lenders") that
-------
are, or may from time to time become, party thereto and Banque Nationale de
Paris, New York Branch, as agent (the "Agent") for the Lenders thereunder. The
-----
Agent has been granted a security interest in the Inventory pursuant to the Loan
Documents. Unless otherwise indicated, capitalized terms used herein have the
meanings ascribed to them in the Credit Agreement.
<PAGE>
2
The undersigned hereby certifies that (i) the amounts and the
representations set forth above are true and correct in all material respects,
(ii) the calculations determined herein are determined in accordance with GAAP
and (iii) except as noted, none of the Inventory referred to in this report
falls within the ineligible or prohibited categories as noted in the Credit
Agreement. We further confirm the above mentioned assignment and grant of
security interest in the Inventory to the Agent.
WIGS BY PAULA, INC.
Date:________________________ By: ________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
Inventory Net Availability
--------------------------
(a) Gross Inventory =================
Less: Ineligible Inventory
(b) Inventory consisting of
"perishable agricultural
commodities" or on which
a Lien has arisen or may
arise in favor of agricultural
producers _________________
(c) Inventory located on
leaseholds as to which the
lessor has not entered into
a consent and agreement
providing for the rights
of the Agent _________________
(d) Inventory in respect of which
the Security Agreement does
not create a valid and perfected
first priority Lien in favor of the
Agent, the Issuing Bank, the
Lenders and the Hedge Banks
securing the Secured Obligations _________________
(e) Inventory with respect
to which the
representations and
warranties set forth
in the Security Agreement
are not true and correct _________________
(f) Inventory consisting of
promotional and marketing
materials and shipping and
other supplies _________________
(g) Inventory that fails to
meet any standards imposed
by any governmental agency
<PAGE>
2
or regulatory authority that
is not saleable in the ordinary
course of business _________________
(h) Inventory subject to a
licensing, patent, royalty, trademark
or other such agreement with any
third party as to which a dispute
exists _________________
(i) Inventory not in the possession
or sole control of the
Borrower or any Subsidiary ________________
(j) Inventory located
outside the United States ________________
(k) Inventory consisting of work
in progress ________________
(l) Inventory that is obsolete,
unusable or otherwise unavailable
for sale in the ordinary course of
business of the Borrower ________________
(m) Total ineligible Inventory
[sum of (b) through (l)] ________________
(n) Eligible Inventory
[(a) less (m)] ----------------
----
Net Availability at 50% of Adjusted
--
Eligible Inventory [(n) multiplied by 50%] ================
<PAGE>
EXHIBIT I
[INSERT LETTERHEAD FOR -- KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL]
NOVEMBER 23, 1994
To the Lenders party to the Credit
Agreement referred to below and to
Banque Nationale de Paris, New York
Branch, as Agent for such Lenders
WIGS BY PAULA, INC.
-------------------
Gentlemen/women:
This opinion is furnished to you pursuant to Section 3.01(1)(xx) of the
Credit Agreement dated as of November 23, 1994 (the "Credit Agreement") among
----------------
Wigs by Paula, Inc., (the "Borrower") and each of you. Terms used and not
defined herein are used herein as defined in the Credit Agreement.
We have acted as counsel to the Borrower in connection with the
preparation, execution and delivery of, and the initial Borrowing made under,
the Credit Agreement and the Security Agreement, and the Wigs Note. We have also
acted as counsel for Western Schools, Inc., a California corporation
("Western"), in connection with the preparation, execution and delivery of the
-------
Guaranty and the Security Agreement. Finally, we have acted as counsel for SC
Corporation, a Delaware corporation ("SC"), in connection with the preparation,
execution and delivery of the Pledge Agreement and the Guaranty.
<PAGE>
In that connection, we have examined counterparts of each of the Loan
Documents, executed by each of the parties thereto, and the other documents
furnished by the Borrower pursuant to Article III of the Credit Agreement,
including:
(a) counterparts of each of the Loan Documents and the Related
Documents, executed by each of the parties thereto; and
(b) the certificate of incorporation and bylaws of each Loan Party, in
each case as amended through the date hereof.
We have also examined the originals, or copies certified to our
satisfaction, of the documents listed in a certificate of the chief executive
officer of each of the Borrower, Western and SC (each a "Loan Party"), dated the
date hereof (the "Certificates"), certifying that the documents previously
------------
furnished to us are all of the indentures, loan or credit agreements, leases,
guarantees, mortgages, security agreements, bonds, notes and other agreements or
instruments, and all of the orders, writs, judgments, injunctions, decrees,
determinations and awards, that affect or purport to affect the obligations of
such Loan Party or any of its Subsidiaries under any Loan Document or any
Related Document or the right of such Loan Party or any of its Subsidiaries to
borrow money, to guarantee the obligations of other Persons, to create Liens on
its property or to consummate transactions contemplated by the Loan Documents
and the Related Documents.
In addition, we have examined the originals, or copies certified to our
satisfaction, of such other corporate records of the Loan Parties, certificates
of public officials and of officers of the Loan Parties and agreements,
instruments and other documents as we have deemed necessary as a basis for the
opinions expressed below. As to questions of fact material to such opinions, we
have, when relevant facts were not independently established by us, relied upon
certificates of the Loan Parties or of their respective officers or of public
officials.
In our examination of the documents referred to above, we have assumed
(i) the due execution and delivery, pursuant to due authorization, of each of
the documents referred to above by all parties thereto other than the Loan
Parties, (ii) the authenticity of all such documents submitted to us as
originals and (iii) the conformity to originals of all such documents submitted
to us as copies.
We understand that you have considered the applicability to the
transactions contemplated by the Loan Documents of fraudulent conveyance or
transfer laws, as to which we express no opinion, and have satisfied yourself
with respect thereto.
We are qualified to practice law in the State of New York and we do not
purport to be experts on any laws other than the laws of the State of New York,
the General Corporation Law of the State of Delaware, and the Federal laws of
the United States.
2
<PAGE>
Based upon the foregoing and upon such investigation as we have deemed
necessary, we are of the following opinion:
1. Each Loan Party (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
(except to the extent described in the good standing certificates delivered
to Agent), (b) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or
in which the conduct of its business requires it to so qualify or be licensed
(except to the extent described in the good standing certificates delivered
to Agent and except for failures to be so qualified that do not materially
and adversely affect the Loan Parties considered as a whole) and (c) has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to
be conducted.
2. The execution, delivery and performance by each Loan Party of the
Credit Agreement, the Notes, and each of other Loan Document and each Related
Document to which it is a part are within such Loan Party's corporate powers,
have been duly authorized by all necessary corporate action, and do not (a)
contravene such Loan Party's charter or bylaws, (b) violate any law
(including, without limitation, the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or any order, writ, judgment,
injunction, decree, determination or award listed in the Certificates, (c)
conflict with or result in the breach of, or constitute a default under, any
agreement or instrument referred to in the Certificates or (d) except for the
Liens created by the Collateral Documents, result in or require the creation
or imposition of any Lien upon or with respect to any of the properties of
any Loan Party or any of its Subsidiaries.
3. No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body, or any third
party that is party to any of the agreements and instruments listed in the
Certificates, is required for (a) the due execution, delivery, recordation,
filing or performance by any Loan Party of the Credit Agreement, the Notes,
any other Loan Document or any Related Document to which it is party, (b) the
grant by any Loan Party of the Liens granted by it pursuant to the Collateral
Documents, (c) the perfection or, maintenance of the Liens created by the
Collateral Documents, or (d) the exercise by the Agent or any Lender of its
rights under the Loan Documents or the remedies in respect of the Collateral
pursuant to the Collateral Documents, except for (i) those described in
Section 4.01(d) of the Credit Agreement, and (ii) in the case of the Security
Collateral, as may be required in connection with any disposition of any
portion of the Security Collateral by laws affecting the offering and sale of
securities generally.
3
<PAGE>
4. Each of the Credit Agreement, each of the Notes, each other Loan
Document and each Related Document has been duly executed and delivered by
each Loan Party thereto. Each of the Credit Agreement, each of the Notes,
each other Loan Document and each Related Document is the legal, valid and
binding obligation of each Loan Party thereto, enforceable against such Loan
Party in accordance with its terms.
5. To the best of our knowledge, there is no action, suit,
investigation, litigation or proceeding affecting any Loan Party or any of
its Subsidiaries pending or threatened before any court, governmental agency
or arbitrator that (a) could reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of any Loan Party or any of
its Subsidiaries (other than the Disclosed Litigation) or (b) purports to
affect the legality, validity or enforceability of the Merger, the Credit
Agreement, any Note, any other Loan Document or any Related Document or the
consummation of the transactions contemplated by the Credit Agreement.
6. All taxes and governmental fees and charges, the payment of which is
required in connection with the execution, delivery and recording of the Loan
Documents in the State of New York, have been paid.
7. The provisions of the Loan Documents (without regard for any
provisions thereof limiting the payment of interest or any other sums
thereunder to the highest rate permitted by applicable law) do not violate
any applicable law of the State of New York relating to usury.
8. Neither any Loan Party nor any of its Subsidiaries is an "investment
company," or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
The opinions set forth above are subject to the following
qualifications:
(a) Our opinion in clauses (a) and (c) paragraph 1 above with respect to
Western and SC is based solely on certifications provided by public officials
in California and Massachusetts, respectively, and our examination of the
charter documents of such Loan Parties as so certified,
(b) Our opinion in paragraph 4 above is subject to the effect of general
principles of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered
in a proceeding in equity or at law). Further, pursuant to such equitable
principles, Section 1 of the Guaranty and Section 1 of the Security
Agreement, which Sections
4
<PAGE>
KRAMER, LEVIN, NAFTALIS, NESSEN, KAMIN & FRANKEL
provide that the Guarantor's liability shall not be affected by changes
in or amendments to the Credit Agreement or the Notes, might be
enforceable only to the extent that such changes or amendments were not
so material as to constitute a new contract among the parties.
(c) Our opinion in paragraph 4 above is also subject to the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally.
(d) Our opinion in paragraph 4 above is also subject to the
effect of applicable law that may limit the enforceability or render
ineffective certain of the provisions of the Security Agreement,
although the inclusion of such provisions does not affect the validity
of the Security Agreement as a whole, and there exist legally adequate
remedies for a realization of the principal benefits afforded thereby.
(e) We express no opinion as to the effect of the law of any
jurisdiction other than the State of New York wherein any Lender may be
located or wherein enforcement of the Credit Agreement may be sought
that limits the rates of interest legally chargeable or collectible.
We are aware that Shearman & Sterling will rely upon the
opinions set forth in paragraphs 1, 2 and 3 of this opinion in rendering their
opinion furnished pursuant to Section 3.01 of the Credit Agreement.
Very truly yours,
5
<PAGE>
EXHIBIT 10.05
Execution Copy
FIRST AMENDMENT, WAIVER AND CONSENT
FIRST AMENDMENT, WAIVER AND CONSENT, dated as of August 16, 1995 (this
"Amendment"), among SC Corporation, a Delaware corporation (the "Borrower"), the
--------- --------
banks, financial institutions and other institutional lenders parties to the
Credit Agreement referred to below (collectively, the "Lenders") and Banque
-------
Nationale de Paris, New York Branch, as agent (the "Agent") for the Lenders.
-----
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent have entered into a Credit
Agreement dated as of November 23, 1994 (the "Credit Agreement"). Capitalized
----------------
terms not otherwise defined in this Amendment have the meanings specified in the
Credit Agreement.
(2) As of November 30, 1994, Wigs by Paula, Inc. merged with and into
the Borrower, a wholly owned subsidiary of Specialty Catalog Corp. ("Specialty")
---------
and Western Schools, Inc. changed its name to SC Publishing, Inc.
(3) The Borrower has requested that the Required Lenders consent to
the following actions:
(a) Specialty desires to reclassify its common stock into three
separate classes (as indicated on Schedule I hereto), which classes
will be owned in the amounts and by the persons set forth on Schedule
II hereto. Specialty intends to make changes to the Shareholders
Agreement and the Employment Agreements to reflect such
reclassification of its common stock;
(b) Specialty desires to amend its charter to (1) clarify that
dividends on its preferred stock accrue from November 23, 1994 and (2)
eliminate the mandatory redemption feature relating to its preferred
stock;
(c) the Borrower desires to amend its charter to (i) effect a 1-
for-8700 reverse stock split of its common stock, (ii) clarify that
dividends on its preferred stock accrue from November 23, 1994, (iii)
eliminate the mandatory redemption feature relating to its preferred
stock and (iv) eliminate any voting rights for such preferred stock;
(d) the Borrower desires to open two unblocked accounts with BNP-
Canada and Bank of Montreal, with the combined balances in these
accounts not to exceed $200,000; and
<PAGE>
2
(e) the Borrower desires to amend its financial reporting
obligations.
(4) The Required Lenders are, on the terms and conditions stated
below, willing to grant the request of the Borrower and the Borrower and the
Required Lenders have agreed to amend the Credit Agreement as hereinafter set
forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is,
------------------------------
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 4, hereby amended as follows:
(a) Section 4.01(a) is amended by adding at the end of Section 4.01(a)
a new sentence, to read as follows:
"Schedule II may be amended by the Borrower from time to time to
reflect transfers of shares of Specialty stock so long as such
transfers would not otherwise give rise to a Default or an Event of
Default and so long as the Agent is given notice of such transfer."
(b) Schedule II is amended to read as set forth on Schedule II hereof.
(c) Section 5.02(f)(ii) is deleted and a new Section 5.02(f)(ii) is
added, to read as follows:
"(ii)(A) Investments in the Payroll Accounts, provided that such
funds are used only to pay employees' salaries and bonuses in the
ordinary course of business, (B) Investments not to exceed $200,000 in
the aggregate in (x) an account with BNP-Canada (Acct. No. 19-30088-
110-29) (the "Refund Account") which shall be used to issue refund
--------------
checks in Canadian dollars and (y) an account with Bank of Montreal
(Acct. No. ______________) (the "Mastercard Account") to process the
------------------
Borrower's Mastercard receipts;"
(d) Section 5.03(b) is deleted and a new Section 5.03(b) is added, to
read as follows:
"(b) Monthly Financials. As soon as available and in any event
------------------
within 30 days after the end of each subsequent month and within 45
days after the end of each fiscal year, Consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the end of
such monthly period and Consolidated and consolidating statements of
income and cash flows of the Borrower and its Subsidiaries for the
period commencing at the end of the previous month and ending with the
end of such month, and commencing at the end of the previous fiscal
year and ending with the end of such month, setting forth in each case
in
<PAGE>
3
comparative form the corresponding figures for (i) the corresponding
month and year-to-date period of the preceding fiscal year and (ii)
the corresponding month and year-to-date period of the most recent
annual forecast delivered pursuant to Section 5.03(e), all in
reasonable detail and duly certified by the chief financial officer of
the applicable Borrower, together with a schedule in form satisfactory
to the Agent of the computations used by the Borrower in determining
compliance with the covenants contained in Sections 5.02 and 5.04."
(e) Section 5.03(d) is deleted and a new Section 5.03(d) is added, to
read as follows:
"(d) Annual Financials. As soon as available and in any event
-----------------
within 120 days after the end of each fiscal year of the Borrower, a
copy of the annual audit report for such year for the Borrower and its
Subsidiaries, including therein a Consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of such fiscal year and
Consolidated statements of income and cash flows of the Borrower and
its Subsidiaries for such fiscal year, accompanied by an independent
auditor's report provided by Deloitte & Touche or other independent
public accountants of recognized standing acceptable to the Required
Lenders, and a consolidating balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year and consolidating
statements of income and cash flows of the Borrower and its
Subsidiaries for such fiscal year, in each case certified by the
company's Chief Financial Officer, together with (i) a certificate of
Deloitte & Touche or such other accounting firm to the Lenders,
stating that in the course of the regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted in accordance
with generally accepted auditing standards, nothing has come to the
attention of such accounting firm that has caused it to believe that
the Borrower and its Subsidiaries are not in compliance with the
covenants contained in Section 5.04, (ii) a schedule in form
satisfactory to the Agent of the computations used by such accountants
in determining, as of the end of such fiscal year, compliance with the
covenants contained in Sections 5.04 and (iii) a certificate of the
chief financial officer of the Borrower stating that no Default has
occurred and is continuing or, if a default has occurred and is
continuing, a statement as to the nature thereof and the action that
the Borrower has taken and proposes to take with respect thereto."
(f) Section 6.01(l) is amended by adding a proviso at the end thereof,
to read as follows:
" ,provided, that for purposes of Section 6.01(l)(i), Class A, Class B
--------
and Class C shares shall constitute one class of common stock."
<PAGE>
4
SECTION 2. The Security Agreement is, effective as of the date hereof
and subject to the satisfaction of the conditions precedent set forth in Section
4, amended by amending Section 5(c) in full to read as follows:
"The Borrower and Western shall maintain deposit accounts (the
"Blocked Accounts"), other than (i) the accounts used by the Borrower
-----------------
and its Subsidiaries (including Western) solely to pay the salaries
and bonuses of their employees in the ordinary course of business
(such other accounts being the "Payroll Accounts"); (ii) the accounts
----------------
in which the Borrower and Western maintain a zero balance as at the
close of each Business Day (the "Zero Balance Accounts"); and (iii)
---------------------
the Refund Account and the Mastercard Account only with banks
("Blocked Banks") that (x) have entered into letter agreements in
---------------
substantially the form of Exhibit C with the Borrower or Western, as
the case may be, and the Agent ("Blocked Account Letters") or (y) that
-----------------------
are located in the state of California; provided that if Western shall
--------
cease to maintain its chief executive office in the State of
California, the Borrower and Western shall not maintain any Blocked
Account with any bank located in the State of California."
SECTION 3. Waiver and Consent. Solely for purposes of effectuating
------------------
the transactions described in the Preliminary Statements, the Required Lenders
hereby consent to the following actions and waive any provisions of the Credit
Agreement that may be applicable to the extent such actions, by themselves,
would otherwise create or result in the existence of a Default or an Event of
Default thereunder:
(a) Specialty may amend its charter to read as set forth in Exhibit A
and take all actions reasonably contemplated by such amendment;
(b) the Borrower may amend its charter to read as set forth in Exhibit
B and take all actions reasonably contemplated by such amendment; and
(c) the Borrower may enter into a letter agreement with SC Holdings
LLC in the form of Exhibit C and take all actions reasonably contemplated
by such letter agreement.
SECTION 4. Conditions of Effectiveness. Sections 1, 2 and 3 of this
---------------------------
Amendment shall become effective as of the date first above written when, and
only when, the Agent shall have received counterparts of this Amendment executed
by the Borrower and the Required Lenders or, as to any of the Lenders, advice
satisfactory to the Agent that such Lender has executed this Amendment and the
consent attached hereto executed by the Guarantors and each other Loan Party and
the Agent shall have additionally received all of the following documents, each
such document (unless otherwise specified) dated the date of receipt thereof by
the Agent
<PAGE>
5
and in sufficient copies for each Lender, in form and substance satisfactory to
the Required Lenders and in sufficient copies for each Lender:
(a) Certified copies of (i) the resolutions of the Board of Directors
of (A) the Borrower approving this Amendment and the matters contemplated
hereby and thereby and (B) the Guarantor and each other Loan Party
evidencing approval of the Consent and the matters contemplated hereby and
thereby and (ii) all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to this Amendment, and the
Consent and the matters contemplated hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of the
Borrower, the Guarantors and each other Loan Party certifying the names and
true signatures of the officers of the Borrower, and the Guarantors and
such other Loan Party authorized to sign this Amendment and the Consent and
the other documents to be delivered hereunder and thereunder.
(c) Counterparts of the Consent appended hereto (the "Consent"),
-------
executed by the Guarantors and each of the Loan Parties (other than the
Borrower).
(d) A certificate signed by a duly authorized officer of the Borrower
and each other Loan Party stating that:
(i) The representations and warranties contained in Section 5 are
correct on and as of the date of such certificate as though made on
and as of such date other than any such representations or warranties
that, by their terms, refer to a date other than the date of such
certificate; and
(ii) No event has occurred and is continuing that constitutes a
Default.
The effectiveness of this Amendment is conditioned upon the accuracy
of the factual matters described herein. This Amendment is subject to the
provisions of Section 8.01 of the Credit Agreement.
SECTION 5. Representations and Warranties of the Borrower. The
----------------------------------------------
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated in the
recital of parties to this Amendment.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Loan Documents, as amended hereby, to which it is or is
to be a
<PAGE>
6
party, and the consummation of the transactions contemplated hereby, are
within the Borrower's corporate powers, have been duly authorized by all
necessary corporate action and do not (i) contravene the Borrower's charter
or by-laws, (ii) violate any law (including, without limitation, the
Securities Exchange Act of 1934, as amended, and the Racketeer Influenced
and Corrupt Organizations Chapter of the Organized Crime Control Act of
1970), rule or regulation (including, without limitation, Regulation X of
the Board of Governors of the Federal Reserve System), or any order, writ,
judgment, injunction, decree, determination or award, binding on or
affecting the Borrower or any of its Subsidiaries or any of their
properties, (iii) conflict with or result in the breach of, or constitute a
default under, any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument binding on or affecting the Borrower, any
of its Subsidiaries or any of their properties or (iv) except for the Liens
created under the Collateral Documents, as amended hereby, result in or
require the creation or imposition of any Lien upon or with respect to any
of the properties of the Borrower or any of its Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery or performance by
the Borrower of this Amendment or any of the Loan Documents, as amended
hereby, to which it is or is to be a party, other than the filing of
charter amendments.
(d) This Amendment has been duly executed and delivered by the
Borrower. This Amendment and each of the other Loan Documents, as amended
hereby, to which the Borrower is a party are legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting the Borrower or any of its Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any
court, governmental agency or arbitrator that (i) could have a Material
Adverse Effect or (ii) purports to affect the legality, validity or
enforceability of this Amendment or any of the other Loan Documents, as
amended hereby, or the consummation of any of the transactions contemplated
hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On
---------------------------------------------
and after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
<PAGE>
7
(b) The Credit Agreement, Notes and each of the other Loan Documents,
as specifically amended by this Amendment, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Collateral Documents and all of
the Collateral described therein do and shall continue to secure the payment of
all Obligations of the Loan Parties under the Loan Documents, in each case as
amended by this Amendment.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 7. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all costs and expenses of the Agent in connection with the preparation,
execution, delivery and administration, modification and amendment of this
Amendment and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Agent) in accordance with the terms of Section 8.04 of the Credit Agreement.
In addition, the Borrower shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder, and
agrees to save the Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION 8. Execution in Counterparts. This Amendment may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
<PAGE>
8
SECTION 9. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
SC CORPORATION
By
----------------------------
Title:
BANQUE NATIONAL DE PARIS, NEW
YORK BRANCH
as Agent and as Lender
By
----------------------------
Title:
By
----------------------------
Title:
<PAGE>
CONSENT
Dated as of _______________, 19__
The undersigned, Royal Advertising and Marketing, Inc., a
Massachusetts corporation and SC Publishing, Inc. (formerly known as Western
Schools, Inc.), a California corporation, as Guarantors under the Guaranty and
as the Parties to the Security Agreement, in each case, dated November 23, 1994
(the "Guaranty" and the "Security Agreement") in favor of the Agent and, for its
-------- ------------------
benefit and the benefit of the Lenders parties to the Credit Agreement referred
to in the foregoing Amendment, hereby consent to such Amendment and hereby
confirm and agree that (a) notwithstanding the effectiveness of such Amendment,
the Guaranty and the Security Agreement are, and shall continue to be, in full
force and effect and are hereby ratified and confirmed in all respects, except
that, on and after the effectiveness of such Amendment, each reference in the
Guaranty and the Security Agreement to the "Credit Agreement", "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement, as amended by such Amendment, and (b) the Collateral Documents to
which such Guarantor is a party and all of the Collateral described therein do,
and shall continue to, secure the payment of all of the Secured Obligations (in
each case, as defined therein).
Royal Advertising & Marketing, Inc.
By
----------------------------
Title:
SC Publishing, Inc.
By
----------------------------
Title:
CONSENT
<PAGE>
Dated as of _______________, 19__
The undersigned, Specialty Catalog Corp., a Delaware corporation and
SC Holdings L.L.C., a limited liability company organized under the laws of the
State of Delaware, as Pledgor under the Pledge Agreement dated November 30, 1994
(the "Pledge Agreement") in favor of the Agent and, for its benefit and the
benefit of the Lenders parties to the Credit Agreement referred to in the
foregoing Amendment, hereby consent to such Amendment and hereby confirm and
agree that (a) notwithstanding the effectiveness of such Amendment, the Pledge
Agreement is, and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects, except that, on and after the
effectiveness of such Amendment, each reference in the Pledge Agreement to the
"Credit Agreement", "thereunder", "thereof" or words of like import shall mean
and be a reference to the Credit Agreement, as amended by such Amendment, and
(b) the Collateral Documents to which such Pledgor is a party and all of the
Collateral described therein do, and shall continue to, secure the payment of
all of the Secured Obligations (in each case, as defined therein).
Specialty Catalog Corp.
By
----------------------------
Title:
SC Holdings L.L.C.
By
----------------------------
Title:
<PAGE>
CONSENT
Dated as of _______________, 19__
The undersigned, Specialty Catalog Corp., a Delaware corporation and
SC Holdings L.L.C., a limited liability company organized under the laws of the
State of Delaware, as Guarantor under the Guaranty dated November 30, 1994 (the
"Guaranty") in favor of the Agent and, for its benefit and the benefit of the
Lenders parties to the Credit Agreement referred to in the foregoing Amendment,
hereby consent to such Amendment and hereby confirm and agree that (a)
notwithstanding the effectiveness of such Amendment, the Guaranty is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects, except that, on and after the effectiveness of such Amendment,
each reference in the Guaranty to the "Credit Agreement", "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement, as amended by such Amendment, and (b) the Collateral Documents to
which such Guarantor is a party and all of the Collateral described therein do,
and shall continue to, secure the payment of all of the Secured Obligations (in
each case, as defined therein).
Specialty Catalog Corp.
By
----------------------------
Title:
SC Holdings L.L.C.
By
----------------------------
Title:
<PAGE>
EXHIBIT 10.06
SECOND AMENDMENT, WAIVER AND CONSENT
SECOND AMENDMENT, WAIVER AND CONSENT, dated as of August 14, 1996 (this
"Amendment"), among SC Corporation, a Delaware corporation (the "Borrower"), the
- ---------- --------
banks, financial institutions and other institutional lenders parties to the
Credit Agreement referred to below (collectively, the "Lenders") and Banque
-------
Nationale de Paris, as agent (the "Agent") for the Lenders.
-----
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent have entered into a Credit
Agreement dated as of November 23, 1994, as amended by the First Amendment,
Waiver and Consent thereto, dated as of August 16, 1995 (as so amended, the
"Credit Agreement"). Capitalized terms not otherwise defined in this Amendment
- -----------------
have the meanings specified in the Credit Agreement.
(2) Wigs by Paula, Inc. has merged with and into SC Corporation, a Delaware
corporation ("SC"), with SC the surviving corporation, doing business as SC
--
Direct, Inc. (the "Borrower"), and a wholly owned subsidiary of Specialty
--------
Catalog Corp. ("Specialty").
---------
(3) The Borrower has requested that the Lenders consent to certain
amendments to the Credit Agreement on the terms and conditions herein provided.
(4) The Lenders are, on such terms and conditions, willing to grant the
request of the Borrower and the Borrower and the Lenders have agreed to amend
the Credit Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit Agreement is,
------------------------------
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 3, hereby amended as follows:
(a) The definition of "Clean-Down Period" in Section 1.01 is deleted
in its entirety.
(b) The definition of "Borrowing Base Deficiency" in Section 1.01 is
hereby amended by deleting the phrase "of the respective Corresponding
Percentages of each".
(c) The definition of "EBITDA" in Section 1.01 is hereby amended by
adding immediately following the phrase "noncash charges relating to employee
options" the phrase "and relating to warrants issued by Specialty to the
Franklin
<PAGE>
2
Group".
(d) The following parenthetical is added at the end of subparagraphs
(h) and (i) of the definition of "Eligible Inventory" in Section 1.01:
"(other than Inventory that would otherwise be Eligible Inventory (i) that
is in transit being shipped through a common carrier, (ii) to which title
has passed to the Borrower free and clear of all Liens and (iii) to which
the Agent is named as loss payee under an insurance policy covering risk of
loss or damage of the Inventory).".
(e) Section 1.01 is amended by adding the following definitions after
the definition of "Fixed Charge Coverage Ratio":
"'Franklin Group' means the Persons referred to in Section 4(f)
--------------
hereof.
'Franklin Proceeds' means the aggregate amount of $500,000
-----------------
received by the Borrower from the issuance and sale of $495,000 of
Subordinated Notes to the Franklin Group and $5,000 received by
Specialty from the issuance to Franklin Group of warrants to purchase
common stock of Specialty, in each case in the amounts set forth on
Schedule I hereto.".
(f) Section 1.01 is amended by adding the following definition after
the definition of "Investment":
" 'IPO' means the initial public offering by Specialty of shares of
---
its common stock."
(g) The definition of "Leverage Ratio" is amended by adding at the end
thereof the following:
"provided, however, that for any Rolling Period commencing on or
-------- -------
after July 1, 1996 and ending prior to July 1, 1997, the amount
determined in accordance with clause (b) of this definition shall be
computed on an Annualized Basis".
(h) The definition of "Rolling Period" in Section 1.01 is amended in
its entirety to read as follows:
"'Rolling Period' means (a) with respect to any month ending
--------------
prior to December 1, 1995, the period commencing on December 1, 1994
and ending on the last day of such month and (b) with respect to any
month beginning on or after December 1, 1995 and ending prior to July
1, 1996,
<PAGE>
3
the consecutive 12-month period ending on the last day of such month,
(c) with respect to any month ending prior to July 1, 1997, the period
commencing on July 1, 1996 and ending on the last day of such month
and (d) with respect to any month thereafter, the consecutive 12-month
period ending on the last day of such month.".
(i) Section 1.03 is amended by inserting after the word "consistent"
the following phrase: "except for the American Institute of Certified
Public Accountants' Statement of Position 93-7 which shall be construed as
in effect on January 1, 1995."
(j) Clause (B) of Section 2.06(b)(iii) is hereby amended to read "the
lesser of the Working Capital Facility and the sum of the Loan Value of
Eligible Inventory plus 50% of the Available Amount of Trade Letters of
Credit issued for the purpose of purchasing Inventory that would otherwise
be Eligible Inventory on such Business Day.".
(k) Section 2.06(b)(ii)(B) is amended by adding at the end of but
within the parenthetical "and not including the Franklin Proceeds".
(l) Section 2.06(b)(ii)(C) is amended to add:
(i) to the first sentence thereof, after the words "the sale or
issuance by any Loan Party or any of its Subsidiaries of any capital
stock," the parenthetical "(excluding the contribution by Specialty to
SC Corporation of Franklin Proceeds and limited in the case of the IPO
to the amount of $5,000,000 or, if completed after September 30, 1996,
$4,450,000)".
(ii) at the end of the second sentence thereof, "provided,
--------
however, that any such prepayment with Net Cash Proceeds from the IPO
-------
shall be applied first to repay in full the amounts required by
Section 2.04(a) on September 30, 1996 and December 31, 1996 which, at
the time of the IPO, are not repaid in full and the balance shall be
applied to the Term Facility pro rata to the remaining installments
thereof".
(m) Section 2.06(b)(v) is deleted in its entirety and replaced with
the words "Intentionally omitted."
(n) Sections 5.04(a),(b), (c) and (d) are amended as set forth below
for the periods indicated:
(a) The definition of "Net Worth" in Section 1.01 is amended by
deleting "$3,050,000" and substituting therefor "$3,550,000" and by adding after
<PAGE>
4
the words "employee options," the following: "and relating to
warrants issued by Specialty to the Franklin Group, in each
case".
(b) Leverage Ratio:
---------------
Rolling Period Ending From Ratio
-------------------------- -----
November 30, 1995 to June 30, 1996 4.30:1
July 1, 1996 to August 31, 1996 5.00:1
September 1, 1996 to September 30, 1996 4.00:1
October 1, 1996 to November 30, 1996 3.00:1
December 1, 1996 to November 30, 1997 2.00:1
December 1, 1997 to June 30, 1998 1.75:1
July 1, 1998 to June 30, 1999 1.50:1
(c) Fixed Charge Coverage Ratio:
----------------------------
Rolling Period Ending From Ratio
-------------------------- -----
December 31, 1995 to June 30, 1996 0.60:1
July 1, 1996 to September 30, 1996 1.00:1
October 1, 1996 to June 30, 1999 1.05:1
(d) Interest Coverage Ratio:
------------------------
Rolling Period Ending From Ratio
-------------------------- -----
December 31, 1995 to June 30, 1996 2.20:1
July 1, 1996 to August 31, 1996 1.50:1
September 1, 1996 to November 30, 1996 3.00:1
December 1, 1996 to June 30, 1999 4.00:1
SECTION 2. Amendments to Specialty Guaranty. Section 7
--------------------------------
of the Guaranty is amended to permit Specialty to sell shares of its common
stock in an initial public offering (the "IPO") on or prior to December 31, 1996
---
with Net Cash Proceeds of at least $5,000,000 and to permit the conversion of
the Subordinated Notes and the Preferred Stock of the Guarantor into common
stock of the Guarantor".
SECTION 3. Waiver and Consent. The Lenders hereby waive
------------------
(a) any payment required by Section 2.06(b)(i) for fiscal year 1996 if the IPO
is completed on or prior to December 31, 1996 and (b) the existence of a Default
or an Event of Default that may exist prior to the effective date hereof as a
result of the breach of any covenant or other term or provision of the Credit
Agreement amended hereby.
<PAGE>
5
SECTION 4. Conditions of Effectiveness. Sections 1,2 and 3 of this
---------------------------
Amendment shall become effective as of the date first above written when, and
only when, the Agent shall have received counterparts of this Amendment executed
by the Borrower and the Lenders or, as to any of the Lenders, advice
satisfactory to the Agent that such Lender has executed this Amendment and the
consent attached hereto executed by the Guarantors and each other Loan Party and
the Agent shall have additionally received all of the following documents, each
such document (unless otherwise specified) dated the date of receipt thereof by
the Agent and in sufficient copies for each Lender, in form and substance
satisfactory to the Required Lenders and in sufficient copies for each Lender:
(a) Certified copies of (i) the resolutions of the Board of Directors
of (A) the Borrower approving this Amendment and the matters contemplated
hereby and thereby and (B) the Guarantor and each other Loan Party
evidencing approval of the Consent and the matters contemplated hereby and
thereby and (ii) all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to this Amendment, and the
Consent and the matters contemplated hereby and thereby.
(b) A certificate of the Secretary or an Assistant Secretary of the
Borrower, the Guarantors and each other Loan Party certifying the names and
true signatures of the officers of the Borrower, and the Guarantors and
such other Loan Party authorized to sign this Amendment and the Consent and
the other documents to be delivered hereunder and thereunder.
(c) Counterparts of the Consent appended hereto (the "Consent"),
-------
executed by the Guarantors and each of the Loan Parties (other than the
Borrower).
(d) A certificate signed by a duly authorized officer of the Borrower
and each other Loan Party stating that:
(i) The representations and warranties contained in Section 5 are
correct on and as of the date of such certificate as though made on
and as of such date other than any such representations or warranties
that, by their terms, refer to a date other than the date of such
certificate; and
(ii) After giving effect to this Amendment, no event has occurred
and is continuing that constitutes a Default.
(e) The Agent shall have received Forms UCC-1 relating to SC Direct,
Inc. executed by the Borrower.
<PAGE>
6
(f) The Borrower shall have received the Franklin Proceeds and the
junior subordinated obligations shall have been created in accordance with
the terms of the letter agreement dated June 1, 1996 between SC Direct,
Inc. and Martin Franklin, and supplemented by a memorandum dated July 25,
l996 from Mr. Franklin relating to the Persons making such investment (the
"Franklin Group") and such agreement and memorandum are the only agreements
--------------
between the Franklin Group and the Loan Parties relating to the investment
by the Franklin Group in the Loan Parties. A true and correct copy of such
documents shall have been delivered to the Agent and the obligations
thereunder shall thereafter be deemed to be "Subordinated Notes" and
documents "Subordinated Debt Documents".
(g) The Working Capital Advances, together with accrued interest
thereon, will be repaid in full on the date of the closing of the IPO.
The effectiveness of this Amendment is conditioned upon the accuracy
of the factual matters described herein. This Amendment is subject to the
provisions of Section 8.01 of the Credit Agreement.
SECTION 5. Representations and Warranties of the Borrower. The
----------------------------------------------
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction indicated in the
recital of parties to this Amendment.
(b) The execution, delivery and performance by the Borrower of this
Amendment and the Loan Documents, as amended hereby, to which it is or is
to be a party, and the consummation of the transactions contemplated
hereby, are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not (i) contravene the
Borrower's charter or by-laws, (ii) violate any law (including, without
limitation, the Securities Exchange Act of 1934, as amended, and the
Racketeer Influenced and Corrupt Organizations Chapter of the Organized
Crime Control Act of 1970), rule or regulation (including, without
limitation, Regulation X of the Board of Governors of the Federal Reserve
System), or any order, writ, judgment, injunction, decree, determination or
award, binding on or affecting the Borrower or any of its Subsidiaries or
any of their properties, (iii) conflict with or result in the breach of, or
constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting
the Borrower, any of its Subsidiaries or any of their properties or (iv)
except for the Liens created under the Collateral Documents, as amended
<PAGE>
7
hereby, result in or require the creation or imposition of any Lien upon or
with respect to any of the properties of the Borrower or any of its
Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for the due execution, delivery or performance by
the Borrower of this Amendment or any of the Loan Documents, as amended
hereby, to which it is or is to be a party, other than the filing of
charter amendments.
(d) This Amendment has been duly executed and delivered by the
Borrower. This Amendment and each of the other Loan Documents, as amended
hereby, to which the Borrower is a party are legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with their respective terms.
(e) There is no action, suit, investigation, litigation or proceeding
affecting the Borrower or any of its Subsidiaries (including, without
limitation, any Environmental Action) pending or threatened before any
court, governmental agency or arbitrator that (i) could reasonably be
expected to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of this Amendment or any of the other
Loan Documents, as amended hereby, or the consummation of any of the
transactions contemplated hereby.
SECTION 6. Reference to and Effect on the Loan Documents. (a) On
---------------------------------------------
and after the effectiveness of this Amendment, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the Notes and each of
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement, as amended by this Amendment.
(b) The Credit Agreement, Notes and each of the other Loan Documents,
as specifically amended by this Amendment, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed. Without
limiting the generality of the foregoing, the Collateral Documents and all of
the Collateral described therein do and shall continue to secure the payment of
all Obligations of the Loan Parties under the Loan Documents, in each case as
amended by this Amendment.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or
<PAGE>
8
remedy of any Lender or the Agent under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
SECTION 7. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all costs and expenses of the Agent in connection with the preparation,
execution, delivery and administration, modification and amendment of this
Amendment and the other instruments and documents to be delivered hereunder
(including, without limitation, the reasonable fees and expenses of counsel for
the Agent) in accordance with the terms of Section 7.04 of the Credit Agreement.
In addition, the Borrower shall pay any and all Other Taxes payable or
determined to be payable in connection with the execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder, and
agrees to save the Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such Other Taxes.
SECTION 8. Execution in Counterparts. This Amendment may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
SECTION 9. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
SECTION 10. Fee Letter. In the event the Termination Date occurs on
----------
or prior to March 31, 1997 and all Obligations under the Loan Documents
(excluding the success fee payable under the fee letter dated November 23, 1994
between BNP and the Borrower) are paid in full in cash, the success fee payment
to BNP required by the fee letter will be waived and the obligation to pay such
success fee will be terminated.. If the IPO occurs on or before December 31,
1996, it will not constitute a "Triggering Event" under the fee letter.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
SC CORPORATION
By
------------------------------
Title:
<PAGE>
9
Date:
BANQUE NATIONAL DE PARIS,
as Agent and as Lender
By
------------------------------
Title:
By
------------------------------
Title:
Date:
<PAGE>
CONSENT
Dated as of August 14, 1996
The undersigned, Royal Advertising and Marketing, Inc., a
Massachusetts corporation and SC Publishing, Inc., a California corporation, as
Guarantors under the Guaranty and as the Parties to the Security Agreement, in
each case, dated November 23, 1994 as amended by the First Amendment, Waiver and
Consent (the "First Amendment") thereto, dated as of August 16, 1995 (as so
---------------
amended, the "Guaranty" and the "Security Agreement") in favor of the Agent and,
-------- ------------------
for its benefit and the benefit of the Lenders parties to the Credit Agreement
as amended by the First Amendment and the Second Amendment and Consent (the
"Second Amendment") thereto, dated as of August 14, 1996 (as so amended, the
- -----------------
"Credit Agreement"), hereby consent to such Second Amendment and hereby confirm
- -----------------
and agree that (a) notwithstanding the effectiveness of such Second Amendment,
the Guaranty and the Security Agreement are, and shall continue to be, in full
force and effect and are hereby ratified and confirmed in all respects, except
that, on and after the effectiveness of such Second Amendment, each reference in
the Guaranty and the Security Agreement to the "Credit Agreement", "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement, as further amended by such Second Amendment, and (b) the Collateral
Documents to which such Guarantor is a party and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations (in each case, as defined therein).
Royal Advertising & Marketing, Inc.
By
------------------------------
Date: Title:
SC Publishing, Inc.
Date: By
------------------------------
Title:
<PAGE>
CONSENT
Dated as of August 14, 1996
The undersigned, Specialty Catalog Corp., a Delaware corporation and
SC Holdings L.L.C., a limited liability company organized under the laws of the
State of Delaware, as Pledgor under the Pledge Agreement dated November 30, 1994
as amended by the First Amendment, Waiver and Consent (the "First Amendment")
---------------
thereto, dated as of August 16, 1995 (as so amended, the "Pledge Agreement") in
favor of the Agent and, for its benefit and the benefit of the Lenders parties
to the Credit Agreement as amended by the First Amendment and the Second
Amendment and Consent (the "Second Amendment") thereto, dated as of August 14,
----------------
1996 (as so amended, the "Credit Agreement"), hereby consent to such Second
----------------
Amendment and hereby confirm and agree that (a) notwithstanding the
effectiveness of such Second Amendment, the Pledge Agreement is, and shall
continue to be, in full force and effect and is hereby ratified and confirmed in
all respects, except that, on and after the effectiveness of such Second
Amendment, each reference in the Pledge Agreement to the "Credit Agreement",
"thereunder", "thereof" or words of like import shall mean and be a reference to
the Credit Agreement, as further amended by such Second Amendment, and (b) the
Collateral Documents to which such Pledgor is a party and all of the Collateral
described therein do, and shall continue to, secure the payment of all of the
Secured Obligations (in each case, as defined therein).
Specialty Catalog Corp.
Date: By
------------------------------
Title:
SC Holdings L.L.C.
Date: By
------------------------------
Title:
<PAGE>
CONSENT
Dated as of August 14, 1996
The undersigned, Specialty Catalog Corp., a Delaware corporation and
SC Holdings L.L.C., a limited liability company organized under the laws of the
State of Delaware, as Guarantor under the Guaranty dated November 30, 1994 as
amended by the First Amendment, Waiver and Consent (the "First Amendment")
---------------
thereto, dated as of August 16, 1995 and the Second Amendment and Consent (the
"Second Amendment") thereto, dated as of August 14, 1996 (as so amended, the
- -----------------
"Guaranty") in favor of the Agent and, for its benefit and the benefit of the
Lenders parties to the Credit Agreement as amended by the First Amendment and
the Second Amendment (as so amended, the "Credit Agreement"), hereby consent to
----------------
such Second Amendment and hereby confirm and agree that (a) notwithstanding the
effectiveness of such Second Amendment, the Guaranty is, and shall continue to
be, in full force and effect and is hereby ratified and confirmed in all
respects, except that, on and after the effectiveness of such Second Amendment,
each reference in the Guaranty to the "Credit Agreement", "thereunder",
"thereof" or words of like import shall mean and be a reference to the Credit
Agreement, as further amended by such Second Amendment, and (b) the Collateral
Documents to which such Guarantor is a party and all of the Collateral described
therein do, and shall continue to, secure the payment of all of the Secured
Obligations (in each case, as defined therein).
Specialty Catalog Corp.
By
------------------------------
Date: Title:
SC Holdings L.L.C.
By
------------------------------
Date: Title:
<PAGE>
EXHIBIT B TO THE
CREDIT AGREEMENT
FORM OF NOTICE OF BORROWING
Banque Nationale de Paris,
as Agent under the
Credit Agreement
referred to below
499 Park Avenue
New York, NY 10022 [Date]
Attention: Ms. Julia Requena
Ladies and Gentlemen:
The undersigned, SC Corporation (the "Borrower"), refers to the
--------
Credit Agreement dated as of August 17, 1995 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement", the terms defined
----------------
therein being used herein as therein defined), among the Borrower, certain
Lender Parties party thereto, and Banque Nationale de Paris, as Agent for said
Lender Parties, and hereby gives you notice, irrevocably, pursuant to Section
2.02 of the Credit Agreement that the Borrower hereby requests a Borrowing under
the Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing") as required by Section
------------------
2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is _________ __, 199 .
(ii) The Facility under which the Proposed Borrowing is requested is
the _______________ Facility.
(iii) The Type of Advances comprising the Proposed Borrowing is [Base
Rate Advances] [Eurodollar Rate Advances].
(iv) The aggregate amount of the Proposed Borrowing is $__________.
[(v) The initial Interest Period for each Eurodollar Rate Advance
made as part of the Proposed Borrowing is __________ month[s].]
(vi) Borrowing Base Availability
<PAGE>
2
(1) (a) Net Availability Total
from Schedule 1 on the
most recently delivered
Borrowing Base Certificate
(b) 50% of Available Amount of
Trade Letters of Credit used
to purchase Inventory which
would otherwise be Eligible
Inventory
(c) Total
(d) Enter lesser of (1)(c) and the
Working Capital Facility
(2) Working Capital Advances Outstanding
(3) Aggregate Principal Amount of
Letter of Credit Advances Outstanding
(4) Total Available Amount of all
Letters of Credit Outstanding
(5) Total Working Capital Availability
[(1)(d) less (2) less (3) less (4)]
---- ---- ----
The Borrower hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in each Loan Document
are correct on and as of the date of the Proposed Borrowing, before and
after giving effect to the Proposed Borrowing and to the application of the
proceeds therefrom, as though made on and as of such date other than any
such representations or warranties that, by their terms, refer to a
specific date other than the date of the Proposed Borrowing, in which case,
as of such specific date;
(B) no event has occurred and is continuing, or would result from such
Proposed Borrowing or from the application of the proceeds therefrom, that
constitutes a Default; and
<PAGE>
3
(C) after giving effect to such Borrowing (a) the lesser of (1) the
sum of the Loan Values of the Eligible Collateral plus 50% of the Available
Amount of Trade Letters of Credit issued for the purpose of purchasing
Inventory which would otherwise be Eligible Inventory and (2) the Working
Capital Facility shall exceed (b) the aggregate principal amount of Working
Capital Advances plus the Letter of Credit Advances plus the aggregate
---- ----
Available Amount of all Letters of Credit then outstanding after giving
effect to such Advance or issuance, respectively.
Very truly yours,
SC CORPORATION
By
--------------------------
Title:
<PAGE>
EXHIBIT D TO THE
CREDIT AGREEMENT
BORROWING BASE CERTIFICATE
Date: __________, 19__
To: Banque Nationale de Paris,
as Agent
499 Park Avenue
New York, New York 10022
Attn: Mr. Stephen Kovacs
Telecopy: (212) 418-8269
BORROWING BASE CERTIFICATE
--------------------------
Borrowing Base Availability as at the date hereof:
(1) (a) Net Availability Total
from Schedule 1
(b) 50% of Available Amount of
Trade Letters of Credit used
to purchase Inventory which
would otherwise be Eligible
Inventory
(c) Total
(d) Enter lesser of (1)(c) and the
Working Capital Facility
(2) Working Capital Advances Outstanding
(3) Aggregate Principal Amount of
Letter of Credit Advances Outstanding
(4) Total Available Amount of all
Letters of Credit Outstanding
(5) Total Working Capital Availability
[(1)(d) less (2) less (3) less (4)]
---- ---- ----
<PAGE>
2
This report is submitted pursuant to the Credit Agreement dated as of
November 23, 1994 among SC Corporation, as Borrower, the lenders (the "Lenders")
-------
that are, or may from time to time become, party thereto and Banque Nationale de
Paris, New York Branch, as agent (the "Agent") for the Lenders thereunder as the
-----
same may be amended from time to time (the "Credit Agreement"). The Agent has
been granted a security interest in, among other things, the Inventory pursuant
to the Loan Documents. Unless otherwise indicated, capitalized terms used
herein have the meanings ascribed to them in the Credit Agreement.
The undersigned hereby certifies that (i) the amounts and the
representations set forth herein are true and correct in all material respects,
(ii) the calculations determined herein are determined in accordance with GAAP
and (iii) except as noted, none of the Inventory referred to in this report
falls within the ineligible or prohibited categories as noted in the Credit
Agreement. We further confirm the above mentioned assignment and grant of
security interest in the Inventory to the Agent.
SC CORPORATION
Date: By:
-------------------------- ----------------------------
Name:
Title:
<PAGE>
SCHEDULE 1
Inventory Net Availability
--------------------------
(a) Gross Inventory
=================
============================
Less: Ineligible Inventory
(b) Inventory consisting of
"perishable agricultural
commodities" or on which
a Lien has arisen or may
arise in favor of agricultural
producers
___________
(c) Inventory located on
leaseholds as to which the
lessor has not entered into
a consent and agreement
providing for the rights
of the Agent
___________
(d) Inventory in respect of which
the Security Agreement does
not create a valid and perfected
first priority Lien in favor of the
Agent, the Issuing Bank, the
Lenders and the Hedge Banks
securing the Secured Obligations
___________
(e) Inventory with respect
to which the
representations and
warranties set forth
in the Security Agreement
are not true and correct
___________
(f) Inventory consisting of
promotional and marketing
materials and shipping and
other supplies
___________
<PAGE>
2
(g) Inventory that fails to
meet any standards imposed
by any governmental agency
or regulatory authority that
is not saleable in the ordinary
course of business
___________
(h) Inventory subject to a
licensing, patent, royalty, trademark
or other such agreement with any
third party as to which a dispute
exists
___________
(i) Inventory not in the possession
or sole control of the
Borrower or any Subsidiary
[other than Inventory that would
otherwise be Eligible Inventory
(i) that is in transit being shipped
through a common carrier,
(ii) to which title has passed to the
Borrower free and clear of all Liens and
(iii) to which the Agent is named as
loss payee under an insurance policy
covering risk of loss or damage
of the Inventory]/1/
___________
(j) Inventory located
outside the United States
[other than Inventory that would
otherwise be Eligible Inventory
(i) that is in transit being shipped
through a common carrier,
(ii) to which title has passed to the
Borrower free and clear of all Liens and
(iii) to which the Agent is named as
loss payee under an insurance policy
covering risk of loss or damage
of the Inventory]/1/
___________
* exclusion to be used in either (i) or (j).
<PAGE>
3
(k) Inventory consisting of work
in progress
___________
(l) Inventory that is obsolete,
unusable or otherwise unavailable
for sale in the ordinary course of
business of the Borrower
___________
(m) Total ineligible Inventory
[sum of (b) through (l)]
___________
(n) Eligible Inventory
[(a) less (m)]
----
_______
- ----------
Net Availability at 50% of Adjusted
--
Eligible Inventory [(n) multiplied by 50%]
===================
<PAGE>
ANNEX 1
Franklin Group
--------------
Names Investments
----- -----------
<PAGE>
EXHIBIT 10.07
EXECUTION COPY
--------------
SECURITY AGREEMENT
Dated November 23, 1994
by and among
WIGS BY PAULA, INC.,
WESTERN SCHOOLS, INC.
and
ROYAL ADVERTISING & MARKETING, INC.
as Grantor,
----------
and
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Agent
--------
<PAGE>
<TABLE>
<CAPTION>
T A B L E O F C O N T E N T S
--------------------------------
Page
----
<S> <C>
SECTION 1. Grant of Security...................................................... 2
SECTION 2. Security for Obligations............................................... 5
SECTION 3. Grantor Remains Liable................................................. 5
SECTION 4. Delivery of Security Collateral and Account Collateral................. 5
SECTION 5. Maintaining the L/C Cash Collateral Account and Blocked Accounts....... 5
SECTION 6. Investing of Amounts in the L/C Cash Collateral Account................ 6
SECTION 7. Release of Amounts..................................................... 7
SECTION 8. Representations and Warranties......................................... 7
SECTION 9. Further Assurances..................................................... 9
SECTION 10. As to Equipment and Inventory......................................... 10
SECTION 11. Insurance............................................................. 11
SECTION 12. Place of Perfection; Records; Collection of Receivables............... 12
SECTION 13. Voting Rights; Dividends; Etc......................................... 12
SECTION 14. As to the Assigned Agreements......................................... 14
SECTION 15. Transfers and Other Liens; Additional Shares.......................... 15
SECTION 16. The Agent Appointed Attorney-in-Fact.................................. 15
SECTION 17. The Agent May Perform................................................. 16
SECTION 18. The Agent's Duties.................................................... 16
SECTION 19. Remedies.............................................................. 17
SECTION 20. Indemnity and Expenses................................................ 18
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 21. Security Interest Absolute............................................ 19
SECTION 22. Amendments; Waivers; Etc.............................................. 20
SECTION 23. Notices; Etc.......................................................... 20
SECTION 24. Continuing Security Interest; Assignments Under the Credit Agreement.. 21
SECTION 25. Release and Termination............................................... 21
SECTION 26. The Mortgages......................................................... 22
SECTION 27. Governing Law; Terms.................................................. 22
</TABLE>
<PAGE>
SCHEDULES
---------
Schedule I -- Pledged Shares and Pledged Indebtedness
Schedule II -- Locations of Equipment and Inventory
Schedule III -- Trade Names
Schedule IV -- Deposit Accounts
Schedule V -- Assigned Agreements
EXHIBITS
--------
Exhibit A -- Form of Security Agreement Supplement
Exhibit B -- Form of Consent and Agreement
Exhibit C -- Form of Blocked Account Letter
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT dated November 23, 1994 made by and among WIGS BY
PAULA, INC., a Massachusetts corporation with an office at 21 Bristol Drive,
South Easton, MA 02375 (the "Borrower"), WESTERN SCHOOLS, INC. a California
--------
corporation with an office at 7840 El Cajon Blvd., La Mesa, CA 91941
("Western"), ROYAL ADVERTISING & MARKETING, INC., a Massachusetts corporation
-------
with an office at 21 Bristol Drive, South Easton , MA 0275 ("Royal") (the
-----
Borrower, Western, Royal and the Additional Grantors (as defined in Section 23)
being, collectively, the "Grantor") to Banque Nationale de Paris, New York
-------
Branch ("BNP"), as agent (together with any successor agent appointed pursuant
---
to Article VII of the Credit Agreement (as hereinafter defined), the "Agent")
-----
for the Lenders and the Issuing Bank under the Credit Agreement and as custodian
for the Hedge Banks (as hereinafter defined).
PRELIMINARY STATEMENTS:
(1) The Lenders, the Issuing Bank and Agent have entered into a Credit
Agreement dated as of November 23, 1994 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"; the capitalized terms
----------------
defined therein, and not otherwise defined herein, being used herein as therein
defined) with the Borrower.
(2) The Grantor is the owner of the shares of stock, and of the
warrants, rights and options to acquire the shares of stock (collectively, the
"Pledged Shares"), described opposite the Grantor's name on Part A of Schedule I
- ---------------
hereto and issued by the corporations named therein and of the indebtedness (the
"Pledged Indebtedness") described opposite the Grantor's name on Part B of
--------------------
Schedule I hereto and issued by the obligors named therein.
(3) The Borrower has opened a non-interest bearing cash collateral
account (the "L/C Cash Collateral Account") with the Agent at its offices at 499
---------------------------
Park Avenue, New York, New York 10022, Account No. 20178600052, in the name of
the Borrower but under the sole dominion and control of the Agent and subject to
the terms of this Agreement.
(4) The Borrower may invest in Hedge Agreements (such Hedge Agreements
being, collectively, the "Secured Hedge Agreement") with one or more Lenders
(such Lenders being, collectively, the "Hedge Banks") to obtain the protection
required by Section 5.01(n) of the Credit Agreement against fluctuations in
certain interest rates.
(5) It is a condition precedent to the making of Advances by the
Lenders under the Credit Agreement and the issuance of Letters of Credit by the
Issuing Bank under the Credit Agreement that the Grantor shall have granted the
assignment and security interest and made the pledge and assignment contemplated
by this Agreement.
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make Advances and the Issuing Bank to issue Letters of
Credit, the Grantor hereby agrees with the Agent for its benefit and the ratable
benefit of the Issuing Bank, the Lenders and the Hedge Banks as follows:
SECTION 1. Grant of Security. The Grantor hereby assigns and pledges
-----------------
to the Agent for its benefit and the ratable benefit of the Issuing Bank and the
Lenders and the Hedge Banks, and hereby grants to the Agent for its benefit and
the ratable benefit of the Lenders and the Hedge Banks, a security interest in
the following (collectively, the "Collateral"):
----------
(a) all of the Grantor's right, title and interest, whether now owned
or hereafter acquired, in and to all equipment in all of its forms,
wherever located, now or hereafter existing, all fixtures and all parts
thereof and all accessions thereto (any and all such equipment, fixtures,
parts and accessions being the "Equipment");
---------
(b) all of the Grantor's right, title and interest, whether now owned
or hereafter acquired, in and to all inventory in all of its forms,
wherever located, now or hereafter existing (including, but not limited to,
all (i) raw materials and work in process therefor, finished goods thereof
and materials used or consumed in the manufacture or production thereof,
(ii) goods in which the Grantor has an interest in mass or a joint or other
interest or right of any kind (including, without limitation, goods in
which the Grantor has an interest or right as consignee) and (iii) goods
that are returned to or repossessed by the Grantor), and all accessions
thereto and products thereof and documents therefor (any and all such
inventory, accessions, products and documents being the "Inventory");
---------
(c) all of the Grantor's right, title and interest, whether now owned
or hereafter acquired, in and to all accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles (other than the
proceeds from the "key man" life insurance policies covering Stephen O'Hara
and Stephen Bock pursuant to Section 16 of the Employment Agreements) and
other obligations of any kind, now or hereafter existing, whether or not
arising out of or in connection with the sale or lease of goods or the
rendering of services, and all rights now or hereafter existing in and to
all security agreements, leases and other contracts securing or otherwise
relating to any such accounts, contract rights, chattel paper, instruments,
deposit accounts, general intangibles or obligations (any and all such
accounts, contract rights, chattel paper, instruments, deposit accounts,
general intangibles and obligations, to the extent not referred to in
clause (d), (e), (f) or (g) below, being the "Receivables", and any and all
-----------
such leases, security agreements and other contracts being the "Related
-------
Contracts");
---------
<PAGE>
3
(d) all of the following (collectively, the "Security Collateral"):
-------------------
(i) the Pledged Shares (preferred and common) and the
certificates representing the Pledged Shares, and all dividends, cash,
instruments and other property and assets from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all of the Pledged Shares;
(ii) the Pledged Indebtedness, all subordinated notes and the
instruments evidencing the Pledged Indebtedness, and all interest,
cash, instruments and other property and assets from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Indebtedness;
(iii) all additional shares of stock (preferred and common) and
all additional warrants, rights or options to acquire shares of stock,
from time to time acquired by the Grantor in any manner, and the
certificates representing such additional shares and such additional
warrants, rights or options and all dividends, cash, instruments and
other property and assets from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
such additional shares or such additional warrants, rights or options;
(iv) all additional indebtedness and all subordinated notes from
time to time held by the Grantor in any manner and the instruments
evidencing such additional indebtedness, and all interest, cash,
instruments and other property and assets from time to time received,
receivable or otherwise distributed in respect of or in exchange for
any or all such additional promissory notes and debt instruments;
(v) all of the Borrower's right, title and interest in and to the
agreements listed on Schedule V, as such agreements may be amended or
otherwise modified from time to time (collectively, the "Assigned
Agreements"), including, without limitation, (i) all rights of the
Borrower to receive moneys due and to become due under or pursuant to
the Assigned Agreements, (ii) all rights of the Borrower to receive
proceeds of any insurance, indemnity, warranty or guaranty with
respect to the Assigned Agreements, (iii) claims of the Borrower for
damages arising out of or for breach of or default under the Assigned
Agreements and (iv) the right of the Borrower to terminate the
Assigned Agreements, to perform thereunder and to
<PAGE>
4
compel performance and otherwise exercise all remedies thereunder (all
such Collateral being the "Agreement Collateral"); and
--------------------
(e) all of the following (collectively, the "Account Collateral"):
------------------
(i) the L/C Cash Collateral Account, all funds held therein and
all certificates and instruments, if any, from time to time
representing or evidencing the L/C Cash Collateral Account;
(ii) all other deposit accounts of the Grantor, all funds held
therein and all certificates and instruments, if any, from time to
time representing or evidencing such deposit accounts;
(iii) all Collateral Investments (as hereinafter defined) from
time to time and all certificates and instruments, if any, from time
to time representing or evidencing the Collateral Investments;
(iv) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Agent for or on behalf of the Grantor in
substitution for or in addition to any or all of the then existing
Account Collateral; and
(v) all interest, dividends, cash, instruments and other property
and assets from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Account Collateral;
(f) all of the Grantor's right title and interest, whether now owned
or hereafter acquired, in and to all intellectual property, patents, patent
applications, tradenames, copyrights, trademarks, trade dress, customer
lists, marketing materials and data; and
(g) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the
types described in clauses (a) through (f) of this Section 1) and, to the
extent not otherwise included, all proceeds of any and all of the foregoing
Collateral in the form of (i) payments under insurance (whether or not the
Agent is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing Collateral and (ii) cash.
<PAGE>
5
SECTION 2. Security for Obligations. The pledge, assignment and
------------------------
security interest granted under this Agreement by the Grantor secure the payment
of all Obligations of the Grantor now or hereafter existing under this Agreement
and each other Loan Document and the Secured Hedge Agreements, whether for
principal, interest, premiums, fees, expenses or otherwise (all such Obligations
being the "Secured Obligations"). Without limiting the generality of the
-------------------
foregoing, this Agreement secures the payment of all amounts that constitute
part of the Secured Obligations and would be owed by any Grantor to the Agent,
any Lender or the Issuing Bank under the Loan Documents or to the Hedge Banks
under the Secured Hedge Agreements but for the fact that they are unenforceable
or not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Grantor.
SECTION 3. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) the Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by the Agent of any of the
rights hereunder shall not release any Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral and
(c) none of the Agent, the Lenders, the Issuing Bank or the Hedge Banks shall
have any obligation or liability under the contracts and agreements included in
the Collateral by reason of this Agreement, nor shall the Agent, any Lender, the
Issuing Bank or any Hedge Bank be obligated to perform any of the obligations or
duties of the Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.
SECTION 4. Delivery of Security Collateral and Account Collateral.
------------------------------------------------------
All certificates and instruments representing or evidencing Security Collateral
or Account Collateral shall be delivered to and held by or on behalf of the
Agent pursuant hereto and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Agent. The Agent shall
have the right, if an Event of Default shall have occurred and be continuing and
the Grantor shall have received notice thereof from the Agent, to transfer to or
register in the name of the Agent or any of its nominees any or all of the
Security Collateral and the Account Collateral, subject only to the revocable
rights specified in Section 13(a). In addition, the Agent shall have the right
at any time to exchange certificates or instruments representing or evidencing
Security Collateral or Account Collateral for certificates or instruments of
smaller or larger denominations.
SECTION 5. Maintaining the L/C Cash Collateral Account and Blocked
-------------------------------------------------------
Accounts. So long as any Advance shall remain unpaid, any Letter of Credit
- --------
shall be outstanding, any Lender or the Issuing Bank shall have any Commitment
under the Credit
<PAGE>
6
Agreement or any Hedge Bank shall have any obligation under any Secured Hedge
Agreement:
(a) The Borrower shall maintain the L/C Cash Collateral Account with
BNP.
(b) It shall be a term and condition of the L/C Cash Collateral
Account, notwithstanding any term or condition to the contrary in any other
agreement relating to the L/C Cash Collateral Account, and except as
otherwise provided in Section 7 and Section 19, that no amount (including,
without limitation, interest on Collateral Investments) shall be paid or
released to or for the account of, or withdrawn by or for the account of,
the Borrower or any other Person from the L/C Cash Collateral Account.
(c) The Borrower shall maintain deposit accounts (the "Blocked
-------
Accounts") other than (i) the accounts used by the Borrower and its
--------
Subsidiaries solely to pay the salaries and bonuses of their employees in
the ordinary course of business (such other accounts being the "Payroll
-------
Accounts") and (ii) the accounts in which the Grantor maintains a zero
--------
balance as at the close of each Business Day (the "Zero Balance Accounts")
---------------------
only with banks ("Blocked Banks") that (x) have entered into letter
-------------
agreements in substantially the form of Exhibit C with the Borrower and the
Agent ("Blocked Account Letters") or (y) that are located in the State of
-----------------------
California.
(d) The Borrower shall immediately deposit all monies received for any
reason from each Person obligated at any time to make any payment to the
Borrower for any reason (an "Obligor") in a Blocked Account.
-------
(e) Upon any termination of any Blocked Account or other agreement
with respect to the maintenance of a Blocked Account by the Borrower or any
Blocked Account Bank, the Borrower shall immediately notify all Obligors
that were making payments to such Blocked Account to make all future
payments to another Blocked Account. Upon a Default, the Borrower agrees
to terminate any or all Blocked Accounts and Blocked Account Letters upon
request by the Agent.
The L/C Cash Collateral Account shall be subject to such applicable laws, and
such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as are in
effect from time to time.
SECTION 6. Investing of Amounts in the L/C Cash Collateral Account.
-------------------------------------------------------
If requested by the Borrower, the Agent shall, subject to the provisions of
Section 7 and Section 19, from time to time invest:
<PAGE>
7
(a) amounts on deposit in the L/C Cash Collateral Account in such Cash
Equivalents in the name of the Agent as the Borrower may select and the
Agent may approve, which approval shall not be unreasonably withheld; and
(b) invest interest paid on the Cash Equivalents referred to in
subsection (a) above, and reinvest other proceeds of any such Cash
Equivalents that may mature or be sold, in each case in such Cash
Equivalents in the name of the Agent as the Borrower may select and the
Agent may approve, which approval shall not be unreasonably withheld (the
Cash Equivalents referred to in subsection (a) above and in this subsection
(b) being, collectively, "Collateral Investments").
----------------------
Interest and proceeds that are not invested or reinvested in Collateral
Investments as provided above shall be deposited and held in the L/C Cash
Collateral Account.
SECTION 7. Release of Amounts. Upon the request of the Borrower, so
------------------
long as no Default shall have occurred and be continuing, the Agent shall pay
and release to the Borrower or at its order and at the request of the Borrower,
all amounts in excess of any amounts required to be maintained in the L/C Cash
Collateral Account pursuant to the Credit Agreement.
SECTION 8. Representations and Warranties. The Grantor represents
------------------------------
and warrants as to itself and its Collateral as follows:
(a) All of the Equipment and Inventory (except such Equipment and
Inventory which are in transit or otherwise off such premises in the
ordinary course of business) are located at one or more of the locations
specified beneath the Grantor's name on Schedule II hereto. The place of
business of the Grantor or, if the Grantor has more than one place of
business, the chief executive office of the Grantor, and the office where
the Grantor keeps its records concerning the Receivables and all originals
of all chattel paper that evidence its Receivables, are located at the
address listed below the name of the Grantor on the signature pages hereof
or, in the case of any Additional Grantor, at the address listed below the
name of such Additional Grantor on its Security Agreement Supplement. None
of the Receivables or Agreement Collateral is represented or evidenced by a
promissory note or other instrument.
(b) The Grantor is the legal and beneficial owner of the Collateral
in which it is granting a security interest free and clear of any Lien,
except for (i) the pledge, assignment and security interest created by this
Agreement and (ii) Liens expressly permitted under Section 5.02(a) of the
Credit Agreement. No effective financing statement or other instrument
similar in effect covering all or any part of the
<PAGE>
8
Collateral is on file in any recording office, except (A) such as may have
been filed in favor of the Agent relating to this Agreement or the other
Collateral Documents or (B) for which the Agent has received termination
statements (Form UCC-3 or a comparable form), duly executed and in proper
form for filing, which termination statements shall be properly filed on or
immediately following the date of the initial borrowing and (c) Liens
expressly permitted under Section 5.02(a) of the Credit Agreement. All of
the trade names of the Grantor are set forth below its name on Schedule III
hereto.
(c) The Grantor has exclusive possession and control of all of its
Equipment and Inventory (except such Equipment and Inventory which are in
transit or otherwise off such premises in the ordinary course of business).
(d) The Pledged Shares have been duly authorized and validly issued
and are fully paid and nonassessable. The Pledged Indebtedness has been
duly authorized, authenticated or issued and delivered and is the legal,
valid and binding obligation of the issuers thereof; and neither the
Grantor or any of its Subsidiaries party to the Pledged Indebtedness is in
default thereunder.
(e) The Pledged Shares constitute the percentage of the issued and
outstanding shares of stock, and/or warrants, rights or options to acquire
shares of stock, of the issuers thereof indicated on Part A of Schedule I
hereto. The Pledged Indebtedness is outstanding in the principal amount
indicated on Part B of Schedule I hereto.
(f) The Assigned Agreements, true and complete copies of which have
been furnished to each Lender, have been duly authorized, executed and
delivered by all parties thereto, have not been amended or otherwise
modified, are in full force and effect and are binding upon and enforceable
against all parties thereto in accordance with their terms. There exists no
default under any Assigned Agreement by any party thereto. Each party to
the Assigned Agreements other than the Borrower has executed and delivered
to the Borrower a consent, in substantially the form of Exhibit B, to the
assignment of the Agreement Collateral to the Agent pursuant to this
Agreement.
(g) The Borrower has no deposit accounts other than the Blocked
Accounts, the Payroll Accounts and the Zero Balance Accounts listed on
Schedule IV.
(h) This Agreement, the pledge of the Security Collateral pursuant
hereto and the pledge and assignment of the Account Collateral pursuant
hereto create a valid and perfected first priority security interest in the
Collateral, except as set forth in Section 5(c) of this Agreement (subject
to the Liens expressly permitted under
<PAGE>
9
Section 5.02(a) of the Credit Agreement), securing the payment of the
Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interest will have been duly
made within three Business Days of the date hereof.
(i) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for (i) the grant by the Grantor of the assignment
and security interest granted hereby, the pledge by the Grantor of the
Security Collateral pursuant hereto or the execution, delivery or
performance of this Agreement by the Grantor, (ii) the perfection or
maintenance of the pledge, assignment and security interest created hereby
(including the first priority nature of such pledge, assignment or security
interest) or (iii) the exercise by the Agent of its voting or other rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement (except as may be required in connection with
the disposition of any portion of the Security Collateral by laws affecting
the offering and sale of securities generally), in each case other than the
filing of financing and continuation statements under the Uniform
Commercial Code, which financing statements will have been duly filed
within three Business Days of the date hereof, the filing of termination
statements under the Uniform Commercial Code, which termination statements
shall be filed on or immediately after the date of the initial Borrowing,
and the filing of the Trademark, Patent and Copyright Security Agreement in
the U.S. Patent and Trademark Office, which shall be duly filed on or
immediately after the date of the initial Borrowing.
(j) The Inventory of the Grantor has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
SECTION 9. Further Assurances. (a) The Grantor agrees that from
------------------
time to time, at its own expense, it shall promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or that the Agent may deem desirable and may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby (including, without limitation, the first
priority nature thereof) or to enable the Agent to exercise and enforce its
rights and remedies hereunder with respect to any Collateral. Without limiting
the generality of the foregoing, the Grantor shall promptly: (i) mark
conspicuously each document included in the Inventory, each chattel paper
included in the Receivables, each Related Contract and, at the request of the
Agent, each of its records pertaining to the Collateral with a legend, in form
and substance reasonably satisfactory to the Agent, indicating that such
document, chattel paper, Related Contract or Collateral is subject to the
security interest granted hereby; (ii) if any Collateral shall be represented or
evidenced by a promissory note or other instrument or
<PAGE>
10
chattel paper, deliver and pledge to the Agent hereunder such note, instrument
or chattel paper duly endorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Agent; and
(iii) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or as the
Agent may deem desirable and may reasonably request in order to perfect and
preserve the pledge, assignment and security interest granted or purported to be
granted hereby.
(b) The Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Grantor where permitted
by law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(c) The Grantor shall furnish to the Agent from time to time such
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 10. As to Equipment and Inventory. (a) The Grantor shall
-----------------------------
keep its Equipment and Inventory (other than Equipment or Inventory in transit
or Inventory sold in the ordinary course of business) at the locations specified
therefor in Section 8 or, upon 30 days prior notice to the Agent, at such other
locations in a jurisdiction where all action required by Section 9 shall have
been taken with respect to such Equipment and Inventory.
(b) The Grantor shall take all reasonable steps customary for
companies in similar businesses to cause the Equipment to be maintained and
preserved in good condition, repair and working order, ordinary wear and tear
excepted, and shall promptly, or in the case of any loss or damage to any of the
Equipment, as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements and other improvements in connection
therewith that are necessary or desirable to such end in accordance with Section
11(b). The Grantor shall promptly furnish to the Agent a statement respecting
any loss or damage to any of the Equipment that would be reasonably likely to
impair the value of the Collateral in any material respect.
(c) The Grantor shall pay promptly when due all property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including, without limitation, claims for labor, materials and supplies)
against, the Equipment and Inventory, other than to the extent not required to
be paid under Section 5.01(b) of the Credit Agreement. In producing the
Inventory, the Grantor shall comply with all applicable requirements of the Fair
Labor Standards Act.
<PAGE>
11
(d) The Grantor, promptly upon the reasonable request of the Agent,
shall furnish to the Agent a report detailing changes in the amount and
condition of the Equipment, including purchases, depreciation, sales and losses.
(e) The Grantor, promptly upon the reasonable request of the Agent,
shall deliver to the Agent such warehouse receipts, bills of lading and other
documents of title with respect to Inventory and Equipment as are requested,
together with copies of all invoices with respect to the Inventory and
Equipment.
SECTION 11. Insurance. (a) The Grantor shall, at its own expense,
---------
maintain insurance with respect to the Equipment and Inventory in such amounts,
against such risks, in such form and with such insurers, as is usually carried
by companies engaged in similar businesses. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Agent and the Grantor
as their interests may appear, and each policy for property damage insurance
shall provide for all losses (except for losses of less than $100,000 per
occurrence) to be paid directly to the Agent. The Grantor shall use its best
efforts to ensure that each such policy shall in addition (i) name the Grantor
and the Agent as insured parties thereunder (without any representation or
warranty by or obligation upon the Agent) as their interests may appear, (ii)
contain the agreement by the insurer that any loss thereunder shall be payable
to the Agent notwithstanding any action, inaction or breach of representation or
warranty by the Grantor, (iii) provide that there shall be no recourse against
the Agent for payment of premiums or other amounts with respect thereto and (iv)
provide that at least ten days' prior notice of cancellation or of lapse shall
be given to the Agent by the insurer. The Grantor shall, if so requested by the
Agent, deliver to the Agent original or duplicate policies of such insurance
and, as often as the Agent may reasonably request, a report of a reputable
insurance broker with respect to such insurance. Furthermore, the Grantor
shall, at the request of the Agent, duly execute and deliver instruments of
assignment of such insurance policies to comply with the requirements of Section
9 and shall cause the insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by any
Grantor pursuant to this Section 11 may be paid directly to the Person who shall
have incurred liability covered by such insurance. In case of any loss involving
damage to any Equipment or Inventory when subsection (c) of this Section 11 is
not applicable, the Grantor shall exercise reasonable business judgment in
determining whether repairs to or replacements of such Equipment or Inventory
are necessary or desirable in the ordinary course of business and shall make or
cause to be made all such repairs to or replacements of such Equipment or
Inventory, and any proceeds of insurance maintained by the Grantor pursuant to
this Section 11 shall be paid to the Grantor as reimbursement for the costs of
such repairs or replacements.
<PAGE>
12
(c) Upon the occurrence and during the continuance of any Default or
the actual or constructive total loss (in excess of $100,000 per occurrence) of
any Equipment or Inventory, all insurance payments in respect of such Equipment
or Inventory shall be paid to and applied by the Agent as specified in Section
19(b).
SECTION 12. Place of Perfection; Records; Collection of Receivables.
-------------------------------------------------------
(a) The Grantor shall keep its principal place of business and its chief
executive office, and the office where it keeps its records concerning the
Collateral and all originals of all chattel paper that evidence its Receivables,
at the location therefor specified in Section 8(a) or, upon 30 days' prior
notice to the Agent, at such other locations in a jurisdiction where all actions
required by Section 9 shall have been taken with respect to the Collateral. The
Grantor shall hold and preserve such records and chattel paper and shall permit
representatives of the Agent at any reasonable time, and upon reasonable notice,
and from time to time to examine and make copies of abstracts from such records
and chattel paper in accordance with Section 5.01(f) of the Credit Agreement.
(b) Except as otherwise provided in this subsection (b), the Grantor
shall continue to collect, at its own expense, all amounts due or to become due
the Grantor under the Receivables. In connection with such collections, the
Grantor may take (and, at the Agent's direction, shall take) such action as the
Grantor or the Agent may reasonably deem necessary or advisable to enforce
collection of the Receivables; provided, however, that the Agent shall have the
-------- -------
right at any time, upon the occurrence and during the continuance of an Event of
Default and upon notice to the Grantor of its intention to do so, to notify the
Obligors under any Receivables of the assignment of such Receivables to the
Agent and to direct such Obligors to make payment of all amounts due or to
become due to the Grantor thereunder directly to the Agent and, upon such
notification and at the expense of the Grantor, to enforce collection of any
such Receivables, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the Grantor might have
done. After receipt by any Grantor of the notice from the Agent referred to in
the proviso to the immediately preceding sentence, (i) all amounts and proceeds
-------
(including instruments) received by the Grantor in respect of the Receivables
shall be received in trust for the benefit of the Agent, shall be segregated
from other funds of the Grantor and shall be forthwith paid over to the Agent in
the same form as so received (with any necessary endorsement or assignment) and
if any Event of Default shall have occurred and be continuing, applied as
provided by Section 19(b) and (ii) the Grantor shall not adjust, settle or
compromise the amount or payment of any Receivable, release any Obligor thereof,
in whole or in part, or allow any credit or discount thereon.
SECTION 13. Voting Rights; Dividends; Etc. (a) So long as no Event
-----------------------------
of Default shall have occurred and be continuing:
<PAGE>
13
(i) The Grantor shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to the
Security Collateral or any part thereof for any purpose not expressly
prohibited by the terms of this Agreement, or the other Loan Documents or
the Secured Hedge Agreements; provided, however, that the Grantor shall not
-------- -------
exercise or refrain from exercising any such right if such action or
inaction, as the case may be, would be reasonably likely to have a material
adverse effect on the value of the Security Collateral or any part thereof.
(ii) The Grantor shall be entitled to receive and retain any and all
dividends, distributions and interest paid in respect of the Security
Collateral; provided, however, that any and all
-------- -------
(A) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property and assets
received or otherwise distributed in respect of, or in exchange for,
any Security Collateral,
(B) dividends and other distributions paid in cash in
respect of any Security Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any Security
Collateral
shall be, and shall be forthwith delivered to the Agent to hold as,
Security Collateral and, if received by the Grantor, shall be received in
trust for the benefit of the Agent, shall be segregated from other property
and assets or funds of the Grantor and shall be forthwith delivered to the
Agent as Security Collateral in the same form as so received (with any
necessary endorsement or assignment). The Grantor, promptly upon the
request of the Agent, shall execute such documents and do such acts as may
be necessary or desirable in the reasonable judgment of the Agent to give
effect to this clause (ii). Any and all money and other property paid over
to or received by the Agent pursuant to the provisions of this Section
13(a) shall be retained by the Agent as additional Security Collateral
hereunder and applied in accordance with the provisions hereof.
(iii) The Agent shall promptly execute and deliver (or cause to be
executed and delivered) to the Grantor all such proxies and other
instruments as the Grantor may reasonably request for the purpose of
enabling the Grantor to exercise the voting and other consensual rights
that it is entitled to exercise pursuant to clause (i) of this
<PAGE>
14
Section 13 and to receive the dividends, distributions or interest payments
that it is authorized to receive and retain pursuant to clause (ii) of this
Section 13.
(b) If (i) an Event of Default shall have occurred and be continuing,
and (ii) the Grantor shall have received notice thereof from the Agent:
(i) All rights of the Grantor to (A) exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 13(a)(i) shall be suspended,
and in the event such Default is not cured, cease and (B) receive the
dividends, interest payments and other distributions that it would
otherwise be authorized to receive and retain pursuant to Section 13(a)(ii)
shall be suspended, and all such rights shall thereupon become vested in
the Agent, which shall thereupon have the sole right to exercise or refrain
from exercising such voting and other consensual rights and to receive and
retain as Security Collateral such dividends, interest payments and other
distributions.
(ii) All dividends, interest payments and other distributions that
are received by any Grantor contrary to the provisions of clause (i) of
this Section 13(b) shall be received in trust for the benefit of the Agent,
shall be segregated from other property and assets or funds of the Grantor
and shall be forthwith paid over to the Agent as Security Collateral in the
same form as so received (with any necessary endorsement or assignment).
Any and all money and other property paid over to or received by the Agent
pursuant to the provisions of this Section 13(b) shall be retained by the
Agent as additional Security Collateral hereunder and applied in accordance
with the provisions hereof.
(c) The Agent shall provide notice to the Grantor of any suspension of
the rights of the Grantor described in this Section 13 within a reasonable
period of time after such suspension.
SECTION 14. As to the Assigned Agreements. (a) The Borrower shall at
-----------------------------
its expense:
(i) perform and observe all the terms and provisions of the Assigned
Agreements to be performed or observed by it, maintain the Assigned Agreements
in full force and effect, enforce the Assigned Agreements in accordance with
their terms and take all such action to such end as may be from time to time
requested by the Agent; and
(ii) furnish to the Agent promptly upon receipt thereof copies of all
notices, requests and other documents received by the Borrower under or pursuant
to the Assigned Agreements, and from time to time (A) furnish to the Agent such
information and
<PAGE>
15
reports regarding the Collateral as the Agent may reasonably request and (B)
upon request of the Agent make to the other party to any Assigned Agreement such
demands and requests for information and reports or for action as the Borrower
is entitled to make thereunder.
(b) The Borrower shall not:
(i) cancel or terminate any Assigned Agreement or consent to or
accept any cancellation or termination thereof;
(ii) amend or otherwise modify any Assigned Agreement or give any
consent, waiver or approval thereunder;
(iii) waive any default under or breach of any Assigned
Agreement;
(iv) consent to or permit or accept any prepayment of amounts to
become due under or in connection with any Assigned Agreement, except as
expressly provided therein; or
(v) take any other action in connection with any Assigned
Agreement that would impair the value of the interest or rights of the Borrower
thereunder or that would impair the interest or rights of the Agent.
SECTION 15. Transfers and Other Liens; Additional Shares. Except as
--------------------------------------------
may be required solely to consummate the Merger and the transactions
contemplated in connection therewith, (a) the Grantor agrees not (i) to sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, except for dispositions of
property and assets expressly permitted under Section 5.02(e) of the Credit
Agreement, or (ii) to create or suffer to exist any Lien upon or with respect to
any of the Collateral, except for (A) the pledge, assignment and security
interest created by this Agreement and (B) Liens expressly permitted under
Section 5.02(a) of the Credit Agreement.
(b) The Grantor shall (i) cause each issuer of the Pledged Shares
over which it can exercise such control not to issue any stock or other
securities in addition to or in substitution for the Pledged Shares issued by
such issuer, except to the Grantor, and (ii) pledge to the Agent hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional shares of stock or other securities of each issuer of the Pledged
Shares.
SECTION 16. The Agent Appointed Attorney-in-Fact. The Grantor hereby
------------------------------------
irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time
<PAGE>
16
upon the occurrence and during the continuance of a Default, to take any action
and to execute any instrument that may be necessary or that the Agent may deem
desirable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to obtain and adjust insurance required to be paid to the Agent
pursuant to Section 11;
(b) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(c) to receive, endorse and collect any drafts, instruments, chattel
paper and other documents in connection with subsection (a) or (b) above
(including, without limitation, all instruments representing any dividend,
interest payment or other distribution in respect of the Security Collateral or
any part thereof) and give full discharge for the same; and
(d) to file any claims, to take any action or to institute any
proceedings that may be necessary or that the Agent may deem desirable for the
collection of any of the Collateral or otherwise to the rights of the Agent with
respect to any of the Collateral.
SECTION 17. The Agent May Perform. If any Grantor fails to perform
---------------------
any agreement contained herein, the Agent, upon notice to the Grantor, may
itself perform, or cause the performance of, such agreement, and the expenses of
the Agent incurred in connection therewith shall be payable by the Grantor under
Section 21(b).
SECTION 18. The Agent's Duties. The powers conferred on the Agent
------------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the exercise of
reasonable care in the safe custody and preservation of any Collateral in its
possession and the accounting for moneys actually received by it hereunder, the
Agent shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Security Collateral, whether or not the Agent, any
Lender, or the Issuing Bank, any Existing Issuing Bank or any Hedge Bank has or
is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which BNP accords its own property of like tenor.
<PAGE>
17
SECTION 19. Remedies. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party upon default under the Uniform
Commercial Code in effect in the State of New York at such time (the "New York
--------
Uniform Commercial Code"), whether or not the New York Uniform Commercial Code
- -----------------------
applies to the affected Collateral, and also may (i) require the Grantor to, and
the Grantor hereby agrees that it shall at its own expense and upon request of
the Agent forthwith, assemble all or part of the Collateral as directed by the
Agent and make it available to the Agent at a place to be designated by the
Agent that is reasonably convenient to both parties and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any exchange or broker's board or at
any of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. The Grantor agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Grantor of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The
Agent may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale, without further notice, may
be made at the time and place to which it was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon, all or any part of the Collateral may, in the discretion of
the Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter applied in whole or in part by the Agent for its benefit, the ratable
benefit of the Issuing Bank and the ratable benefit of the Lenders and the Hedge
Banks against all or any part of the Secured Obligations, in the following
manner:
(i) first, to the Agent for any amounts owing to the Agent
-----
pursuant to Section 21 hereof, Section 8.04 of the Credit Agreement or
otherwise under the Loan Documents;
(ii) second, to the Issuing Bank for any amounts owing to the
------
Issuing Bank (other than any Letter of Credit Advances which have been
assigned to the Revolving Credit Lenders in accordance with Section 2.03(c)
of the Credit Agreement), ratably in accordance with the aggregate amount
owing to the Issuing Bank, pursuant to Section 2.03 or 8.04 of the Credit
Agreement or otherwise under the Loan Documents; and
<PAGE>
18
(iii) third, to the Lenders for any amounts owing to the Lenders
-----
under the Loan Documents and to the Hedge Banks for any amounts owing to
the Hedge Banks under the Secured Hedge Agreements, ratably in accordance
with the aggregate amount of each Facility (allocated, in the case of the
Term Advances, to the principal repayment installments thereof in inverse
order of maturity) and such amounts owing to each Hedge Bank at such time.
In determining the amounts owing to the Hedge Banks under the Secured Hedge
Agreements, the Agent shall be entitled to rely, and be fully protected in
relying, upon the Agreement Values of the Secured Hedge Agreements. The
term "Agreement Value" means, with respect to any Secured Hedge Agreement
at any date of determination, the amount, if any, that would be payable to
the Hedge Bank in respect of any "agreement value" under such Secured Hedge
Agreement as though such Secured Hedge Agreement were terminated on such
date, calculated as provided in the International Swap Dealers Association,
Inc. Standard Form of Interest Rate and Currency Exchange Agreement, 1987
Edition. Each determination of Agreement Value shall be made by the Agent
in good faith and in reliance on any information (including information
provided by such Hedge Bank) that it believes accurate, but without any
obligation to verify such information. Any surplus of such cash or cash
proceeds held by the Agent and remaining after payment in full of all of
the Secured Obligation shall be paid over to the Grantors or to whomsoever
may be lawfully entitled to receive such surplus.
(c) The Agent may exercise any and all rights and remedies of the
Grantor in respect of the Collateral, including, without limitation,
any and all rights of any Grantor to demand or otherwise require
payment of any amount under, or performance of any provision of, any
Collateral.
(d) All payments received by any Grantor in respect of the Collateral
shall be received in trust for the benefit of the Agent, shall be
segregated from other funds of the Grantor and shall be forthwith paid over
to the Agent in the same form as so received (with any necessary
endorsement or assignment).
(e) The Agent may, without notice to any Grantor, except as required
by law, and at any time or from time to time, charge, set off and otherwise
apply all or any part of the Secured Obligations against the L/C Cash
Collateral Account, or any part thereof.
SECTION 20. Indemnity and Expenses. (a) The Grantor jointly and
----------------------
severally agrees to indemnify the Agent, each Lender, the Issuing Bank and each
Hedge
<PAGE>
19
Bank and each of their respective officers, directors, employees, agents and
advisors (each, an "Indemnified Party") from and against any and all claims,
-----------------
losses and liabilities growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except to the
extent that such claims, losses or liabilities are found in a final,
nonappealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct.
(b) The Grantor jointly and severally agrees to pay to the Agent,
upon demand, the amount of any and all reasonable expenses (including, without
limitation, the reasonable and documented fees and expenses of its counsel and
of any experts and agents) that the Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of the
Agent, any Lender, the Issuing Bank or any Hedge Bank hereunder or (iv) the
failure by the Grantor to perform or observe any of the provisions hereof.
SECTION 21. Security Interest Absolute. The obligations of the
--------------------------
Grantor under this Agreement are independent of the Secured Obligations, and a
separate action or actions may be brought and prosecuted against the Grantor to
enforce this Agreement, irrespective of whether any action is brought against
the Borrower or whether the Borrower is joined in any such action or actions.
All rights of the Agent and the pledge, assignment and security interest
hereunder, and all obligations of the Grantor hereunder, shall be absolute and
unconditional, irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other amendment or
waiver of or any consent to any departure from any Loan Document, including,
without limitation, any increase in the Secured Obligations resulting from the
extension of additional credit to the Borrower or any of its subsidiaries or
otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Secured Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Secured Obligations or any
other assets of the Borrower or any of its subsidiaries;
<PAGE>
20
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its subsidiaries; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Grantor or a third party grantor of a
security interest.
SECTION 22. Amendments; Waivers; Etc. (a) No amendment or waiver of
------------------------
any provision of this Agreement, and no consent to any departure by any Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank
or any Hedge Bank to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
(c) Upon the execution and delivery by any Person of a security
agreement supplement in substantially the form of Exhibit A hereto (each, a
"Security Agreement Supplement"), (i) such Person shall be referred to as an
- ------------------------------
"Additional Grantor" and shall be and become a Grantor, and each reference in
- -------------------
this Agreement to "Grantor" shall also mean and be a reference to such
-------
Additional Grantor and (ii) the supplements attached to each Security Agreement
Supplement shall be incorporated into and become a part of and supplement
Schedules I through IV hereto, as appropriate, and the Agent may attach such
supplements to such Schedules, and each reference to such Schedules shall mean
and be a reference to such Schedules, as supplemented pursuant hereto.
SECTION 23. Notices; Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
(a) if to any Grantor, addressed to it at the address set forth below the name
of the Grantor on the signature pages hereof (or, in the case of any Additional
Grantor, at the address set forth below the name of such Additional Grantor on
the signature page of its Security Agreement Supplement), (b) if to the Agent,
any Lender, the Issuing Bank or any Hedge Bank, addressed to it at its address
set forth in Section 8.02 of the Credit Agreement or (c) or as to any party at
such other address as shall be designated by such party in a notice to each
other party complying as to delivery with the terms of this Section 24. All
such notices and other communications shall, when mailed, telecopied,
telegraphed or telexed, be effective when deposited in the mails, transmitted by
telecopier, delivered to the telegraph company or confirmed by telex answerback,
respectively, addressed as aforesaid.
<PAGE>
21
SECTION 24. Continuing Security Interest; Assignments Under the
---------------------------------------------------
Credit Agreement. This Agreement shall create a continuing security interest in
- ----------------
the Collateral and shall (a) remain in full force and effect until the later of
(i) the cash payment in full of the Secured Obligations and (ii) the Termination
Date, (b) be binding upon the Grantor, its successors and assigns and (c) inure,
together with the rights and remedies of the Agent hereunder, to the benefit of,
and be enforceable by, the Agent, the Lenders, the Issuing Bank, the Hedge Banks
and their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Lender may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment
or Commitments, the Advances owing to it and any Note or Notes held by it) to
any other Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to such Lender herein or otherwise, in
each case as provided in Section 8.07 of the Credit Agreement.
SECTION 25. Release and Termination. (a) Upon any sale, lease,
-----------------------
transfer or other disposition of any item of Collateral in accordance with the
terms of the Loan Documents (other than sales of Inventory in the ordinary
course of business), the Agent shall, at the appropriate Grantor's expense,
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence the release of such item of Collateral from the
assignment and security interest granted hereby; provided, however, that (i) at
-------- -------
the time of such request and such release, no Default shall have occurred and be
continuing, (ii) the Grantor shall have delivered to the Agent, at least ten
Business Days prior to the date of the proposed release, a request for release
describing the item of Collateral and the terms of the sale, lease, transfer or
other disposition in reasonable detail (including, without limitation, the price
thereof and any expenses in connection therewith), together with a form of
release for execution by the Agent and a certification by the Grantor to the
effect that the transaction is in compliance with the Loan Documents and as to
such other matters as the Agent may request and (iii) the proceeds of any such
sale, lease, transfer or other disposition required to be applied in accordance
with Section 2.06 of the Credit Agreement shall be paid to, or in accordance
with the instructions of, the Agent in accordance with the requirements of
Section 2.06 of the Credit Agreement.
(b) Upon the later of (i) the cash payment in full of the Secured
Obligations and (ii) the Termination Date, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the appropriate Grantor. Upon any such termination and reversion, the
Agent shall, at the appropriate Grantor's expense, return to the Grantor such of
the Collateral of the Grantor in its possession as shall not have been sold or
otherwise applied pursuant to the terms of the Loan Documents and execute and
deliver to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination and reversion.
<PAGE>
22
SECTION 26. The Mortgages. In the event that any of the Collateral
-------------
hereunder is also subject to a valid and enforceable Lien under the terms of any
Mortgage and the terms of such Mortgage are inconsistent with the terms of this
Agreement, then, with respect to such Collateral, the terms of such Mortgage
shall be controlling in the case of fixtures and leases, letting and licenses
of, and contracts and agreements relating to, the real property, and the terms
of this Agreement shall be controlling in the case of all other Collateral.
SECTION 27. Governing Law; Terms. This Agreement shall be governed
--------------------
by and construed in accordance with the laws of the State of New York, except to
the extent that the validity or perfection of the security interest hereunder,
or the remedies hereunder, in respect of any particular Collateral are governed
by the laws of a jurisdiction other than the State of New York. Unless
otherwise defined herein or in the Credit Agreement, terms used in Article 9 of
the New York Uniform Commercial Code are used herein as therein defined.
<PAGE>
23
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
THE GRANTOR
-----------
WIGS BY PAULA, INC.
By /s/ Steven L. Bock
-----------------------------
Name: Steven L. Bock
Title: CEO
WESTERN SCHOOLS, INC.
By /s/ Steven L. Bock
-------------------------------
Name: Steven L. Bock
Title: CEO
ROYAL ADVERTISING & MARKETING, INC.
By /s/ Steven L. Bock
---------------------------------
Name: Steven L. Bock
Title: CEO
<PAGE>
24
THE AGENT
---------
BANQUE NATIONALE DE PARIS, NEW YORK BRANCH
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
<PAGE>
SCHEDULE I TO THE
SECURITY AGREEMENT
PLEDGED SHARES AND PLEDGED INDEBTEDNESS
PART A
------
<TABLE>
<CAPTION>
Percentage of
Stock Number Issued and
Class of Par Certificate of Outstanding
Owner Issuer Stock Value No(s). Shares Shares of Issuer
- ------------------ -------------------- -------- ------ -------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
1. SC Western Schools Common $.01 2 100 100%
Corporation Holdings, Inc.
2. Western Western Schools Common No 7 300 100%
Schools par
Holdings, value
Inc.
3. SC Western Schools Common No 8 300 100%
Corporation par
value
4. SC Wigs By Paula, Inc. Common No 2 100 100%
Corporation par
value
5. Wigs by Eva Gabor Common $.01 17 5,461 100%
Paula, Inc. International,
Inc.
</TABLE>
PART B
------
<TABLE>
<CAPTION>
Description Debt Outstanding
Issuer of of Certificate Principal
Pledgor Indebtedness Indebtedness Nos. Final Maturity Amount
- --------- -------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
NONE
</TABLE>
<PAGE>
SCHEDULE II TO THE
SECURITY AGREEMENT
LOCATIONS OF EQUIPMENT AND INVENTORY
1. Wigs by Paula's equipment and inventory are located at:
21 Bristol Drive
South Easton, MA 02375
and
61 Norfolk Drive
South Easton, MA 02375
2. Western Schools, Inc.'s equipment and inventory are located at:
7840 El Cajon Blvd.
La Mesa, CA 91941
<PAGE>
SCHEDULE III TO THE
SECURITY AGREEMENT
TRADE NAMES
WIGS BY PAULA, INC.
Wigs by Paula, Inc. currently owns trademarks for:
<TABLE>
<CAPTION>
US Trademarks Number
- --------------------- ---------
<S> <C>
1. Paula Young 1341870
2. Celebrity Secrets 1,853,184
Canadian Trademarks Number
- --------------------- ---------
1. Wigs by Paula/Paula Young 392042
</TABLE>
Hallstone Products, Ltd. is a recorded user on the Canadian trademark.
Additionally, we are in the process of obtaining trademarks for:
1. Especially yours
2. A Touch of Class
3. Christine Jordan
Especially Yours and A Touch of Class are in the trademark search
process and we expect to own those in the near future.
The Christine Jordan (CJ) trademark process will take longer to
acquire, as it is a regular name.
Wigs by Paula regularly registers copyrights for its periodic
catalog advertising with the Copyright Office.
<PAGE>
<TABLE>
<CAPTION>
WESTERN SCHOOLS
Trademark Number
----------------------------------- -------
<S> <C> <C>
1. Western Schools (TM) 1699003
2. Western Schools (SM) 1643051
3. 'W' and Design (TM) 1678470
4. 'W' and Design (SM) 1652660
5. California - Western Schools (TM) 037549
6. California - Western Schools (SM) 036679
7. California - 'W' and Design (TM) 093041
8. California - 'W' and Design (SM) 037550
9. Instant CPE Service (SM)
10. Nurses' Bookshelf (TM)
11. Coursefinder (TM)
12. Renewal Express (SM)
</TABLE>
. Western Schools regularly registers copyrights for its periodic advertising
catalogs with the Copyright Office.
. Western Schools regularly registers copyrights for its publications in the
fields of nursing, real estate, and CPA's with the Copyright Office.
Western Schools has 80 titles copyrighted.
. Western Schools is currently licensee under agreements to reprint four
books copyrighted by their authors, for which royalties are paid.
. Western Schools is licensor under an agreement which allows Real Estate
License Services of San Diego, CA to reprint certain Western Schools real
estate books, for which a royalty is paid.
. Western Schools is licensor under an agreement which allows University of
Missouri, Columbia, MO to reprint certain Western Schools nursing books,
for which royalty is paid.
<PAGE>
SCHEDULE IV TO THE
SECURITY AGREEMENT
DEPOSIT ACCOUNTS
L/C CASH COLLATERAL ACCOUNT
---------------------------
Name of Name and Address Account Account
Grantor of Bank Number Name
------- ---------------- ------ -------
Wigs by Banque Nationale 20178600052 Wigs by
Paula, Inc. de Paris, Inc. Paula, Inc
New York Branch
499 Park Avenue
New York, NY 10022
OTHER DEPOSIT ACCOUNTS
----------------------
<TABLE>
<CAPTION>
Name of Deposit Name and Address Account
Name Holder of Bank Number Account Name
- ------------------- ---------------- ----------- -----------------------
<S> <C> <C> <C>
SC Corp. Fleet Bank 9357706808 SC Funding
Wigs by Paula 1300 Belmont St. 93577066373 Deposit Account*
SC Corp. Brockton, MA 9363160899 Target Balance
Wigs by Paula 9363564914 Tax Account*
SC Corp. 9357706656 Interest Escrow*
SC Corp. 9356964899 Deposit Account
Wigs by Paula As above 9357706779 Payroll Account*
SC Corp. 9356964864 Payroll Account
Wigs by Paula As above 9357705741 Operating Account (ZBA)
Wigs by Paula 9357706381 Refund Account (ZBA)*
Royal Advertising 9363564906 Operating Account (ZBA)
SC Corp. 9363564893 Operating Account (ZBA)
</TABLE>
______________________
* SC Corporation, Wigs by Paula, Inc., and Western Schools, Inc. anticipate
closing these accounts that were either opened for bankruptcy requirement
reasons only, or will have to be closed due to the SC Corporation/Wigs by Paula,
Inc. company merge process.
Additionally, Western Schools, Inc. anticipates making their operating account a
ZBA.
<PAGE>
<TABLE>
<CAPTION>
Name of Deposit Name and Address Account
Account Holder of Bank Number Account Name
- ------------------- ---------------- ---------- ------------------------
<S> <C> <C> <C>
SC Corp. 9356964928 Operating Account (ZBA)
SC Corp. 9356964901 Refund Account (ZBA)
Wigs by Paul Rockland Trust 2178338 Operating Account*
Royal Advertising 288 Union St. 3931447 Operating Account*
Wigs by Paula Rockland, MA 2178346 Refund Account*
Wigs by Paula 3932125 Deposit Account*
Western Schools Wells Fargo Bank 4650075096 Operating Account
Western Schools 101 W. Broadway 4650075070 Special Account
Western Schools San Diego, CA 0650087497 Tax Account*
</TABLE>
<PAGE>
SCHEDULE V
Assigned Agreements
-------------------
* Pledge and Security Agreement, dated as of November 11, 1994 between
SC Corporation as pledgee and Wigs L.P. as Pledgor
* Added pursuant to Assumption Agreement, dated as of November 11, 1994 of
SC Corporation.
<PAGE>
EXHIBIT A TO THE
SECURITY AGREEMENT
FORM OF SECURITY AGREEMENT SUPPLEMENT
__________, 19__
Banque Nationale de Paris,
New York Branch
499 Park Avenue
New York, New York 10022
Attention: Mr. Richard Cushing
Security Agreement dated
November __, 1994
made by and among
the other Grantors party thereto and
Banque Nationale de Paris,
New York Branch,
as Agent
--------------------------------
Gentlemen/Women:
Reference is made to the above-captioned Security Agreement (as
amended, supplemented or otherwise modified from time to time, the "Security
--------
Agreement"). Unless otherwise defined herein, terms defined in the Security
- ---------
Agreement are used herein as therein defined.
The undersigned hereby agrees, as of the date first above written, to
become an Additional Grantor under the Security Agreement as if it were an
original party thereto and agrees that each reference in the Security Agreement
to a "Grantor" shall also mean and be a reference to the undersigned.
The undersigned hereby assigns and pledges to the Agent for its
benefit, the ratable benefit of the Issuing Bank and the ratable benefit of the
Lenders and the Hedge Banks and hereby grants to the Agent for its benefit, the
ratable benefit of the Issuing Bank and the ratable benefit of the Lenders and
the Hedge Banks, as collateral for the Secured Obligations a
<PAGE>
pledge and assignment of, and a security interest in, all of the right, title
and interest of the undersigned in and to its Collateral, whether now owned or
hereafter acquired.
The undersigned has attached hereto supplements to Schedules I through
IV to the Security Agreement, and the undersigned hereby certifies that such
supplements have been prepared by the undersigned in substantially the form of
the Schedules to the Security Agreement and are accurate and complete as of the
date first above written.
The undersigned hereby makes each representation and warranty set
forth in Section 8 of the Security Agreement as to itself and as to its
Collateral to the same extent as each other Grantor and hereby agrees to be
bound as a Grantor by all of the terms and provisions of the Security Agreement
to the same extent as all other Grantors.
This letter shall be governed by and construed in accordance with the
laws of the State of New York.
Very truly yours,
_________________________,
By____________________________
Title:
Address:
<PAGE>
EXHIBIT B
FORM OF CONSENT AND AGREEMENT
The undersigned hereby acknowledges notice of, and consents to the terms and
provisions of, the Security Agreement dated _______________, 19__ (the "Security
Agreement", the terms defined therein being used herein as therein defined) from
____________________ (the "Borrower") to ____________________ as agent (the
"Agent") for the Lenders referred to therein, and hereby agrees with the Agent
that:
(a) The Agent shall be entitled to exercise any and all rights and remedies of
the Borrower under the Assigned Agreement in accordance with the terms of the
Security Agreement, and the undersigned shall comply in all respects with such
exercise.
(b) The undersigned will not, without the prior written consent of the Agent,
(i) cancel or terminate the Assigned Agreement or consent to or accept any
cancellation or termination thereof, or (ii) amend or otherwise modify the
Assigned Agreement.
[In order to induce the Lenders to make Advances under the Credit Agreement, the
undersigned repeats and reaffirms for the benefit of the Lenders and the Agent
the representations and warranties made in Section _____ of the Assigned
Agreement.]
This Consent and Agreement shall be binding upon the undersigned and its
successors and assigns, and shall inure, together with the rights and remedies
of the Agent hereunder, to the benefit of the Agent, the Lenders and their
successors, transferees and assigns. This Consent and Agreement shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the undersigned has duly executed this Consent and Agreement
as of the date set opposite its name below.
Dated: _______________, 19__ [NAME OF OBLIGOR]
By:
Title:
<PAGE>
EXHIBIT C
FORM OF BLOCKED ACCOUNT LETTER
November __, 1994
Fleet National Bank
________________
________________
Wigs By Paula, Inc.
-------------------
Gentlemen/women:
Reference is made to deposit account no. __________ into which certain monies,
instruments and other properties are deposited from time to time (the "Account")
-------
maintained with you by [NAME OF GRANTOR] (the "Company"). Pursuant to the
-------
Security Agreement dated November __, 1994 (the "Security Agreement"), the
------------------
Company has granted to Banque Nationale de Paris, New York Branch, as agent (the
"Agent") for the Lenders referred to in the Credit Agreement dated as of
-----
November __, 1994 (the "Credit Agreement") with the Company, a security interest
----------------
in certain property of the Company, including, among other things, the following
(the "Account Collateral"): the Account, all funds held therein and all
------------------
certificates and instruments, if any, from time to time representing or
evidencing the Account, all interest, dividends, cash, instruments and other
property from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the then existing Account Collateral
and all proceeds of any and all of the foregoing Account Collateral and, to the
extent not otherwise included, all (i) payments under insurance (whether or not
the Agent is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Account Collateral and (ii) cash. It is a condition to the continued
maintenance of the Account with you that you agree to this letter agreement.
By signing this letter agreement, you acknowledge notice of, and consent to the
terms and provisions of, the Security Agreement and confirm to the Agent that
you have received no notice of any other pledge or assignment of the Account.
Further, you hereby agree with the Agent that:
<PAGE>
(a) Notwithstanding anything to the contrary in any other agreement
relating to the Account, the Account is and will be subject to the terms
and conditions of the Security Agreement, will be maintained solely for the
benefit of the Agent, will be entitled "Banque Nationale de Paris, New York
Branch, as Agent, Re: SC Corporation" and will be subject to written
instructions only from an officer of the Agent.
(b) Upon the written request of the Agent to you, which request shall
specify that an "Event of Default" under the Credit Agreement has occurred
and is continuing (which writing may be by telex or telecopy and upon which
you may conclusively rely, absent manifest error), you shall immediately
transfer (at the cost and expense of the Company) subject to your usual
deposit terms, all funds then or thereafter deposited in the Account by
wire transfer to the Agent at 499 Park Avenue, New York, New York 10022,
Account No. ________________ Re: SC Corporation.
(c) From and after the date that the Agent shall have sent to you a
written notice (which writing may be by telex or telecopy and upon which
you may conclusively rely, absent manifest error) that an "Event of
Default" under the Credit Agreement has occurred and until the date, if
any, that the Agent shall have advised you in writing (which writing may
be by telex or telecopy and upon which you may conclusively rely, absent
manifest error) no Event of Default is continuing, you shall not honor any
withdrawal or transfer from, or any check, draft or other item of payment
on, the Account, other than any withdrawal, transfer, check, draft or other
item made in writing by the Agent or bearing the written consent of the
Agent, and, to the extent of collected funds in the Account, you shall
honor each such withdrawal, transfer, check, draft or other item made in
writing by the Agent or bearing the written consent of the Agent.
(d) You will collect mail from the Account on each of your business
days at times that coincide with the delivery of mail thereto.
(e) You will follow your usual operating procedures for the handling
of any remittance received in the Account that contains restrictive
endorsements, irregularities (such as a variance between the written and
numerical amounts), undated or postdated items, missing signatures,
incorrect payees, etc.
(f) You will endorse and process all eligible checks and other
remittance items not covered by paragraph (e) and deposit such checks and
remittance items in the Account.
(g) You will maintain a record of all checks and other remittance
items received in the Account and furnish to the Agent a monthly statement
of the Account.
<PAGE>
(h) You shall furnish to the Agent, promptly upon the reasonable
written request of the Agent in each instance, the bank statements and all
other information regarding the Account, to the extent the same is provided
to the Company, for the period of time specified in such written notice,
and the Company hereby authorizes you to furnish same.
(i) You agree that you will not make, and you hereby waive all of your
rights to make, any charge, debit or offset to the Account for any reason
whatsoever, and waive any and all liens, whether contractual or provided
under law, which you may have or hereafter acquire on the Account or funds
therein, in each case, other than any charge, offset, debit or lien in
respect of your customary service charges relating to the Account.
(j) All service charges and fees with respect to the Account shall be
payable by the Company, and deposited checks returned for any reason shall
not be charged to the Account.
(k) The Agent shall be entitled to exercise any and all rights of the
Company in respect of the Account in accordance with the terms of the
Security Agreement, and the undersigned shall comply in all respects with
such exercise.
This letter agreement shall be binding upon you and your successors
and assigns and shall inure to the benefit of the Agent, the Lenders and their
successors, transferees and assigns. You may terminate this letter agreement
only upon thirty days' prior written notice to the Company and the Agent. Upon
such termination you shall close the Account and transfer all funds in the
Account to the Borrower. After any such termination, you shall nonetheless
remain obligated promptly to transfer to the Agent all funds and other property
received in respect of the Account.
<PAGE>
This letter agreement shall be governed by and construed in accordance
with the laws of the State of New York.
Very truly yours,
[NAME OF GRANTOR]
By:______________________________
Title:
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH, as Agent
By:______________________________
Title:
By:_______________________________
Title:
Acknowledged and agreed to as of
the date first above written:
FLEET NATIONAL BANK
By:______________________________
Title:
<PAGE>
EXHIBIT 10.08
EXECUTION COPY
--------------
TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
Dated November 23, 1994
from
WIGS BY PAULA, INC.
and
THE OTHER GRANTORS NAMED HEREIN
as Grantors
-----------
to
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Agent
--------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Grant of Security................................................... 1
2. Security for Obligations............................................ 3
3. Grantors Remain Liable.............................................. 3
4. Representations and Warranties...................................... 3
5. Further Assurances.................................................. 6
6. Transfers and Other Liens........................................... 8
7. The Agent Appointed Attorney-in-Fact................................ 8
8. The Agent May Perform............................................... 9
9. The Agent's Duties.................................................. 9
10. Remedies........................................................... 9
11. Indemnity and Expenses............................................ 11
12. Amendments: Waivers: Etc.......................................... 12
13. Notices, Etc...................................................... 12
14. Continuing Security Interest: Assignments Under the Credit
Agreement....................................................... 12
15. Release and Termination........................................... 13
16. Governing Law: Terms.............................................. 13
</TABLE>
<PAGE>
ii
SCHEDULES
---------
SCHEDULE I -- PATENTS AND PATENT APPLICATIONS
SCHEDULE II -- TRADEMARK REGISTRATIONS AND APPLICATIONS
SCHEDULE III -- COPYRIGHT REGISTRATIONS AND APPLICATIONS
SCHEDULE IV -- LICENSES
SCHEDULE V -- PENDING LITIGATION/UNAUTHORIZED USES
<PAGE>
TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
TRADEMARK AND COPYRIGHT SECURITY AGREEMENT dated November 23, 1994
made by Wigs By Paula, Inc., a Massachusetts corporation with an office at 21
Bristol Drive, South Easton, Massachusetts 02375 (the "Borrower"), and Western
--------
Schools, Inc., a California corporation ("Western") (the Borrower, Western and
-------
the Additional Grantors (as defined in the Security Agreement) being,
collectively, the "Grantors"), to Banque Nationale de Paris, New York Branch
--------
("BNP"), as agent (together with any successor agent appointed pursuant to
- -----
Article VII of the Credit Agreement (as hereinafter defined), the "Agent") for
-----
the lenders (the "Lenders") party to the Credit Agreement and for BNP, as issuer
-------
of Letters of Credit (the "Issuing Bank") under the Credit Agreement and as
------------
custodian for the Hedge Banks (as hereinafter defined).
PRELIMINARY STATEMENTS:
(1) The Lenders, the Agent and the Issuing Bank have entered into a
Credit Agreement dated as of November 23, 1994 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"; the terms defined
----------------
therein and not otherwise defined herein being used herein as therein defined)
with the Borrower.
(2) The Borrower may invest in Hedge Agreements (such Hedge Agreements
being, collectively, the "Secured Hedge Agreements") with one or more Lenders
------------------------
(such Lenders being, collectively, the "Hedge Banks") to obtain the protection
-----------
required by Section 5.01(o) of the Credit Agreement against fluctuations in
certain interest rates.
(3) It is a condition precedent to the making of Advances by the
Lenders under the Credit Agreement and the issuance of Letters of Credit by the
Issuing Bank under the Credit Agreement, and the entering into of the Security
Hedge Agreements by the Hedge Banks, that the Borrower shall have granted the
assignment and security interest and made the pledge and assignment contemplated
by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make Advances under the Credit Agreement and the Issuing
Bank to issue Letters of Credit under the Credit Agreement and the Hedge Banks
to enter into the Secured Hedge Agreements, each Grantor hereby agrees with the
Agent for its benefit, the benefit of the Issuing Bank and the ratable benefit
of the Lenders and the Hedge Banks as follows:
SECTION 1. Grant of Security. Each Grantor hereby assigns and pledges
-----------------
to the Agent for its benefit, the benefit of the Issuing Bank and the ratable
benefit of the Lenders and the Hedge Banks, and hereby grants to the Agent for
its benefit, the benefit of the Issuing Bank and the ratable benefit of the
Lenders and the Hedge Banks, a security interest in all of such Grantor's right,
title and interest in and to the following whether now owned or hereafter
acquired (collectively, the "Intellectual Property Collateral"):
--------------------------------
1
<PAGE>
2
(a) all patents, patent applications and patentable inventions,
including, without limitation, each patent and patent application identified in
Schedule I attached hereto and made a part hereof, and including without
limitation (i) all inventions and improvements described and claimed therein,
(ii) the right to sue or otherwise recover for any misappropriations thereof,
(iii) all income, royalties, damages and other payments now and hereafter due
and/or payable with respect thereto (including, without limitation, payments
under all licenses entered into in connection therewith and damages and payments
for past and future infringements thereof), and (iv) all rights corresponding
thereto throughout the world and all reissues, divisions, continuations,
continuations-in-part, substitutes, renewals, and extensions thereof, all
improvements thereon and all other rights of any kind whatsoever of such Grantor
accruing thereunder or pertaining thereto (the "Patents");
-------
(b) all trademarks, service marks, trade names, trade dress or other
indicia of trade origin, trademark and service mark registrations, and
applications for trademark or service mark registrations and any renewals
thereof, including, without limitation, each registration and application
identified in Schedule II attached hereto and made a part hereof, and including
without limitation (i) the right to sue or otherwise recover for any and all
past, present and future infringements and misappropriations thereof, (ii) all
income, royalties, damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation, payments under all
licenses entered into in connection therewith, and damages and payments for past
or future infringements thereof), and (iii) all rights corresponding thereto
throughout the world and all other rights of any kind whatsoever of such Grantor
accruing thereunder or pertaining thereto, together in each case with the
goodwill of the business connected with the use of, and symbolized by, each such
trademark, service mark, trade name, trade dress or other indicia of trade
origin (the "Trademarks");
----------
(c) all copyrights, whether statutory or common law, and whether or
not the underlying works of authorship have been published, and all works of
authorship and other intellectual property rights therein, all copyrights of
works based on, incorporated in, derived from or relating to works covered by
such copyrights, all right, title and interest to make and exploit all
derivative works based on or adopted from works covered by such copyrights, and
all copyright registrations and copyright applications, and any renewals or
extensions thereof, including, without limitation, each copyright registration
and copyright application, if any, identified in Schedule III attached hereto
and made a part hereof, and including, without limitation, (i) the right to
print, publish and distribute any of the foregoing, (ii) the right to sue or
otherwise recover for any and all past, present and future infringements and
misappropriations thereof, (iii) all income, royalties, damages and other
payments now and hereafter due and/or payable with respect thereto (including,
without limitation, payments under all licenses entered into in connection
therewith, and damages and payments for past or future infringements thereof),
and (iv) all rights corresponding thereto throughout the world and all other
rights of any kind whatsoever of such Grantor accruing thereunder or pertaining
thereto (the "Copyrights"); and
----------
<PAGE>
3
(d) all license agreements with any other person in connection with
any of the Patents, Trademarks or Copyrights, or such other person's patents,
trade names, trademarks or copyrights, whether such Grantor is a licensor or
licensee under any such license agreement, including, without limitation, the
license agreements listed on Schedule IV attached hereto and made a part hereof,
subject, in each case, to the terms of such license agreements, including,
without limitation, terms requiring consent to a grant of a security interest,
and any right to prepare for sale, sell and advertise for sale, all Inventory
(as defined in the Security Agreement) now or hereafter owned by such Grantor
and now or hereafter covered by such licenses (the "Licenses").
--------
SECTION 2. Security for Obligations. The pledge, assignment and
------------------------
security interest granted under this Agreement by each Grantor secure the
payment of all Obligations of such Grantor now or hereafter existing under this
Agreement, each other Loan Document and the Secured Hedge Agreements, whether
for principal, interest, premiums, fees, expenses, or otherwise (all such
Obligations being the "Secured Obligations"). Without limiting the generality
-------------------
of the foregoing, this Agreement secures the payment of all amounts that
constitute part of the Secured Obligations and would be owed by any Grantor to
the Agent, any Lender or the Issuing Bank under the Loan Documents or to the
Hedge Banks under the Secured Hedge Agreements but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving such Grantor.
SECTION 3. Grantors Remain Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) each Grantor shall remain liable under the contracts and
agreements included in the Intellectual Property Collateral to the extent set
forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by the
Agent of any of the rights hereunder shall not release any Grantor from any of
its duties or obligations under the contracts and agreements included in the
Intellectual Property Collateral and (c) none of the Agent, the Lenders, the
Issuing Bank or the Hedge Banks shall have any obligation or liability under the
contracts and agreements included in the Intellectual Property Collateral by
reason of this Agreement, nor shall the Agent, any Lender, the Issuing Bank or
any Hedge Bank be obligated to perform any of the obligations or duties of such
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. Representations and Warranties. Each Grantor represents
------------------------------
and warrants as to itself and its Intellectual Property Collateral as follows:
(a) Such Grantor is the legal and beneficial owner of the entire
right, title and interest in and to the Intellectual Property Collateral in
which it is granting a security interest free and clear of any Lien, except
for (i) the pledge, assignment and security interest created by this
Agreement and (ii) Liens expressly permitted under
<PAGE>
4
Section 5.02(a) of the Credit Agreement. No effective financing statement
or other instrument similar in effect covering all or any part of the
Intellectual Property Collateral or listing such Grantor or any trade name
of such Grantor as debtor is on file in any recording office (including,
without limitation, the United States Patent and Trademark Office), except
such as (i) may have been filed in favor of the Agent relating to this
Agreement or the other Collateral Documents and (ii) may be permitted under
Section 5.02(a) of the Credit Agreement.
(b) Set forth in Schedule I is a complete and accurate list of all
patents and all patent applications owned by such Grantor. Set forth in
Schedule II is a complete and accurate list of all trademark and service
mark registrations and all trademark and service mark applications owned by
such Grantor. Set forth in Schedule III is a complete and accurate list of
all copyright registrations and copyright applications owned by such
Grantor. Set forth in Schedule IV is a complete and accurate list of all
Licenses owned by such Grantor in which such Grantor is (i) a licensor with
respect to any of the Patents, Trademarks or Copyrights, or (ii) a licensee
of any other person's patents, trade names, trademarks or copyrights. Such
Grantor has made all necessary filings and recordations to protect and
maintain its interest in the patents, patent applications, trademark and
service mark registrations, trademark and service mark applications and
Licenses set forth in Schedules I, II and IV.
(c) Each patent, patent application, trademark or service mark
registration, and trademark or service mark application of such Grantor set
forth in Schedules I and II is subsisting and has not been adjudged
invalid, unregistrable or unenforceable, in whole or in part, and, to such
Grantor's knowledge, is valid, registrable and enforceable. Each License
of such Grantor identified in Schedule IV is validly subsisting and has not
been adjudged invalid or unenforceable, in whole or in part, and is valid
and enforceable. Such Grantor has notified the Agent in writing of all
uses of any item of Intellectual Property Collateral which could reasonably
be expected to lead to such item becoming invalid or unenforceable,
including unauthorized uses by third parties and uses which were not
supported by the goodwill of the business connected with such Intellectual
Property Collateral.
(d) Such Grantor has not made a previous assignment, transfer or
agreement constituting a present or future assignment, transfer or
encumbrance of any of the Intellectual Property Collateral. Such Grantor
has not granted any license (other than those listed on Schedule IV
hereto), release, covenant not to sue, or non-assertion assurance to any
person with respect to any part of the Intellectual Property Collateral.
<PAGE>
5
(e) Such Grantor has used reasonable and proper statutory notice in
connection with its use of each patent and each registered trademark and
service mark contained in Schedules I and II.
(f) This Agreement creates a valid and perfected first priority
security interest in the Intellectual Property Collateral (subject to the
Liens expressly permitted under Section 5.02(a) of the Credit Agreement),
securing the payment of the Secured Obligations, and all filings and other
actions necessary or desirable to perfect and protect such security
interest have been duly made or taken.
(g) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body or any other
third party is required for (i) the grant by such Grantor of the assignment
and security interest granted hereby or the execution, delivery or
performance of this Agreement by such Grantor, (ii) the perfection or
maintenance of the pledge, assignment and security interest created hereby
(including the first priority nature of such pledge, assignment or security
interest) or (iii) the exercise by the Agent of its rights provided for in
this Agreement or the remedies in respect of the Intellectual Property
Collateral pursuant to this Agreement, in each case other than the filing
of financing and continuation statements under the Uniform Commercial Code,
which financing statements have been duly filed, and the filing of this
Agreement with the United States Patent and Trademark Office.
(h) Except for the Licenses set forth in Schedule IV and except as set
forth in Schedule V hereto, such Grantor has no knowledge of the existence
of any right or any claim that is likely to be made by any third party
relating to any item of Intellectual Property Collateral.
(i) Except as set forth in Schedule V, no claim has been made and is
continuing or threatened that any item of Intellectual Property Collateral
is invalid or unenforceable or that the use by such Grantor of any
Intellectual Property Collateral does or may violate the rights of any
person. Except as set forth in Schedule V, such Grantor has no knowledge
of any infringement or unauthorized use of any item of Intellectual
Property Collateral.
(j) Such Grantor has taken all necessary steps to use consistent
standards of quality in the manufacture, distribution and sale of all
products sold and the provision of all services provided under or in
connection with any of the Trademarks and has taken all necessary steps to
ensure that all licensed users of any of the Trademarks use such consistent
standards of quality.
<PAGE>
6
(k) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
SECTION 5. Further Assurances. (a) Each Grantor agrees that from
------------------
time to time, at its own expense, it shall promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or that the Agent may deem desirable and may reasonably request, in
order to perfect and protect any pledge, assignment or security interest granted
or purported to be granted hereby (including, without limitation, the first-
priority nature thereof) or to enable the Agent to exercise and enforce its
rights and remedies hereunder with respect to any part of the Intellectual
Property Collateral. Without limiting the generality of the foregoing, each
Grantor shall promptly execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or as the Agent may deem desirable and may reasonably request in
order to perfect and preserve the pledge, assignment and security interest
granted or purported to be granted hereby.
(b) Each Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Intellectual Property Collateral without the signature of such
Grantor where permitted by law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Intellectual Property
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) Each Grantor shall furnish to the Agent from time to time
statements and schedules further identifying and describing the Intellectual
Property Collateral and such other reports in connection with the Intellectual
Property Collateral as the Agent may reasonably request, all in reasonable
detail.
(d) Each Grantor agrees that, should it obtain an ownership interest
in any patent, patent application, patentable invention, trademark, service
mark, trade name, trade dress, other indicia of trade origin, trademark or
service mark registration, trademark or service mark application, copyright,
work of authorship, copyright registration, copyright application or license,
which is not now a part of the Intellectual Property Collateral, (i) the
provisions of Section 1 shall automatically apply thereto, (ii) any such patent,
patent application, patentable invention, trademark, service mark, trade name,
trade dress, indicia of trade origin, trademark or service mark registration or
trademark or service mark application (together with the goodwill of the
business connected with the use of same and symbolized by same), copyright, work
of authorship, copyright registration, copyright application or license shall
automatically become part of the Intellectual Property Collateral, and (iii)
with respect to any ownership interest in any patent, patent application,
trademark or service mark registration, trademark or service mark application,
copyright registration, copyright application or license that such Grantor
should obtain, it shall give prompt written
<PAGE>
7
notice thereof to the Agent in accordance with Section 13 hereof. Each Grantor
authorizes the Agent to modify this Agreement by amending Schedules I, II, III
and IV (and will cooperate reasonably with the Agent in effecting any such
amendment) to include any patent, patent application, trademark or service mark
registration, trademark or service mark application, copyright registration,
copyright application or license which becomes part of the Intellectual Property
Collateral under this Section.
(e) With respect to each patent, patent application, trademark or
service mark registration, trademark or service mark application, copyright
registration, copyright application and License, each Grantor agrees to take all
necessary steps, including, without limitation, in the United States Patent and
Trademark Office, the United States Copyright Office or in any court, to (i)
maintain each such patent, trademark or service mark registration, copyright
registration and License, and (ii) pursue each such patent application,
trademark or service mark application, and copyright application now or
hereafter included in the Intellectual Property Collateral, including, without
limitation, the filing of responses to office actions issued by the United
States Patent and Trademark Office and the United States Copyright Office, the
filing of applications for any permitted renewal or extension, the filing of
affidavits under Sections 8 and 15 of the United States Trademark Act, and the
participation in opposition, cancellation and infringement and misappropriation
proceedings, the filing of divisional, continuation, continuation-in-part and
substitute applications, the filing of applications for re-issue, renewal or
extensions, the payment of maintenance fees, and the participation in
interference, reexamination, opposition, infringement and misappropriation
proceedings. Each Grantor agrees to take corresponding steps with respect to
each new or acquired patent, patent application, trademark or service mark
registration, trademark or service mark application, copyright registration,
copyright application or License to which it is now or later becomes entitled.
Any expenses incurred in connection with such activities shall be borne by such
Grantor. Each Grantor shall not, without the written consent of the Agent,
discontinue use of or otherwise abandon any patent or patentable invention,
trademark or service mark identified in Schedules I and II, or abandon any right
to file an application for letters patent, trademark or service mark, or abandon
any pending application for a letters patent, trademark or service mark
identified in Schedules I and II. Further, each Grantor shall not, without the
written consent of the Agent, discontinue use of or otherwise abandon any other
material patent or patentable invention, trademark or service mark or copyright,
or abandon any right to file an application for any other material letters
patent, trademark, service mark or copyright, or abandon any pending application
for any other material letters patent, trademark, service mark or copyright.
(f) Each Grantor agrees to notify the Agent promptly and in writing if
it learns (i) that any item of the Intellectual Property Collateral may be
determined to have become abandoned or dedicated (except by nonrenewable
expiration occurring through the passage of time) or (ii) of any adverse
determination or the institution of any proceeding (including, without
limitation, the institution of any proceeding in the United States Patent
<PAGE>
8
and Trademark Office or any court) regarding any item of the Intellectual
Property Collateral.
(g) In the event that any Grantor becomes aware that any item of the
Intellectual Property Collateral is infringed or misappropriated by a third
party, such Grantor shall promptly notify the Agent and shall take such actions
as such Grantor or the Agent deems reasonable and appropriate under the
circumstances to protect such Intellectual Property Collateral, including,
without limitation, suing for infringement or misappropriation and for an
injunction against such infringement or misappropriation. Any expense incurred
in connection with such activities shall be borne by such Grantor.
(h) Each Grantor shall continue to use proper statutory notice in
connection with its use of each of its patents and registered trademarks and
service marks contained in Schedules I and II.
(i) Each Grantor shall take all steps which it or the Agent deems
reasonable and appropriate under the circumstances to preserve and protect its
Intellectual Property Collateral, including, without limitation, maintaining the
quality of any and all products or services used or provided in connection with
any of the Trademarks, consistent with the quality of the products and services
as of the date hereof, and taking all steps necessary to ensure that all
licensed users of any of the Trademarks use such consistent standards of
quality.
SECTION 6. Transfers and Other Liens. Each Grantor agrees not (i) to
-------------------------
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any item of the Intellectual Property
Collateral, except for dispositions of property and assets expressly permitted
under Section 5.02(e) of the Credit Agreement, or (ii) to create or suffer to
exist any Lien upon or with respect to any of the Intellectual Property
Collateral, except for (A) the pledge, assignment and security interest created
by this Agreement and (B) Liens expressly permitted under Section 5.02(a) of the
Credit Agreement.
SECTION 7. The Agent Appointed Attorney-in-Fact. Each Grantor hereby
------------------------------------
irrevocably appoints the Agent such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time upon the occurrence and during the continuance
of a Default and with prior notice to such Grantor, to take any action and to
execute any instrument that may be necessary or that the Agent may deem
desirable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Intellectual Property Collateral,
<PAGE>
9
(b) to receive, endorse and collect any drafts, instruments, chattel
paper and other documents in connection with subsection (a) above and give
full discharge for the same; and
(c) to file any claims or take any action or to institute any
proceedings that may be necessary or that the Agent may deem desirable for
the collection of any payments relating to any of the Intellectual Property
Collateral or otherwise to enforce the rights of the Agent with respect to
any of the Intellectual Property Collateral.
SECTION 8. The Agent May Perform. If any Grantor fails to perform
---------------------
any agreement contained herein, the Agent, with prior notice to such Grantor,
may itself perform, or cause performance of, such agreement, and the expenses of
the Agent incurred in connection therewith shall be payable by such Grantor
under Section 1l.
SECTION 9. The Agent's Duties. The powers conferred on the Agent
------------------
hereunder are solely to protect its interest in the Intellectual Property
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the exercise of reasonable care in the safe custody and preservation
of the certificates of registration for any of the Trademarks or the letters
patent for any of the Patents in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Intellectual Property Collateral, whether or not the Agent, any Lender, the
Issuing Bank or any Hedge Bank has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights against
any parties or any other rights pertaining to any Intellectual Property
Collateral. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the certificates of registration for any of the
Trademarks or the letters patent for any of the Patents in its possession if
such certificates of registration and letters patent are accorded treatment
substantially equal to that which BNP accords its own property of like tenor.
SECTION 10. Remedies. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Agent may exercise in respect of the Intellectual Property
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party
upon default under the Uniform Commercial Code in effect in the State of
New York at such time (the "New York Uniform Commercial Code"), whether or
--------------------------------
not the New York Uniform Commercial Code applies to the affected
Intellectual Property Collateral, and also may (i) require each Grantor to,
and each Grantor hereby agrees that it shall at its own expense and upon
request of the Agent forthwith, assemble all or part of the documents and
things embodying any part of the Intellectual Property Collateral as
directed by the Agent and make them available to the Agent at a place to be
<PAGE>
10
designated by the Agent that is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Intellectual
Property Collateral or any part thereof in one or more parcels at public or
private sale, at any exchange or broker's board or at any of the Agent's
offices or elsewhere, for cash, on credit or for future delivery, and upon
such other terms as the Agent may deem commercially reasonable. In the
event of any sale, assignment, or other disposition of any of the
Intellectual Property Collateral, the goodwill of the business connected
with and symbolized by any Trademarks subject to such disposition shall be
included, and such Grantor shall supply to the Agent or its designee such
Grantor's know-how and expertise, and documents and things embodying the
same, relating to the manufacture, distribution, advertising and sale of
products or the provision of services relating to any Intellectual Property
Collateral subject to such disposition, and such Grantor's customer lists
and other records and documents relating to such Intellectual Property
Collateral and to the manufacture, distribution, advertising and sale of
such products and services. Each Grantor agrees that, to the extent notice
of sale shall be required by law, at least ten days' notice to such Grantor
of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The
Agent shall not be obligated to make any sale of Intellectual Property
Collateral regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale, without further notice, may
be made at the time and place to which it was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon, all or any part of the Intellectual Property Collateral
may, in the discretion of the Agent, be held by the Agent as collateral
for, and/or then or at any time thereafter applied in whole or in part by
the Agent for its benefit, the benefit of the Issuing Bank and the ratable
benefit of the Lenders and the Hedge Banks against, all or any part of the
Secured Obligations, in the following manner:
(i) first, to the Agent for any amounts owing to the Agent
------
pursuant to Section 11 hereof, Section 8.04 of the Credit Agreement or
otherwise under the Loan Documents;
(ii) second, to the Issuing Bank for any amounts owing to the
------
Issuing Bank pursuant to Section 2.13 or 8.04 of the Credit Agreement
or otherwise under the Loan Documents; and
(iii) third, to the Lenders for any amounts owing to the Lenders
------
under the Loan Documents and to the Hedge Banks for any amounts owing
to the Hedge Banks under the Secured Hedge Agreements, ratably in
accordance
<PAGE>
11
with the aggregate amount of each Facility (allocated, in the case of
the Term Advances, to the principal repayment installations thereof in
inverse order of maturity) and such amounts owing to each Hedge Bank
at such time.
In determining the amounts owing to the Hedge Banks under the Secured Hedge
Agreements, the Agent shall be entitled to rely, and be fully protected in
relying, upon the Agreement Values of the Secured Hedge Agreements. The
term "Agreement Value" means, with respect to any Secured Hedge Agreement
---------------
at any date of determination, the amount, if any, that would be payable to
the Hedge Bank in respect of any "agreement value" under such Secured Hedge
Agreement as though such Secured Hedge Agreement were terminated on such
date, calculated as provided in the International Swap Dealers Association,
Inc. Standard Form of Interest Rate and Currency Exchange Agreement, 1987
Edition. Each determination of Agreement Value shall be made by the Agent
in good faith and in reliance on any information (including information
provided by such Hedge Bank) that it believes accurate, but without any
obligation to verify such information. Any surplus of such cash or cash
proceeds held by the Agent and remaining after payment in full of all of
the Secured Obligations shall be paid over to the Borrower or to whomsoever
may be lawfully entitled to receive such surplus.
(c) The Agent may exercise any and all rights and remedies of any
Grantor in respect to the Intellectual Property Collateral, including,
without limitation, any and all rights of such Grantor to demand or
otherwise require payment of any amount under, or performance of any
provision of, any of the Intellectual Property Collateral.
(d) All payments received by any Grantor in respect of the
Intellectual Property Collateral shall be received in trust for the benefit
of the Agent, shall be segregated from other funds of such Grantor and
shall be forthwith paid over to the Agent in the same form as so received
(with any necessary endorsement or assignment).
SECTION 11. Indemnity and Expenses. (a) Each Grantor agrees to
----------------------
indemnify the Agent, each Lender, the Issuing Bank and each Hedge Bank and each
of their respective officers, directors, employees, agents and advisors (each an
"Indemnified Party") from and against any and all claims, losses and liabilities
-----------------
growing out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except to the extent that such claims, losses or
liabilities are found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross negligence or
willful misconduct.
(b) Each Grantor agrees to pay to the Agent, upon demand, the amount
of any and all reasonable expenses (including, without limitation, the
reasonable fees and
<PAGE>
12
expenses of its counsel and of any experts and agents) that the Agent may incur
in connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from or other
realization upon, any of the Intellectual Property Collateral, (iii) the
exercise or enforcement of any of the rights of the Agent, any Lender, the
Issuing Bank or any Hedge Bank hereunder or (iv) the failure by such Grantor to
perform or observe any of the provisions hereof.
SECTION 12. Amendments: Waivers: Etc. (a) No amendment or waiver of
------------------------
any provision of this Agreement, and no consent to any departure by any Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank
or any Hedge Bank to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
SECTION 13. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
(a) if to any Grantor, addressed to it at the address set forth below the name
of such Grantor on the signature page hereof (or, in the case of any Additional
Grantor, on the signature page of its Security Agreement Supplement (as defined
in the Security Agreement)), (b) if to the Agent, any Lender, the Issuing Bank
or any Hedge Bank, addressed to it at its address set forth in Section 8.02 of
the Credit Agreement or (c) as to any party at such other address as shall be
designated by such party in a notice to each other party complying as to
delivery with the terms of this Section 13. All such notices and other
communications shall, when mailed, telecopied, telegraphed or telexed, be
effective when deposited in the mails, transmitted by telecopier, delivered to
the telegraph company or confirmed by telex answerback, respectively, addressed
as aforesaid.
SECTION 14. Continuing Security Interest: Assignments Under the
----------------------------------------------------
Credit Agreement. This Agreement shall create a continuing security interest in
- ----------------
the Intellectual Property Collateral and shall (a) remain in full force and
effect until the later of (i) the cash payment in full of the Secured
Obligations and (ii) the Termination Date, (b) be binding upon each Grantor, its
successors and assigns and (c) inure, together with the rights and remedies of
the Agent hereunder, to the benefit of, and be enforceable by, the Agent, the
Lenders, the Issuing Bank, the Hedge Banks and their respective successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), any Lender may assign or otherwise transfer all or any portion of its
rights and obligations under the Credit Agreement
<PAGE>
13
(including, without limitation, all or any portion of its Commitment or
Commitments, the Advances owing to it and any Note or Notes held by it) to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Lender herein or otherwise, in each
case as provided in Section 8.07 of the Credit Agreement.
SECTION 15. Release and Termination. (a) Upon any sale, lease,
-----------------------
transfer or other disposition of any item of Intellectual Property Collateral in
accordance with the terms of the Loan Documents (other than sales of Inventory
in the ordinary course of business), the Agent shall, at such Grantor's expense,
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence the release of such item of Intellectual Property
Collateral from the assignment and security interest granted hereby; provided,
---------
however, that (i) at the time of such request and such release, no Default shall
- -------
have occurred and be continuing, (ii) such Grantor shall have delivered to the
Agent, at least five Business Days prior to the date of the proposed release, a
request for release describing the item of the Intellectual Property Collateral
and the terms of the sale, lease, transfer or other disposition in reasonable
detail (including, without limitation, the price thereof and any expenses in
connection therewith), together with a form of release for execution by the
Agent and a certification by such Grantor to the effect that the transaction is
in compliance with the Loan Documents and as to such other matters as the Agent
may request, (iii) the proceeds of any such sale, lease, transfer or other
disposition required to be applied in accordance with Section 2.05 of the Credit
Agreement shall be paid to, or in accordance with the instructions of, the Agent
at the closing thereof and (iv) the Agent shall have approved such sale, lease
transfer or other disposition in writing.
(b) Upon the later of (i) the cash payment in full of the Secured
Obligations and (ii) the Termination Date, the pledge, assignment and security
interest granted hereby shall automatically terminate and all rights to the
Intellectual Property Collateral shall revert to the appropriate Grantor. Upon
any such termination and reversion, the Agent shall, at the appropriate
Grantor's expense, execute and deliver to such Grantor such documents as such
Grantor shall reasonably request to evidence such termination and reversion.
SECTION 16. Governing Law: Terms. This Agreement shall be governed
---------------------
by and construed in accordance with the laws of the State of New York, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Intellectual Property
Collateral are governed by the laws of a jurisdiction other than the State of
New York. Unless otherwise defined herein or in the Credit Agreement, terms
used in Article 9 of the New York Uniform Commercial Code are used herein as
therein defined.
<PAGE>
14
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
WIGS BY PAULA, INC.
By: /s/ Steven L. Bock
-----------------------------
Name: Steven L. Bock
Title: CEO
WESTERN SCHOOLS, INC.
By: /s/ Steven L. Bock
-----------------------------
Name: Steven L. Bock
Title: CEO
Agreed and consented to as of
the date first above written:
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH, as Agent
By: /s/ Christopher J. Kiely
------------------------------
Name: Christopher J. Kiely
Title: VP
By: /s/ Alan Mustacchi
------------------------------
Name: Alan Mustacchi
Title: VP
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of November, 1994, before me personally came Steven L. Bock
to me known, who, being by me duly sworn, did depose and say he resides at 21
Bristol Drive South, Eastern, MA 22375 and that he is the CEO of WIGS BY PAULA,
INC., the corporation described in and which executed the above instrument; that
he has been authorized to execute said instrument on behalf of said corporation;
and that he signed said instrument on behalf of said corporation pursuant to
said authority.
/s/ Keith B. Flynn
------------------------------
Notary Public
[Notarial Seal] KEITH B. FLYNN
NOTARY PUBLIC, State of New York
No. 60-5007908
Qualified in Westchester County
Commission Expires February 8, 1995
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of November, 1994, before me personally came
Steven L. Bock to me known, who, being by me duly sworn, did depose and
say he resides at 7840 El Cajon Blvd., La Mesa, CA 91941 and that he is the
CEO of WESTERN SCHOOLS, INC., the corporation described in and which
executed the above instrument; that he has been authorized to execute said
instrument on behalf of said corporation; and that he signed said instrument on
behalf of said corporation pursuant to said authority.
/s/ Keith B. Flynn
------------------------------
Notary Public
KEITH B. FLYNN
[Notarial Seal] NOTARY PUBLIC, State of New York
No. 60-5007908
Qualified in Westchester County
Commission Expires February 8, 1995
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of November, 1994, before me personally came
Christopher J. Kiely to me known, who, being by me duly sworn, did depose and
say he resides at 499 Park Avenue, New York, NY 10022 and that he is the
Vice President of BANQUE NATIONALE DE PARIS, the corporation described in and
which executed the above instrument; that he has been authorized to execute said
instrument on behalf of said corporation; and that he signed said instrument on
behalf of said corporation pursuant to said authority.
/s/ Keith B. Flynn
------------------------------
Notary Public
[Notarial Seal] KEITH B. FLYNN
NOTARY PUBLIC, State of New York
No. 60-5007908
Qualified in Westchester County
Commission Expires February 8, 1995
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 23rd day of November, 1994, before me personally came
Alan Mustacchi to me known, who, being by me duly sworn, did depose and
say he resides at 499 Park Avenue, New York, NY 10022 and that he is the
Vice President of BANQUE NATIONALE DE PARIS, the corporation described in and
which executed the above instrument; that he has been authorized to execute said
instrument on behalf of said corporation; and that he signed said instrument on
behalf of said corporation pursuant to said authority.
/s/ Keith B. Flynn
------------------------------
Notary Public
[Notarial Seal] KEITH B. FLYNN
NOTARY PUBLIC, State of New York
No. 60-5007908
Qualified in Westchester County
Commission Expires February 8, 1995
<PAGE>
SCHEDULE I PATENTS AND PATENT APPLICATIONS
A. United States Patent Applications: None
---------------------------------
B. United States Patents: None
---------------------
C. Foreign Patent Applications: None
----------------------------
D. Foreign Patents: None
---------------
<PAGE>
SCHEDULE II - TRADEMARK REGISTRATIONS AND APPLICATIONS
WIGS BY PAULA, INC.
Wigs by Paula, Inc. currently owns trademarks for:
<TABLE>
<CAPTION>
US Trademarks Number
------------- --------
<S> <C> <C>
1. Paula Young 1341870
2. Celebrity Secrets 1,853,184
Canadian Trademarks Number
------------------- ---------
1. Wigs by Paula/Paula Young 392042
</TABLE>
Hallstone Products, Ltd. is a recorded user on the Canadian trademark.
Additionally, we are in the process of obtaining trademarks for:
1. Especially yours
2. A Touch of Class
3. Christine Jordan
Especially Yours and A Touch of Class are in the trademark search process and we
expect to own those in the near future.
The Christine Jordan (CJ) trademark process will take longer to acquire, as it
is a regular name.
WESTERN SCHOOLS
<TABLE>
<CAPTION>
TRADEMARK NUMBER
---------- -------
<S> <C> <C>
1. Western Schools (TM) 1699003
2. Western Schools (SM) 1643051
3. "W" and Design (TM) 1678470
4. "W" and Design (SM) 1652660
5. California - Western Schools (TM) 037549
</TABLE>
[CAPTION]
<PAGE>
<TABLE>
<S> <C> <C>
6. California - Western Schools (SM) 036679
7. California - "W" and Design (TM) 093041
8. California - "W" and Design (SM) 037550
9. Instant CPE Service (SM)
10. Nurses' Bookshelf (TM)
11. Coursefinder (TM)
12. Renewal Express (SM)
</TABLE>
. Western Schools regularly registers copyrights for its periodic
advertising catalogs with the Copyright Office.
. Western Schools regularly registers copyrights for its
publications in the fields of nursing, real estate, and CPA's
with the Copyright Office. Western Schools currently has 80
titles copyrighted.
<PAGE>
SCHEDULE III - COPYRIGHT REGISTRATIONS AND APPLICATIONS
REAL ESTATE REGISTRATION NUMBERS
Appraisal
TXu 490 869
Disclosures
TXu 490 870
Escrow
TXu 490 871
The Deposit Receipt-Purchase Contract*
TXu 490 873
Residential Property Management
TXu 490 874
Taxation of Real Estate
TXu 490 875
Finance
TXu 490 872
Agency and Ethics
Tx 3 554 532
Real Estate Principles
TX 3 628 321
Business Law
TX 3 554 534
Real Estate Appraisal
TX 3 554 535
Legal Aspects of Real Estate
TX 3 586 065
Real Estate Economics
TX 3 586 064
<PAGE>
Real Estate Finance
TX 3 586 063
Property Management
TX 3 586 048
Real Estate Practice
TX 3 586 066
How to Pass the State Exam (Salesperson edition)
SR 117 868
How to Pass the State Exam (Broker edition)
SR 117 867
NURSING COPYRIGHT REGISTRATION NUMBERS
Advanced Weight Control Techniques for Nurses, 1st, 1993
TX 3 739 501
Ambulatory Patient Care
Submitted 11/18/94
An Overview of HIV Infections and Aids 4th Edition
TX 3 758 931
An Overview of HIV Infection and AIDS
TX 3 096 758
Basic of Cancer Chemotherapy, 2nd 1993
TX 3 612 065
Basic of Cancer Chemotherapy,
TX 3 036 577
Basics of Cardiac Arrhythmias: Final Examination
TX 2 831 076
Basic Trauma Nursing Skills, 1st 1991
TX 3 290 686
Cardiovascular Disease: Assessment and Intervention, 2nd, 1993
TX 3 739 500
<PAGE>
Cardiovascular Disease: Assessment and Intervention
Tx 3 594 786
Cardiovascular Pharmacology, 2nd, 1993
TX 3 612 066
Cardiovascular Pharmacology,
TXu 482 190
Cardiovascular Pharmacology, Test Booklet
TX 3 884 706
Caring for the Aids Patient
TX 3 096 851
Child Abuse, 3rd, 1993
TX 3 599 297
Diabetes Nursing Care, 1st, 1993
TX 3 594 784
Effective Pain Management, 5th 1994
Submitted
Effective Pain Management, 4th 1992
TX 3 292 970
Effective Pain Management
TX 2 824 695
EKG Interpretation, 1st, 1992
TX 3 291 667
Essentials of Maternal-Child Nursing, 1st, 1992
TX 3 601 590
Lifetime Weight Control Patient Counseling
TX 2 827 059
Lifetime Weight Control Patient Counseling, 3rd, 1993
TX 3 758 925
Normal and Abnormal Breath Sounds Final Examinations, 1st
TX 3 554 533
<PAGE>
Nursing Approaches to HIV/AIDS Care, 3rd, 1993
TX 3 739 496
Nursing Approaches to HIV/AIDS Care
TXu 482 192
Nursing Care of the Elderly, 2nd, 1993
TX 3 739 499
Nursing Care of the Elderly
TX 3 291 668
Nursing Ethics, 1st, 1993
TX 3 776 967
Nursing and Malpractice Risks: Understanding the Law 2nd Edition
TX 3 739 497
Nursing and Malpractice Risk: Understanding the Law
TX 3 291 666
Nursing for Women's Health, 1st, 1992
TX 3 558 724
Overview of Anesthesia for Nurses, 1992
TX 3 627 411
Psychiatric Aspects of General Patient Care, 2nd, 1993
TX 3 731 726
Psychiatric Aspects of General Patient Care
TXu 482 191
Substance Abuse, 3rd, 1993
TX 3 758 930
Substance Abuse
TX 3 601 591
Surviving Nursing Final Examination 1990
TX 3 057 719
Teaching Plan for Lifetime Weight Control Patient Counseling,
TX 3 023 236
<PAGE>
The Law and Liability: A Guide for Nurses Final Examination
TX 3 057 708
The New Threat of Drug-Resistant Microbes: The Return of Untreatable
Common Infection 1994 Edition
Submitted 11-18-94
The New Threat of Drug-Resistant Microbes: The Return of Untreatable
Common Infections 1993 Edition
TX 3 558 725
The New Threat of Drug-Resistant Microbes: The Return of Untreatable
Common Infections
TX 3 558 725
CPA REGISTRATION NUMBERS
1040 Preparation Workbook 1993 Edition
TX 3 562 697
1040 Preparation Workbook 1991 Edition
TX 3 054 600
1040 Preparation Workbook 1990 Edition
TX 2 829 544
1120 Preparation Guide Workbook 1991 Edition
TX 3 150 652
1120/1065 Preparation Workbook 1994 Edition
TX 3 820 333
A Fresh Look At Deferring Compensation Workbook 1988
TX 2 826 354
Accountants Legal Liability Guide Workbook 1991
TX 3 150 653
Activity-Based Costing Workbook 1994
TX 3 749 326
Alternative Minimum Tax Workbook 1993
TX 3 601 382
<PAGE>
Analysis of Financial Statements Workbook 1992
TX 3 292 750
Audit and Accounting Disclosures Manual Test Booklet 1992
TX 3 291 317
Audit and Accounting Practice Techniques & Procedures Workbook 1993
TX 3 820 332
Audit and Accounting Practice Techniques and Procedures Workbook 1989
TX 2 826 018
Audit and Accounting Manual Workbook 1990
TX 3 053 164
Cars: Deductions, Fringe Benefits, RecordKeeping With Companion Tape Workbook
1990
TX 2 826 019
Compilation and Review Workbook 1994
TX 3 884 710
Compilation and Review Workbook 1992
TX 3 291 318
Companion Tape to Personal Financial Planning
SR 128 046
Companion Tape to Planning and Working With the Alternative Minimum Tax 1991
SR 128 047
Companion Tape to Revenue Reconciliation Act of 1989
SR 117 271
Companion Tape to Tax Saving Using Keogh Plans, IRAs and Seps 1990
SR 117 045
Corporate Alternative Minimum Tax Workbook 1994
TX 3 749 327
Corporate Tax Update 1993
TX 3 792 817
CPA's Guide to Personal Computers and Electronic Filing 1994
Submitted 11-18-94
<PAGE>
CPA's Guide to Personal Computers and Electronic Filing, 2nd Edition 1993
TX 3 739 902
CPA's Guide to Personal Computers and Electronic Filing 1993
TX 3 579 886
Electronic Tax Return Filing on Line with the IRS 1992
TX 3 291 915
Estate Analysis and Planning Workbook 1991
TX 3 291 321
Estate Planning Guide Workbook 1989
TX 2 829 548
FASB Update 1992
TX 3 812 220
Federal Estate and Gift Taxes Explained Workbook 1989
TX 2 826 355
Federal Taxes Workbook 1993
TX 3 606 995
Federal Taxes and Management Decisions Workbook 1993
TX 3 577 493
Financial Planning Workbook 1993
TX 3 612 064
Fraud Discovery and Control Workbook 1994
TX 3 884 707
GAAP Workbook 1993
TX 3 820 331
GAAS Guide Workbook 1993
submitted 5-1-93
How To Make Computers Work For Your Practice 1992
TX 3 291 459
Individual Tax Update 1994
Submitted additional info 1-26-94
<PAGE>
IRS Collections Workbook 1991
TX 3 120 839
IRS Inside and Out, 2nd Edition 1993
TX 3 739 915
IRS Inside & Out 1992
TX 3 601 366
Issues In Accounting Ethics and Professionalism Workbook 1990
TX 2 836 032
Issues In Compensation Tax Workbook 1990
TX 3 054 850
Managing the Malpractice Maze Workbook 1993
TX 3 562 929
Master Federal Tax Manual, Test Booklet 1992 Edition
TX 3 291 319
Modern Internal Auditing Workbook
TX 3 884 708
Partnership Taxation Workbook 1993
TX 3 594 785
Partnership Taxation 1991
TX 3 057 720
Passive Activity Losses Workbook 1993
TX 3 612 062
Pension Planning Workbook 1993
TX 3 601 588
Personal Financial Planning Workbook 1990
TX 3 054 849
Planning for Charitable Giving Workbook 1993
TX 3 749 328
Planning and Working With the Alternative Minimum Tax with Companion
Workbook 1990
TX 3 054 604
<PAGE>
Planning and Working With the Alternative Minimum Tax Workbook 1989
TX 2 826 356
Preparing the 990 Return Workbook 1993
TX 3 601 592
Preparing the 1040 Return Test Booklet 1992
TX 3 291 316
Preparing the 1065 Return Workbook 1993
TX 3 562 698
Preparing the 1065 Return Test Booklet 1992
TX 3 291 320
Preparing the 1120 Corporate Tax Return Workbook 1993
TX 3 562 699
Preparing the Fiduciary Tax Return Form 1041 Workbook
Submitted 11-18-94
Preparation of the Statement of Cash Flows FASB 95
TX 3 818 432
Real Estate Taxation Workbook 1993
TX 3 562 700
Real Estate Taxation 1991
SR 132 773
Revenue Reconciliation Act of 1989 Workbook 1990
TX 2 892 156
Ria Federal Tax Handbook 1994 Edition Workbook
Submitted 11-18-94
RIA Federal Tax Handbook Workbook 1993
TX 3 601 589
S Corporations Workbook 1993
TX 3 599 296
S Corporations 1991
TX 3 12 023
<PAGE>
S Corporations Modules I and II Workbook 1994
TX 3 884 709
S Corporation Modules III and IV Workbook 1994
TX 3 884 711
Tax Planning for Small Businesses 1992
TX 3 612 067
Tax Treatment of the Home Office 1993
TX 3 781 310
Tax Saving Using Keogh Plans, IRAs and SEPs, With Companion Tape, Workbook 1990
TX 2 826 357
Taxation of Closely Held Corporation Workbook
Submitted 11-18-94
The Deposit Receipt - Purchase Contract
TX 3 774 781
The Taxation of Corporate and Partnership Earnings Workbook
Submitted 11-18-94
The Taxation of Property Sale and Exchanges Workbook
Submitted 11-18-94
Travel, Entertainment and Gifts 1992
TX 3 558 723
Travel, Entertainment and Gifts -Revised Edition 1990
SR 117 122
US Master Tax Guide on Disk Workbook 1994
TX 3 820 334
1991 U.S. Master Tax Guide Workbook
TX 3 054 848
1990 U.S. Master Tax Guide Workbook
TX 2 826 358
Working With The Passive Activity Loss Rules Workbook 1989
Tx 2 826 353
<PAGE>
Workouts & Turnarounds Workbook 1992
TX 3 612 063
CATALOG COPYRIGHT REGISTRATION NUMBERS
CPAs
Home Study CPE for CPAs September Cpe Savings
Submitted 8-1-94
Home Study CPE for CPAs May Sale
TX 3 807 555
Home Study CPE Software and Practice Aids for CPAs January Sale
TX 3 785 183
Home Study CPE for CPAs May Sale
TX 3 577 587
Home Study CPE for CPAs January CPE Values
TX 3 550 717
September Home Study CPE for CLUs, ChFCs, and CFPs Sale
TX 3 415 412
September Home Study CPE for CPAs Sale
TX 3415 413
Home Study CPE for CPAs September CPE Savings
TX 3 884 713
REAL ESTATE
DRE Approved Real Estate Home Study November Sale
Submitted 10-15-94
DRE Approved Real Estate Home Study September Sale
TX 3 884 715
<PAGE>
DRE Approved Real Estate Home Study July Sale
TX 3 807 553
DRE Approved Real Estate Home Study May Sale
TX 3 807 557
DRE Approved Real Estate Home Study March Sale
TX 3 807 551
DRE Approved Real Estate Home Study January Sale
TX 3 78 1856
DRE Approved Real Estate Home Study May Sale
TX 3 577 589
DRE Approved Real Estate Home Study March Sale
TX 3 551 015
DRE Approved Real Estate Home Study January Sale
TX 3 550 710
DRE Approved Real Estate Home Study September Sale
TX 3 415 411
NURSES
Nursing Profession November Sale
Submitted 10-15-94
ANA Accredited Home Study Courses, Plus State-of-the-Art Practice Aids in video,
Audio and Software September Sale
TX 3 884 714
Nurses Bookshelf Books, Video, Audio, Software, and Practice Aids for Nurses
Catalog
TX 3 884 712
ANA Accredited Home Study Courses, Books, Software and Practice Aids for Nurses
January Sale
TX 3 761 758
ANA Accredited Home Study for Nurses March Sale
TX 3 807 552
<PAGE>
ANA Accredited Home Study for Nurses May Sale
TX 3 807 556
ANA Accredited Home Study for Nurses July Sales
TX 3 807 554
ANA Accredited Home Study for Nurses January Sale
TX 3 550 715
ANA Accredited Home Study for Nurses Sales (30 Hr Version)
TX 3 551 014
ANA Accredited Home Study for Nurses Sales ( 15 Hr Version)
TX 3 551 013
ANA Accredited Home Study for Nurses May Sale
TX 3 557 588
September Nurse Sale (30 hours)
TX 3 415 415
September Nurse Sale (15 hours)
TX 3 415 414
<PAGE>
SCHEDULE IV - LICENSES
1. International sales licensing contracts.
(a) Hallstone Products, Ltd.- Canadian licensing contract
contract is open-ended but WBP and Hallstone are negotiating to
amend this arrangement and plan to do so shortly after the
Reorganization is complete.
2. Western Schools is currently licensee under agreements to reprint four
books copyrighted by their authors, for which royalties are paid.
3. Western Schools is licensor under an agreement which allows Real
Estate License Services of San Diego, CA to reprint certain Western
Schools real estate books, for which a royalty is paid.
4. Western Schools is licensor under an agreement which allows University
of Missouri, Columbia MO to reprint certain Western Schools nursing
books, for which a royalty is paid.
<PAGE>
SCHEDULE V - PENDING LITIGATION/UNAUTHORIZED USES
None
<PAGE>
Exhibit 10.09
EXECUTION COPY
--------------
PLEDGE AGREEMENT
Dated as of November 23, 1994
between
SC CORPORATION
and
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Agent
-- -----
<PAGE>
T A B L E O F C O N T E N T S
-------------------------------
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
1. Grant of Security......................................... 1
2. Security for Obligations.................................. 2
3. Delivery of Collateral.................................... 2
4. Representations and Warranties............................ 3
5. Further Assurances........................................ 3
6. Place of Perfection; Records.............................. 4
7. Voting Rights; Dividends; Etc............................. 4
8. Transfers and Other Liens; Additional Shares.............. 6
9. The Agent Appointed Attorney-in-Fact...................... 6
10. The Agent May Perform.................................... 7
11. The Agent's Duties....................................... 7
12. Remedies................................................. 7
13. Indemnity and Expenses................................... 8
14. Amendments; Waivers; Etc................................. 9
15. Addresses for Notices.................................... 9
16. Continuing Security Interest; Assignments Under the
Credit Agreement......................................... 9
17. Release and Termination.................................. 10
18. Governing Law; Terms..................................... 10
</TABLE>
SCHEDULE
--------
Schedule I - Pledged Shares
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of November 23, 1994 made by SC CORPORATION,
a Delaware corporation with an office at Six Landmark Square, 4th Floor,
Stamford, CT 06901 (the "Pledgor"), to Banque Nationale de Paris, New York
-------
branch ("BNP"), as agent (together with any successor agent appointed pursuant
---
to Article VII of the Credit Agreement (as hereinafter defined), the "Agent")
-----
for the Lenders, the Issuing Bank under the Credit Agreement and as custodian
for the Hedge Banks (as hereinafter defined).
PRELIMINARY STATEMENTS.
(1) The Lenders, the Issuing Bank and the Agent have entered into a
Credit Agreement dated as of November 23, 1994 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement", the capitalized
----------------
terms defined therein, and not otherwise defined herein, being used herein as
therein defined) with Wigs by Paula, Inc. (the "Borrower").
--------
(2) The Pledgor is the owner of the shares of stock, and of the
warrants, rights and options to acquire shares of stock (collectively, the
"Pledged Shares") described in Schedule I hereto and issued by the corporations
- ---------------
named therein.
(3) The Borrowers will invest in Hedge Agreements (such Hedge
Agreements being, collectively, the "Secured Hedge Agreements") with one or more
------------------------
Lenders (such Lenders being, collectively, the "Hedge Banks") to obtain the
-----------
protection against fluctuation in certain interest rates as required by Section
5.01(n) of the Credit Agreement.
(4) It is a condition precedent to the making of Advances by the
Lenders under the Credit Agreement and the issuance of Letters of Credit by the
Issuing Bank under the Credit Agreement that the Pledgor shall have granted the
security interest and made the pledge contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make Advances, the Issuing Bank to issue Letters of Credit
and the Hedge Banks to enter into arrangements required by Section 5.01(n) under
the Credit Agreement, the Pledgor hereby agrees with the Agent for its benefit
and the ratable benefit of the Issuing Bank, the Lenders and the Hedge Banks as
follows:
SECTION 1. Grant of Security. The Pledgor hereby pledges to the
-----------------
Agent for its benefit and the ratable benefit of the Issuing Bank, the Lenders
and the Hedge Banks, and hereby grants to the Agent for its benefit and the
ratable benefit of the Issuing Bank and the Lenders and the Hedge Banks, a
security interest in the following (collectively, the "Collateral"):
----------
<PAGE>
2
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash, instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) all additional shares of stock, and all additional warrants,
rights or options to acquire shares of stock, from time to time acquired by
the Pledgor in any manner, and the certificates representing such
additional shares and such additional warrants, rights or options, and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed, in each case, in respect of or in
exchange for any or all of such shares or such additional warrants, rights
or options; and
(c) all proceeds of any and all of the foregoing Collateral
(including, without limitation, proceeds that constitute property of the
types described in clauses (a) and (b) of this Section 1) and, to the
extent not otherwise included, all proceeds of any and all of the foregoing
Collateral in the form of (i) payments under insurance (whether or not the
Agent is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing Collateral and (ii) cash.
SECTION 2. Security for Obligations. This Agreement secures the
------------------------
payment of all Obligations of the Pledgor now or hereafter existing under this
Agreement, each other Loan Document and the Secured Hedge Agreement, whether for
principal, interest, fees, expenses or otherwise (all such Obligations being the
"Secured Obligations"). Without limiting the generality of the foregoing, this
-------------------
Agreement secures the payment of all amounts that constitute part of the Secured
Obligations and would be owed by the Pledgor to the Agent, the Issuing Bank or
the Lenders under the Loan Documents or to the Hedge Banks under the Secured
Hedge Agreement but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Pledgor.
SECTION 3. Delivery of Collateral. All certificates or instruments
----------------------
representing or evidencing Collateral shall be delivered to and held by or on
behalf of the Agent pursuant hereto and shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Agent. The Agent shall have the right, if any Default shall have occurred and
be continuing and the Pledgor shall have received notice thereof from the Agent,
to transfer to or to register in the name of the Agent or any of its nominees
any or all of the Collateral, subject only to the revocable rights specified in
Section 7(a). In addition, the Agent shall have the right at any time to
exchange certificates or
<PAGE>
3
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. The Pledgor represents
------------------------------
and warrants as to itself and its Collateral as follows:
(a) The Pledgor is the legal and beneficial owner of the Collateral
free and clear of any Lien, except for the security interest created by
this Agreement and the Liens permitted under Section 5.02(a) of the Credit
Agreement. No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of the Agent
relating to this Agreement. The Pledgor has no trade names.
(b) The Pledged Shares have been duly authorized and validly issued
and are fully paid and nonassessable.
(c) The Pledged Shares constitute the percentage of the issued and
outstanding shares of capital stock of the issuers thereof indicated on
Schedule I hereto.
(d) This Agreement, the pledge of the Collateral pursuant hereto and
the delivery of the Pledged Shares to the Agent create a valid and
perfected first priority security interest in the Collateral, securing the
payment of the Secured Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interest will
have been duly made or taken within three Business Days of the date hereof.
(e) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority, regulatory body or other third
party is required for (i) the grant by the Pledgor of the security interest
granted hereby, for the pledge by the Pledgor of the Collateral pursuant
hereto or for the due execution, delivery or performance of this Agreement
by the Pledgor, (ii) the perfection or maintenance of the pledge and
security interest created hereby (including the first priority nature of
such pledge or security interest), except for the filing of financing
statements under the Uniform Commercial Code, which financing statements
will have been duly filed within three Business Days of the date hereof or
(iii) the exercise by the Agent of its voting or other rights provided for
in this Agreement or the remedies in respect of the Collateral pursuant to
this Agreement, except as may be required in connection with the
disposition of any portion of the Collateral by laws affecting the offering
and sale of securities generally.
SECTION 5. Further Assurances. (a) the Pledgor agrees that from
------------------
time to time, at its own expense, the Pledgor will promptly execute and deliver
all further
<PAGE>
4
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Agent may reasonably request, in order to perfect and
protect any pledge or security interest granted or purported to be granted
hereby or to enable the Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, the Pledgor will: (i) mark conspicuously each of its records
pertaining to the Collateral with a legend, in form and substance satisfactory
to the Agent, indicating that such document or Collateral is subject to the
security interest granted hereby; (ii) if any Collateral shall be evidenced by
an instrument or chattel paper, deliver and pledge to the Agent hereunder such
instrument or chattel paper duly indorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory to
the Agent; and (iii) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Agent may reasonably request, in order to
perfect and preserve the pledge and security interest granted or purported to be
granted hereby.
(b) the Pledgor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Pledgor where permitted
by law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as a
financing statement where permitted by law.
(c) the Pledgor will furnish to the Agent from time to time such
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 6. Place of Perfection; Records. The Pledgor shall keep its
----------------------------
chief place of business and chief executive office and the office where it keeps
its records concerning the Collateral located at the address specified in the
recital of parties to this Agreement or, upon 30 days' prior written notice to
the Agent, at such other locations in a jurisdiction where all actions required
by Section 5 shall have been taken with respect to the Collateral. The Pledgor
will hold and preserve such records and will permit representatives of the Agent
at any time during normal business hours, and upon reasonable notice, to inspect
and make abstracts from such records.
SECTION 7. Voting Rights; Dividends; Etc. (a) So long as no Default
-----------------------------
shall have occurred and be continuing:
(i) the Pledgor shall be entitled to exercise or refrain from
exercising any and all voting and other consensual rights pertaining to the
Collateral or any part thereof for any purpose not expressly prohibited by
the terms of this Agreement, the other Loan Documents or the Secured Hedge
Agreements; provided, however, that the Pledgor shall not exercise or
-------- -------
refrain from exercising any such right if such action or
<PAGE>
5
inaction would be reasonably likely to have a material adverse effect on
the value of the Collateral or any part thereof.
(ii) the Pledgor shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Collateral; provided,
--------
however, that any and all
-------
(A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any
Collateral,
(B) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of
principal of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as,
Collateral and shall, if received by the Pledgor, be received in trust for
the benefit of the Agent, be segregated from the other property or funds of
the Pledgor and be forthwith delivered to the Agent as Collateral in the
same form as so received (with any necessary indorsement or assignment).
The Pledgor shall, upon the request of the Agent, promptly execute such
documents and do such acts as may be necessary or advisable in the
reasonable judgment of the Agent to give effect to this clause (ii). Any
and all money and other property paid over to or received by the Agent
pursuant to the provisions of this Section 7(a) shall be retained by the
Agent as additional Collateral hereunder and applied in accordance with the
provisions hereof.
(iii) The Agent shall promptly execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of
enabling the Pledgor to exercise the voting and other rights that it is
entitled to exercise pursuant to clause (i) above and to receive the
dividends or interest payments that it is authorized to receive and retain
pursuant to clause (ii) of this Section 7.
(b) Upon the occurrence and during the continuance of a Default:
(i) All rights of the Pledgor to (A) exercise or refrain from
exercising the voting and other consensual rights that it would otherwise
be entitled to exercise pursuant to Section 7(a)(i) shall be suspended and
(B) receive the dividends, interest payments and other distributions that
it would otherwise be authorized to receive and
<PAGE>
6
retain pursuant to Section 7(a)(ii) shall be suspended and all such rights
shall thereupon become vested in the Agent, which shall thereupon have the
sole right to exercise or refrain from exercising such voting and other
consensual rights and to receive and hold as Collateral such dividends,
interest payments or other distributions.
(ii) All dividends, interest payments and other distributions that
are received by the Pledgor contrary to the provisions of clause (i) of
this Section 7(b) shall be received in trust for the benefit of the Agent,
shall be segregated from other funds of the Pledgor and shall be forthwith
paid over to the Agent as Collateral in the same form as so received (with
any necessary indorsement or assignment). Any and all money and other
property paid over to or received by the Agent pursuant to the provisions
of this Section 7(b) shall be retained by the Agent as additional
Collateral hereunder and applied in accordance with the provisions hereof.
The Agent shall provide notice to the Pledgor of any suspension of the
rights of the Pledgor described in this Section 7 within a reasonable
period of time after such suspension.
SECTION 8. Transfers and Other Liens; Additional Shares. Except as
--------------------------------------------
may otherwise be required solely to consummate the Merger and the transactions
contemplated in connection therewith: (a) the Pledgor shall not (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral or (ii) create or suffer to exist
any Lien upon or with respect to any of the Collateral, except for the pledge,
assignment and security interest created by this Agreement.
(b) the Pledgor shall (i) cause each issuer of the Pledged Shares not
to issue any stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to the Pledgor, and (ii) pledge to
the Agent hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of each
issuer of the Pledged Shares.
SECTION 9. The Agent Appointed Attorney-in-Fact. the Pledgor hereby
------------------------------------
irrevocably appoints the Agent Pledgor's attorney-in-fact, with full authority
in the place and stead of the Pledgor and in the name of the Pledgor or
otherwise, from time to time upon the occurrence and during the continuance of a
Default, to take any action and to execute any instrument that the Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in respect of any of the Collateral,
<PAGE>
7
(b) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper in connection with subsection (a) above
(including, without limitation, all instruments representing dividends,
interest payments or other distributions in respect of the Collateral or
any part thereof) and give full discharge for the same, and
(c) to file any claims or take any action or institute any
proceedings that may be necessary or desirable to enforce the rights of the
Agent with respect to any of the Collateral.
SECTION 10. The Agent May Perform. If the Pledgor fails to perform
---------------------
any agreement contained herein, the Agent may itself perform, or cause the
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Pledgor under Section 13(b).
SECTION 11. The Agent's Duties. The powers conferred on the Agent
------------------
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral, as to ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Agent, the Issuing Bank, or any Lender has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral. The Agent shall be deemed to have exercised reasonable care in
the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which BNP accords
its own property.
SECTION 12. Remedies. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party upon default under the
Uniform Commercial Code in effect in the State of New York at such time
(the "N.Y. Uniform Commercial Code") (whether or not the N.Y. Uniform
----------------------------
Commercial Code applies to the affected Collateral) and also may (i)
require the Pledgor to, and the Pledgor hereby agrees that it will at its
expense and upon request of the Agent forthwith, assemble all or part of
the Collateral as directed by the Agent and make it available to the Agent
at a place to be designated by the Agent that is reasonably convenient to
both parties and (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any exchange or broker's board or at
<PAGE>
8
any of the Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Agent may deem commercially
reasonable. the Pledgor agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Pledgor of the time and
place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale
having been given. The Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such
sale may, without further notice, be made at the time and place to which it
was so adjourned.
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion
of the Agent, be held by the Agent as collateral for, and/or then or at any
time thereafter applied (after payment of any amounts payable to the Agent
pursuant to Section 13(b)) in whole or in part by the Agent for its
benefit, the ratable benefit of the Issuing Bank and the ratable benefit of
the Lenders and the Hedge Banks against, all or any part of the Secured
Obligations in the order set forth in Section 19(b) of the Security
Agreement. Any surplus of such cash or cash proceeds held by the Agent and
remaining after payment in full of all the Secured Obligations shall be
paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus.
(c) The Agent may exercise any and all rights and remedies of the
Pledgor in respect of the Collateral.
(d) All payments received by the Pledgor in respect of the Collateral
shall be received in trust for the benefit of the Agent, shall be
segregated from other funds of the Pledgor and shall be forthwith paid over
to the Agent in the same form as so received (with any necessary
indorsement or assignment).
SECTION 13. Indemnity and Expenses. (a) The Pledgor agrees to
----------------------
indemnify the Agent, each Lender, the Issuing Bank and each Hedge Bank and each
of their respective affiliates and their officers, directors, employees, agents
and advisors (each, an "Indemnified Party") from and against any and all claims,
----------------
losses and liabilities growing out of or resulting from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting from such Indemnified Party's gross negligence
or willful misconduct as determined by a final judgment of a court of competent
jurisdiction.
(b) The Pledgor will pay to the Agent, upon demand, the amount of any
and all reasonable and documented expenses (including, without limitation, the
reasonable fees and expenses of its counsel and of any experts and agents) that
the Agent may incur in
<PAGE>
9
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use of, or the sale of, collection from or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights of
the Agent, any Lender, the Issuing Bank or any Hedge Bank hereunder or (iv) the
failure by the Pledgor to perform or observe any of the provisions hereof.
SECTION 14. Amendments; Waivers; Etc. (a) No amendment or waiver of
------------------------
any provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank
or any Hedge Bank to exercise, and no delay in exercising any right, power or
privilege hereunder, shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
SECTION 15. Addresses for Notices. All notices and other
---------------------
communications provided for hereunder shall be in writing (including
telegraphic, telecopier, telex or cable communication) and, mailed, telegraphed,
telecopied, telexed, cabled or delivered (a) if to the Pledgor, addressed to it
at the address specified in the recital of parties to this Agreement, Attention:
Stephen L. Bock, (b) if to the Agent, any Lender, the Issuing Bank or any Hedge
Bank addressed to it at its address specified in Section 8.02 of the Credit
Agreement, or (c) as to any party, at such other address as shall be designated
by such party in a written notice to each other party complying as to delivery
with the terms of this Section 16. All such notices and other communications
shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective
when deposited in the mails, delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively, addressed as aforesaid.
SECTION 16. Continuing Security Interest; Assignments Under the
---------------------------------------------------
Credit Agreement. This Agreement shall create a continuing security interest in
- ----------------
the Collateral and shall (a) remain in full force and effect until the later of
(i) the payment in full in cash of the Secured Obligations and (ii) the
Termination Date, (b) be binding upon the Pledgor, its successors and assigns
and (c) inure, together with the rights and remedies of the Agent hereunder, to
the benefit of, and be enforceable by, the Agent, the Lenders, the Issuing Bank,
the Hedge Banks and their respective successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Lender may
assign or otherwise transfer all or any portion of its rights and obligations
under the Credit Agreement (including, without limitation, all or any portion of
its Commitment or Commitments, the Advances owing to it and any Note or Notes
held by it) to any other Person, and such other
<PAGE>
10
Person shall thereupon become vested with all the benefits in respect thereof
granted to such Lender herein or otherwise, in each case as provided in Section
8.07 of the Credit Agreement.
SECTION 17. Release and Termination. (a) Upon any sale, lease,
-----------------------
transfer or other disposition of any item of Collateral in accordance with the
terms of the Loan Documents, the Agent will, at the Pledgor's expense, execute
and deliver to the Pledgor such documents as the Pledgor shall reasonably
request to evidence the release of such item of Collateral from the assignment
and security interest granted hereby; provided, however, that (i) at the time of
-------- -------
such request and such release, no Default shall have occurred and be continuing,
(ii) the Pledgor shall have delivered to the Agent, at least ten Business Days
prior to the date of the proposed release, a written request for release
describing the item of Collateral and the terms of the sale, lease, transfer or
other disposition in reasonable detail (including, without limitation, the price
thereof and any expenses in connection therewith), together with a form of
release for execution by the Agent and a certification by the Pledgor to the
effect that the transaction is in compliance with the Loan Documents and as to
such other matters as the Agent may request and (iii) the proceeds of any such
sale, lease, transfer or other disposition required to be applied in accordance
with Section 2.06 of the Credit Agreement shall be paid to, or in accordance
with the instructions of, the Agent in accordance with the requirements of
Section 2.06 of the Credit Agreement.
(b) Upon the later of (i) the payment in full in cash of the Secured
Obligations and (ii) the Termination Date, the pledge, assignment and security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to the Pledgor. Upon any such termination and reversion, the Agent will,
at Pledgor's expense, return to the Pledgor such of the Collateral in its
possession as shall not have been sold or otherwise applied pursuant to the
terms of the Loan Documents and execute and deliver to the Pledgor such
documents as the Pledgor shall reasonably request to evidence such termination
and reversion.
SECTION 18. Governing Law; Terms. This Agreement shall be governed
--------------------
by and construed in accordance with the laws of the State of New York, except to
the extent that the validity or perfection of the security interest hereunder,
or remedies hereunder, in respect of any particular Collateral are governed by
the laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the N.Y.
Uniform Commercial Code are used herein as therein defined.
<PAGE>
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
The Pledgor
-----------
SC CORPORATION
By /s/ Steven L. Bock
----------------------------
Name: Steven L. Bock
Title: CEO
The Agent
---------
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH
By /s/ Christopher J. Kiely
----------------------------
Name: Christopher J. Kiely
Title: VP
By /s/ Alan Mustacchi
-------------------------------
Name: Alan Mustacchi
Title: VP
<PAGE>
SCHEDULE I
TO THE PLEDGE AGREEMENT
PLEDGED SHARES
<TABLE>
<CAPTION>
Percentage of Issued
Class of Par Stock Number and Outstanding
Issuer Stock Value Certificate No(s). of Shares Shares of Class
- ----- ------- ----- ------------------ --------- --------------------
<S> <C> <C> <C> <C> <C>
1. SC Corporation Common $.01 C-16 868,365 100%
2. SC Corporation Preferred $100 P-9 22,491 100%
</TABLE>
PLEDGED INDEBTEDNESS
<TABLE>
<CAPTION>
Issuer of Description of Outstanding
Indebtedness Indebtedness Certificate No. Final Maturity Principal Amount
- ------------ -------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C>
SC Corporation Subordinated Note 9 11/22/02 $3,680,186
</TABLE>
<PAGE>
Exhibit 10.10
EXECUTION COPY
--------- ----
PLEDGE AGREEMENT
Dated as of November 30, 1994
among
SPECIALTY CATALOG CORP.
and
SC HOLDINGS L.L.C.
as Pledgor
-- -------
and
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Agent
-- -----
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
1. Grant of Security 2
2. Security for Obligations 2
3. Delivery of Collateral 3
4. Representations and Warranties 3
5. Further Assurances 4
6. Place of Perfection; Records 4
7. Voting Rights; Dividends; Etc 5
8. Transfers and Other Liens; Additional Shares 6
9. The Agent Appointed Attorney-in-Fact 6
10. The Agent May Perform 7
11. The Agent's Duties 7
12. Remedies 7
13. Indemnity and Expenses 8
14. Amendments; Waivers; Etc 9
15. Addresses for Notices 9
16. Continuing Security Interest; Assignments Under the Credit Agreement 9
17. Release and Termination 10
18. Governing Law; Terms 10
SCHEDULE
--------
Schedule I - Pledged Shares & Pledged Indebtedness
<PAGE>
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of November 30, 1994 made by SPECIALTY CATALOG
CORP., a Delaware corporation ("Specialty"), with an office at Six Landmark
---------
Square, 4th Floor, Stamford, CT 06901, and SC HOLDINGS L.L.C. ("Holdings," and
--------
together with Specialty, the "Pledgor") a Delaware Limited Liability Company
-------
with an office at Six Landmark Square, 4th Floor, Stamford, CT 06901 , to
Banque Nationale de Paris, New York Branch , as agent (together with any
successor agent appointed pursuant to Article VII of the Credit Agreement (as
hereinafter defined), the Agent") for the Lenders, the Issuing Bank under the
-----
Credit Agreement and as custodian for the Hedge Banks (as hereinafter defined).
PRELIMINARY STATEMENTS.
(1) The Lenders, the Issuing Bank and the Agent have entered into a Credit
Agreement dated as of November 23, 1994 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement", the capitalized terms
------ ---------
defined therein, and not otherwise defined herein, being used herein as therein
defined) with Wigs by Paula, Inc. (the"Borrower").
--------
(2) As of the date hereof, Wigs by Paula, Inc. ("Wigs") will be merged
----
with and into SC Corporation ("SC"), a wholly owned subsidiary of Specialty
--
Catalog Corp.
(3) The Pledgor is the owner of the shares of stock, and of the warrants,
rights and options to acquire shares of stock (collectively, the "Pledged
-------
Shares") described in Schedule I hereto and issued by the corporations named
- ------
therein. The Pledgor is also the owner of all the subordinated notes
(collectively, the "Pledged Indebtedness") described in Schedule I hereto and
------- ------------
issued by the corporations named therein.
(4) The Borrower will invest in Hedge Agreements (such Hedge Agreements
being, collectively, the "Secured Hedge Agreements") with one or more Lenders
------- ----- ----------
(such Lenders being, collectively, the "Hedge Banks ") to obtain the protection
----- -----
against fluctuation in certain interest rates as required by Section 5.01(n) of
the Credit Agreement.
(5) Pursuant to Section 5.02(d) of the Credit Agreement, SC, as of the date
hereof, shall assume Wigs' Obligations on the Notes and Wigs' Obligations and
performance of Wigs' covenants under the Loan Documents to which it is or is to
be a party in order to induce the Lenders to continue to make Advances under the
Credit Agreement and the Issuing Bank to issue Letters of Credit under the
Credit Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to continue to make Advances, the Issuing Bank to issue Letters of
Credit and the Hedge Banks to enter into arrangements required by Section
5.01(n) under the Credit
<PAGE>
2
Agreement, the Pledgor hereby agrees with the Agent for its benefit and the
ratable benefit of the Issuing Bank, the Lenders and the Hedge Banks as follows:
SECTION 1. Grant of Security. The Pledgor hereby pledges to the Agent for
-----------------
its benefit and the ratable benefit of the Issuing Bank, the Lenders and the
Hedge Banks, and hereby grants to the Agent for its benefit and the ratable
benefit of the Issuing Bank and the Lenders and the Hedge Banks, a security
interest in the following (collectively, the "Collateral"):
----------
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) the Pledged Indebtedness and the instruments evidencing the Pledged
Indebtedness and all interest, cash instruments and other property from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Indebtedness;
(c) all additional shares of stock, and all additional warrants, rights or
options to acquire shares of stock, from time to time acquired by the Pledgor
in any manner, and the certificates representing such additional shares and
such additional warrants, rights or options, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed, in each case, in respect of or in exchange for any or
all of such shares or such additional warrants, rights or options; and
(d) all additional indebtedness from time to time held by the Pledgor in
any manner and the instruments evidencing such additional indebtedness, and
all interest, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all of such additional indebtedness; and
(e) all proceeds of any and all of the foregoing Collateral (including,
without limitation, proceeds that constitute property of the types described
in clauses (a), (b), (c) and (d) of this Section 1) and, to the extent not
otherwise included, all proceeds of any and all of the foregoing Collateral
in the form of (i) payments under insurance (whether or not the Agent is the
loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral and (ii) cash.
<PAGE>
3
SECTION 2. Security for Obligations. This Agreement secures the payment of
------------------------
all Obligations of the Pledgor now or hereafter existing under this Agreement,
each other Loan Document and the Secured Hedge Agreement, whether for principal,
interest, fees, expenses or otherwise (all such Obligations being the "Secured
-------
Obligations"). Without limiting the generality of the foregoing, this Agreement
- -----------
secures the payment of all amounts that constitute part of the Secured
Obligations and would be owed by the Pledgor to the Agent, the Issuing Bank or
the Lenders under the Loan Documents or to the Hedge Banks under the Secured
Hedge Agreement but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Pledgor.
SECTION 3. Delivery of Collateral. All certificates or instruments
----------------------
representing or evidencing Collateral shall be delivered to and held by or on
behalf of the Agent pursuant hereto and shall be in suitable form for transfer
by delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance reasonably satisfactory to the
Agent. The Agent shall have the right, if any Default shall have occurred and be
continuing and the Pledgor shall have received notice thereof from the Agent, to
transfer to or to register in the name of the Agent or any of its nominees any
or all of the Collateral, subject only to the revocable rights specified in
Section 7(a). In addition, the Agent shall have the right at any time to
exchange certificates or instruments representing or evidencing Collateral for
certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. The Pledgor represents and
------------------------------
warrants as to itself and its Collateral as follows:
(a) The Pledgor is the legal and beneficial owner of the Collateral free
and clear of any Lien, except for the security interest created by this
Agreement and the Liens permitted under Section 5.02(a) of the Credit
Agreement. No effective financing statement or other instrument similar in
effect covering all or any part of the Collateral is on file in any recording
office, except such as may have been filed in favor of the Agent relating to
this Agreement. The Pledgor has no trade names.
(b) The Pledged Shares have been duly authorized and validly issued and are
fully paid and nonassessable.
(c) The Pledged Shares constitute the percentage of the issued and
outstanding shares of capital stock of the issuers thereof indicated on
Schedule I hereto.
(d) This Agreement, the pledge of the Collateral pursuant hereto and the
delivery of the Pledged Shares and the Pledged Indebtedness to the Agent
create a valid and perfected first priority security interest in the
Collateral, securing the
<PAGE>
4
payment of the Secured Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interest will
have been duly made or taken within three Business Days of the date hereof.
(e) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority, regulatory body or other third party
is required for (i) the grant by the Pledgor of the security interest granted
hereby, for the pledge by the Pledgor of the Collateral pursuant hereto or
for the due execution, delivery or performance of this Agreement by the
Pledgor, (ii) the perfection or maintenance of the pledge and security
interest created hereby (including the first priority nature of such pledge
or security interest), except for the filing of financing statements under
the Uniform Commercial Code, which financing statements will have been duly
filed within three business days of the date hereof or (iii) the exercise by
the Agent of its voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as
may be required in connection with the disposition of any portion of the
Collateral by laws affecting the offering and sale of securities generally.
SECTION 5. Further Assurances. (a) the Pledgor agrees that from time to
------------------
time, at its own expense, the Pledgor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent may reasonably request, in order to
perfect and protect any pledge or security interest granted or purported to be
granted hereby or to enable the Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Pledgor will: (i) mark conspicuously each of
its records pertaining to the Collateral with a legend, in form and substance
satisfactory to the Agent, indicating that such document or Collateral is
subject to the security interest granted hereby; (ii) if any Collateral shall be
evidenced by an instrument or chattel paper, deliver and pledge to the Agent
hereunder such instrument or chattel paper duly indorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
satisfactory to the Agent; and (iii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Agent may reasonably
request, in order to perfect and preserve the pledge and security interest
granted or purported to be granted hereby.
(b) the Pledgor hereby authorizes the Agent to file one or more financing
or continuation statements, and amendments thereto, relating to all or any part
of the Collateral without the signature of the Pledgor where permitted by law. A
photocopy or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
<PAGE>
5
(c) the Pledgor will furnish to the Agent from time to time such statements
and schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as the Agent may reasonably
request, all in reasonable detail.
SECTION 6. Place of Perfection; Records. The Pledgor shall keep its chief
----------------------------
place of business and chief executive office and the office where it keeps its
records concerning the Collateral located at the address specified in the
recital of parties to this Agreement or, upon 30 days' prior written notice to
the Agent, at such other locations in a jurisdiction where all actions required
by Section 5 shall have been taken with respect to the Collateral. The Pledgor
will hold and preserve such records and will permit representatives of the Agent
at any time during normal business hours, and upon reasonable notice, to inspect
and make abstracts from such records.
SECTION 7. Voting Rights: Dividends: Etc. (a) So long as no Default shall
-----------------------------
have occurred and be continuing:
(i) the Pledgor shall be entitled to exercise or refrain from exercising
any and all voting and other consensual rights pertaining to the Collateral
or any part thereof for any purpose not expressly prohibited by the terms of
this Agreement, the other Loan Documents or the Secured Hedge Agreements;
provided, however, that the Pledgor shall not exercise or refrain from
-------- -------
exercising any such right if such action or inaction would be reasonably
likely to have a material adverse effect on the value of the Collateral or
any part thereof.
(ii) the Pledgor shall be entitled to receive and retain any and all
dividends and interest paid in respect of the Collateral; provided, however,
-------- -------
that any and all
(A) dividends and interest paid or payable other than in cash in respect
of, and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Collateral,
(B) dividends and other distributions paid or payable in cash in respect
of any Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus
or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect of principal
of, or in redemption of, or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to the Agent to hold as, Collateral
and shall, if received by the Pledgor, be received in trust for the benefit of
the Agent, be segregated from the other property or funds of the Pledgor and
be forthwith delivered
<PAGE>
6
to the Agent as Collateral in the same form as so received (with any
necessary indorsement or assignment). The Pledgor shall, upon the request of
the Agent, promptly execute such documents and do such acts as may be
necessary or advisable in the reasonable judgment of the Agent to give effect
to this clause (ii). Any and all money and other property paid over to or
received by the Agent pursuant to the provisions of this Section 7(a) shall
be retained by the Agent as additional Collateral hereunder and applied in
accordance with the provisions hereof.
(iii) The Agent shall promptly execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights that it is entitled to exercise pursuant
to clause (i) above and to receive the dividends or interest payments that it
is authorized to receive and retain pursuant to clause (ii) of this Section
7.
(b) Upon the occurrence and during the continuance of a Default:
(i) All rights of the Pledgor to (A) exercise or refrain from exercising
the voting and other consensual rights that it would otherwise be entitled to
exercise pursuant to Section 7(a)(i) shall be suspended and (B) receive the
dividends, interest payments and other distributions that it would otherwise
be authorized to receive and retain pursuant to Section 7(a)(ii) shall be
suspended and all such rights shall thereupon become vested in the Agent,
which shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and hold as
Collateral such dividends, interest payments or other distributions.
(ii) All dividends, interest payments and other distributions that are
received by the Pledgor contrary to the provisions of clause (i) of this
Section 7(b) shall be received in trust for the benefit of the Agent, shall
be segregated from other funds of the Pledgor and shall be forthwith paid
over to the Agent as Collateral in the same form as so received (with any
necessary indorsement or assignment). Any and all money and other property
paid over to or received by the Agent pursuant to the provisions of this
Section 7(b) shall be retained by the Agent as additional Collateral
hereunder and applied in accordance with the provisions hereof.
The Agent shall provide notice to the Pledgor of any suspension of the rights
of the Pledgor described in this Section 7 within a reasonable period of time
after such suspension.
SECTION 8. Transfers and Other Liens: Additional Shares. Except as may
--------------------------------------------
otherwise be required solely to consummate the Merger and the transactions
contemplated in connection therewith: (a) the Pledgor shall not (i) sell, assign
(by operation of law or
<PAGE>
7
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Collateral or (ii) create or suffer to exist any Lien upon or with respect
to any of the Collateral, except for the pledge, assignment and security
interest created by this Agreement.
(b) the Pledgor shall (i) cause each issuer of the Pledged Shares not to
issue any stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to the Pledgor, and (ii) pledge to
the Agent hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of each
issuer of the Pledged Shares.
SECTION 9. The Agent Appointed Attorney-in-Fact. the Pledgor hereby
------------------------------------
irrevocably appoints the Agent Pledgor's attorney-in-fact, with full authority
in the place and stead of the Pledgor and in the name of the Pledgor or
otherwise, from time to time upon the occurrence and during the continuance of a
Default, to take any action and to execute any instrument that the Agent may
deem necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral,
(b) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper in connection with subsection (a) above
(including, without limitation, all instruments representing dividends,
interest payments or other distributions in respect of the Collateral or any
part thereof) and give full discharge for the same, and
(c) to file any claims or take any action or institute any proceedings that
may be necessary or desirable to enforce the rights of the Agent with respect
to any of the Collateral.
SECTION 10. The Agent May Perform. If the Pledgor fails to perform any
---------------------
agreement contained herein, the Agent may itself perform, or cause the
performance of, such agreement, and the expenses of the Agent incurred in
connection therewith shall be payable by the Pledgor under Section 13(b).
SECTION 11. The Agent's Duties. The powers conferred on the Agent hereunder
------------------
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Agent shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral,
<PAGE>
8
whether or not the Agent, the Issuing Bank, or any Lender has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any parties or any other rights pertaining to any
Collateral. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which BNP accords its own
property.
SECTION 12. Remedies. If any Event of Default shall have occurred and be
--------
continuing:
(a) The Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party upon default under the Uniform
Commercial Code in effect in the State of New York at such time (the "N.Y.
----
Uniform Commercial Code") (whether or not the N.Y. Uniform Commercial Code
-----------------------
applies to the affected Collateral) and also may (i) require the Pledgor to,
and the Pledgor hereby agrees that it will at its expense and upon request of
the Agent forthwith, assemble all or part of the Collateral as directed by
the Agent and make it available to the Agent at a place to be designated by
the Agent that is reasonably convenient to both parties and (ii) without
notice except as specified below, sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any exchange or broker's
board or at any of the Agent's offices or elsewhere, for cash, on credit or
for future delivery, and upon such other terms as the Agent may deem
commercially reasonable. the Pledgor agrees that, to the extent notice of
sale shall be required by law, at least ten days' notice to the Pledgor of
the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given. The Agent may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned.
(b) Any cash held by the Agent as Collateral and all cash proceeds received
by the Agent in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral may, in the discretion of the Agent,
be held by the Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Agent pursuant to
Section 13(b)) in whole or in part by the Agent for its benefit, the ratable
benefit of the Issuing Bank and the ratable benefit of the Lenders and the
Hedge Banks against, all or any part of the Secured Obligations in the order
set forth in Section l9(b) of the Security Agreement. Any surplus of such
cash or cash proceeds held by the Agent and remaining after payment in full
of all the Secured Obligations shall be paid over to the Pledgor or to
whomsoever may be lawfully entitled to receive such surplus.
<PAGE>
9
(c) The Agent may exercise any and all rights and remedies of the Pledgor
in respect of the Collateral.
(d) All payments received by the Pledgor in respect of the Collateral shall
be received in trust for the benefit of the Agent, shall be segregated from
other funds of the Pledgor and shall be forthwith paid over to the Agent in
the same form as so received (with any necessary indorsement or assignment).
SECTION 13. Indemnity and Expenses. (a) Each Pledgor agrees, jointly and
----------------------
severally, to indemnify the Agent, each Lender, the Issuing Bank and each Hedge
Bank and each of their respective affiliates and their officers, directors,
employees, agents and advisors (each, an Indemnified Party") from and against
----------- -----
any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting from such Indemnified Party's gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction.
(b) The Pledgor will pay to the Agent, upon demand, the amount of any and
all reasonable and documented expenses (including, without limitation, the
reasonable fees and expenses of its counsel and of any experts and agents) that
the Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use of, or the sale of, collection from or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Agent, any Lender, the Issuing Bank or any Hedge Bank
hereunder or (iv) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 14. Amendments; Waivers; Etc. (a) No amendment or waiver of any
------------------------
provision of this Agreement, and no consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank or
any Hedge Bank to exercise, and no delay in exercising any right, power or
privilege hereunder, shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
SECTION 15. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be in writing (including telegraphic, telecopier,
telex or cable communication) and, mailed, telegraphed, telecopied, telexed,
cabled or delivered (a) if to the Pledgor, addressed to it at the address
specified in the recital of parties to this
<PAGE>
10
Agreement, Attention: Stephen L. Bock, (b) if to the Agent, any Lender, the
Issuing Bank or any Hedge Bank addressed to it at its address specified in
Section 8.02 of the Credit Agreement, or (c) as to any party, at such other
address as shall be designated by such party in a written notice to each other
party complying as to delivery with the terms of this Section 16. All such
notices and other communications shall, when mailed, telegraphed, telecopied,
telexed or cabled, be effective when deposited in the mails, delivered to the
telegraph company, transmitted by telecopier, confirmed by telex answerback or
delivered to the cable company, respectively, addressed as aforesaid.
SECTION 16. Continuing Security Interest; Assignments Under the Credit
----------------------------------------------------------
Agreement. This Agreement shall create a continuing security interest in the
- ---------
Collateral and shall (a) remain in full force and effect until the later of (i)
the payment in full in cash of the Secured Obligations and (ii) the Termination
Date, (b) be binding upon the Pledgor, its successors and assigns and (c) inure,
together with the rights and remedies of the Agent hereunder, to the benefit of,
and be enforceable by, the Agent, the Lenders, the Issuing Bank, the Hedge Banks
and their respective successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), any Lender may assign or otherwise
transfer all or any portion of its rights and obligations under the Credit
Agreement (including, without limitation, all or any portion of its Commitment
or Commitments, the Advances owing to it and any Note or Notes held by it) to
any other Person, and such other Person shall thereupon become vested with all
the benefits in respect thereof granted to such Lender herein or otherwise, in
each case as provided in Section 8.07 of the Credit Agreement.
SECTION 17. Release and Termination. (a) Upon any sale, lease, transfer or
-----------------------
other disposition of any item of Collateral in accordance with the terms of the
Loan Documents, the Agent will, at the Pledgor's expense, execute and deliver to
the Pledgor such documents as the Pledgor shall reasonably request to evidence
the release of such item of Collateral from the assignment and security interest
granted hereby; provided, however, that (i) at the time of such request and
-------- -------
such release, no Default shall have occurred and be continuing, (ii) the Pledgor
shall have delivered to the Agent, at least ten Business Days prior to the date
of the proposed release, a written request for release describing the item of
Collateral and the terms of the sale, lease, transfer or other disposition in
reasonable detail (including, without limitation, the price thereof and any
expenses in connection therewith), together with a form of release for execution
by the Agent and a certification by the Pledgor to the effect that the
transaction is in compliance with the Loan Documents and as to such other
matters as the Agent may request and (iii) the proceeds of any such sale, lease,
transfer or other disposition required to be applied in accordance with Section
2.06 of the Credit Agreement shall be paid to, or in accordance with the
instructions of, the Agent in accordance with the requirements of Section 2.06
of the Credit Agreement.
<PAGE>
11
(b) Upon the later of (i) the payment in full in cash of the Secured
Obligations and (ii) the Termination Date, the pledge, assignment and
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination and
reversion, the Agent will, at Pledgor's expense, return to the Pledgor such
of the Collateral in its possession as shall not have been sold or otherwise
applied pursuant to the terms of the Loan Documents and execute and deliver
to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination and reversion.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of New York, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the N.Y.
Uniform Commercial Code are used herein as therein defined.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
The Pledgor
-----------
SPECIALTY CATALOG CORP.
By /s/ Steven L. Bock
-------------------------
Name: Steven L. Bock
Title: CEO
SC HOLDINGS L.L.C.
BY DICKSTEIN INTERNATIONAL LIMITED
By DICKSTEIN PARTNERS, INC., its Agent
By
---------------------------
Name:
Title:
<PAGE>
11
(b) Upon the later of (i) the payment in full in cash of the Secured
Obligations and (ii) the Termination Date, the pledge, assignment and
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the Pledgor. Upon any such termination and
reversion, the Agent will, at Pledgor's expense, return to the Pledgor such
of the Collateral in its possession as shall not have been sold or otherwise
applied pursuant to the terms of the Loan Documents and execute and deliver
to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination and reversion.
SECTION 18. Governing Law; Terms. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of New York, except to the
extent that the validity or perfection of the security interest hereunder, or
remedies hereunder, in respect of any particular Collateral are governed by the
laws of a jurisdiction other than the State of New York. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the N.Y.
Uniform Commercial Code are used herein as therein defined.
IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
The Pledgor
-----------
SPECIALTY CATALOG CORP.
By
-------------------------
Name:
Title:
SC HOLDINGS L.L.C.
BY DICKSTEIN INTERNATIONAL LIMITED
By DICKSTEIN PARTNERS, INC., its Agent
By /s/ Alan Cooper
---------------------------
Name: Alan Cooper
Title: Vice President
<PAGE>
The Agent
---------
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH
By /s/ Christopher J. Kiely
--------------------------------
Name: Christopher J. Kiely
Title: Vice President
By /s/ Alan Mustacchi
--------------------------------
Name: Alan Mustacchi
Title: AVP
<PAGE>
SCHEDULE I
TO THE PLEDGE AGREEMENT
PLEDGED SHARES
<TABLE>
<CAPTION>
Percentage of Issued
Class of Par Stock Number and Outstanding
Issuer Stock Value Certificate No(s). of Shares Shares of Class
- ------ -------- ----- ------------------ --------- --------------------
<S> <C> <C> <C> <C> <C>
1. SC Corporation Common $.01 C-16 868,365 100%
2. SC Corporation Preferred $100 P-9 22,491 100%
<CAPTION>
PLEDGED INDEBTEDNESS
Issuer of Description of Outstanding
Indebtedness Indebtedness Certificate No. Final Maturity Principal Amount
- ------------ -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
SC Corporation Subordinated Notes 9 11/22/02 $3,680,186
</TABLE>
<PAGE>
Exhibit 10.11
EXECUTION COPY
--------------
GUARANTY
Dated November 23, 1994
From
WESTERN SCHOOLS, INC.
and
ROYAL ADVERTISING & MARKETING, INC.
in favor of
THE LENDERS PARTY TO THE CREDIT AGREEMENT
REFERRED TO HEREIN,
THE HEDGE BANKS REFERRED TO IN
THE CREDIT AGREEMENT
and
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Issuing Bank and Agent
-- ------- ---- --- -----
<PAGE>
T A B L E O F C O N T E N T S
-------------------------------
<TABLE>
<CAPTION>
Section Page
- --------- ----
<S> <C>
1. Guaranty................................................. 1
2. Guaranty Absolute........................................ 2
3. Waivers.................................................. 3
4. Payments Free and Clear of Taxes, Etc.................... 4
5. Representations and Warranties........................... 5
6. Affirmative Covenants.................................... 5
7. Amendments; No Waiver; Etc............................... 5
8. Notices, Etc............................................. 6
9. Right of Setoff.......................................... 6
10. Continuing Guaranty; Assignments Under the Credit
Agreement.............................................. 7
11. Governing Law; Submission to Jurisdiction, Etc........... 7
</TABLE>
<PAGE>
GUARANTY
GUARANTY dated November 23, 1994 made by Western Schools, Inc., a
California corporation ("Western"), Royal Advertising & Marketing, Inc., a
-------
Massachusetts corporation ("Royal") (Western and Royal being, collectively, the
-----
"Guarantor") in favor of the Lenders (the "Lenders") party to the Credit
--------- -------
Agreement (as hereinafter defined), the Hedge Banks (as defined in the Credit
Agreement), and Banque Nationale de Paris, New York Branch ("BNP"), as the
---
Issuing Bank and as Agent (the "Agent") under the Credit Agreement.
-----
PRELIMINARY STATEMENT. The Lenders and the Agent are parties to a Credit
Agreement dated as of November 23, 1994 (said Agreement, as it may hereafter be
amended or otherwise modified from time to time, being the "Credit Agreement",
----------------
the capitalized terms defined therein and not otherwise defined herein being
used herein as therein defined) with Wigs by Paula, Inc., a Massachusetts
corporation and an Affiliate of the Guarantor (the "Borrower"). The Guarantor
--------
may receive a portion of the proceeds of Advances under the Credit Agreement and
will derive substantial direct and indirect benefit from the transactions
contemplated by the Credit Agreement. It is a condition precedent to the making
of Advances by the Lenders and the issuing of Letters of Credit by the Issuing
Bank under the Credit Agreement, and the entering into of the Secured Hedge
Agreements (as defined in the Security Agreement) by the Hedge Banks, that the
Guarantor shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances, the Issuing Bank to issue Letters of Credit and the
Hedge Banks to enter into the Secured Hedge Agreements, the Guarantor hereby
agrees as follows:
SECTION 1. Guaranty. (a) The Guarantor hereby unconditionally guaranties
--------
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of the Borrower now or hereafter existing under
the Loan Documents, whether for principal, interest, premiums, fees, expenses or
otherwise (such Obligations of the Borrower being the "Guarantied Obligations"),
----------------------
and agrees to pay any and all reasonable expenses (including, without
limitation, reasonable counsel fees and expenses) incurred by the Agent, any
Lender, the Issuing Bank or any Hedge Bank in enforcing any rights under this
Guaranty. Without limiting the generality of the foregoing, the Guarantor's
liability shall extend to all amounts that constitute part of the Guarantied
Obligations and that would be owed by the Borrower to the Agent, any Lender, the
Issuing Bank or any Hedge Bank under any of the Loan Documents or any Secured
Hedge Agreement but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Borrower.
<PAGE>
2
(b) The liability of the Guarantor under this Guaranty shall not exceed the
greater of (i) 90% of the Adjusted Net Assets of the Guarantor on the date of
delivery hereof and (ii) 90% of the Adjusted Net Assets of the Guarantor on the
date of any payment hereunder. "Adjusted Net Assets" of the Guarantor at any
date means the lesser of (x) the amount by which the fair value of the property
of the Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities, but excluding liabilities under this
Guaranty, of the Guarantor at such date and (y) the amount by which the present
fair salable value of the assets of the Guarantor at such date exceeds the
amount that will be required to pay the probable liability of the Guarantor on
its debts, excluding debt in respect of this Guaranty, as they become absolute
and matured.
SECTION 2. Guaranty Absolute. The Guarantor guaranties that the
-----------------
Guarantied Obligations will be paid strictly in accordance with the terms of the
Loan Documents and the Secured Hedge Agreements, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Agent, any Lender, the Issuing Bank or any
Hedge Bank with respect thereto. The Obligations of the Guarantor under this
Guaranty are independent of the Guarantied Obligations, and a separate action or
actions may be brought and prosecuted against the Guarantor to enforce this
Guaranty, irrespective of whether any action is brought against the Borrower or
whether the Borrower is joined in any such action or actions. The liability of
the Guarantor under this Guaranty shall be absolute and unconditional
irrespective of, and the Guarantor hereby irrevocably waives any defenses it may
now or hereafter have in any way relating to, any and all of the following:
(a) any lack of validity or enforceability of any Loan Document or
any Secured Hedge Agreement, or any agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guarantied Obligations, or any other
amendment or waiver of or any consent to departure from any Loan Document
or any Secured Hedge Agreement, including, without limitation, any increase
in the Guarantied Obligations resulting from the extension of additional
credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or nonperfection of any Collateral,
or any taking, release, amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guarantied Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to
all or any of the Guarantied Obligations, or any manner of sale or other
disposition of any
<PAGE>
3
Collateral for all or any of the Guarantied Obligations or any other
property and/or assets of the Borrower or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries; or
(f) any other circumstance (including, without limitation, any
statute of limitations) that might otherwise constitute a defense available
to, or a discharge of, the Borrower, the Guarantor or any other guarantor
or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guarantied Obligations is rescinded
or must otherwise be returned by the Agent, any Lender, the Issuing Bank or any
Hedge Bank upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
SECTION 3. Waivers. (a) The Guarantor hereby waives promptness,
-------
diligence, notice of acceptance and any other notice with respect to any of the
Guarantied Obligations and this Guaranty (except for notices specifically
required by the Credit Agreement, this Guaranty or the other Loan Documents) and
any requirement that the Agent, any Lender, the Issuing Bank or any Hedge Bank
protect, secure, perfect or insure any Lien or any property and/or assets
subject thereto or exhaust any right or take any action against the Borrower or
any other Person or any Collateral.
(b) The Guarantor hereby irrevocably waives any duty on the part of
the Agent, any Lender, the Issuing Bank or any Hedge Bank to disclose to the
Guarantor any matter, fact or thing relating to the business, operation or
condition of the Borrower or its property and assets now or hereafter known by
the Agent, such Lender, the Issuing Bank or such Hedge Bank.
(c) The Guarantor hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to this Guaranty, any other Loan
Document or any Secured Hedge Agreement, the transactions contemplated hereby or
thereby or the actions of the Agent, any Lender, the Issuing Bank or any Hedge
Bank in the negotiation, administration, performance or enforcement hereof or
thereof.
(d) Upon making any payment with respect to the Borrower, the
Guarantor shall be subrogated to the rights of the payee against the Borrower
with respect to such payment; provided that the Guarantor shall not enforce or
--------
accept any payment by way of subrogation until the Termination Date and all
amounts of principal of and interest on the
<PAGE>
4
Notes and all other amounts payable by the Borrower and the Guarantors under the
Loan Documents have been paid in full. If any amount shall be paid to the
Guarantor in violation of the immediately preceding sentence at any time prior
to the later of (i) the cash payment in full of the Guarantied Obligations and
all other amounts payable under this Guaranty and (ii) the Termination Date,
such amount shall be held in trust for the benefit of the Agent, the Lenders,
the Issuing Bank and the Hedge Banks and shall forthwith be paid to the Agent to
be credited and applied to the Guarantied Obligations and all other amounts
payable under this Guaranty, whether matured or unmatured, in accordance with
the terms of the Loan Documents and the Secured Hedge Agreements, or to be held
by the Agent as Collateral for any Guarantied Obligations or other amounts
payable under this Guaranty thereafter arising.
(e) The Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by the Loan
Documents and that the waivers set forth in this Section 3 are knowingly made in
contemplation of such benefits.
SECTION 4. Payments Free and Clear of Taxes, Etc. (a) Any and all
-------------------------------------
payments made by the Guarantor hereunder shall be made in accordance with
Section 2.11 of the Credit Agreement, free and clear of and without deduction
for any and all present or future Taxes. If the Guarantor shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder to the
Agent, any Lender, the Issuing Bank or any Hedge Bank, (i) the sum payable shall
be increased as may be necessary so that, after making all required deductions
(including deductions applicable to additional sums payable under this Section
4), the Agent, such Lender, the Issuing Bank or such Hedge Bank, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Guarantor shall make such deductions and (iii)
the Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the Guarantor agrees to pay any present or future
Other Taxes.
(c) The Guarantor agrees to indemnify the Agent, each Lender, the
Issuing Bank and each Hedge Bank for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 4) paid by the Agent, such
Lender, the Issuing Bank or such Hedge Bank, as the case may be, and any
liability (including penalties, additions to tax, interest and expenses
(including, without limitation, reasonable fees and disbursements of counsel))
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date the Agent, such Lender, the Issuing Bank or such
Hedge Bank, as the case may be, makes written demand therefor.
<PAGE>
5
(d) Within 30 days after the date of any payment of Taxes, the
Guarantor shall furnish to the Agent, at its address referred to in Section 8.02
of the Credit Agreement, the original receipt of payment thereof or a certified
copy of such receipt if any receipt is issued therefor or, if no such receipt is
issued, appropriate evidence of payment thereof. If no Taxes are payable in
respect of any payment hereunder by the Guarantor through an account or branch
outside the United States or on behalf of the Guarantor by a payor that is not a
United States person, the Guarantor shall furnish, or shall cause such payor to
furnish, to the Agent, at such address, a certificate from the appropriate
taxing authority or authorities or an opinion of counsel acceptable to the
Agent, in either case stating that such payment is exempt from or not subject to
Taxes.
(e) Without prejudice to the survival of any other agreement of the
Guarantor hereunder, the agreements and obligations of the Guarantor contained
in this Section 4 shall survive the payment in full of the Guarantied
Obligations and all other amounts payable under this Guaranty.
SECTION 5. Representations and Warranties. The Guarantor hereby
------------------------------
represents and warrants as follows:
(a) Each representation and warranty contained in Section 4.01 of the
Credit Agreement is true and correct.
(b) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(c) The Guarantor has, independently and without reliance upon the
Agent, the Issuing Bank, any Lender or any Hedge Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty.
SECTION 6. Affirmative Covenants. The Guarantor covenants and agrees
---------------------
that, so long as any part of the Guarantied Obligations shall remain unpaid, any
Letter of Credit shall be outstanding, any Lender shall have any Commitment, or
any Hedge Bank shall have any obligation under any Secured Hedge Agreement, the
Guarantor will, unless the Required Lenders shall otherwise consent in writing,
perform or observe all of the terms, covenants and agreements that the Loan
Documents and Secured Hedge Agreements state that the Guarantor is to perform or
observe.
SECTION 7. Amendments; No Waiver; Etc. (a) No amendment or waiver
--------------------------
of any provision of this Guaranty, and no consent to any departure by the
Guarantor
<PAGE>
6
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, the Required Lenders and the Guarantor, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
-------- -------
or consent shall, unless in writing and signed by all of the Lenders and the
Issuing Bank, change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder; and
provided further, however, that no amendment, waiver or consent shall, unless in
- -------- ------- -------
writing and signed by all of the Lenders, the Issuing Bank and the Hedge Banks,
(i) limit the liability of the Guarantor hereunder, (ii) postpone any date fixed
for payment hereunder, (iii) release the Guarantor, or (iv) amend this Section
8.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank
or any Hedge Bank to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 8. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
(a) if to the Guarantor, addressed to it at the address set forth below the name
of the Guarantor on the signature page hereof, (b) if to the Agent, any Lender,
the Issuing Bank or any Hedge Bank, addressed to it at its address set forth in
Section 8.02 of the Credit Agreement or (c) as to any party at such other
address as shall be designated by such party in a notice to each other party
complying as to delivery with the terms of this Section 8. All such notices and
other communications shall, when mailed, telecopied, telegraphed or telexed or
delivered, be effective when deposited in the mails, transmitted by telecopier,
delivered to the telegraph company or confirmed by telex answerback,
respectively, addressed as aforesaid.
SECTION 9. Right of Setoff. Upon (a) the occurrence and during the
---------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 of the Credit Agreement to
authorize the Agent to declare the Notes due and payable pursuant to the
provisions of such Section 6.01, each Lender, each Hedge Bank and the Issuing
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender, such Hedge Bank or the Issuing
Bank, as the case may be, to or for the credit or the account of the Guarantor
against any and all of the Obligations of the Guarantor now or hereafter
existing under this Guaranty, whether or not such Lender,
<PAGE>
7
such Hedge Bank or the Issuing Bank shall have made any demand under this
Guaranty and although such Obligations may be unmatured. Each Lender, each
Hedge Bank and the Issuing Bank agrees to notify promptly the Guarantor after
any such setoff and application; provided, however, that the failure to give
-------- -------
such notice shall not affect the validity of such setoff and application. The
rights of each Lender, such Hedge Bank and the Issuing Bank under this Section
10 are in addition to other rights and remedies (including, without limitation,
other rights of setoff) that such Lender, such Hedge Bank and the Issuing Bank
may have.
SECTION 10. Continuing Guaranty; Assignments Under the Credit
-------------------------------------------------
Agreement. This Guaranty is a continuing guaranty and shall (a) remain in full
- ---------
force and effect until the later of (i) the cash payment in full of the
Guarantied Obligations and all other amounts payable under this Guaranty, (ii)
the Termination Date and (iii) the termination or expiration of all Secured
Hedge Agreements, (b) be binding upon the Guarantor, its successors and assigns
and (c) inure to the benefit of, and be enforceable by, the Agent, the Lenders,
the Issuing Bank, the Hedge Banks and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), any
Lender may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all or
any portion of its Commitment or Commitments, the Advances owing to it and any
Note or Notes held by it) to any other Person and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Lender herein or otherwise, in each case as provided in Section 8.07 of the
Credit Agreement. If the Lenders, in their sole discretion, are satisfied with
the terms and provisions of the Merger and the transactions contemplated
thereby, including without limitation the terms of all guaranties, security
agreements and other agreements entered into in connection therewith, the
Lenders may terminate this Guaranty by giving notice in writing to the
Guarantor.
SECTION 11. Governing Law; Submission to Jurisdiction, Etc. (a)
----------------------------------------------
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York.
(b) The Guarantor hereby irrevocably submits itself and its
properties to the jurisdiction of any New York state court or United States
federal court sitting in New York County, State of New York, for any action or
proceeding arising out of or relating to this Guaranty or any other Loan
Document or Secured Hedge Agreement to which it is a party, or for recognition
and enforcement of any judgment in respect thereof, and the Guarantor hereby
irrevocably agrees that 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 law, in such United States federal court. The Guarantor hereby
irrevocably waives, to the fullest extent it may legally and effectively do so,
any objection or defense to venue in the State of
<PAGE>
8
New York and to any such jurisdiction as an inconvenient forum for the
maintenance of any such action or proceeding. Nothing herein shall affect the
right of the Agent, the Issuing Bank, any Lender or any Hedge Bank to commence
or participate in any action, suit or proceeding or otherwise to proceed against
the Guarantor in any other jurisdiction.
(c) The Guarantor irrevocably consents to the service of any and all
process in any such action, suit or proceeding by the mailing of copies of such
process to the Guarantor at the address set forth below its name on the
signature page hereof, or by any other method permitted by law. The Guarantor
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.
(d) To the extent that the Guarantor has or hereafter may acquire
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, the
Guarantor hereby irrevocably waives such immunity in respect of its Obligations
under this Guaranty, any other Loan Document and any Secured Hedge Agreement to
which it is a party.
<PAGE>
9
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
WESTERN SCHOOLS, INC.
By /s/ Steven L. Bock
--------------------------
Name: Steven L. Bock
Title: CEO
ROYAL ADVERTISING & MARKETING, INC.
By /s/ Steven L. Bock
-----------------------------
Name: Steven L. Bock
Title: CEO
<PAGE>
EXHIBIT 10.12
EXECUTION COPY
--------------
GUARANTY
Dated November 23, 1994
From
SC CORPORATION
in favor of
THE LENDERS PARTY TO THE CREDIT AGREEMENT
REFERRED TO HEREIN,
THE HEDGE BANKS REFERRED TO IN
THE CREDIT AGREEMENT
and
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Issuing Bank and Agent
-- ------- ---- --- -----
<PAGE>
T A B L E O F C O N T E N T S
-------------------------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1 Guaranty........................................................ 1
2 Guaranty Absolute............................................... 2
3 Waivers......................................................... 3
4 Payments Free and Clear of Taxes, Etc........................... 4
5 Representations and Warranties.................................. 5
6 Affirmative Covenants........................................... 5
7 Negative Covenants.............................................. 5
8 Amendments; No Waiver; Etc...................................... 6
9 Notices, Etc.................................................... 6
10 Right of Setoff................................................. 6
11 Continuing Guaranty; Assignments Under the Credit Agreement..... 7
12 Governing Law; Submission to Jurisdiction, Etc.................. 7
</TABLE>
<PAGE>
GUARANTY
GUARANTY dated November 23, 1994 made by SC Corporation (the "Guarantor")
---------
in favor of the Lenders (the "Lenders") party to the Credit Agreement (as
-------
hereinafter defined), the Hedge Banks (as defined in the Credit Agreement), and
Banque Nationale de Paris, New York Branch ("BNP"), as the Issuing Bank and as
---
Agent (the "Agent") under the Credit Agreement.
-----
PRELIMINARY STATEMENT. The Lenders and the Agent are parties to a Credit
Agreement dated as of November 23, 1994 (said Agreement, as it may hereafter be
amended or otherwise modified from time to time, being the "Credit Agreement",
----------------
the capitalized terms defined therein and not otherwise defined herein being
used herein as therein defined) with Wigs by Paula, Inc., a Massachusetts
corporation and a wholly owned Subsidiary of the Guarantor (the "Borrower").
--------
The Guarantor will derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement. It is a condition precedent
to the making of Advances by the Lenders and the issuing of Letters of Credit by
the Issuing Bank under the Credit Agreement, and the entering into of the
Secured Hedge Agreements (as defined in the Security Agreement) by the Hedge
Banks, that the Guarantor, as owner of all of the outstanding shares of capital
stock of the Borrower, shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Lenders to make Advances, the Issuing Bank to issue Letters of Credit and the
Hedge Banks to enter into the Secured Hedge Agreements, the Guarantor hereby
agrees as follows:
SECTION 1. Guaranty. (a) The Guarantor hereby unconditionally guaranties
--------
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all Obligations of the Borrower now or hereafter existing under
the Loan Documents, whether for principal, interest, premiums, fees, expenses or
otherwise (such Obligations of the Borrower being the "Guarantied Obligations"),
----------------------
and agrees to pay any and all reasonable expenses (including, without
limitation, reasonable counsel fees and expenses) incurred by the Agent, any
Lender, the Issuing Bank or any Hedge Bank in enforcing any rights under this
Guaranty. Without limiting the generality of the foregoing, the Guarantor's
liability shall extend to all amounts that constitute part of the Guarantied
Obligations and that would be owed by the Borrower to the Agent, any Lender, the
Issuing Bank or any Hedge Bank under any of the Loan Documents or any Secured
Hedge Agreement but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving the Borrower.
(b) The liability of the Guarantor under this Guaranty shall not exceed the
greater of (i) 90% of the Adjusted Net Assets of the Guarantor on the date of
delivery hereof
<PAGE>
2
and (ii) 90% of the Adjusted Net Assets of the Guarantor on the date of any
payment hereunder. "Adjusted Net Assets" of the Guarantor at any date means the
lesser of (x) the amount by which the fair value of the property of the
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities, but excluding liabilities under this
Guaranty, of the Guarantor at such date and (y) the amount by which the present
fair salable value of the assets of the Guarantor at such date exceeds the
amount that will be required to pay the probable liability of the Guarantor on
its debts, excluding debt in respect of this Guaranty, as they become absolute
and matured.
SECTION 2. Guaranty Absolute. The Guarantor guaranties that the
-----------------
Guarantied Obligations will be paid strictly in accordance with the terms of the
Loan Documents and the Secured Hedge Agreements, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Agent, any Lender, the Issuing Bank or any
Hedge Bank with respect thereto. The Obligations of the Guarantor under this
Guaranty are independent of the Guarantied Obligations, and a separate action or
actions may be brought and prosecuted against the Guarantor to enforce this
Guaranty, irrespective of whether any action is brought against the Borrower or
whether the Borrower is joined in any such action or actions. The liability of
the Guarantor under this Guaranty shall be absolute and unconditional
irrespective of, and the Guarantor hereby irrevocably waives any defenses it may
now or hereafter have in any way relating to, any and all of the following:
(a) any lack of validity or enforceability of any Loan Document or
any Secured Hedge Agreement, or any agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guarantied Obligations, or any other
amendment or waiver of or any consent to departure from any Loan Document
or any Secured Hedge Agreement, including, without limitation, any increase
in the Guarantied Obligations resulting from the extension of additional
credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or nonperfection of any Collateral,
or any taking, release, amendment or waiver of or consent to departure from
any other guaranty, for all or any of the Guarantied Obligations;
(d) any manner of application of Collateral, or proceeds thereof, to
all or any of the Guarantied Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guarantied Obligations
or any other property and/or assets of the Borrower or any of its
Subsidiaries;
<PAGE>
3
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries; or
(f) any other circumstance (including, without limitation, any
statute of limitations) that might otherwise constitute a defense available
to, or a discharge of, the Borrower, the Guarantor or any other guarantor
or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guarantied Obligations is rescinded
or must otherwise be returned by the Agent, any Lender, the Issuing Bank or any
Hedge Bank upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise, all as though such payment had not been made.
SECTION 3. Waivers. (a) The Guarantor hereby waives promptness,
-------
diligence, notice of acceptance and any other notice with respect to any of the
Guarantied Obligations and this Guaranty (except for notices specifically
required by the Credit Agreement, this Guaranty or the other Loan Documents) and
any requirement that the Agent, any Lender, or the Issuing Bank or any Hedge
Bank protect, secure, perfect or insure any Lien or any property and/or assets
subject thereto or exhaust any right or take any action against the Borrower or
any other Person or any Collateral.
(b) The Guarantor hereby irrevocably waives any duty on the part of
the Agent, any Lender, the Issuing Bank or any Hedge Bank to disclose to the
Guarantor any matter, fact or thing relating to the business, operation or
condition of the Borrower or its property and assets now or hereafter known by
the Agent, such Lender the Issuing Bank or such Hedge Bank.
(c) The Guarantor hereby irrevocably waives all right to trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to this Guaranty, any other Loan
Document or any Secured Hedge Agreement, the transactions contemplated hereby or
thereby or the actions of the Agent, any Lender, the Issuing Bank or any Hedge
Bank in the negotiation, administration, performance or enforcement hereof or
thereof.
(d) Upon making any payment with respect to the Borrower, the
Guarantor shall be subrogated to the rights of the payee against the Borrower
with respect to such payment; provided that the Guarantor shall not enforce or
--------
accept any payment by way of subrogation until the Termination Date and all
amounts of principal of and interest on the Notes and all other amounts payable
by the Borrower and the Guarantors under the Loan Documents have been paid in
full. If any amount shall be paid to the Guarantor in violation of the
immediately preceding sentence at any time prior to the later of (i) the cash
payment in full of the Guarantied Obligations and all other amounts payable
under this Guaranty and
<PAGE>
4
(ii) the Termination Date, such amount shall be held in trust for the benefit of
the Agent, the Lenders, the Issuing Bank and the Hedge Banks and shall forthwith
be paid to the Agent to be credited and applied to the Guarantied Obligations
and all other amounts payable under this Guaranty, whether matured or unmatured,
in accordance with the terms of the Loan Documents and the Secured Hedge
Agreements, or to be held by the Agent as Collateral for any Guarantied
Obligations or other amounts payable under this Guaranty thereafter arising.
(e) The Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by the Loan
Documents and that the waivers set forth in this Section 3 are knowingly made in
contemplation of such benefits.
SECTION 4. Payments Free and Clear of Taxes, Etc. (a) Any and all
-------------------------------------
payments made by the Guarantor hereunder shall be made in accordance with
Section 2.11 of the Credit Agreement, free and clear of and without deduction
for any and all present or future Taxes. If the Guarantor shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder to the
Agent, any Lender, the Issuing Bank or any Hedge Bank, (i) the sum payable shall
be increased as may be necessary so that, after making all required deductions
(including deductions applicable to additional sums payable under this Section
4), the Agent, such Lender, the Issuing Bank or such Hedge Bank, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Guarantor shall make such deductions and (iii)
the Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the Guarantor agrees to pay any present or future
Other Taxes.
(c) The Guarantor agrees to indemnify the Agent, each Lender, the
Issuing Bank and each Hedge Bank for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 4) paid by the Agent, such
Lender, the Issuing Bank or such Hedge Bank, as the case may be, and any
liability (including penalties, additions to tax, interest and expenses
(including, without limitation, reasonable fees and disbursements of counsel))
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date the Agent, such Lender, the Issuing Bank or such
Hedge Bank, as the case may be, makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Guarantor shall furnish to the Agent, at its address referred to in Section 8.02
of the Credit Agreement, the original receipt of payment thereof or a certified
copy of such receipt if any receipt is issued therefor or, if no such receipt is
issued, appropriate evidence of payment thereof. If no Taxes are payable in
respect of any payment hereunder by the Guarantor through an
<PAGE>
5
account or branch outside the United States or on behalf of the Guarantor by a
payor that is not a United States person, the Guarantor shall furnish, or shall
cause such payor to furnish, to the Agent, at such address, a certificate from
the appropriate taxing authority or authorities or an opinion of counsel
acceptable to the Agent, in either case stating that such payment is exempt from
or not subject to Taxes.
(e) Without prejudice to the survival of any other agreement of the
Guarantor hereunder, the agreements and obligations of the Guarantor contained
in this Section 4 shall survive the payment in full of the Guarantied
Obligations and all other amounts payable under this Guaranty.
SECTION 5. Representations and Warranties. The Guarantor hereby
------------------------------
represents and warrants as follows:
(a) Each representation and warranty contained in Section 4.01 of the
Credit Agreement is true and correct.
(b) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(c) The Guarantor has, independently and without reliance upon the
Agent, the Issuing Bank, any Lender or any Hedge Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty.
SECTION 6. Affirmative Covenants. The Guarantor covenants and agrees
---------------------
that, so long as any part of the Guarantied Obligations shall remain unpaid, any
Letter of Credit shall be outstanding, any Lender shall have any Commitment or
any Hedge Bank shall have any obligation under any Secured Hedge Agreement, the
Guarantor will, unless the Required Lenders shall otherwise consent in writing,
(i) perform or observe all of the terms, covenants and agreements that the Loan
Documents state it is to perform and observe, and (ii) cause the Borrower and
each of its Subsidiaries to perform or observe all of the covenants and
agreements that the Loan Documents state they are to perform or observe.
SECTION 7. Negative Covenants. The Guarantor covenants and agrees
------------------
that, so long as any part of the Guarantied Obligations shall remain unpaid, any
Letter of Credit shall be outstanding or any Lender shall have any Commitment or
any Hedge Bank shall have any obligation under any Secured Hedge Agreement, the
Guarantor will not, without the prior written consent of the Required Lenders,
enter into or conduct any business, or engage in any activity (including,
without limitation, any action or transaction that is required or restricted
with respect to the Borrower and its Subsidiaries under Sections 5.01 and 5.02
<PAGE>
6
of the Credit Agreement without regard to any of the enumerated exceptions to
such covenants), other than:
(a) the holding of the capital stock of the Borrower and the
discharging of certain administrative activities otherwise permitted by the
Credit Agreement and making payments with respect to certain administrative
services to the extent contemplated by the other Loan Documents and;
(b) the performance of its Obligations under each Loan Document to
which it is a party; and
(c) such actions or activities that are necessary or advisable solely
to consummate the Merger and the transactions contemplated in connection
therewith.
SECTION 8. Amendments; No Waiver; Etc. (a) No amendment or waiver
--------------------------
of any provision of this Guaranty, and no consent to any departure by the
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Agent, the Required Lenders and the Guarantor, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, however, that no amendment,
-------- -------
waiver or consent shall, unless in writing and signed by all of the Lenders and
the Issuing Bank, change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder; and
provided further, however, that no amendment, waiver or consent shall, unless in
- -------- ------- -------
writing and signed by all of the Lenders, the Issuing Bank and the Hedge Banks,
(i) limit the liability of the Guarantor hereunder, (ii) postpone any date fixed
for payment hereunder, (iii) release the Guarantor, or (iv) amend this Section
8.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank
or any Hedge Bank to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be in writing (including telecopier, telegraphic or
telex communication) and mailed, telecopied, telegraphed, telexed or delivered,
(a) if to the Guarantor, addressed to it at the address set forth below the name
of the Guarantor on the signature page hereof, (b) if to the Agent, any Lender,
the Issuing Bank or any Hedge Bank, addressed to it at its address set forth in
Section 8.02 of the Credit Agreement or (c) as to any party at such other
address as shall be designated by such party in a notice to each other party
complying as to
<PAGE>
7
delivery with the terms of this Section 9. All such notices and other
communications shall, when mailed, telecopied, telegraphed, telexed or
delivered, be effective when deposited in the mails, transmitted by telecopier,
delivered to the telegraph company or confirmed by telex answerback,
respectively, addressed as aforesaid.
SECTION 10. Right of Setoff. Upon (a) the occurrence and during the
---------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 of the Credit Agreement to
authorize the Agent to declare the Notes due and payable pursuant to the
provisions of such Section 6.01, each Lender, each Hedge Bank and the Issuing
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender, such Hedge Bank or the Issuing
Bank, as the case may be, to or for the credit or the account of the Guarantor
against any and all of the Obligations of the Guarantor now or hereafter
existing under this Guaranty, whether or not such Lender, such Hedge Bank or the
Issuing Bank shall have made any demand under this Guaranty and although such
Obligations may be unmatured. Each Lender, each Hedge Bank and the Issuing Bank
agrees to notify promptly the Guarantor after any such setoff and application;
provided, however, that the failure to give such notice shall not affect the
- -------- -------
validity of such setoff and application. The rights of each Lender, such Hedge
Bank and the Issuing Bank under this Section 10 are in addition to other rights
and remedies (including, without limitation, other rights of setoff) that such
Lender, such Hedge Bank and the Issuing Bank may have.
SECTION 11. Continuing Guaranty; Assignments Under the Credit
-------------------------------------------------
Agreement. This Guaranty is a continuing guaranty and shall (a) remain in full
- ---------
force and effect until the later of (i) the cash payment in full of the
Guarantied Obligations and all other amounts payable under this Guaranty, (ii)
the Termination Date and (iii) the termination or expiration of all Secured
Hedge Agreements, (b) be binding upon the Guarantor, its successors and assigns
and (c) inure to the benefit of, and be enforceable by, the Agent, the Lenders,
the Issuing Bank, the Hedge Banks and their respective successors, transferees
and assigns. Without limiting the generality of the foregoing clause (c), any
Lender may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all or
any portion of its Commitment or Commitments, the Advances owing to it and any
Note or Notes held by it) to any other Person and such other Person shall
thereupon become vested with all the benefits in respect thereof granted to such
Lender herein or otherwise, in each case as provided in Section 8.07 of the
Credit Agreement. If the Lenders, in their sole discretion, are satisfied with
the terms and provisions of the Merger and the transactions contemplated
thereby, including without limitation the terms of all guaranties, security
agreements and other agreements entered into in connection therewith, the
Lenders may terminate this Guaranty by giving notice in writing to the
Guarantor.
<PAGE>
8
SECTION 12. Governing Law; Submission to Jurisdiction, Etc. (a)
----------------------------------------------
This Guaranty shall be governed by, and construed in accordance with, the laws
of the State of New York.
(b) The Guarantor hereby irrevocably submits itself and its
properties to the jurisdiction of any New York state court or United States
federal court sitting in New York County, State of New York, for any action or
proceeding arising out of or relating to this Guaranty or any other Loan
Document or Secured Hedge Agreement to which it is a party, or for recognition
and enforcement of any judgment in respect thereof, and the Guarantor hereby
irrevocably agrees that 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 law, in such United States federal court. The Guarantor hereby
irrevocably waives, to the fullest extent it may legally and effectively do so,
any objection or defense to venue in the State of New York and to any such
jurisdiction as an inconvenient forum for the maintenance of any such action or
proceeding. Nothing herein shall affect the right of the Agent, the Issuing
Bank, any Lender or any Hedge Bank to commence or participate in any action,
suit or proceeding or otherwise to proceed against the Guarantor in any other
jurisdiction.
(c) The Guarantor irrevocably consents to the service of any and all
process in any such action, suit or proceeding by the mailing of copies of such
process to the Guarantor at the address set forth below its name on the
signature page hereof, or by any other method permitted by law. The Guarantor
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.
(d) To the extent that the Guarantor has or hereafter may acquire
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, the
Guarantor hereby irrevocably waives such immunity in respect of its Obligations
under this Guaranty, any other Loan Document and any Secured Hedge Agreement to
which it is a party.
<PAGE>
9
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
SC CORPORATION
By /s/ Steven L. Bock
-----------------------------
Name: Steven L. Bock
Title: CEO
Six Landmark Square
4th Floor
Stamford, CT 06901-2792
<PAGE>
EXHIBIT 10.13
EXECUTION COPY
GUARANTY
Dated November 30,1994
From
SPECIALTY CATALOG CORP.
and
SC HOLDINGS L.L.C.
in favor of
THE LENDERS PARTY TO THE CREDIT AGREEMENT
REFERRED TO HEREIN,
THE HEDGE BANKS REFERRED TO IN
THE CREDIT AGREEMENT
and
BANQUE NATIONALE DE PARIS,
NEW YORK BRANCH,
as Issuing Bank and Agent
<PAGE>
T A B L E O F C O N T E N T S
- - - - - - - - - - - - - - -
Section Page
1. Guaranty......................................................... 1
2. Guaranty Absolute................................................ 2
3. Waivers.......................................................... 3
4. Payments Free and Clear of Taxes, Etc............................ 4
5. Representations and Warranties................................... 5
6. Affirmative Covenants............................................ 5
7. Amendments; No Waiver; Etc....................................... 5
8. Notices, Etc..................................................... 6
9. Right of Setoff.................................................. 6
10. Continuing Guaranty; Assignments Under the Credit Agreement..... 7
11. Governing Law; Submission to Jurisdiction, Etc................... 7
<PAGE>
GUARANTY
GUARANTY dated November 30, 1994 made by SPECIALTY CATALOG CORP., a
Delaware corporation ("Specialty") and SC HOLDINGS L.L.C., a Delaware Limited
Liability Company ("SC") (Specialty and SC being, collectively, the
"Guarantors") in favor of the Lenders (the "Lenders") party to the Credit
Agreement (as hereinafter defined), the Hedge Banks (as defined in the Credit
Agreement), and Banque Nationale de Paris, New York Branch, as the Issuing Bank
and as Agent (the "Agent") under the Credit Agreement.
PRELIMINARY STATEMENT. The Lenders and the Agent are parties to a Credit
Agreement dated as of November 23, 1994 (said Agreement, as it may hereafter be
amended or otherwise modified from time to time, being the "Credit Agreement",
the capitalized terms defined therein and not otherwise defined herein being
used herein as therein defined) with Wigs by Paula, Inc., a Massachusetts
corporation (the "Borrower"). Pursuant to the Merger dated as of the date
hereof, the Borrower will merge with and into SC Corporation, with SC
Corporation being the surviving corporation (the "Surviving Corporation"). In
connection with the Merger, each shareholder of the Surviving Corporation will
contribute such shareholder's shares of the capital stock of the Surviving
Corporation for an equivalent percentage interest in the capital stock of
Specialty Catalog Corp. The Guarantors may receive a portion of the proceeds of
Advances under the Credit Agreement and will derive substantial direct and
indirect benefit from the transactions contemplated by the Credit Agreement. It
is a condition to the continued making of Advances by the Lenders and the
issuing of Letters of Credit by the Issuing Bank under the Credit Agreement, and
the entering into of the Secured Hedge Agreements (as defined in the Security
Agreement) by the Hedge Banks, that the Guarantors shall have executed and
delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Lenders to make Advances, the Issuing Bank to issue Letters of Credit and
the Hedge Banks to enter into the Secured Hedge Agreements, the Guarantors
hereby agree as follows:
SECTION 1. Guaranty. (a) Each Guarantor hereby jointly and severally and
unconditionally guaranties the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations of the Borrower now
or hereafter existing under the Loan Documents, whether for principal, interest,
premiums, fees, expenses or otherwise (such Obligations of the Borrower being
the"Guarantied Obligations"), and agrees to pay any and all reasonable expenses
(including, without limitation, reasonable counsel fees and expenses) incurred
by the Agent, any Lender, the Issuing Bank or any Hedge Bank in enforcing any
rights under this Guaranty. Without limiting the generality of the foregoing,
each Guarantor's liability shall extend to all amounts that constitute part of
the Guarantied Obligations and that would be owed by the Borrower to the Agent,
any Lender, the Issuing Bank or any Hedge Bank under any of the Loan Documents
or any Secured Hedge
<PAGE>
2
Agreement but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
the Borrower.
(b) The liability of each Guarantor under this Guaranty shall not exceed the
greater of (i) 90% of the Adjusted Net Assets of such Guarantor on the date of
delivery hereof and (ii) 90% of the Adjusted Net Assets of such Guarantor on the
date of any payment hereunder. "Adjusted Net Assets" of any Guarantor at any
date means the lesser of (x) the amount by which the fair value of the property
of such Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities, but excluding liabilities under this
Guaranty, of such Guarantor at such date and (y) the amount by which the present
fair salable value of the assets of such Guarantor at such date exceeds the
amount that will be required to pay the probable liability of such Guarantor on
its debts, excluding debt in respect of this Guaranty, as they become absolute
and matured.
SECTION 2. Guaranty Absolute. Each Guarantor guaranties that the Guarantied
Obligations will be paid strictly in accordance with the terms of the Loan
Documents and the Secured Hedge Agreements, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the Agent, any Lender, the Issuing Bank or any Hedge Bank with
respect thereto. The Obligations of each Guarantor under this Guaranty are
independent of the Guarantied Obligations, and a separate action or actions may
be brought and prosecuted against either Guarantor to enforce this Guaranty,
irrespective of whether any action is brought against the Borrower or whether
the Borrower is joined in any such action or actions. The liability of each
Guarantor under this Guaranty shall be absolute and unconditional irrespective
of, and each Guarantor hereby irrevocably waives any defenses it may now or
hereafter have in any way relating to, any and all of the following:
(a) any lack of validity or enforceability of any Loan Document or any
Secured Hedge Agreement, or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guarantied Obligations, or any other amendment or
waiver of or any consent to departure from any Loan Document or any Secured
Hedge Agreement, including, without limitation, any increase in the
Guarantied Obligations resulting from the extension of additional credit to
the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or nonperfection of any Collateral, or any
taking, release, amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guarantied Obligations;
<PAGE>
3
(d) any manner of application of Collateral, or proceeds thereof, to all or
any of the Guarantied Obligations, or any manner of sale or other
disposition of any Collateral for all or any of the Guarantied Obligations
or any other property and/or assets of the Borrower or any of its
Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Borrower or any of its Subsidiaries; or
(f) any other circumstance (including, without limitation, any statue of
limitations) that might otherwise constitute a defense available to, or a
discharge of, the Borrower, any Guarantor or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be,if at any time any payment of any of the Guarantied Obligations is rescinded
or must otherwise be returned by the Agent, any Lender, the Issuing Bank or
any Hedge Bank upon the insolvency, bankruptcy or reorganization of the Borrower
or otherwise, all as though such payment had not been made.
SECTION 3. Waivers. (a) Each Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Guarantied
Obligations and this Guaranty (except for notices specifically required by the
Credit Agreement, this Guaranty or the other Loan Documents) and any requirement
that the Agent, any Lender, the Issuing Bank or any Hedge Bank protect, secure,
perfect or insure any Lien or any property and/or assets subject thereto or
exhaust any right or take any action against the Borrower or any other Person or
any Collateral.
(b) Each Guarantor hereby irrevocably waives any duty on the part of the
Agent, any Lender, the Issuing Bank or any Hedge Bank to disclose to such
Guarantor any matter, fact or thing relating to the business, operation or
condition of the Borrower or its property and assets now or hereafter known by
the Agent, such Lender, the Issuing Bank or such Hedge Bank.
(c) Each Guarantor hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Guaranty, any other Loan Document
or any Secured Hedge Agreement, the transactions contemplated hereby or thereby
or the actions of the Agent, any Lender, the Issuing Bank or any Hedge Bank in
the negotiation,administration, performance, or enforcement hereof or thereof.
(d) Upon making any pay payment with respect to the Borrower, the applicable
Guarantor shall be subrogated to the rights of the payee against the Borrower
with respect to such payment; provided that such Guarantor shall not enforce or
accept any payment by way
<PAGE>
4
of subrogation until the Termination Date and all amounts of principal of and
interest on the Notes and all other amounts payable by the Borrower and such
Guarantors under the Loan Documents have been paid in full. If any amount shall
be paid to each Guarantor in violation of the immediately preceding sentence at
any time prior to the later of (i) the cash payment in full of the Guarantied
Obligations and all other amounts payable under this Guaranty and (ii) the
Termination Date, such amount shall be held in trust for the benefit of the
Agent, the Lenders, the Issuing Bank and the Hedge Banks and shall forthwith be
paid to the Agent to be credited and applied to the Guarantied Obligations and
all other amounts payable under this Guaranty, whether matured or unmatured, in
accordance with the terms of the Loan Documents and the Secured Hedge
Agreements, or to be held by the Agent as Collateral for any Guarantied
Obligations or other amounts payable under this Guaranty thereafter arising.
(e) Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by the Loan Documents
and that the waivers set forth in this Section 3 are knowingly made in
contemplation of such benefits.
SECTION 4. Payments Free and Clear of Taxes. Etc. (a) Any and all payments
made by the Guarantors hereunder shall be made in accordance with Section 2.11
of the Credit Agreement, free and clear of and without deduction for any and all
present or future Taxes. If any Guarantor shall be required by law to deduct any
Taxes from or in respect of any sum payable hereunder to the Agent, any Lender,
the Issuing Bank or any Hedge Bank, (i) the sum payable shall be increased as
may be necessary so that, after making all required deductions(including
deductions applicable to additional sums payable under this Section 4), the
Agent, such Lender, the Issuing Bank or such Hedge Bank, as the case may
be, receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Guarantor shall make such deductions and (iii)
such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, the Guarantors agree to pay any present or future Other
Taxes.
(c) Each Guarantor jointly and severally agrees to indemnify the Agent, each
Lender, the Issuing Bank and each Hedge Bank for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 4) paid by the Agent,
such Lender, the Issuing Bank or such Hedge Bank, as the case may be, and any
liability(including penalties, additions to tax, interest and expenses
(including, without limitation, reasonable fees and disbursements of counsel))
arising therefrom or with respect thereto, provided, however, that neither
Guarantor shall be liable for such indemnification to the extent that the
Borrower would not be liable under Section 2.12(c) of the Credit Agreement by
reason of Section 2.12(f). This
<PAGE>
5
indemnification shall be made within 30 days from the date the Agent,
such Lender, the Issuing Bank or such Hedge Bank, as the case may be,
makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
applicable Guarantor shall furnish to the Agent, at its address referred to in
Section 8.02 of the Credit Agreement, the original receipt of payment thereof or
a certified copy of such receipt if any receipt is issued therefor or, if no
such receipt is issued, appropriate evidence of payment thereof. If no Taxes are
payable in respect of any payment hereunder by such Guarantor through an account
or branch outside the United States or on behalf of such Guarantor by a payor
that is not a United States person, such Guarantor shall furnish, or shall cause
such payor to furnish, to the Agent, at such address, a certificate from the
appropriate taxing authority or authorities or an opinion of counsel acceptable
to the Agent, in either case stating that such payment is exempt from or not
subject to Taxes.
(e) Without prejudice to the survival of any other agreement of the
Guarantors hereunder, the agreements and obligations of each Guarantor contained
in this Section 4 shall survive the payment in full of the Guarantied
Obligations and all other amounts payable under this Guaranty.
SECTION 5. Representations and Warranties. The Guarantors hereby
represent and warrant as follows:
(a) Each representation and warranty contained in Section 4.01 of the
Credit Agreement is true and correct.
(b) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(c) Such Guarantor has, independently and without reliance upon the
Agent, the Issuing Bank, any Lender or any Hedge Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Guaranty.
SECTION 6. Affirmative Covenants. Each Guarantor covenants and agrees
that, so long as any part of the Guarantied Obligations shall remain unpaid, any
Letter of Credit shall be outstanding, any Lender shall have any Commitment, or
any Hedge Bank shall have any obligation under any Secured Hedge Agreement, such
Guarantor will, unless the Required Lenders shall otherwise consent in
writing, perform or observe all of the terms, covenants and agreements that the
Loan Documents and Secured Hedge Agreements state that such Guarantor is to
perform or observe.
<PAGE>
6
SECTION 7. Amendments: No Waiver: Etc. (a) No amendment or waiver of any
provision of this Guaranty, and no consent to any departure by such Guarantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent, the Required Lenders and the Guarantors, and then such
waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all of the Lenders and
the Issuing Bank, change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Notes, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder; and
provided further, however, that no amendment, waiver or consent shall, unless in
writing and signed by all of the Lenders, the Issuing Bank and the Hedge Banks,
(i) limit the liability of any Guarantor hereunder, (ii) postpone any date fixed
for payment hereunder, (iii)release any Guarantor, or (iv) amend this Section 8.
(b) No failure on the part of the Agent, any Lender, the Issuing Bank or any
Hedge Bank to exercise, and no delay in exercising, any right, power or
privilege hereunder shall operate as a waiver thereof or consent thereto; nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 8. Notices. Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic or
telecommunication) and mailed, telecopied, telegraphed, telexed or delivered,
(a) if to any Guarantor, addressed to it at the address set forth below the name
of such Guarantor on the signature page hereof, (b) if to the Agent, any Lender,
the Issuing Bank or any Hedge Bank, addressed to it at its address set forth in
Section 8.02 of the Credit Agreement or (c) as to any party at such other
address as shall be designated by such party in a notice to each other party
complying as to delivery with the terms of this Section 8. All such notices and
other communications shall,when mailed, telecopied, telegraphed or telexed or
delivered, be effective when deposited in the mails, transmitted by telecopier,
delivered to the telegraph company or confirmed by telex answer back,
respectively, addressed as aforesaid.
SECTION 9. Right of Setoff. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 of the Credit Agreement to
authorize the Agent to declare the Notes due and payable pursuant to the
provisions of such Section 6.01, each Lender, each Hedge Bank and the Issuing
Bank is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender, such Hedge Bank or the Issuing
Bank, as the case may be, to or for the credit or the account of any Guarantor
against any and all of the Obligations of
<PAGE>
7
such Guarantor now or hereafter existing under this Guaranty, whether or not
such Lender, such Hedge Bank or the Issuing Bank shall have made any demand
under this Guaranty and although such Obligations may be unmatured. Each Lender,
each Hedge Bank and the Issuing Bank agrees to notify promptly such Guarantor
after any such setoff and application; provided, however, that the failure to
give such notice shall not affect the validity of such setoff and application.
The rights of each Lender, such Hedge Bank and the Issuing Bank under this
Section 10 are in addition to other rights and remedies (including, without
limitation, other rights of setoff) that such Lender, such Hedge Bank and the
Issuing Bank may have.
SECTION 10. Continuing Guaranty: Assignments Under the Credit Agreement.
This Guaranty is a continuing guaranty and shall (a) remain in full force and
effect until the later of (i) the cash payment in full of the Guarantied
Obligations and all other amounts payable under this Guaranty, (ii) the
Termination Date and (iii) the termination or expiration of all Secured Hedge
Agreements, (b) be binding upon each Guarantor, its successors and assigns and
(c) inure to the benefit of, and been forceable by, the Agent, the Lenders, the
Issuing Bank, the Hedge Banks and the irrespective successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), any Lender
may assign or otherwise transfer all or any portion of its rights and
obligations under the Credit Agreement (including, without limitation, all or
any portion of its Commitment or Commitments, the Advances owing to it and any
Note or Notes held by it) to any other Person and such other Persons shall
thereupon become vested with all the benefits in respect thereafter granted to
such Lender herein or otherwise, in each case as provided in Section 8.07 of the
Credit Agreement.
SECTION 11. Governing Law: Submission to Jurisdiction. Etc. (a) This
Guaranty shall be governed by, and construed in accordance with, the laws of the
State of New York.
(b) Each Guarantor hereby irrevocably submits itself and its properties to
the jurisdiction of any New York state court or United States federal court
sitting in New York County, State of New York, for any action or proceeding
arising out of or relating to this Guaranty or any other Loan Document or
Secured Hedge Agreement to which it is a party, or for recognition and
enforcement of any judgment in respect thereof, and such Guarantor hereby
irrevocably agrees that 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 law, in such United States federal court. Each Guarantor hereby
irrevocably waives, to the fullest extent it may legally and effectively do so,
any objection or defense to venue in the State of New York and to any such
jurisdiction as an inconvenient forum for the maintenance of any such action or
proceeding. Nothing herein shall affect the right of the Agent, the Issuing
Bank, any Lender or any Hedge Bank to commence or participate in any action,
suit or proceeding or otherwise to proceed against any Guarantor in any other
jurisdiction.
<PAGE>
8
(c) Each Guarantor irrevocably consents to the service of any and all
process in any such action, suit or proceeding by the mailing of copies of
such process to such Guarantor at the address set forth below its name on
the signature page hereof, or by any other method permitted by law. Each
Guarantor 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.
(d) To the extent that any Guarantor has or hereafter may acquire immunity
from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
such Guarantor hereby irrevocably waives such immunity in respect of its
Obligations under this Guaranty, any other Loan Document and any Secured
Hedge Agreement to which it is a party.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
SPECIALTY CATALOG CORP.
Six Landmark Square
4th Floor
Stamford, CT 06901 By /s/ Steven L. Bock
-----------------------------------
Name: Steven L. Bock
Title: CEO
Six Landmark Square SC HOLDINGS L.L.C.
4th Floor
Stamford, CT 06901 By DICKSTEIN INTERNATIONAL LIMITED
By DICKSTEIN PARTNERS INC., its Agent
By
---------------------------------
Name:
Title:
<PAGE>
8
(c) Each Guarantor irrevocably consents to the service of any and all
process in any such action, suit or proceeding by the mailing of copies of
such process to such Guarantor at the address set forth below its name on
the signature page hereof, or by any other method permitted by law. Each
Guarantor 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.
(d) To the extent that any Guarantor has or hereafter may acquire immunity
from jurisdiction of any court or from any legal process (whether through
service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
such Guarantor hereby irrevocably waives such immunity in respect of its
Obligations under this Guaranty, any other Loan Document and any Secured
Hedge Agreement to which it is a party.
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
SPECIALTY CATALOG CORP.
Six Landmark Square
4th Floor
Stamford, CT 06901 By
-----------------------------------
Name:
Title:
Six Landmark Square SC HOLDINGS L.L.C.
4th Floor
Stamford, CT 06901 By DICKSTEIN INTERNATIONAL LIMITED
By DICKSTEIN PARTNERS INC., its Agent
By /s/ Alan Cooper
---------------------------------
Name: Alan Cooper
Title: Vice President
<PAGE>
EXHIBIT 10.14
[LOGO OF SC DIRECT, INC.]
June 1, 1996
Mr. Martin Franklin
Suite B302
555 Theodore Fremd Ave
Rye, NY 10580
Dear Martin:
This will confirm the agreement among you, SC DIRECT, INC. ("SCD") and SPECIALTY
CATALOG CORP. ("SCC") (together, the "Companies"), regarding the purchase by you
of Junior Subordinated Debt issued by SCD and a Warrant issued by SCC. SCD is a
wholly-owned subsidiary of SCC.
It is understood and agreed that you will purchase the Junior Subordinated Debt
(as defined below) at the same time that the Companies and Banque Nationale de
Paris ("BNP") agree on revised covenants under the Credit Agreement dated as of
November 23, 1994 between BNP and the Companies.
1. You will loan $495,000 to SCD in exchange for $495,000 principal amount of
Junior Subordinated Debt (the "Junior Subordinated Debt").
2. The Junior Subordinated Debt will be junior in priority to the outstanding
principal and interest on the Subordinated Debt (the "Senior Subordinated
Debt"), issued by SCD to SC Holdings, LLC in November, 1994.
3. The Junior Subordinated Debt will accrue interest from the date of issuance
at the same rate, and subject to the same restrictions and conditions, as
the Senior Subordinated Debt, but will remain junior in priority to the
Senior Subordinated Debt.
4. The Junior Subordinated Debt will mature on the third anniversary following
the date of its issuance, and will be prepayable by SCD, in whole or in
part, without penalty, at any time; provided, however, that in the event the
Senior Subordinated Debt has not been repaid in full on or prior to the
maturity date of the Junior Subordinated Debt, then the maturity date of the
Junior Subordinated Debt will be automatically extended until the date which
is one business day following the repayment in full of the Senior
Subordinated Debt.
<PAGE>
5. In consideration of your purchasing the Junior Subordinated Debt, SCC will
issue to you (at such time when you purchase the Junior Subordinated Debt)
for $5,000 a warrant (the "Warrant") to purchase 815.12 shares of Class A
Common Stock of SCC (the "Warrant Shares"), which is equal to 7.22% of the
currently outstanding Common Stock of SCC on a fully-diluted basis, assuming
conversion of all outstanding options currently held by Steven L. Bock and
Stephen M. O'Hara. The aggregate exercise price for the Warrant Shares will
be $500,000 ($613.41 per share). The number of shares of Common Stock into
which the Warrant will be exercisable, and the exercise price therefor, will
be adjusted for stock splits. The Warrant will be exercisable during the
period commencing upon the closing of a public offering of the shares of SCD
or SCC and ending on the third anniversary following the closing of such
offering; provided, however, that (i) in no event will the Warrant be
exercisable after September 30, 1999 and (ii) the Warrant will be
exercisable upon a sale of SCD or SCC even if no public offering of the
shares of SCD or SCC has occurred prior to such sale. The Warrant will not
be exercisable under any other circumstances, and will expire if the
Companies (or either of them) is not publicly traded on or prior to June 30,
1999.
6. The Junior Subordinated Debt will be subordinated to BNP on the same basis
as the Senior Subordinated Debt.
If you are in agreement with the above terms and conditions, please sign the
enclosed copy of this letter.
Very truly yours,
SC Direct, Inc. Specialty Catalog Corp.
By /s/ Steven L. Bock By
------------------------------- ------------------------------
Steven L. Bock
Agreed to:
/s/ Martin Franklin
- ---------------------------------
Martin Franklin
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE BOARDS OF DIRECTORS OF
SPECIALTY CATALOG CORP. AND SC CORPORATION
The undersigned, being all of the Directors of Specialty Catalog Corp.,
a Delaware corporation ("SCC"), and SC Corporation, a Delaware corporation doing
business as SC Direct, Inc. in Massachusetts ("SC Direct") (SCC and SC Direct
together, the "Companies"), pursuant to Section 141(f) of the General
Corporation Law of the State of Delaware, hereby adopt, approve and consent to
the following resolution, with the same force and effect as though adopted at a
meeting duly called and held.
WHEREAS, Banque National de Paris ("BNP") has requested that an
additional $500,000 be invested in SC Direct in order to facilitate revisions to
the covenants under the Credit Agreement dated as of November 23, 1994 between
BNP and the Companies (the "Credit Agreement"); and
WHEREAS, Martin Franklin has agreed to purchase $495,000 principal
amount of Junior Subordinated Debt (the "Junior Subordinated Debt") of SC
Direct; and
WHEREAS, in consideration of Mr. Franklin's purchasing the Junior
Subordinated Debt, SCC has agreed to issue to Mr. Franklin a Warrant to purchase
shares of Class A Common Stock of SCC; and
WHEREAS, the Boards determined that the Junior Subordinated Debt could
not be raised by SC Direct on the above-mentioned terms without SCC issuing the
Warrant, and that the exercise price of the Warrant was determined by arms
length negotiation between Mr. Franklin and SCC and reflects, in the view of the
Boards, a premium to the fair market value as of the date hereof of the Common
Stock of SCC, taking into account the current earnings of the Companies, the
recent performance of consumer catalog businesses, and prevailing multiples for
the equity of privately-held companies the size of the Companies (the last sale
of Common Stock by SCC being made in November, 1994 at a price of $100.00 per
share);
NOW, THEREFORE, BE IT
RESOLVED, that the Companies enter into the Agreement with Martin
Franklin with respect to the Junior Subordinated Debt and Warrant, substantially
in the form attached hereto as Exhibit A; and that Steven L. Bock is hereby
authorized on behalf of the Companies to execute and deliver the Agreement on
behalf of the Companies, and to take all such further actions he may deem
necessary or desirable in order to implement the terms of the Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Consent as
of the 1st day of June, 1996.
--------------------------------
Steven L. Bock
--------------------------------
Alan Cooper
--------------------------------
Martin Franklin
--------------------------------
Samuel Katz
--------------------------------
Guy Naggar
<PAGE>
Exhibit 10.15
DEBTOR SECURITIES PURCHASE AGREEMENT, dated as of November 23, 1994 among
SC Corporation, a Delaware corporation, Western Schools, Inc., a California
corporation, Wigs by Paula, Inc., a Massachusetts corporation, Dickstein & Co.,
L.P., Dickstein International Limited, Viking Holdings Limited, Steven L. Bock,
Bruce G. Pollack and Wigs, L.P.
WHEREAS, the Companies are currently debtors and debtors-in-possession in
chapter 11 cases under title 11 of the United States Code pending in the United
States Bankruptcy Court for the District of Connecticut, Bridgeport Division;
and
WHEREAS, the Bankruptcy Court has confirmed the Plan, which provides for,
among other things, the restructuring of certain of the Companies' indebtedness
and the issuance of certain securities by the Issuer; and
WHEREAS, the Plan contemplates that one or more of the Investors will
purchase certain securities of the Issuer from certain creditors of the
Companies, and, pursuant thereto, one or more of the Investors is entering into
that certain Signal Securities Purchase Agreement and that certain Noteholder
Securities Purchase Agreement, each dated as of the date hereof (collectively,
the "Other Securities Purchase Agreements"); and
WHEREAS, the Plan contemplates that the Purchasers will purchase, and that
Viking Holdings Limited will exchange its participation interest in the Signal
Claims (as defined in the Plan) for certain securities of the Issuer from the
Issuer, and the Issuer and the Purchasers desire to contract for the purchase
and sale of such securities and for the other transactions contemplated by this
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. As used in this Agreement, and unless the
-----------
context clearly requires a different meaning, the following terms have the
meanings indicated:
"Act" means the Securities Act of 1933, as amended, and the rules and
---
regulations of the Securities and Exchange Commission thereunder.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person, including any investment fund directly or
indirectly managed by such Person or any of its Affiliates. For the purposes of
this definition, "control," when used with respect to any Person, means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract
<PAGE>
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" means this Agreement, as the same may be amended, supplemented
---------
or modified in accordance with the terms hereof.
"Bankruptcy Code" means title 11 of the United States Code, as amended.
---------------
"Bankruptcy Court" means the United States Bankruptcy Court for the
----------------
District of Connecticut, Bridgeport Division.
"Basic Agreements" means, collectively, this Agreement, the New Financing
----------------
Facility and the Securities, and all other instruments, agreements and written
contractual obligations executed pursuant to or in connection with such
agreements and documents.
"Certificates" means certificates or other instruments evidencing the
------------
shares of Common Stock or Preferred Stock being purchased hereby.
"Common Stock" means the common stock of SC Corporation, $.01 par value,
------------
authorized by the certificate of incorporation of SC Corporation, as amended on
the date hereof pursuant to the Plan.
"Companies" means SC Corporation, a Delaware corporation, Western Schools,
---------
Inc., a California corporation, and Wigs by Paula, Inc., a Massachusetts
corporation.
"Dickstein" means Dickstein & Co., L.P. and Dickstein International
---------
Limited.
"Exchange" means the exchange by Viking of its participation interest in
--------
the Signal Claims (as defined in the Plan) for Securities under this Agreement.
"Issuer" means SC Corporation, a Delaware corporation.
------
"New Financing Facility" means the credit agreement and related documents
----------------------
entered into as of the date hereof, among the Companies and Banque Nationale de
Paris.
"Plan" means the Joint Plan of Reorganization of SC Corporation, Western
----
Schools, Inc. and Wigs by Paula, Inc. dated as of September 21, 1994, as amended
by the Bankruptcy Court on October 26, 1994.
"Preferred Stock" means the preferred stock of SC Corporation, authorized
---------------
by the certificate of incorporation of SC Corporation, as amended on the date
hereof pursuant to the Plan.
-2-
<PAGE>
"Purchaser" means each Person executing the signature page hereof (other
---------
than the Companies) and any successor or assignee of such Person permitted under
Section 5.6 hereof.
"Securities" means the Subordinated Notes, the Preferred Stock and the
----------
Common Stock purchased by the Purchasers pursuant to Section 2.1 of this
Agreement.
"Subordinated Notes" means the subordinated notes of SC Corporation issued
------------------
pursuant to the Plan and this Agreement.
"Subsidiaries" means Western Schools, Inc., Wigs by Paula, Inc., Brotman
------------
Acquisition Corp. and After the Stork, Inc.
"Viking" means Viking Holdings Limited, a British Virgin Islands
------
corporation.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Plan.
ARTICLE II
PURCHASE OF SECURITIES
SECTION 2.1. Purchase of Securities. Subject to the terms and
----------------------
conditions herein set forth, the Issuer hereby sells to the Purchasers, and each
Purchaser hereby purchases the respective amounts of Securities for the
respective purchase prices (and, in the case of Viking, in exchange for the
Exchange) set forth on Exhibit A hereto.
Delivery of the Securities shall be made on the date hereof by the
Issuer delivering to the Purchasers, against payment of the purchase price
therefor (and, with respect to Viking, the Exchange), Certificates for such
Securities, registered in the name of the respective Purchasers. The Purchasers
acknowledge and agree that each Certificate shall be legended to reflect the
applicability of Federal and states securities laws limitations on the transfer
of the Securities.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES
The Companies hereby jointly and severally represent and warrant to
the Purchasers and Dickstein that:
SECTION 3.1. Corporate Existence and Power. Each Company is a
-----------------------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and is duly qualified to do business as
a foreign corporation in each additional jurisdiction where the failure to so
qualify would have a material adverse
-3-
<PAGE>
effect on the assets, financial condition or business of the Companies or any
one of them. Each Company has all requisite power (corporate and otherwise) to
own its properties and to carry on its business as now being conducted and as
proposed to be conducted, and to execute, deliver and perform its obligations
under each Basic Agreement to which it is a party and to engage in the
respective transactions contemplated hereby and thereby.
SECTION 3.2. Subsidiaries. Except as set forth on Schedule 3.2
------------
hereto, as of the date hereof, (i) none of the Subsidiaries has any equity
interest (direct or indirect) in any Person, (ii) the Issuer does not have any
equity interest (direct or indirect) in any Person other than the Subsidiaries,
(iii) all outstanding shares of capital stock of each Subsidiary have been duly
and validly issued and are fully paid and non-assessable, (iv) the Issuer owns
all of the issued and outstanding capital stock of each Subsidiary and has good
title to all of such shares free and clear in each case of any lien, claim,
charge or encumbrance (other than liens, claims, charges or encumbrances created
by the New Financing Facility), and (v) neither any issued and outstanding
shares, nor any unissued or treasury shares, of capital stock of any Subsidiary
is subject to any option, warrant, right to call, preemptive right, repurchase,
put obligation or commitment of any kind or character.
SECTION 3.3. Corporate Authority. The execution, delivery and
-------------------
performance by each Company of each Basic Agreement to which such Company is a
party have been duly authorized by all necessary corporate action on the part of
such Company.
SECTION 3.4. Binding Effect. Each Basic Agreement is the legal,
--------------
valid and binding obligation of each Company that is a party thereto.
SECTION 3.5. No Required Consents, etc. Other than the entry of an
--------------------------
order by the Bankruptcy Court confirming the Plan, which order has been entered,
is final and non-appealable and remains in full force and effect, no consent,
approval or authorization of or declaration, registration or filing with any
governmental body, office or agency or any nongovernmental Person, including,
without limitation, any creditor or shareholder of any of the Companies, is
required to be obtained or made by any of the Companies in connection with the
execution, delivery and performance of the Basic Agreements or the transactions
contemplated hereby or thereby or as a condition to the legality, validity or
enforceability of the Basic Agreements.
SECTION 3.6. No Conflicting Agreements, etc. Neither the execution
-------------------------------
and delivery of the Basic Agreements nor the fulfillment of or compliance with
the terms and provisions hereof or thereof, will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute (or with notice
or lapse of time would constitute) a default under, or result in any violation
of, any contract, agreement, mortgage, indenture, lease, instrument, order,
statute, law, rule or regulation to which the Issuer or any of the Subsidiaries
is subject, or result in the creation of any lien, claim, charge or encumbrance
on any properties or assets of the Issuer or any of the Subsidiaries (other than
liens, claims, charges or encumbrances created by the New Financing Facility).
-4-
<PAGE>
SECTION 3.7. Litigation; No Violation of Government Orders or Laws.
-----------------------------------------------------
No action, suit or proceeding is pending or, to the Companies' best knowledge,
threatened, nor is there any investigation pending or, to the Companies' best
knowledge, threatened, against or affecting the Issuer or any of the
Subsidiaries which seeks to enjoin, or otherwise prevent the consummation of,
any of the transactions contemplated by the Basic Agreements or to recover any
damages or obtain any relief as a result of any of the transactions contemplated
hereby in any court or before any arbitrator of any kind or before or by any
governmental body, office or agency.
SECTION 3.8. Capitalization. The Issuer's entire authorized capital
--------------
stock consists of 870,000 shares of Common Stock and 22,500 shares of Preferred
Stock. There are no outstanding options, warrants, rights to subscribe to,
calls or commitments relating to, or securities or rights convertible into,
shares of capital stock of the Issuer, or contracts, commitments or arrangements
obligating the Issuer to issue additional shares of its capital stock or
options, warrants or rights to purchase or acquire any shares of its capital
stock.
SECTION 3.9. Capital Stock. All shares of the Issuer's capital stock
-------------
have been validly authorized and duly issued and are fully paid and non-
assessable. None of the Issuer or any of the Subsidiaries is required to file,
or has filed, pursuant to Section 12 of the Exchange Act, any registration
statement relating to any class of its debt or equity securities.
SECTION 3.10. Termination of Prior Shareholders and Governance
------------------------------------------------
Agreements. Prior to or concurrent with the execution and delivery of this
- ----------
Agreement, any and all existing agreements, oral or written, pertaining to
governance of the Issuer and/or the Subsidiaries and/or the voting or transfer
of capital stock of the Issuer and/or the Subsidiaries have been terminated and
are no longer in effect.
SECTION 3.11. Disclosure. The representations and warranties of the
----------
Companies contained in the New Financing Facility are true and correct as of the
date hereof. None of the representations, warranties and other statements of
the Companies contained in the Disclosure Statement, the Plan, the Basic
Agreements or any of the certificates or other documents delivered to any of the
Purchasers or Dickstein pursuant to the terms hereof or thereof has contained
any untrue statement of a material fact or has omitted to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which and the time at which they were made, not misleading.
None of the Companies has withheld any fact from the Purchasers or Dickstein in
regard to any matter which will have or is reasonably likely to have a material
adverse effect on the condition (financial or otherwise), business, performance,
properties, operations, assets or prospects of the Issuer or the Subsidiaries or
the ability of the Companies to perform their obligations under the Basic
Agreements.
SECTION 3.12. Financial Statements. Except as may have been
--------------------
disclosed in the Disclosure Statement, since December 31, 1993, there has not
been any material adverse change in the condition (financial or otherwise) or
results of operations of the Issuer and the Subsidiaries taken as a whole. The
audited financial statements of each of Wigs and Western prepared by Deloitte &
Touche and delivered to the Purchasers and Dickstein have been
-5-
<PAGE>
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present its respective financial position as at
the date thereof and the results of its respective operations and cash flows for
the periods then ended. The unaudited financial statements provided to the
Purchasers and/or Dickstein fairly present the financial condition of the
Companies and are presented in conformity with all of the other unaudited
financial statements historically prepared by the Companies.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser hereby severally represents and warrants to the
Companies that, as to itself:
SECTION 4.1. Organization, Existence, Qualification and Authority of
-------------------------------------------------------
Purchaser. In the case of a Purchaser that is not a natural person, (i) it is
- ---------
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization, and has the power and authority to enter into each
Basic Agreement to which it is a party and perform its obligations hereunder and
thereunder, and (ii) the execution, delivery and performance of each Basic
Agreement to which such Purchaser is a party has been duly and validly
authorized by all requisite action on behalf of such Purchaser. Each Basic
Agreement to which such Purchaser is a party is legal, valid and binding upon
such Purchaser and enforceable against such Purchaser in accordance with its
terms, except as limited by (x) bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors generally; and (y) the effect of general principles of
equity (whether considered in a proceeding at law or in equity).
SECTION 4.2. No Breach or Default. The execution, delivery and
--------------------
performance of each Basic Agreement to which such Purchaser is a party and the
consummation of the sale of the Securities to such Purchaser as contemplated by
this Agreement do not and will not: (i) if such Purchaser is not a natural
person, contravene such Purchaser's constitutive documents, if any; (ii) violate
any law or regulation applicable to such Purchaser; (iii) result in the breach
of, or constitute a default under, any indenture, mortgage, deed of trust, lease
or sublease, or other material agreement or material instrument to which such
Purchaser is a party or by which such Purchaser or any of its properties is
bound; or (iv) require the consent or approval of, or any filing with, any
governmental body, agency, authority or any other Person having jurisdiction
over such Purchaser other than those which have been obtained on or before the
date hereof.
SECTION 4.3. Purchase for Own Account. The Securities to be acquired
------------------------
by such Purchaser pursuant to this Agreement are not being acquired with the
intention of distributing or reselling such Securities or any part thereof in
any transaction which would be in violation of the securities laws of the United
States, without prejudice, however, to such Purchaser's rights at all times to
sell or otherwise dispose of all or any part of such
-6-
<PAGE>
Securities under a registration statement under the Act or under an exemption
from such registration available under the Act.
SECTION 4.4. Investor Sophistication. Such Purchaser, by reason of
-----------------------
its business and financial experience, or the business and financial experience
of those Persons retained by it to advise it with respect to its investment in
the Securities being acquired pursuant to this Agreement, have such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment, are
able to bear the economic risk of such investment and, at the present time, are
able to afford a complete loss of such investment.
ARTICLE V
MISCELLANEOUS
SECTION 5.1. (a) Indemnification. The Companies (jointly and
---------------
severally, the "Indemnifying Party") agree and covenant to hold harmless and
indemnify each Purchaser, Dickstein, their respective Affiliates and all
directors, officers, partners, employees, agents, shareholders, advisors and
representatives of the foregoing (each of the foregoing Persons being an
"Indemnified Person"), from and against any losses, claims, damages,
liabilities and expenses (including attorneys' fees and expenses of
investigation) asserted against or incurred by such Indemnified Person
(collectively, "Indemnifiable Costs and Expenses") in connection with or as a
result of (i) any actual or threatened third-party action, suit, proceeding or
investigation (including expenses of investigation) arising out of or based in
any manner upon the Purchasers', Dickstein's or any other party's negotiation,
execution or performance of its obligations hereunder or under the Other
Securities Purchase Agreements, or its ownership of any of the Securities, (ii)
any breach by the Indemnifying Party of any its representations, warranties or
covenants contained herein or in the other Basic Agreements or (iii) enforcement
of the rights of an Indemnified Person under this Agreement or any of the
Securities.
The Indemnifying Party further agrees promptly upon demand by each
Indemnified Person to reimburse each Indemnified Person for any Indemnifiable
Costs and Expenses as they are incurred by it. The Indemnifying Party further
agrees: (i) that the indemnification, contribution and reimbursement
commitments set forth in this Section 5.1 shall apply whether or not an
Indemnified Person is a formal party to any such lawsuits, claims or other
proceedings; and (ii) promptly upon demand by an Indemnified Person, at any time
or from time to time, to reimburse such Indemnified Person for, or to pay any
loss, claim, damage, liability or expense as to which the Indemnifying Party has
indemnified such Indemnified Person pursuant to this Agreement. The indemnity,
contribution and expense reimbursement obligation of the Indemnifying Party
under this Section 5.1 shall be in addition to any liability it may otherwise
have.
The obligations of the Indemnifying Party under this Section 5.1(a)
shall be joint and several, and shall survive any redemption of the Securities,
the transfer of the Securities and the termination of this Agreement and shall
not be extinguished with respect to
-7-
<PAGE>
any Person because any other Persons are not entitled to indemnity or
contribution hereunder.
(b) Contribution. In order to provide for just and equitable
------------
contribution in circumstances under which the indemnity provided for in this
Section 5.1 is for any reason held to be unenforceable by the Indemnified Person
though applicable in accordance with its terms, the Indemnifying Party, in lieu
of indemnifying such Indemnified Person, shall have an obligation to contribute,
and shall contribute to the amount paid or payable by such Indemnified Person as
a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect not only the relative benefits received
by the Indemnifying Party and the Indemnified Persons, but also to reflect the
relative fault of the Indemnifying Party and the Indemnified Persons in
connection with the statement or omissions which result in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations; provided, however, that no Person guilty of fraudulent
-------- -------
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault of the Indemnifying Party and the
Indemnified Persons shall be determined by reference to, among other things,
whether the untrue statement of a material fact or the omission to state a
material fact has been made by, or relates to information supplied by, the
Indemnifying Party or Indemnified Persons and the Persons' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a Person as a result of
the losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such Person in connection with investigating or defending any such claim.
The Companies and the Purchasers agree that it would not be just and
equitable if contribution pursuant to the immediately preceding paragraph were
determined by any method of allocation which does not take into account the
equitable considerations referred to in such paragraph.
(c) Notification. Each party agrees to notify the Companies of the
------------
commencement of any litigation or proceeding against it or any of its related
Indemnified Persons in connection with the issue of any of the Securities, or in
any way related or attributed to any documents or matters as to which such party
is liable to indemnify, contribute or reimburse hereunder; provided, however,
that the failure to provide such notice shall not relieve the Indemnifying Party
(i) from any liability which it may have to any Indemnified Person hereunder or
(ii) from any liability which it may have to any Indemnified Person otherwise
than pursuant to this Section 5.1.
SECTION 5.2. Entire Agreement; Survival of Provisions. This
----------------------------------------
Agreement and the other agreements and documents executed in connection herewith
constitute the entire agreement of the parties with respect to the transactions
contemplated hereby and supersedes all prior agreements and understandings with
respect thereto. All of the covenants of the parties made herein shall remain
operative and in full force and effect regardless of (a)
-8-
<PAGE>
acceptance of any of the Securities and payment therefor or (b) payment of the
Securities upon redemption or exchange or otherwise.
SECTION 5.3. No Waiver; Modifications in Writing. No failure or
-----------------------------------
delay by a party in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to any party at law or in equity or otherwise. No waiver of or consent
to any departure by a party from any provision of this Agreement shall be
effective unless signed in writing by the parties entitled to the benefit
thereof, including without limitation Dickstein. No amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by the party to be bound. Any amendment, supplement or modification
of or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure from the terms of any provision of
this Agreement, shall be effective only in the specific instance and for the
specific purpose for which made or given.
SECTION 5.4. Communications. All notices, demands and other
--------------
communications hereunder shall be in writing, shall be effective upon receipt
and shall be addressed as follows: if to the Purchasers, addressed to the
Purchasers as shown on the execution page hereof; if to the Companies, in care
of the Issuer, at Six Landmark Square, Stamford, Connecticut 06901, telecopier
No. (203) 359-5840, Attention: Steven Bock; if to Dickstein, in care of
Dickstein Partners Inc. at 9 West 57th Street, New York, New York 10019,
telecopier No. (212) 744-5825, Attention: Mark D. Brodsky and Samuel Katz;
provided, however, that any party or Dickstein may from time to time designate a
different address by notice to the others.
SECTION 5.5. Execution in Counterparts. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto on
separate counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same Agreement.
SECTION 5.6. Binding Effect; Assignment. The rights and obligations
--------------------------
of the Purchasers under this Agreement may be assigned to any other Person. The
rights and obligations of the Companies under this Agreement may not be assigned
to any other Person, except upon the consent of the Purchasers and Dickstein.
Except as expressly provided in this Agreement, this Agreement shall not be
construed so as to confer any right or benefit upon any Person other than the
parties to this Agreement and their respective successors and permitted assigns.
This Agreement shall be binding upon the Companies, the Purchasers and any such
permitted assignee.
SECTION 5.7. Governing Law. This Agreement shall be deemed to be a
-------------
contract made under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of said State, without regard to
principles of conflict
-9-
<PAGE>
of laws. Each of the parties hereto agrees to submit to the jurisdiction of the
federal or state courts located in the City of New York, Borough of Manhattan,
in any action or proceeding arising out of or relating to this Agreement.
SECTION 5.8. Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 5.9. Headings. The Article and Section headings used or
--------
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement.
SECTION 5.10. Costs, Expenses and Taxes. The Companies shall
-------------------------
reimburse all of the fees and expenses (including fees and expenses of legal
counsel) of each of the Purchasers and Dickstein incurred (i) in connection with
the Chapter 11 Cases of the Companies or (ii) in the formulation, negotiation,
preparation and implementation of this Agreement, the Basic Agreements, the
Disclosure Statement and the Plan, and the documents, agreements and instruments
contemplated hereby or thereby or referred to herein or therein. The Companies
shall pay any and all stamp, transfer and other similar taxes payable or
determined to be payable in connection with the execution and delivery of this
Agreement or the issuance of the Securities, and shall save and hold each
Purchaser harmless from and against any and all liabilities with respect to or
resulting from any delay in paying, or omission to pay, such taxes.
SECTION 5.11. Third Party Beneficiary. The parties hereto hereby
-----------------------
acknowledge that this Agreement and the representations, warranties, agreements
and indemnification obligations contained herein have been relied upon by
Dickstein in connection with its purchase of securities of the Issuer pursuant
to the Signal Securities Purchase Agreement and the Noteholder Securities
Purchase Agreement, and but for the execution and delivery of this Agreement
Dickstein would not have entered into such Agreements or purchased securities of
the Issuer. Dickstein and its related Indemnified Persons (as defined in
Section 5.1(a) hereof) shall be deemed to be intended beneficiaries of this
Agreement, entitled to enforce the terms hereof directly against any of the
Companies, including, without limitation, the indemnification provisions hereof
and the reimbursement of its expenses as set forth in Section 5.10 hereof.
SECTION 5.12. Viking Participation. Concurrent with the execution
--------------------
and delivery of this Agreement and the delivery of the Securities to Viking in
exchange therefor, Viking shall effect the Exchange. Notwithstanding anything
to the contrary contained herein, Signal Capital Corporation shall not be
entitled to any distribution arising out of or in connection with the Exchange.
SECTION 5.13. Waiver of Jury Trial. The Companies hereby irrevocably
--------------------
waive all right to a trial by jury in any action, proceeding or counterclaim
arising out of or
-10-
<PAGE>
relating to this Agreement, the Basic Agreements or the transactions
contemplated hereby or thereby.
SECTION 5.14. Further Assurances. Each party shall execute and
------------------
deliver all further documents or instruments reasonably requested by any of the
other parties hereto and not inconsistent with this Agreement in order to
effectuate or facilitate the purchase and sale of the Securities and the other
transactions contemplated by this Agreement.
[The rest of this page is intentionally left blank.]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers hereunto duly authorized, as of the
date first above written.
SC CORPORATION
By:____________________________
Name: Steven L. Bock
Title: Chief Executive Officer
WESTERN SCHOOLS, INC.
By:____________________________
Name: Steven L. Bock
Title: Chief Executive Officer
WIGS BY PAULA, INC.
By:____________________________
Name: Steven L. Bock
Title: Chief Executive Officer
DICKSTEIN & CO., L.P.
By: DICKSTEIN PARTNERS, L.P., its
general partner
By: DICKSTEIN PARTNERS INC., its
general partner
By_________________________________
Mark D. Brodsky, Vice President
Address: 9 West 57th Street
New York, NY 10019
Attn: Mark D. Brodsky and
Samuel Katz
Telephone: (212) 754-4000
Telecopier: (212) 754-5825
-12-
<PAGE>
DICKSTEIN INTERNATIONAL LIMITED
By: DICKSTEIN PARTNERS INC., its agent
By_____________________________________
Mark D. Brodsky, Vice President
Address: 9 West 57th Street
New York, NY 10019
Attn: Mark D. Brodsky and
Samuel Katz
Telephone: (212) 754-4000
Telecopier: (212) 754-5825
VIKING HOLDINGS LIMITED
By:___________________________
Name:
Title:
Address: La Motte Chambers
La Motte Street
St. Helier
Jersey JE1 1BJ
Channel Islands
Telephone: 011-44-534-602-000
Telecopier: 011-44-534-602-002
______________________________
Steven L. Bock
Address: Six Landmark Square, 4th Floor
Stamford, CT 06901
Telephone: 203-359-5640
Telecopier: 203-359-5840
________________________
Bruce G. Pollack
Address: c/o Centre Partners, L.P.
One Rockefeller Plaza, Suite 1025
New York, New York 10020
Telephone: 212-632-4821
Telecopier: 212-632-4846
-13-
<PAGE>
WIGS, L.P.
By:___________________________
Name: Arthur Kowaloff
Title: General Partner
Address: c/o Patricof & Co. Capital Corp.
445 Park Avenue, 11th Floor
New York, NY 10022
Telephone: 212-935-5151
Telecopier: 212-832-6946
-14-
<PAGE>
Exhibit 10.16
PLEDGE AND SECURITY AGREEMENT
In order to induce SC CORPORATION, a Delaware corporation ("SC") to
accept from WIGS, L.P., a Delaware limited partnership ("Pledgor") a promissory
note from Pledgor to SC, dated the date hereof, in the original principal amount
of $147,583 (the "Note"), as partial consideration for SC's issuance to Pledgor
of 26,051 shares of its common stock, par value $.01 per share (the "Common
Shares"), 675 shares of its preferred stock, par value $100 per share (the
"Preferred Shares") , and SC Corporation Subordinated Notes in aggregate
principal amount of $110,406 (the "Subordinated Notes" and, together with the
Common Shares and the Preferred Shares, the "Securities"), pursuant to the terms
of a Debtor Securities Purchase Agreement, dated the date hereof, by and among
SC, Pledgor and other signatories thereto (the "Debtor Securities Purchase
Agreement"), and for other good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto enter into this Pledge and
Security Agreement (the "Agreement") and agree as follows:
1. Pledge. (a) As collateral security for the due payment of (i)
------
all of the Pledgor's obligations under the Note, whether at the stated maturity,
by acceleration or otherwise, (ii) the reasonable expenses of SC of holding,
preparing for sale, selling or otherwise disposing or realizing on the
Collateral (as hereinafter defined), (iii) the expenses of SC of any exercise of
its rights hereunder or under the Note (together with reasonable attorneys' fees
and court costs) after an Event of Default under the Note shall have occurred
and be continuing (the "Secured Obligations"), Pledgor hereby pledges, transfers
and assigns to SC and grants SC a security interest in the following
(collectively, defined as the "Collateral"): (i) 18,365 of the Common Shares
(the "Pledged Common Shares") and 490 of
<PAGE>
the Preferred Shares (the "Pledged Preferred Shares") (including and together
with any and all cash, instruments and other property and assets from time to
time received as dividends (liquidating, stock or otherwise) and distributions
(including distributions or exchanges in connection with any reorganization or
recapitalization of SC, including any merger or stock split) with respect to the
Pledged Common or Pledged Preferred Shares) and (ii) $80,186 in aggregate
principal amount of the Subordinated Notes (the "Pledged Subordinated Notes"
and, together with the Pledged Common and Pledged Preferred Shares, the "Pledged
Securities"), including any and all principal, interest, cash, instruments and
other property and assets from time to time received or receivable or otherwise
distributed in respect of or in exchange for the Pledged Subordinated Notes. SC
acknowledges receipt of the Pledged Securities and undated stock and note powers
with respect thereto duly executed in blank by the Pledgor.
(b) The obligations of the Pledgor under this Agreement shall be
absolute and unconditional and shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by, any circumstance or occurrence whatsoever, including,
without limitation: (a) any renewal, extension, amendment or modification of or
addition or supplement to or deletion from the Note or any other instrument or
agreement referred to herein or therein, or any assignment or transfer of any
thereof; (b) any waiver, consent, extension, indulgence or other action or
inaction under or in respect of any such agreement or instrument or this
Agreement; (c) any furnishing of any additional security to SC or its assignee
or any acceptance thereof or any release of any security by SC or its assignee;
(d) any limitation on any party's liability or obligations under any such
instrument or agreement or any invalidity or unenforceability, in whole or in
part,
2
<PAGE>
of any such instrument or agreement or any term thereof; or (e) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Pledgor or any action taken with respect
to this Agreement by any trustee or receiver, or by any court, in any such
proceeding, whether or not the Pledgor shall have notice or knowledge of any of
the foregoing.
2. Voting Powers. Unless and until an Event of Default under the
-------------
Note shall occur and be continuing, Pledgor shall retain and be entitled to
exercise all voting and consensual powers pertaining to the Collateral or any
part thereof. Upon the occurrence and during the continuance of an Event of
Default under the Note, SC shall have the right to transfer to or to register in
its name or the names of any of its nominees any of the Collateral.
3. Distributions on Collateral. All dividends, interest, payments
---------------------------
of principal or other distributions of any kind paid or made with respect to
the Collateral, including in exchange for the Collateral, shall be paid or made
to SC, together, if applicable, with appropriate assignments thereof in blank
duly executed by Pledgor, and shall be subject to the security interest granted
hereunder until such time as the Note shall have been paid in full;
provided, however, that any and all dividends, interest, payments of principal
- -------- -------
or other distribution of any kind paid or made in cash shall be applied by
Pledgor to the prepayment of principal, together with accrued interest on the
amount prepaid to the date of prepayment, pursuant to the terms of the Note.
4. Rights and Remedies. (a) In the event an Event of Default
-------------------
occurs under the Note or the Pledgor shall default in respect of Pledgor's
obligations to SC described in Section 1, then, in such event, SC may exercise
in respect of the Collateral, in
3
<PAGE>
addition to other rights and remedies provided for herein or otherwise available
to SC, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of New York at that time, and SC
may also, without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of SC's offices or elsewhere, for cash, on credit or
for future delivery, and at such price or prices and upon such other terms as SC
may deem commercially reasonable. The Pledgor agrees that, to the extent notice
of sale shall be required by law, at least ten (10) days' notice to the Pledgor
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. SC shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. SC may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. In
the event of a transfer of Collateral to SC, SC shall be the sole owner of the
Collateral for all purposes.
(b) All rights and remedies hereunder are in addition to whatever
other rights SC may otherwise have against Pledgor, and no exercise of any such
rights or remedies shall be deemed to preclude the exercise of any other rights
or remedies.
5. No recourse. None of the partners of Pledgor shall be, directly
-----------
or indirectly, personally liable for the obligations of Pledgor under this
Agreement, nor does the signature of any of them that appears hereon bind them
personally. Any payments to be made by Pledgor under this Agreement are to be
made only out of the funds of Pledgor, and SC shall look for such payment only
to the funds of Pledgor exclusive of any obligation to make a contribution by
any partner of Pledgor.
4
<PAGE>
6. Assurances with respect to Merger. The parties hereto acknowledge
---------------------------------
that they are parties to that certain Shareholders' Agreement, dated the date
hereof, by and among SC, the Pledgor and the other shareholders of SC
signatories thereto (the "Shareholders' Agreement"). In the event that the
merger (the "Merger") of Wigs by Paula, Inc., a Massachusetts corporation
("Wigs"), into SC, as contemplated by the Shareholders' Agreement occurs, (i) SC
agrees that it will promptly execute and deliver all further instruments and
documents, including any endorsements or assignments, and take all further
action that may be necessary or desirable to release the Pledged Securities from
the lien created hereunder and to effect the transfer of such Pledged Securities
to whoever is meant to receive them pursuant to the terms of the Merger, and
(ii) Pledgor agrees that whatever consideration it receives in exchange for the
Pledged Securities pursuant to the terms of the Merger shall be considered
Collateral hereunder, and that it will promptly execute and deliver all further
instruments and documents, including any endorsements or assignments, and take
all further action that may be necessary or desirable to deliver such Collateral
to SC, and to enable SC to exercise and enforce its rights and remedies
hereunder with respect to such Collateral.
7. General Provisions.
------------------
a. Entire Agreement. This Agreement, the Note and the other
----------------
agreements and instruments referred to herein and therein constitute the entire
agreement of the parties with respect to the subject matter hereof.
b. Amendment. This Agreement may be amended, modified or revoked
---------
only by written instrument signed by each party hereto.
5
<PAGE>
c. Successors. This Agreement shall be binding upon the Pledgor and
----------
its successors and assigns. This Agreement shall not be assignable or
otherwise transferable by Pledgor without the prior written consent of SC. This
Agreement shall inure to the benefit of SC and its successors and assigns. SC
may assign or pledge this Agreement and the Note at will, and the parties hereto
acknowledge that SC may pledge this Agreement and the Note as collateral
security for loans to be made under a credit agreement between SC and Banque
Nationale de Paris, New York Branch, as agent for certain lenders named therein.
d. Notices. Any notices required or permitted to be given under
-------
this Agreement shall be in writing and delivered by personal delivery, by
overnight mail service, postage prepaid, or by facsimile transmission, and shall
be effective upon the date of delivery, if personally delivered, or one (1) day
after being sent by overnight mail service or facsimile transmission, and
properly addressed to the parties at the following addresses, or at such other
address as may be designated by such party by notice to the other parties.
If to SC:
Steven L. Bock
SC Corporation
Six Landmark Square
Fourth Floor
Stamford, CT 06901-2792
With a copy to:
Paul S. Pearlman, Esq.
Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
919 Third Avenue
New York, New York 10022
6
<PAGE>
If to Wigs, L.P.:
Arthur D. Kowaloff
Wigs, L.P. c/o
Patricof & Co. Capital Corp.
445 Park Avenue, 11th Floor
New York, NY 10022
With a copy to:
Lawrence G. Goodman, Esq.
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, NY 10022
e. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument binding on all of the
parties.
f. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without regard to choice of
law principles.
g. Severability. If any of the provisions of this Agreement shall be
------------
invalid, void or for any reason unenforceable, the other provisions of the
Agreement shall not be affected and the Agreement shall be construed as if such
invalid, void or unenforceable provisions were omitted.
h. Waiver. Any provision of this Agreement may be waived upon the
------
written consent of each party hereto. The failure of any party hereto at any
time or times to require performance of any provisions hereto shall in no manner
affect such party's right at a later time to enforce the same provision. Any
waiver by any party of the breach of any provision contained in this Agreement
in any one or more instances shall not be deemed to be a waiver of any other
breach of the same provision or any other provision contained herein.
7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of November ___, 1994.
SC CORPORATION
By:______________________________
Name:
Title:
WIGS, L.P.
By:_________________________________
Name:
Title:
8
<PAGE>
Exhibit 10.17
WIGS, L.P.
PROMISSORY NOTE
US $147,583 November 23, 1994
FOR VALUE RECEIVED, Wigs, L.P., a Delaware limited partnership ("Payor")
hereby promises to pay to SC Corporation, a Delaware corporation (the "Holder"),
in installments as herein stated, the principal sum of ONE HUNDRED FORTY SEVEN
THOUSAND FIVE HUNDRED AND EIGHTY-THREE DOLLARS ($147,583).
This note (the "Note") is being delivered by the Payor to the Holder
pursuant to the terms of a Debtor Securities Purchase Agreement, dated the date
hereof, by and among the Payor, the Holder and other signatories thereto (the
"Debtor Securities Purchase Agreement"), as partial consideration for the
Holder's issuance to the Payor of 26,051 shares of its common stock, par value
$.01 per share (the "Common Shares"), 675 shares of its preferred stock, par
value $100 per share (the "Preferred Shares"), and SC CORPORATION SUBORDINATED
NOTES in aggregate principal amount of $110,406 (the "Subordinated Notes" and,
together with the Common Shares and the Preferred Shares, the "Securities").
This Note is secured under a Pledge and Security Agreement, dated the date
hereof, between the Payor and the Holder (the "Pledge and Security Agreement")
pursuant to which the Payor has pledged 18,365 of the Common Shares, 490 of the
Preferred Shares and $80,186 in aggregate principal amount of the Subordinated
Notes (the "Pledged Securities") to the Holder as collateral security for the
payment of this Note.
1. Amortization Payments. Payor agrees to pay a portion of the principal
---------------------
amount of this Note then outstanding, together with all unpaid interest accrued
to that date, on December 31 of each year, commencing December 31, 1995 (each an
"Amortization Payment Date"), pursuant to the following schedule:
Amount of Unpaid Amortization
Principal to be Paid Payment Date
$ 7,378 December 31, 1995
11,066 December 31, 1996
14,755 December 31, 1997
18,444 December 31, 1998
95,940 December 31, 1999
2. Interest. Payor agrees to pay interest from the date hereof accrued on
--------
the unpaid principal amount of this Note from time to time outstanding at the
rate of 7.25% per annum, payable
1
<PAGE>
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, commencing March 31, 1995 (each an "Interest Payment Date," and, together
with the Amortization Payment Dates, the "Payment Dates"), and upon the final
payment in full of all unpaid principal of this Note. Interest shall be
computed on the basis of a 365/366 day year and the actual number of days
elapsed.
3. Default Interest. Payor agrees that upon the occurrence and during the
----------------
continuance of any Event of Default, Payor shall pay interest at the rate of
9.25% per annum on (i) the unpaid principal amount of this Note from time to
time outstanding, payable in arrears on the dates referred to in Section 2
above, and on demand, and (ii) to the fullest extent permitted by law, the
amount of any interest, fee or other amount payable hereunder that is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full, and
on demand.
4. Business Day. If any Payment Date is not a Business Day, the payment
------------
due on that Payment Date shall be made on the next succeeding day that is a
Business Day. For the purposes of this Note the phrase "Business Day" means any
day other than a Saturday, a Sunday or a day on which banking institutions in
New York State are authorized or required by law to be closed.
5. Optional Prepayments. The Payor may, at its option, prepay the
--------------------
principal amount of this Note at any time in whole, or from time to time in such
part as the Payor shall elect, with accrued interest on the amount prepaid to
the date of prepayment, in each case without penalty or premium therefor. All
such optional prepayments shall be applied to unpaid principal in inverse order
of maturity.
6. Mandatory Prepayments. Payor agrees that, so long as any of the
---------------------
principal of this Note remains unpaid, any amounts distributed on the Pledged
Securities (or any substitute or replacement collateral) in cash, whether as
interest, dividends, prepayments of principal, redemptions, repurchases or
otherwise, shall be applied to prepay the principal of this Note, together with
accrued interest on the amount prepaid to the date of prepayment, pursuant to
the terms of the Pledge Agreement. All such mandatory prepayments shall be
applied to unpaid principal in inverse order of maturity.
7. Methods of Payment. All payments of principal and interest on this Note
------------------
shall be made in lawful money of the United States of America.
8. Defaults. Any of the following shall constitute an Event of Default
--------
hereunder:
2
<PAGE>
(a) The Payor shall fail to pay any principal or interest due hereunder,
which failure shall remain uncured for a period of five (5) days;
(b) If any voluntary or involuntary proceeding shall be commenced by or
against the Payor under any chapter of the Federal Bankruptcy Code or other law
relating to bankruptcy, bankruptcy reorganization, insolvency or relief of
debtors, and such petition or proceeding is not dismissed within thirty (30)
days from the date on which it is filed or instituted;
(c) If the Payor becomes insolvent or is unable to pay its debts as they
become due or makes an assignment for the benefit of creditors; or
(d) The dissolution or other winding up of the Payor.
Upon the occurrence of any Event of Default the principal of this Note and
any accrued and unpaid interest hereunder shall, at the sole option of the
Holder, become immediately due and payable. The failure of the Holder to
exercise the option described in the preceding sentence at any time shall not
constitute a waiver of the Holder's right to exercise such option at any other
time.
9. Expenses. Payor agrees to pay all expenses incurred by the Holder
--------
hereof in connection with the collection and enforcement of this Note,
including, without limitation, reasonable attorneys' fees and disbursements.
10. No Recourse. None of the partners of Payor shall be, directly or
-----------
indirectly, personally liable on this Note, nor does the signature of any of
them that appears hereon bind them personally. All payments to be made on this
Note are to be made only out of funds of Payor, and Holder shall look for such
payment only to the funds of Payor exclusive of any obligation to make a
contribution by any partner of Payor.
11. Waiver of Notice, etc. The Payor hereby waives presentment, notice of
---------------------
demand for payment, protest, notice of dishonor and any other notice of any kind
with respect to this Note.
[Remainder of page intentionally blank.]
3
<PAGE>
12. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of New York, without regard to the
principles of conflict of laws thereof.
IN WITNESS WHEREOF, Payor has caused this instrument to be duly executed
as of this 23rd day of November, 1994.
WIGS, L. P.
By: _____________________________
name:
title:
4
<PAGE>
EXHIBIT 10.18
LEASED AGREEMENT
LEASE AGREEMENT dated as of this 10th day of July, 1985, by and between
SIMON D. YOUNG, Trustee of the Sandpy Realty Trust under a Declaration of Trust
dated January 2, 1985 and recorded in Bristol County North District Registry of
Deeds in Book 2700, Page 276, whose address is 16 Westwood Drive, Brockton,
Massachusetts (hereinafter called "Lessor"), and WIGS BY PAULA, INC., a
Massachusetts corporation having a place of business at 321 Manley Street, West
Bridgewater, Massachusetts (hereinafter called "Lessee").
1. Demise of Premises. Lessor hereby leases to Lessee and Lessee hereby
leases from Lessor, for the term, at the rents and subject to the provisions
hereinafter set forth, the premises consisting of (i) the parcel of land
described in Schedule A hereto, together with all buildings and improvements now
or hereafter located thereon (hereinafter "the Land" and "the Building") and
(ii) all easements, rights, restrictions and appurtenances relating to such
parcel (all of the foregoing (i) and (ii) being hereinafter called the "Leased
Premises").
2. Title and Condition. Lessor warrants that on the "Commencement Date" as
hereinafter defined, it shall have good and clear record and marketable title to
the Leased Premises, free from all liens and encumbrances except as set forth on
Schedule B attached hereto, and that said premises may be used for the purposes
set forth in Paragraph 8(a)(i) hereof. Title to the Leased Premises may also be
subject to a first mortgage to an institutional lender financing construction of
the Building and related improvements described in Paragraph (22) hereof, and to
any other mortgage or bond indenture of trust granted pursuant to Paragraph (10)
hereof (hereinafter the "Institutional First Mortgage").
3. Term. The term of this lease shall be for a period commencing on the
"Commencement Date" as hereinafter defined and expiring twenty-five (25) years
thereafter unless sooner terminated under the provisions hereof.
4. Rent.
(a) Fixed Rent. Lessee covenants and agrees to pay Lessor without offset or
reduction, and without previous demand therefor fixed rent at the annual rate of
Three Hundred Four Thousand Five Hundred ($304,500.00) Dollars. All fixed rent
shall be payable by Lessee in equal monthly installments on the first day of
each and every calendar month after the Commencement Date during the term of
this Lease and shall be payable at the office of the Lessor first above set
forth or at such other place of which Lessor shall have given Lessee written
notice. As hereinafter used, the term "rent" shall be deemed to include the
fixed rent (hereinafter called "Fixed Rent") and the Additional Rent, if any,
payable by Lessee to Lessor hereinafter. Rent for any portion of a month at the
<PAGE>
beginning or end of the term hereof shall be prorated, and is payable in advance
on the first day of such portion of a month.
(b) Additional Rent. From and after the Commencement Date, Lessee covenants
to pay when due, as additional rent (hereinafter called "Additional Rent") the
following:
(i) all real estate taxes on the land and the Building (including, without
limitation, all such taxes with respect to alterations pursuant to
Paragraph 8(c) and (d) hereof, and all future improvements to the
Leased Premises), all water and sewer charges with respect thereto,
and any other like municipal charges assessed upon the Leased Premises
and accruing and payable after said Commencement Date;
(ii) all charges for water, gas, light, heat, telephone, electricity, power
and other utility, communication or other services rendered to the
Lessee at the Leased Premises; and
(iii) the entire cost of Lessor's insurance as provided in Paragraph (9)
hereof (or any increase in the cost thereof as provided in Paragraph
8(d) hereof).
(iv) the entire increased cost of Lessor's interest charges and other
payments due under an Industrial Revenue Bond of even date herewith in
the amount of $2,000,000.00 issued by the Town of Easton to finance
the acquisition of the Leased Premises, as provided in a Loan
Agreement between said Town and Lessor ("the Loan Agreement") and an
Indenture of Trust and Mortgage by and between Lessor, said Town, and
Rockland Trust Company ("the Indenture"), also of even date, that is
all interest and other charges under said Bond over and above the Tax
Exempt Rate in effect on the Delivery Date thereof. To the extent that
said interest and other charges shall increase pursuant to the terms
of said Bond, the entire such increase shall be paid by the Lessee as
additional rent.
Anything to the contrary in the foregoing sections (a) and (b) of this
Paragraph (4) notwithstanding, the Fixed Rent and the Additional Rent shall in
no event ever be less than the amount payable from time to time by Lessor as
Loan Payments and as Additional Payments; as such terms are defined in the Loan
Agreement and the Indenture.
Lessee shall, on the first day of each month of the term, make tax fund
payments to Lessor (or if instead required by it, to the Institutional First
Mortgagee, so long as there is a first mortgage on the Leased Premises). "Tax
fund payments" refer to such payments as Lessor shall reasonably determine to be
sufficient to provide in the aggregate, a fund adequate to pay, when they become
due and payable, all taxes and assessments referred to in Paragraph 4(b)(i)
hereof, with all such amounts for the first fiscal year during which the
Commencement Date falls to be equitably apportioned between Lessor and Lessee.
If the Lessee shall have made the
- 2 -
<PAGE>
aforesaid tax fund payments, Lessor shall on or before the last day on which the
same may be paid without interest or penalty, cause to be paid to the proper
authority charged with the collection thereof all said taxes and assessments. If
the aggregate of said tax fund payments is not adequate to pay all said taxes
and assessments when due, Lessee shall pay to Lessor (or, in the alternative, to
said Mortgagee), the amount by which such aggregate is less than the amount
required to pay all said taxes, on or before the later of (A) ten (10) days
after receipt by Lessee of written notice from Lessor of such amount, or (B) the
thirtieth (30th) day prior to the last day on which such taxes and assessments
may be paid without interest or penalty. Any balance remaining after such
payment by Lessor shall be accounted for to Lessee annually.
(c) Rent to be Net to Lessor. In addition to and not in limitation of the
foregoing, it is the purpose and intent of the Lessor and the Lessee that this
lease be a net lease, except as herein expressly provided; and except as
aforesaid, that the Fixed Rent shall be absolutely net to the Lessor so that
this lease shall yield, net, to the Lessor, the Fixed Rent specified herein at
the times specified herein, during the entire term of this lease.
(d) Permitted Contests. Lessee shall not be required to pay any tax, levy,
fee, Additional Rent, or charge referred to above, so long as Lessee shall
contest, in good faith and at its own expense, the existence, amount or validity
thereof by appropriate proceedings. While any such proceedings are pending,
Lessor shall not have the right to pay, remove or cause to be discharged the
violation, impairment, tax, levy, fee, rent or lien, encumbrance or charge,
thereby being contested, unless the same is required to protect the interests of
the Lessor in the real estate. Lessee further agrees that each such contest
shall be promptly prosecuted to a final conclusion. Lessee will pay, and save
Lessor harmless against any and all losses, judgment, decrees and costs
(including all reasonable attorney's fees and expenses) in connection with any
such contest and will, promptly after the final settlement, compromise or
determination of such contest fully pay and discharge the amounts which shall be
levied, assessed, be payable therein, or in connection therewith, together with
all penalties, fines, interests, costs and expenses thereof or in connection
therewith. Anything to the contrary contained in the foregoing notwithstanding,
Lessee shall in any event (i) continue to make those tax escrow payments
provided for under the second paragraph of Paragraph 4(b) hereof, and (ii) shall
pay, or cause to be paid, any such charge prior to the time when the amount
thereof would otherwise become a lien upon the Leased Premises which is superior
to the lien represented by any permitted mortgage thereof.
(e) Lessee's Fixturing Period. Lessee shall have the right to occupy the
Leased Premises as soon as the same can be done without unduly interfering with
the construction activities of the Lessor, for the purpose of installing its
equipment and trade fixtures and making the same ready for its occupancy. Such
occupancy shall be at Lessee's sole risk. Insofar as reasonably applicable, such
occupancy shall be subject to the terms, provisions and conditions of this lease
except that no rent of any kind or nature shall be payable on account thereof.
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5. Compliance with Law. Upon the Commencement Date, Lessor shall deliver
the Leased Premises and the construction thereon to be performed by Lessor, in
full compliance with all zoning regulations, restrictions, rules and ordinances,
building restrictions and other laws and regulations now in effect or adopted
prior to the Commencement Date by any governmental authority having jurisdiction
thereof, with reference to those initially permitted uses of the premises set
forth in Paragraph 8(a)(i) hereof. Lessee shall, at its expense, comply with and
shall cause the Leased Premises to comply with all governmental statutes, laws,
rules, orders, regulations and ordinances affecting the Land and Building or any
part thereof, or the use thereof, enacted and applicable after the Commencement
Date (except to the extent that said Land and Building are nonconforming as of
the Commencement Date; or will become nonconforming thereafter on the basis of
the passage of time or the giving of notice pursuant to a provision of law
enacted on or before the Commencement Date, which matters shall remain Lessor's
sole responsibility to correct). Neither Lessor nor Lessee shall be required to
comply with any such statute, law, rule, order, regulation, or ordinance for
which it is responsible as aforesaid (and, in the case of Lessor's
responsibility, provided that it does not materially interfere with Lessee's
permitted use of the premises), so long as it shall contest in good faith, and
at its own expense, the validity or application thereof, and shall promptly
prosecute such contest to a final conclusion.
6. Indemnification. Lessee agrees to pay, and to protect, indemnify, and
save harmless Lessor from and against any and all liabilities, losses, damages,
costs, expenses (including all reasonable attorney's fees, and expenses of
Lessee and Lessor), causes of action, suits, claims, demands or judgment of any
nature whatsoever arising from any injury to, or the death of, any person or any
damage to property on the Land and Building, or in any manner growing out of or
connected with the use, non-use, condition or occupation of the Land and the
Building or any part thereof or resulting from the condition thereof, except for
those due to Lessor's default hereunder, or its negligent act or omission.
Lessee shall indemnify Lessor of and from any liability as aforesaid arising
from any injury to or the death of any person or damage to property on those
portions of the Leased Premises other than the Land and the Building if due to
the Lessee's default hereunder, act or omission.
7. Liens and Encumbrances. Subject to the Lessor's right to contest as set
forth in Section 4(d), the Lessor will not create any lien, encumbrance or
charge on the Leased Premises which may be superior to the Lessee's rights
hereunder (other than those items listed in Schedule B hereto and any
Institutional First Mortgage permitted hereunder).
8. Use of Premises; Maintenance; Alterations.
(a) Use. The Leased Premises may be used (i) as and for a warehouse,
distribution center for wigs and related administrative offices, and (ii) such
other uses as are permitted by law and the applicable terms of any financing
then in force and effect. Lessee will make no use of the Leased Premises which
is contrary to law, or which constitutes a nuisance or is hazardous or endangers
the Building.
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(b) Maintenance. (i) Lessor shall make all repairs and replacements
required with respect to the Leased premises during the first twelve (12) months
after the Commencement Date, which arise out of defective workmanship or
material in Lessor's original construction thereof as described in Paragraph
(22) hereof, or by reason of Lessor's failure to fully comply with all laws,
ordinances, rules and regulations of and duly constituted governmental authority
having jurisdiction thereof, and for which Lessor is responsible. Lessor shall
assign to Lessee all guarantees and warranties obtained by Lessor from any
contractor or material supplier, except to the extent required by the Lessor to
comply with its obligations hereunder. (ii) Except as aforesaid, Lessee shall at
all times during the term of this Lease, at its own expense, keep and maintain
the Leased Premises, including any additions or alterations thereto regardless
of by whom constructed, in good order, repair and condition, reasonable wear and
use which is consistent with good maintenance practices (which practices Lessee
shall in any event be obligated to follow), damage by fire or other casualty,
the obligations, defaults or negligent acts or omissions of Lessor, and the acts
of governmental authority, only excepted. The obligation of the Lessee shall,
without limiting the foregoing, extend to keeping the Land and the interior and
exterior of the building in good, safe, neat, and attractive condition,
including, without limitation, landscaping, parking areas, fixtures, and
building equipment including plumbling, heating, electricity, air-conditioning,
sprinkler systems and the like. Obligations with respect to damage caused by
fire or other casualty or eminent domain are covered elsewhere in this lease.
(c) Alterations to Exterior Areas. Lessee shall have the right at its own
cost and expense, to construct on any part or all of the Land, at any time and
from time to time, such parking areas, driveways, walks, gardens and other like
exterior improvements as Lessee shall from time to time determine; provided that
the same shall be in compliance with all then applicable laws, regulations,
ordinances and deed restrictions, and provided further that Lessee has first
obtained written approval thereof from Lessor and from the holder of any
permitted Institutional First Mortgage, which approval shall not be unreasonably
withheld or delayed.
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(d) Alterations to Building: Removal of Fixtures. Lessee may make
nonstructural alterations, changes, replacements, improvements and additions in
and to the Building originally to be constructed on the Land, including, without
limitation, the installation of portable partitions, and the affixation to the
realty of trade fixtures or other equipment relating to Lessee's particular use
of the Leased Premises. Lessee shall not, however, without the prior written
consent of Lessor (and the holder of any permitted Institutional first Mortgage
to the extent required by such mortgage), which consent shall not be
unreasonably withheld or delayed, make any structural change, alteration or
modification to said Building, or construct any additional buildings on the
Land.
Lessee shall submit to Lessor in connection with any proposed nonstructural
alteration, change, replacement, improvement, or addition which shall cost in
excess of One Hundred Thousand Dollars ($100,000.00), reasonable prior notice of
Lessee's intention to make the same, together with schematic drawings and
outline specifications of the work proposed to be done.
In connection with any structural change or additional building as to which
consent is required, Lessee shall submit to Lessor and said Mortgagee,
comprehensive plans and specifications for the work, and Lessor and said
Mortgagee shall have thirty (30) days within which to approve or disapprove the
work requested to be approved. If both the Lessor and said Mortgagee fail to
disapprove the same in writing, the work shall be deemed approved. No such
alteration, change, replacement, improvement or addition (whether structural or
nonstructural) may be made, which, in any event:
(i) impairs or diminishes the strength, or structural or architectural
integrity of the Building; or
(ii) which substantially and detrimentally alters the usefulness of the
Building for the uses described in Paragraph 8(a)(i) hereof.
Lessee shall pay any increase in the cost of insurance resulting from any
structural or nonstructural alteration or other improvement made by it.
The removal by Lessee of all nonstructual and structural items previously
referred to in this Paragraph 8(d), and of certain components of the Building
included in the initial construction under Paragraph 22 hereof, shall be
governed by the following:
(A) All damage caused by such removal shall be repaired and restored, and
all work to replace or restore items required by Subparagraph (C)
hereof shall be completed by Lessee prior to the expiration of the
then current lease period, in any event;
(B) Lessee may freely remove any nonstructural item installed under this
Paragraph 8(d) (including trade fixtures and other equipment as
aforesaid, which shall remain Lessee's sole property in any event),
but may not remove any structural item or additional building; and
(C) Lessee may, at the expiration of the initial twenty-five (25) year
term hereof, remove certain components of the initial construction
carried out pursuant to Paragraph (22) hereof, subject to the
following conditions:
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(1) No item may be removed which impairs or diminishes the strength,
or structural or architectural integrity of the Building;
(2) If removal would substantially or detrimentally alter the
usefulness of the Building for the uses described in Paragraph
8(a)(i) (including, without limitation, the removal of all or any
part of the Heating, Ventilating, and Air-conditioning System),
then all items to be removed shall be replaced with items which
are generally serviceable to premises of this character rather
than adapted to Lessee's particular use therefor, and all utility
or other systems directly or indirectly involved shall be
restored to good working order and condition.
(e) Standards as to Lessee's Work. All work done by the Lessee under
Subparagraphs (b), (c) or (d) of this Paragraph 8, or otherwise with respect to
the Leased Premises shall be done at the sole cost and expense of Lessee, in
full compliance with all laws, ordinances, rules and regulations of any duly
constituted governmental authority and requirements of any Board of Fire
Underwriters and in good and workmanlike manner using materials at least equal
in quality to the materials used in the construction of the Building, and in
accordance with any deed restrictions of record.
(9) Insurance
(a) Public Liability Insurance
Lessee shall maintain at its sole expense, throughout the term of this
lease commencing upon its physical occupancy of the Leased Premises,
insurance on the Land and the Building as follows:
(i) General public liability insurance naming Lessor and Lessee as
Insured against claims for bodily injury, death or property
damage, occurring on, in or about the Land and the Building; such
insurance to afford protection to Lessor, Lessee, and the holder
of any permitted Institutional First Mortgage, as their
respective interests, may appear, on a combined single limit
basis of $2,000,000.00.
(ii) Workmen's compensation insurance covering all persons employed in
connection with any work done on or about the Land and the
Building with respect to which claims for death or bodily injury
could be asserted against Lessee or the Leased Premises, or in
lieu of workmen's compensation insurance a program of self
insurance complying with the rules, regulations and requirements
of the appropriate state agency from time to time.
(b) Casualty Insurance
Lessor shall maintain throughout the term of this lease, at Lessee's
sole expense, insurance for the benefit of Lessor, and the holder of
any permitted Institutional First Mortgage as their respective
interests may appear, on the Building as originally constructed by
Lessor and as thereafter reconstructed, altered, modified or otherwise
improved by Lessor or by Lessee, insuring against all risks of
physical damage or loss from external cause to the extent of the
replacement value thereof, and so-called rental insurance, insuring
against loss of rents during the period after occurrence of a
casualty.
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(c) Requirements as to Form of Insurance. The insurance referred to above
shall be written by companies of recognized financial standing which are
authorized to do an insurance business in the Commonwealth of Massachusetts.
Every insurance policy referred to above shall bear a first mortgage
endorsement in favor of the holder of any permitted Institutional First
Mortgage. To the extent permitted by applicable law, every policy which Lessor
or Lessee are obligated to carry shall contain an agreement by the Insurer that
it waives all rights of subrogation against Lessee and any owner of the Leased
Premises, and that insurer will not cancel such policy except after twenty (20)
days' prior written notice to Lessor, and to any mortgagee of the Leased
Premises.
Certificates as to such insurance coverage shall be furnished by the party
providing same to the other party at least fifteen (15) days prior to the first
day of the period during which it is required to be in force.
10. Mortgage Financing.
(a) Subordination; Non-Disturbance; Attornment. This lease shall be subject
and subordinate to any Institutional First Mortgage now or hereafter placed upon
the premises by the Lessor, provided that each such mortgagee shall, on behalf
of itself, its successors and assigns, enter into a Subordination and
Non-Disturbance Agreement with Lessee in the form of Schedule C annexed hereto.
"Institutional First Mortgage" and "Institutional First Mortgagee" shall refer
to any accredited first mortgagee whose lending policies are regulated by the
federal Comptroller of the Currency, or by any state banking or insurance
regulatory agency, and, in any event, the Industrial Revenue Bond financing
referred to in Paragraph (4) hereof.
It is further agreed that if any such Mortgagee shall succeed to Lessor's
interest in the Leased Premises by reason of the exercise of said Mortgagee's
rights under said Mortgage (or the acceptance of voluntary conveyance in lieu
thereof), then said Mortgagee may, at its option, to be exercised by the giving
of written notice to Lessee of its desire so to do, succeed to the interest of
Lessor under this lease; and in such event, the Lessee shall attorn to such
successor and shall ipso facto be and become directly bound to such successor in
interest to Lessor to perform and observe all the Lessee's obligations under
this Lease without the necessity of the execution of any further instrument.
Nevertheless, Lessee agrees at any time and from time to time during the term
hereof to execute a suitable instrument in confirmation of Lessee's agreement to
attorn, as aforesaid. Lessee hereby constitutes and appoints Lessor, or such
Mortgagee, and/or their respective assigns Lessee's attorney-in-fact to execute
and deliver any such agreement of attornment for and on behalf of Lessee.
(b) Modification to Lease. If, in connection with obtaining construction or
permanent financing for the Building, any such Mortgagee shall request
reasonable modifications in this Lease as a condition to such financing, Lessee
will not unreasonably withhold, delay or condition its consent thereto, provided
that such modifications do not increase the obligations of Lessee hereunder or
materially adversely affect the leasehold interest hereby created.
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(c) Assignment of Rents. With reference to any assignment by Lessor of its
interest in this lease, or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to or held by any such Mortgagee, Lessee
agrees that:
(i) The execution thereof by Lessor and the acceptance thereof by such
Mortgagee shall never be deemed an assumption by such Mortgagee of any
of the obligations of the Lessor thereunder, unless such Mortgagee, by
written notice sent to the Lessee, specifically otherwise elects; and
(ii) Except as aforesaid, such Mortgagee shall be treated as having assumed
the Lessor's obligations thereunder only upon foreclosure of such
Mortgagee's mortgage, and the taking of possession of the Leased
Premises after having given notice of its exercise of the option
stated in Subparagraph (a) of this Paragraph (10) hereof to succeed to
the interest of the Lessor under this Lease.
(d) Notice to Mortgagee. In the event of any failure by Lessor to perform,
fulfill or observe any agreement by Lessor herein, in no event will the Lessor
be deemed to be in default under this lease until the Lessee shall have given
written notice of such failure to any Mortgagee of which Lessee shall have been
advised, and until a reasonable period of time shall have elapsed following the
giving of such notice, during which such Mortgages shall have the right, but not
the obligation, to remedy such failure.
(e) Casualty or Eminent Domain Proceeds. Any mortgage granted by Lessor to
secure permanent financing shall, inter alia, provide that the Mortgagee shall
agree to release proceeds of any casualty insurance for restoration of the
Leased Premises as herein provided if this lease shall not be terminated, and
shall consent to the release of any eminent domain proceeds for restoration if
this lease shall not be determine, in its reasonable judgment, that (i) the
Lease Premises as so restored will constitute an economically viable property,
and (ii) adequate funds are available to Lessor in order to complete such
restoration under a reasonably satisfactory construction contract therefor.
(f) Refinancing of First Mortgage. Lessor shall have the right, at any time
hereafter, to refinance any Institutional First Mortgage on the Leased Premises
held by a permanent lender, and in such event, Lessee shall subordinate its
interest hereunder to said new permanent financing in conformity with
Subparagraph (a) of this Paragraph (10). Any and all proceeds of said
refinancing shall accrue solely to Lessor.
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11. Assignment by Lessee and Subletting. Lessee may sublet all or any part
of the Leased Premises, and may assign all of its rights and interests under
this lease but may not assign a lesser portion thereof (any such transferee
other than a sublessee to expressly agree in writing, however, to assume and pay
and perform Lessee's obligations hereunder); provided, however, that any such
subletting or assignment (and any further sublease or assignment thereafter),
shall be subject to the terms of outstanding financing and to the prior written
approval of Lessor and any Institutional First Mortgagee, neither of which
approvals shall be unreasonably withheld or delayed, and provided further that
Lessee shall, nevertheless, remain primarily liable hereunder in any event.
Lessee may, without such consent, assign this lease, or sublet all or any
part of the Leased Premises to any corporation into which the Lessee shall be
merged or consolidated, or any corporation which shall acquire all or
substantially all of the assets of Lessee (any such transferee other than a
sublessee to expressly agree in writing, however, to assume and pay and perform
Lessee's obligations hereunder) provided that any acquiring or resulting
corporation has immediately subsequent to such transactions a net worth equal to
the greater of (i) the net worth of the Lessee on the date of this lease, or
(ii) the net worth of the Lessee on the proposed date of such assignment. Said
net worth determination shall be subject to the reasonable review of any
Institutional First Mortgagee, and the terms of outstanding financing.
No sublease or assignment by Lessee shall impose any obligations on Lessor
or otherwise affect any of the rights of Lessor under this lease. Any such
sublease or assignment made in violation of this Section shall be void.
12. Casualty Damage to Leased Premises.
(a) Lessor's Restoration Obligation. If the Building or any part thereof
shall be damaged or destroyed by fire, the elements, or any other casualty, then
Lessor shall promptly restore the Leased Premises to the same condition they
were in immediately prior to said damage or destruction, provided that the
insurance proceeds to be received by Lessor as the result of said casualty are
adequate to do so in a manner reasonably satisfactory to it and its
Institutional First Mortgagee, or, in the alternative, provided that Lessee
undertakes to pay any deficiency in said proceeds. Lessee shall be solely
responsible for the restoration of such of its equipment and fixtures of the
type referred to in Paragraph 4(e) hereof, as may also have been damaged or
destroyed. If any portion of the Leased Premises shall, as the result of such
casualty, be rendered untenantable for the uses permitted hereunder, the Fixed
and Additional Rental shall be suspended or abated in a just and equitable
manner according to the nature and extent of the injury suffered to the Leased
Premises until the same shall be restored to their former condition by Lessor,
provided that so-called "rental insurance" covering said abatement is then in
force.
(b) Lessor's Right to Terminate. If, however, (i) said damage or
destruction shall be substantial and restoration would amount to "rebuilding"
(meaning that such restoration would normally be expected to take in excess of
120 days or involve rebuilding in excess of fifty percent (50%) of the ground
floor area of the Leased Premises), or (ii) if said damage or destruction shall
occur during the last year of the original term hereof, or the last year of any
extension period, Lessor may, the provisions of Paragraph 12(a) notwithstanding,
terminate this lease by giving written notice to Lessee within thirty (30) days
after such damage.
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In such event, however, Lessee may, within thirty (30) days after said
termination, exercise Lessee's option to purchase such premises, such purchase
to be consummated on a date as specified by Lessee in said notice within thirty
(30) to ninety (90) days thereafter, and in such case all proceeds recovered or
recoverable shall be paid over to Lessee, subject to the rights of the holder of
any Institutional First Mortgage.
(c) Lessee's Right to Terminate. Lessee shall have the right to terminate
this lease, in the event that (i) Lessor, being obligated to restore the Leased
Premises as provided hereunder, fails or neglects to commence such work
reasonably promptly or diligently prosecute same thereafter; or, (ii) if said
work is not substantially completed within 180 days of the time Lessor is
obligated to commence same, in any event; or (iii) if said damage or destruction
involves rebuilding in excess of thirty percent (30%) of the ground floor area
of the Leased Premises and occurs during the last year of the original term
hereof or the last year of any extension period; provided. however, that any
such right to terminate shall be exercised by a written notice given to Lessor
and any Institutional First Mortgagee within thirty (30) days of the event
giving rise to such right, and that in the instance of clauses (i) and (ii),
Lessor is afforded thirty (30) days after the giving of said notice, to endeavor
to cure any such default, prior to said termination becoming effective.
13. Condemnation
(a) Complete Taking. If the whole of the Leased Premises shall be taken for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, or shall be sold to the condemning
authority under threat of condemnation, this lease shall terminate as of the
date of vesting of title pursuant to any such taking or sale (hereinafter
"taking") and rent paid in advance of the date of taking of actual possession by
the condemning authority shall be refunded proportionately.
(b) Partial Taking - Option to Terminate. In the event that a substantial
part of the Land and the Building are taken or sold as aforesaid, so that in
Lessee's reasonable judgment the Leased Premises are no longer suitable for the
conduct of the Lessee's business (which amount, in order for such judgment to be
reasonable, must exceed thirty percent (30%) of the ground floor area of the
Building in any event), or if the means of access thereto, including, without
limitation, access to truck docks and loading areas, shall be taken, or if
parking for more than one hundred (100) cars shall be taken, Lessee, at
its election, may terminate this lease by giving written notice of its intention
to terminate to Lessor within thirty (30) days after the vesting of title
pursuant to any such taking or sale. Rent paid in advance of the date of taking
of actual possession by the condemning authority shall be refunded
proportionately.
(c) Partial Taking - Continuation of Lease. If there is a taking as
asforesaid and this lease shall not be terminated, or if a taking occurs which
is loss extensive than above provided, then this lease shall not terminate, but
the Fixed Rent due hereunder shall be reduced in a just and equitable manner
according to the nature and extent of the injuries to the Leased Premises
suffered.
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(d) Restoration. If this lease shall not be terminated, as aforesaid, the
Lessor shall (provided that the damages received by it will be adequate to do
so, or Lessee undertakes, in a manner reasonably satisfactory to Lessor and its
Institutional First Mortgagee, to pay any deficiency therein) promptly restore
the Leased Premises, or what may remain thereof, to a complete architectural
unit of equal quality to the structures and improvements upon the Leased
Premises immediately prior to such taking. During the period of restoration, the
rent shall equitably abate.
(e) Eminent Domain Proceeds. Lessor shall be entitled to all eminent domain
damages, awards, or other proceeds.
Lessee shall be entitled to recover directly from governmental authorities,
however, on account of all loss and damage sustained with respect to its trade
fixtures, and with respect to relocation expenditures and the like.
14. Default
(a) Lessee's Default
(i) If Lessee shall neglect or fail to make any payments of rent or
other payments to be made by it hereunder; or
(ii) if Lessee shall neglect or fail to perform or observe any of the
other covenants and agreements in this lease contained and on its
part to be performed or observed; or
(iii) if the Leased Premises are abandoned; or
(iv) if the estate created hereby shall be taken upon execution,
attachment or any other process of law and such process shall not be
rendered inoperative within thirty (30) days thereafter, or if
Lessee shall be adjudged a bankrupt or insolvent, or if any receiver
or trustee of all or any part of the business or property of Lessee
wherever located shall be appointed and shall not be discharged
within forty-five (45) days after appointment, or if Lessee shall
make any general assignment of its property for the benefit of
creditors, or if Lessee shall file a voluntary petition in
bankruptcy or insolvency now in force or hereafter enacted, federal,
state or otherwise, or if any such petition shall be filed against
Lessee and shall not be discharged within forty-five (45) days after
the filing, or if Lessee shall seek a composition with its creditors
by trust mortgage or otherwise;
then Lessor shall have the right, immediately or at any time thereafter, to
enter upon the Leased Premises or any part thereof in the name of the whole or
repossess the same as of its former estate and expel Lessee and those claiming
by, through, or under it, and remove their goods and effects (forcibly, if
necessary) without being deemed guilty of any manner of trespass and without
prejudice to any remedies which might otherwise be used for arrears or rent or
other payments of preceding breach of covenant and upon entry as aforesaid, this
lease shall be terminated. In case of such termination, or in case of
termination under the provisions of statute by reason of the default of Lessee,
Lessor shall become entitled to receive from Lessee, and Lessee shall pay to
Lessor, on demand, as initial liquidated damages, a sum equal to the amount by
which the sum of the rent and other payments called for hereunder for the
remainder of the term exceeds the fair rental value of the Leased Premises for
the remainder of the term. Further, Lessee shall, on demand
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of Lessor, indemnify Lessor against all loss of rent, other payments and
damages, however caused, which it may incur by reason of such termination during
the remainder of the term, first giving credit to any payment made by Lessee to
Lessor on account of initial liquidated damages as aforesaid from time to time
upon demand of Lessor. In computing such damages, there shall be added such
expenses as Lessor may incur in connection with reletting, such as legal
expenses, brokerage, expenses for keeping the Land and the Building in good
order or for preparing the same for reletting, and/or decorations in the Land
and the Building as may be necessary for the purpose of reletting. Lessor shall
also have the right to pursue such other rights and remedies as may be allowed
at law or equity against Lessee, and any and all other parties who may be
liable. The said remedies shall be cumulative.
(b) Grace Periods. Anything herein contained to the contrary
notwithstanding, lessee shall be entitled prior to the exercise of the right of
entry by lessor as aforesaid, to five (5) days grace (without notice) in respect
to payment of any rental or other money payments referred to in Paragraph
14(a)(i), and thirty (30) days' notice from Lessor with respect to any default
under Paragraph 14(a)(ii) hereof; provided further that in the case of any
default under Paragraph 14(a)(ii) which is of such character that it reasonably
required, more than thirty (30)days to cure the same, Lessee shall be entitled
to a reasonable period of time subsequent to such thirty (30) day period in
which to prosecute said curative efforts, provided that the same are promptly
commenced within such thirty (30)-day period and are pursued diligently until
completion.
(c) Lessor's Right to Cure. If Lessee shall default in the performance of
observance of any agreement or condition contained in this lease to be performed
or observed by it, Lessor may, at its option, after the expiration of applicable
grace periods cure such default for the account of Lessee and any amount paid of
any contractual liability reasonably incurred by Lessor in so doing shall be
charged to Lessor by lessee, and Lessee agrees to reimburse Lessor therefor
together with interest at the rate of fifteen percent (15%) per annum from the
date of demand; provided, however, that Lessor may cure any such default prior
to the expiration of applicable grace periods (but after written notice of such
intention), if such cure by Lessor is reasonably necessary to protect the real
estate or Lessor's interest therein, or to prevent injury or damage to persons
or property.
(d) Waiver. A waiver, express or implied, by lessor of any default by
Lessee in the observance and performance of any of the conditions or covenants
or duties hereof, shall not constitute or be construed as a waiver of any
subsequent or other default. The rights and remedies of each party under this
lease shall be cumulative and in addition to any other rights given to them by
law, and the exercise of any right or remedy shall not impair either party's
right to any other remedy.
15. Lessor's Covenant of Quiet Enjoyment. So long as Lessee is in
possession of the Leased Premises, it shall not be disturbed in the enjoyment
thereof by Lessor, or by anyone claiming by, through, or under Lessor, or by
anyone claiming by paramount title.
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<PAGE>
16. Notices
(a) Mailing Procedure. All notices and other communications authorized or
required hereunder shall be in writing and shall be given by mailing the same by
certified or registered mail, postage prepaid, return receipt requested, and any
such notice or other communication shall be deemed given when mailed as provided
by this Paragraph 16; and
(i) If sent to Lessee, the same shall be mailed to Lessee at the
address set forth on page 1 hereof;
or at such other address as Lessee may designate by
like notice to Lessor; or
(ii) If sent to Lessor, the same shall be mailed to Lessor at the
address set forth on page 1 hereof,
Neil N. Glazer, Esquire
SINGER, STONEMAN, KUNIAN & KURLAND, P.C.
100 Charles River Plaza
Boston, Massachusetts 02114
or at such other address as Lessor may hereafter designate by
like notice to Lessee.
Each party shall have the right to designate not more than two other
persons to whom copies of such notices shall be sent.
-14-
<PAGE>
17. Miscellaneous
(a) Notice of Lease. Upon Lessee's request, both parties shall execute and
deliver an instrument in form appropriate for recording as a notice of this
lease.
(b) Modification of Lease. This lease contains the entire agreement between
the parties and shall not be modified in any manner except by an instrument in
writing executed by the parties.
(c) Governing Law. This lease is made pursuant to and shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
(d) "Lessor" and "Lessee." The terms "Lessor" and "Lessee" wherever used
herein shall include, and all of the provisions hereof shall bind and inure to
the benefit of the heirs, executors, administrators, successors and assigns of
the respective parties hereto. It is specifically understood and agreed that
there shall be absolutely no corporate nor personal liability incurred by the
Lessor or any successor in interest of Lessor, whether the same be a corporation
or trust, or an individual, joint venture, tenancy in common, firm, or
partnership, general or limited, or on the part of the officers, directors and
stockholders of the Lessor or on the part of the officers, directors and
stockholders of any corporate successor in interest of the Lessor, or any
trustee, or on the part of the members of any firm, partnership or joint venture
if any successor in interest be a firm, partnership or joint venture with
respect to any of the terms, covenants and conditions of this lease, and Lessee
shall look solely to the equity of Lessor or such successor in interest in the
fee estate of Lessor in the demised premises for the satisfaction of each and
every remedy of lessee in the event of any breach by lessor or by any such
successor in interest of any of the terms, covenants and conditions of this
lease to be performed by Lessor, such exculpation of corporate and/or personal
liability to be absolute and without any exception whatsoever.
(e) Severability. If any provisions of this lease or portion of such
provision of the application thereof to any person or circumstance is for any
reason held invalid or unenforceable, the remainder of the lease (including the
remainder of such provision) and the application thereof to the persons or
circumstances shall not be affected thereby.
(f) Headings. Section headings shall not be deemed to be part of this lease
or to affect its contribution, but are inserted only for convenience of
reference.
(g) Entry. Lessor and Lesser's designees may at all reasonable times enter
into and examine the Leased Premises and show them to prospective purchasers,
mortgagors and others interested therein, provided that they shall not interfere
with Lessee's business.
18. Surrender. At the expiration or prior termination of this lease, Lessee
shall redeliver the premises to the Lessor in such condition as they are
required to be maintained under Paragraph 8(b) hereof.
-15-
<PAGE>
19. Brokers. Each of Lessor and Lessee represents and warrants to the other
that it has not dealt with any broker in this transaction, and each party hereby
agrees to indemnify, defend, and hold harmless the other party from and against
any and all loss, cost, or expense arising or resulting from any breach of the
foregoing warranty.
20. Certification. Each of Lessee and Lessor agree from time to time upon
request of the other to furnish certification to the other that this lease is
then in full force and effect, if such be the case, and that there is no default
hereunder, and if such shall not be the case, to specify any default then
existing.
21. Costs and Expenses. In addition to and not in limitation of any other
provisions of this lease, each party does hereby agree to indemnify and hold
harmless the other of and from all costs and expenses including reasonable
attorney's fees, incurred by such party in exercising its rights under this
lease, or enforcing the obligations of the other party.
22. Construction
(a) Lessor's Obligations. Prior to the execution of this lease, the Lessor
has caused to be prepared plans and specifications for the construction of a
43,500 square foot building upon the Leased Premises, which plans and
specifications have been initialed by the parties hereto and are listed in
Schedule D hereto (the "Lease Plans").
(b) Completion Date. On or before the date of execution hereof, Lessor has
commenced construction of the Building and shall substantially complete the same
on or before December 31, 1985, subject to delays due to the act or neglect of
Lessee, its representatives, or any separate contractor employed by it;
significant changes or alterations in the Building requested by Lessee; strikes
or embargos; fires, windstorms floods, earthquakes, or other casualties; acts of
war, or acts of public officials; the default of a subcontractor to Lessee's
general contractor, provided that such default arises out of a cause beyond the
control of Lessor, the general contractor, and the subcontractor, without the
fault or negligence of any of them and provided that the material or services to
be furnished by the subcontractor were not obtainable from other sources in
sufficient time to permit Lessor to meet the required delivery schedule; or any
other cause beyond the Lessor's reasonable control. Any delay in the substantial
completion of said construction on account of any or all of the foregoing shall
be deemed to be an "Excusable Delay" and the substantial completion date
hereunder shall be extended by a period of time equal to the time lost because
of any Excusable Delay. Notwithstanding the foregoing if the Building shall not
have been substantially completed and a Certification of Occupancy issued (as
hereinafter provided) on or before March 31, 1986, as extended by any period of
Excusable delay, Lessee shall have the right to cancel this lease by giving
written notice to the Lessor any time thereafter but prior to the substantial
completion of the same.
(c) "Substantial Completion"; Commencement Date. As used herein, the term
"substantially completed" shall mean completion of the Building, including
completion of the paving of the parking lot and all roads and driveways, with
the building weathertight and capable of being secured, and with plumbing,
heating, air-conditioning and electrical wiring installed and in working order,
-16-
<PAGE>
so that the Lessee can make use of the Leased Premises for the purposes set
forth in Paragraph 8(a)(i) hereof; excluding from Lessor's aforesaid substantial
completion obligations, however,(a) items which have not been completed due to
weather conditions, the absence of which does not materially impair Lessee's
contemplated use (a) of the Leased Premises, and (b) normal punch-list items,
the absence of which does not materially affect Lessee's contemplated use of the
premises (which items shall be completed by Lessor within (30) days thereafter,
in any event). The Lessee shall have both the right and the obligation to take
possession of the Leased Premises on the day that (i) the same have been
substantially completed as aforesaid, and (ii) a Certificate of Occupancy
therefor has in fact been obtained by Lessor, and the term of this lease, and
the Lessee's obligation to pay rent and any other sums hereunder shall begin on
and as of that date, which shall be the "Commencement Date" referred to under
this lease.
(d) Standards as to Lessors Work. All the Lessor's work shall be done in a
good and workmanlike manner with full compliance of the approved plans and
specifications, and, as set forth in paragraph (5) hereof, with all laws
ordinances, rules and regulations of any duly constituted governmental authority
having jurisdiction of the Leased Premises.
EXECUTED under seal as of the day first above written.
Witness:
/S/ Kevin G. Tubridy /S/ Simon D. Young, Trustee
- ---------------------------- -----------------------------------
SIMON D. YOUNG, TRUSTEE OF SANDPY
REALTY TRUST, and not individually
WIGS BY PAULA
/S/ Kevin G. Tubridy By: /S/ Simon D. Young, Pres.
- ---------------------------- -----------------------------------
SIMON D. YOUNG, PRESIDENT
Hereunto Duly Authorized
-17-
<PAGE>
LIST OF SCHEDULES
SCHEDULE A Description of Premises
SCHEDULE B Permitted Encumbrances
SCHEDULE C Form of Non-Disturbance and
Subordination Agreement
SCHEDULE D List of Lease Plans and
Specifications
<PAGE>
A certain parcel of land shown as Parcel A-1-C on a plan entitled "Plan of and
in Easton, Massachusetts owned by Carl A. and Albertina R. Kempf" dated January
21, 1977, by Hayward-Boynton & Williams, Inc. and recorded with the Bristol
County (North District) Registry of Deed in Plan book 162, page 75. Parcel A-1-C
is more particularly bounded and described, according to said plan, as follows:
NORTHEASTERLY by Bristol Drive, one hundred fifty and 00/00 (150.00)
feet;
SOUTHEASTERLY by Parcel A-1-D, three hundred ninety-one and 98/100
(391.98) feet;
SOUTHWESTERLY by land of Carl A. and Abertina R. Kempt, one hundred fifty-two
and 89/100, (152.89) feet; and
NORTHWESTERLY Parcel A-1-B, four hundred twenty-one and 54/100(421.54) feet.
Parcel A-1-C contains 1.401 acres, accroding to said plan.
PARCEL A-1-D:
A certain parcel of land shown as Parcel A-1-D on said plan recorded in Plan
Book 162, Page 75 and being more particularly bounded and described, according
to said plan, as follows:
NORTHEASTERLY by Bristol Drive, one hundred fifty and 00/100 (150.00)
feet;
SOUTHEASTERLY by Parcel A-1-E, on two (2) courses two hundred sixty and
51/100 (260.51) feet and one hundred and 88/100 (100.88)
feet;
SOUTHWESTERLY by land of Carl A. and Albertina R. Kempf, one hundred
fifty-nine and 24/100 (159.24) feet; and
NORTHWESTERLY by Parcel A-1-C, three hundred ninety-one and 98/100
(391.98) feet.
Parcel A-1-D contains 1.306 acres, according to said plans.
LOT A-1-E:
A certain parcel of land shown as Lot A-1-E on a plan entitled "Plan of Land
in Easton, Massachusetts, owned by Paramount Development Associates, Inc."
dated March 26, 1982, and recorded with the Bristol County (North District)
Registry of Deeds, in Plan Book 197, Page 30. Lot A-1-E is more particularly
bounded and described, according to said plan, as follows:
<PAGE>
NORTHEASTERLY by Bristol Drive, two hundred nineteen and 29/100 (219.29)
feet;
NORTHEASTERLY
EASTERLY and
SOUTHEASTERLY by the intersection of Bristol Drive and Norfolk Avenue,
seventy-eight and 54/100 (78.54) feet on a curve with a
radius of fifty and 00/100 (50.00) feet;
SOUTHEASTERLY by Norfolk Avenue, two-hundred sixty-seven and 00/100
(267.00) feet;
SOUTHWESTERLY by Lot A-1-F, two hundred sixty-five and 29/100 (265.29)
feet; and
NORTHWESTERLY by Parcel A-1-D, on two (2) courses, seventy-four and
62/100 (74.62) feet and two hundred sixty and 51/100
(260.51) feet.
Lot A-1-E contains 87,120 square feet (2.000 acres), according to said plan.
<PAGE>
PERMITTED ENCUMBRANCES
1. Taxes for the fiscal year ending June 30, 1986, which are a lien not yet due
and payable.
2. Easement to New England Telephone and Telegraph Company and Brockton Edison
Company dated June 15, 1977, and recorded with said Deeds in Book 1737, page
623.
3. Declaration of Protective Covenants dated november 29, 1979, and recorded
with said Deeds in book 2011, page 163, as affecfed by Certificate of Compliance
dated June 27, 1985, and recoded in book 2742,Page 149.
4. Planning Board Covenant dated October 24, 1975, recorded with said Deeds in
Book 1692, Page 369, as affected by Certification of Performance dated may 1,
1985, recoded with said Deeds in Book 2742, page 149.
5. Order of Conditions issued by the Easton Conservation Commission recorded
with said Deeds in Book 1692, Page 364, as affected by Partial Certificates of
Compliance recorded in Book 2535, page 344 and Book 2742, Page 148.
<PAGE>
NONDISTRURBANCE AND SUBORDINATION AGREEMENT
TERMS:
Lessor: SIMON D. YOUNG, Trustee of SANDPY REALTY TRUST
Brockton, Massachuetts
Lessee: WIGS BY PAULA, INC.
West Bridgewater, Massachusetts
Mortgagee: Rockland Trust Company, Trustee
under an Indenture of even date
between Lessor and the Town of Easton, MA
Lease: A Lease dated July 10, 1985, of the hereinafter
described leased premises by and among
the Lessor and Lessee.
Leased Premises Lots A-1-C, A-1-D and A-1-E, Bristol Drive,
and Mortgaged Easton, Massachusetts, as more fully described
Premises: in said Lease and in Lessor's Mortgage to the
Mortgagee of even date hereof.
In order to induce Mortgagee to make the loan secured by the Mortgage, Lessor
and Lessee agree that the Lease shall be subject and subordinate to the lien and
priority of the Mortgage, to all the terms and provisions thereof, to all
advances, payments and claims of any nature made or to be made thereunder and
secured thereby and to any renewals, extensions, modifications or replacements
thereof. The foregoing shall be subject to the provisions of the Mortgage
whereby the holder thereof may as therein described subordinate the Mortgage to
the Lease.
In the consideration of the foregoing subordination and in the event
Mortgagee shall hereafter either foreclose such Mortgage and bid in or purchase
the Mortgage Premises
<PAGE>
at any foreclosure sale or sales, or shall acquire title to the Mortgaged
Premises by deed or otherwise in lieu of foreclosure, Mortgagee agrees that:
A. If Lessee shall pay the rent and any other payments reserved or provided in
the Lease, and shall keep, observe and perform all other terms, covenants,
conditions, provisions and agreements contains in the Lease which Lessee
would have been obligated to keep, observe and perform if the Lease has
survived such foreclosure, and provided no default exists under the
Guaranty Agreement dated as of July 10, 1985, by and between Lessee,
Mortgagee and the Town of Easton Massachusetts, Mortgagee shall, for the
same period as the term of the lease would have continued absent such
foreclosure, permit Lessee peaceably and quietly to continue in possession
of the Leased Premises.
In no event shall Mortgagee and its successors and assigns, including and
purchaser at a foreclosure sale be
A. liable for any act or omission of the Lessor, its successor or assigns, as
landlord under the Lease;
B. subject to any offsets or defenses which Lessee might have against Lessor,
its successors and assigns, as landlord under the Lease;
C. bound by any rent or additional rent which Lessee might have paid to the
Lessor, its successors or assigns in advance of the time called for under
the Lease;
D. bound by any amendment or modification of the Lease made without consent of
Mortgagee; or
E. except as modified by Paragraph 2A above, required to restore the Mortgaged
Premises in the event of destruction or damage by casualty or taking.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, but shall be binding upon
Mortgagee and any succeeding holder of the Mortgage only during the
<PAGE>
period it is a holder, and shall be binding upon any purchaser at a foreclosure
sale or successor in title to such purchaser only during the period of its
ownership.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 10th day of July, 1985.
Mortgagee ROCKLAND TRUST COMPANY
By: /s/ John B. Nash, V.P.
-----------------------------
Lessee: WIGS BY PAULA, INC.
By: /s/ Simon D. Young
-----------------------------
Simon D. Young, President
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SUFFOLK SS. JULY 16, 1985
Then personally appeared before me the above-named John B. Nash, Vice
President of ROCKLAND TRUST COMPANY, and acknowledged the foregoing to be the
free act and deed of said Corporation.
/s/
-------------------------------
NOTARY PUBLIC
Commission expires: Dec 20, 1985
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF SS.
Then personally appeared before me the above-named Simon D. Young,
President of WIGS BY PAULA, INC., and acknowledged the foregoing to be the free
act and deed of said Corporation.
/s/ Kevin G. Tubridy
-------------------------------
NOTARY PUBLIC Kevin G. Tubridy
Commission expires: 11/24/89
<PAGE>
PLANS AND SPECIFICATIONS
LATEST
ORIGINAL REVISION
DATE DATE
-------- --------
1. ARCHITECTURAL PLANS (Prepared by
John Sharratt Associates, Inc.)
A-1 First Floor Plan 3/29/85 6/14/85
A-2 Second Floor Plan 3/29/85 6/14/85
A-3 Roof Plan 6/14/85 --
A-4 Elevations 3/25/85 6/14/85
A-5 Wall Sections 6/14/85 --
A-6 Window Elevations 6/14/85 --
A-7 Window Details 6/14/85 --
A-8 Door Schedule & Elevations 6/14/85 --
A-9 Lobby Plan 6/14/85 --
A-10 Lobby Sections 6/14/85 --
A-11 Stair Plans & Sections 6/14/85 --
A-12 Interior Plans & Elevations 6/14/85 --
2. STRUCTURAL PLANS (Prepared by
Steel Structures, Inc.)
S-1 Floor Framing Plan 6/24/85 --
S-2 Roof Framing Plan 6/24/85 --
3. LANDSCAPE PLAN (Prepared by
John Sharratt Associates, Inc.)
L-2 Landscape Plan 6/14/85 --
<PAGE>
LATEST
ORIGINAL REVISION
DATE DATE
-------- --------
4. SITE PLAN
Sandby Realty Trust, "Site Development 4/27/85 5/23/85
Plan of Lots A-1-C, A-1-D and A-1-E,
Bristol Drive Easton, Massachusetts,"
by Hayward-Boynton & Williams, Inc.
5. ARCHITECTURAL SPECIFICATION (Prepared
by John Sharratt Associates, Inc.)
Simon Young Building Architectural 5/24/85 6/14/85
Specifications (including
architectural, structural, mechanical
and electrical sections)
<PAGE>
EXHIBIT 10.19
FIRST AMENDMENT TO LEASE
Reference is made to a Lease dated July 10, 1985 by and between Simon D.
Young as Trustee of Sandpy Realty Trust under a Declaration of Trust dated
January 2, 1985, recorded with Bristol County North District Registry of Deeds
in Book 2700, Page 276, as lessor and Wigs by Paula, Inc., as Lessee, pertaining
to premises on Bristol Drive, Easton, Massachusetts.
For valuable consideration paid said lease dated July 10, 1985, is hereby
amended as follows:
1. Paragraph 4(a) thereof, entitled "Fixed Rent" is amended so as to delete
the reference to "Three Hundred Four Thousand Five Hundred ($304,500.00)
Dollars" in the third and fourth lines thereof and substitute "Four Hundred
Eighty Thousand ($480,000,000) Dollars.
2. Paragraph 4(b)(iv) thereof is hereby deleted and the following new
subparagraph substituted therefor:
"The entire increased cost of Lessor's interest charges and other
payments due under Industrial Revenue Bonds dated as of July 10, 1985 in
the amount of $2,000,000.00, and $200,000 dated as of March 15, 1986,
issued by the Town of Easton to finance the acquisition of the Leased
Premises as provided in a Loan Agreement between said Town and Lessor ("the
Loan Agreement") and an Indenture of Trust and Mortgage by and between
Lessor, said Town, and Rockland Trust Company ("the Indenture"), also dated
as of July 10, 1985 and supplemented as of March 15, 1986, that is, all
interest and other charges under said bonds over and above the Tax Exempt
Rate in effect on July 17, 1985. To the extent that said interest and other
charges shall increase pursuant to the terms of said Bonds, the entire such
increase shall be paid by the Lessee as additional rent".
3. All references in said lease to the Loan Agreement and the Indenture
shall be deemed to include both the original instruments dated July 10, 1985 and
the Supplements thereto dated march 15, 1986.
4. In all other aspects not inconsistent with the foregoing, said Lease
dated July 10, 1985 shall remain in full force and effect in accordance with its
terms.
Executed under seal as of this 15th day of March, 1986.
Witness: SANDPY REALTY TRUST
/s/ Maureen T. Whalen By /s/ Simon D. Young, Trustee
- --------------------------- ------------------------------
Simon D. Young, Trustee
WIGS BY PAULA, INC.
/s/ Caroline S. Taylor By /s/ Simon D. Young, President
- --------------------------- ------------------------------
Simon D. Young, President
<PAGE>
Rockland Trust Company hereby consents to the within First Amendment to
Lease related to premises at 21 Bristol Drive, Easton, Massachusetts, owned by
Sandpy Realty Trust and leased to Wigs by Pauls, Inc.
ROCKLAND TRUST COMPANY
By: /s/ John C. Hutch
-----------------------------
First Vice President
<PAGE>
EXHIBIT 10.20
Second Amendment to Lease
Reference is made to a Lease dated July 10, 1985 by and between Simon D.
Young as Trustee of Sandpy Realty Trust under a Declaration of Trust dated
January 2, 1985, recorded with Bristol County North District Registry of Deeds
in Book 2700, Page 276, as Lessor (hereinafter referred to as "Lessor") and Wigs
by Paula, Inc., a Massachusetts corporation as Lessee, (hereinafter referred to
as "Lessee"), pertaining to premises on Bristol Drive, Easton, Massachusetts
more fully described therein, as amended by First Amendment to Lease dated March
15, 1986 (said Lease as amended being hereinafter referred to as the "Lease").
For Ten Dollars ($10.00) and other good and valuable consideration, each to
the other paid, the receipt and sufficiency of which is hereby acknowledged
Lessor and Lessee hereby further amend the Lease as follows:
1. The effective date of this Second Amendment to Lease (the "Effective
Date") as between Landlord and Tenant shall be January 1, 1989.
2. Section 1 of the Lease entitled "Demise of Premises" is hereby amended
by substituting for Schedule A referred to therein and attached to the Lease,
Schedule A attached to this Second Amendment to Lease.
3. Paragraph 3 of the Lease entitled "Term" is hereby deleted and the
following substituted in lieu thereof:
(a) The initial term of this Lease (the "Initial Term") commenced on April
15, 1986 (the "Commencement Date") and shall expire on December 31, 1993,
subject to Lessee's option to extend the term of this Lease as set forth below
and subject to earlier termination pursuant to the provisions hereof.
(b) Lessee shall have the option to extend the term of this Lease for one
(1) additional period of five (5) years (the "Extension Period") provided that
(1) Lessee shall exercise said option by notice to Lessor given pursuant to
Paragraph 16 of this Lease at least six (6) months prior to the expiration of
the Initial Term of this Lease, and (2) this Lease shall be in full force and
effect and Lessee shall not be in default beyond any applicable notice or grace
period under any of the terms of this Lease at the expiration of the Initial
Term of this Lease, and (3) such Extension Period shall be upon the same terms,
convenants and conditions as are contained in this Lease except that Fixed Rent
shall be determined pursuant to the final paragraph of Paragraph 4(a) hereof."
4. The first sentence of Paragraph 4(a) of the Lease entitled "Fixed Rent"
is hereby deleted and the following substituted in lieu thereof:
"Lessee convenants and agrees to pay Lessor without offset or reduction,
and without previous demand therefor Fixed Rent at the rate of $480,000. Per
annum during the five (5) year period commencing on the Effective Date.
There is hereby added to Paragraph 4(a) of the Lease entitled "Fixed Rent"
the following additional paragraph:
In the event that Lessee shall exercise its option to extend the term of
this Lease pursuant to Paragraph 3(b) hereof annual Fixed Rent during the
Extension Period shall
<PAGE>
be an amount per annum equal to the Fair Market Rental for the Leased Premises
as agreed upon by the parties as of a date which is one hundred twenty (120)
days prior to the commencement of the Extension Period (the "Rental
Determination Date"), but in no event shall annual Fixed Rent during the
Extension Period be less than $300,000. Fair Market Rental shall be determined
taking into account the terms and provisions of this Lease, including, without
limitation, the uses permitted hereunder, but without taking into account the
Fixed Rent otherwise payable hereunder. If the parties are unable to agree on
said Fair Market Rental as of the Rental Determination Date, said question shall
be submitted to arbitration as provided in Exhibit B-1 hereto. Pending the
determination of Fair Market Rental, Lessee shall continue to pay Fixed Rent at
the previous rate until Fair Market Rental is finally determined, at which time
any difference between the Fixed Rental paid and such Fair Market Rental for
such interim period shall become immediately due and payable by Lessee or
reimbursed by Lessor, as the case may be.
5. Paragraph 4(b) of the Lease entitled "Additional Rent" is hereby amended
as follows:
(a) by deleting Paragraph 4(b)(iv) of the Lease, providing for payment by
the Lessee of increased cost of Lessor's interest charges and other payments
under Lessor's Industrial Revenue Bond Financing.
(b) by deleting the sentence following Paragraph 4(b)(iv) of Lease, which
places a minimum upon Fixed Rent and Additional Rent at the amount payable by
Lessor as Loan Payments and Additional Payments under Lessor's Industrial
Revenue Bond Financing.
6. Paragraphs 12 and 13 of the Lease are hereby amended as follows:
(i) Paragraph 12(a) of the Lease entitled "Lessor's Restoration Obligation"
is hereby amended by adding after the word "destruction" in the fifth line
thereof the words "provided that such proceeds are made available for
restoration by the Institutional First Mortgagee and provided."
(ii) Paragraph 12(c) of the Lease entitled "Lessee's Right to Terminate" is
hereby amended by adding after the words "original term" in the 10th line
thereof the words "if not extended pursuant hereto."
(iii) Paragraph 13(d) of the Lease entitled "Restoration" is hereby amended
by adding after the words "Lessor shall" in the second line thereof the words
"provided that such proceeds are made available for restoration by the
Institutional First Mortgagee and provided."
7. Paragraph 8(a) of the Lease entitled "use" is hereby amended by adding
the following to the end thereof:
"Without limiting the generality of the foregoing, so long as Lessor's
Industrial Revenue Bond financing is in effect, Lessee shall not use or allow
the use of the Leased Premises other than as an industrial development facility,
as defined in Massachusetts General Laws Chapter 40D, and in no event shall the
Leased Premises be used contrary to the provisions of Section 144(a)(8) of the
Internal Revenue Code of 1986."
8. Paragraph 8(d) of the Lease entitled "Alterations to Building; Removal
of Fixtures" is hereby amended as
-2-
<PAGE>
follows:
(i) There is hereby deleted from the final paragraph of Paragraph 8(d) of
the Lease the words "and of certain components of the Building included in the
initial construction under Paragraph 22 hereof."
(ii) There is also hereby deleted from the final paragraph of Paragraph
8(d) of the Lease subdivision (c) thereof, relating to removal of certain
components of the initial construction carried out pursuant to Paragraph 22 of
the Lease.
(iii) there is hereby inserted at the end of Paragraph 8(d) the following
sentence:
"Lessee shall at Lessor's request remove at the expiration or termination
of the term of this Lease (i) any non-structural items previously referred to in
this Paragraph 8(d) which shall have been installed by Lessee or anyone claiming
under Lessee and (ii) any structural items previously referred to in this
Paragraph 8(d) which shall have been installed by Lessee or anyone claiming
under Lessee, provided that Lessor shall have required such removal as a
condition of giving consent to the construction or installation thereof."
9. The last four lines of Paragraph 9(a) (ii) are hereby deleted.
10. Paragraph 9(c) of the Lease is hereby amended by inserting the
following sentences at the end thereof. "In all events the public liability and
casualty insurance to be maintained pursuant hereto shall meet or exceed all
requirements of any permitted Institutional First Mortgage documentation as to
limits of coverage, the form of insurance required and as to the insurance
companies issuing such policies, provided, however that the limits of coverage,
form of insurance and requirements as to insurance companies (including, without
limitation, ratings of insurance companies) shall be consistent with the
requirements of Institutional First Mortgagees for similar types of uses and
similar buildings located within the area in which the Leased Premises are
located. Lessee shall name the Institutional first Mortgagee as "Additional
Insured" on all liability insurance policies unless otherwise instructed by the
Institutional First Mortgagee."
11. There is hereby substituted in lieu of the clause beginning with the
word "then" and ending with the words "this lease shall be terminated" which
follows subdivision (v) of Paragraph 14 of the Lease the following:
"Each of the foregoing events shall constitute a "default" or "Event of
Default" hereunder. This Lease is made on the condition that, if a default or an
Event of Default occurs, Lessor may immediately or at any time thereafter
exercise one or more of the following remedies, consecutively or simultaneously,
without notice or demand:
(a) Lessor may bring suit for damages or specific performance for the
collection of unpaid rent or the performance of any of Lessee's
obligations, all either with or without entering into possession
or terminating this Lease;
(b) Lessor may, at its option, give Lessee a notice terminating this
Lease on a date not less than ten (10) business days after Lessor
gives such notice, and upon such date this Lease shall terminate
and all rights of Lessor shall cease
-3-
<PAGE>
without further notice or lapse of time, Lessee hereby waiving
all statutory rights, including rights of redemption, if any.
Upon termination of this Lease, Lessee shall surrender the Leased
Premises to Lessor. Lessor may remove Lessee's property and store
it in a public warehouse at the expense and risk of Lessee.
The remainder of Paragraph 14 of the Lease shall remain unmodified.
12. Paragraph 11 of the Lease entitled "Assignment by Lessee and
Subletting" is hereby deleted and the following substituted in lieu thereof:
Assignment by Lessee and Subletting. Provided that Lessee is not in default
under this Lease beyond any applicable notice or grace period, Lessee may sublet
the whole of the Leased Premises or may sublet the Leased Premises in part in
accordance with the fourth paragraph of this Paragraph 11, or may assign all of
its rights and interests under this Lease provided that (a) any such transferee
other than a sublessee of a part of the Leased Premises shall expressly agree
with Lessor in writing, to assume and pay and perform Lessee's obligations
hereunder, (b) any such subletting or assignment (and any further sublease or
assignment thereafter), shall be subject to the terms of outstanding financing
and to the prior written approval of Lessor, (c) Lessee shall, nevertheless,
remain primarily liable hereunder in any event. Lessor shall not withhold its
consent to a proposed transferee if (1) the overall financial position of the
transferee shall be equivalent to the overall financial position of the Lessee
on December 31, 1988 or at the time of transfer, whichever is greater, (2) the
use by the transferee is both (i) a use permitted by Paragraph 8 of this Lease
and (ii) a use which would not materially adversely affect the Fair Market Value
of the Building or the Land and (3) if the Industrial Revenue Bond financing is
in effect, neither the proposed transferee nor its use of the Leased Premises
will cause the industrial revenue bonds issued pursuant thereto to lose their
exemption from Massachusetts or Federal taxes.
Provided that Lessee is not in default under this Lease beyond any
applicable notice or grace period, Lessee may, without the consent of Lessor,
assign this lease, or sublet the whole of the Leased Premises or sublet the
Leased Premises in part in accordance with the fourth paragraph of this
Paragraph 11 to any corporation into which the Lessee shall be merged or
consolidated, or any corporation which shall acquire all or substantially all of
the assets of Lessee provided that (a) any such transferee other than a
sublessee of a part of the Leased Premises shall expressly agree with Lessor in
writing to assume and pay and perform Lessee's obligations hereunder, (b) any
such subletting or assignment (and any further sublease or assignment
thereafter), shall be subject to the terms of outstanding financing, (c) Lessee
shall, nevertheless remain primarily liable hereunder in any event, (d) any
acquiring or resulting corporation has immediately subsequent to such
transaction an overall financial position equivalent to the greater of (i) the
overall financial position of the Lessee as of December 31, 1988 or (ii) the
overall financial position of the Lessee on the proposed date of such
transaction, and (e) the use of the Leased Premises by the transferee shall be
both (i) a use permitted by Paragraph 8 of this Lease and (ii) either (a) a
continuation of the use by Lessee of the Leased Premises prior to such
transaction or (b) a use which would not materially adversely affect the Fair
Market Value of the Building or the Land, and (f) if the
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<PAGE>
Industrial Revenue Bond financing is in effect, neither the proposed transferee
nor its use of the Leased Premises will cause the industrial revenue bonds
issued pursuant thereto to lose their exemption from Massachusetts or Federal
taxes. Provided that Lessee is not in default under this Lease beyond any
applicable notice or grace period Lessee may also without the consent of Lessor
assign this Lease or sublet the entire Leased Premises or sublet the Leased
Premises in part in accordance with the fourth paragraph of this Paragraph 11 to
an affiliated corporation of Lessee, provided that (a) such affiliated
corporation shall expressly agree with Lessor in writing to assume and pay and
perform Lessee's obligations hereunder and (b) Lessee shall nevertheless remain
primarily liable hereunder in any event (c) that the use of the Leased Premises
by the transferee shall be both (i) a use permitted by Paragraph 8 of this Lease
and (ii) either (a) a continuation of the use by Lessee of the Leased Premises
prior to such transaction or (b) a use which would not materially adversely
affect the Fair Market Value of the Building or the Land, (d) if the Industrial
Revenue Bond financing is in effect, neither the proposed transferee nor its use
of the Leased Premises will cause the industrial revenue bonds issued pursuant
thereto to lose their exemption from Massachusetts or Federal taxes, and (e)
such affiliated corporation shall be a corporation which either (i) controls
Lessee by holding at least 50% of the equity interest and voting power in Lessee
or (ii) is controlled by Lessee by Lessee's holding at least 50% of the equity
interest and voting power in the affiliated corporation or (iii) is controlled
by a parent corporation which also controls Lessee, which parent corporation
owns at least 50% of the equity interest and voting power in each of Lessee and
the affiliate.
For purposes hereof, a sale or transfer of more than fifty percent (50%) of
the stock in Lessee (whether such sale or transfer occurs at one time or at
intervals so that, in the aggregate, over the term of this Lease, such a
transfer shall have occurred) shall be deemed to be an "assignment" of this
Lease.
Lessee may sublet a portion of the Leased Premises to a single subtenant
while occupying the remainder of the Leased Premises or may sublet the Leased
Premises to no more than two subtenants if Lessee is not occupying any portion
of the Leased Premises, subject in all events to the applicable requirements and
conditions for subletting of the Leased Premises as set forth above.
Any transaction described in this Paragraph 11 (including, but not limited
to, a merger, consolidation, transfer of substantially all of the assets of
Lessee or assignment or subletting to an affilate) shall be deemed to be an
"assignment or subletting" for all purposes in connection with this Lease
whether or not Lessor's consent is required for such transaction.
Lessee shall as a condition to the effectiveness of any transaction
described in this Paragraph 11 (and deemed to be an "assignment or subletting"
as aforesaid) give Lessor prior written notice of such transaction at least
thirty (30) days prior to the effective date thereof, whether or not Lessor's
consent to such transaction is required hereunder. Lessor may deal with any
assignee or sublessee (including the acceptance of rental therefrom) without
being deemed to have approved any such assignment or subletting and without
waiving any rights or remedies against Lessee. All subleases shall be subject to
this Lease and the terms and provisions hereof.
In the event of any assignment of this Lease or subletting of the Leased
Premises, fifty percent (50%) of
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<PAGE>
any profit received by Lessee on account of such assignment or subletting
(whether in a lump sum or installments) on account of such assignment or
subletting or otherwise) net of any expenses attributable to such assignment or
subletting shall be deemed rent payments to Lessor and shall be paid over the
Lessor immediately upon receipt thereof.
13. Paragraph 16 of the Lease is hereby amended to provide that copies of
notices to Lessee shall be sent to R. Timmis Ware, Esq., Townley & Updike,
Chrysler Building, 405 Lexington Avenue, New York, New York 10174. Copies of
notices to Lessor shall continue to be sent go Neil N. Glazer, Esq. at the
address set forth in the Lease.
14. There is hereby added to the Lease an additional Paragraph 23 entitled
"Option to Purchase", as follows:
"Provided that this Lease is in full force and effect and Lessee is not in
default of its obligations hereunder at the time of closing and provided that SC
Corporation, the parent corporation of Wigs By Paula, Inc., shall not be in
default under that certain Promissory Note dated as of January 1, 1989 from SC
Corporation, as maker payable to the order of Simon D. Young in the principal
sum of $1,500,000. at the time of closing, Lessee shall have the right and
option to purchase the Leased Premises (a) at the expiration of the Initial Term
of this Lease, or (b) at the expiration of the Extension Period, if Lessee
extends the term of this Lease pursuant to Paragraph 3(b) hereof. Said option
shall be exercised by giving notice to the Lessor of such intention in
accordance with Paragraph 16 of this Lease no later than nine (9) months prior
to the expiration of the Initial Term or Extension Period, as the case may be
(the "Exercise Date"). Nothing herein contained shall be deemed to cause or
allow any option in favor of Lessee to purchase the Demised Premises to survive
a foreclosure sale by any Institutional First Mortgagee effected pursuant to
applicable law. Said purchase shall be on the following terms and conditions:
(a) Purchase Price. The purchase price shall be the Fair Market Value of
the Leased Premises as agreed upon by the parties as of a date which is six (6)
months prior to the expiration of the Initial Term or Extension Term, as the
case may be ("the Determination Date"). If the parties are unable to agree on
said Fair Market Value as of the Determination Date, said question shall be
submitted to arbitration as provided in Exhibit B-2 hereto.
(b) Title. The deed for the Leased Premises shall be the usual quitclaim
deed in form for recording and shall be duly executed and acknowledged by
Lessor, so as to convey to the Lessee good, record and marketable fee simple
title to the Leased Premises free of all encumbrances except as hereinafter
stated. Title to the Leased Premises shall be conveyed subject only to the
following: (i) building, zoning, and other legal requirements affecting the
Leased Premises; (ii) the Leased Premises are to be conveyed "as is"; (iii) this
Lease any subleases created hereunder; (iv) real estate taxes and other matters
for which Lessee is responsible as "Additional Rent" and (v) those liens and
encumbrances set forth on Exhibit C-1 to this Lease plus any liens or
encumbrances created at Lessee's request or with Lessee's consent plus any liens
or encumbrances subject to which Lessee must accept title pursuant to
subdivision (f) hereof if Lessee has not revoked its exercise of its option
pursuant to subdivision (f) hereof. Notwithstanding anything contained herein to
the contrary, Lessor shall be obligated to deliver the Leased Premises free of
all mortgages, collateral assignments of the Lessor's interest in leases,
uniform commercial code financing statements and similar financing documents,
including,
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<PAGE>
without limitation, the existing Industrial Revenue Bond Financing and any other
Institutional First Mortgages, all of which shall be paid in full as of the
closing.
(c) Casualty; Eminent Domain. If after the exercise of the option by the
Lessee there shall be a taking, or if the Leased Premises shall be damaged or
destroyed by fire or other casualty, then, provided that Lessee shall have
complied with its obligations under the Lease with respect to payment of the
entire cost of Lessor's Insurance as provided in Paragraph 4(b), Paragraph 8(d)
and Paragraph 9 of this Lease, Lessee shall have the right to elect either of
the following options, (i) Lessee shall have the right nevertheless to complete
the purchase and to pay the purchase price without reduction and all proceeds of
takings or insurance proceeds, as the case may be, recovered or recoverable on
account thereof, shall be paid over or assigned to Lessee; or (ii) Lessee may
elect to revoke its exercise. In the event that Lessee shall not have complied
with its obligations under the Lease with respect to payment of the entire cost
of Lessor's Insurance as provided in Paragraph 4(b), Paragraph 8(d) and
Paragraph 9 of the Lease, then, in the event the Leased Premises shall be
damaged in destroyed by fire or other casualty, Lessee may not elect to revoke
its exercise of the purchase option but must complete the purchase and pay the
purchase price without reduction and all insurance proceeds, if any, recovered
or recoverable on account thereof, shall be paid over or assigned to Lessee. For
purposes of this paragraph a default in payment of fixed rent, additional rent
or any other charges hereunder which shall not have been remedied prior to the
earlier of (i) the expiration of applicable notice and grace period or (ii) the
date of closing, shall be deemed to be a failure to pay the cost of Lessor's
Insurance as required by this Lease.
(d) Closing. The closing shall take place at the offices of Singer,
Stoneman, Kunian & Kurland, P.C., or such other place as Lessor and Lessee shall
reasonably agree, at 10:00 a.m., on the first business day following expiration
of the Initial Term or the Extension Period, as the case may be. The Purchase
Price shall be payable in immediately available funds via federal funds wire
received by a Boston Bank designated by Lessor on the closing date. Fixed
Rental, Additional Rental and other charges hereunder shall be prorated as of
the closing date.
(e) Postponement of Closing; Payment of Rent. In the event that the closing
shall take place after the expiration of the Initial Term or Extension Period as
the case may be of this Lease, Lessee shall continue to be responsible for all
of its obligations hereunder until title has passed and the purchase is
consummated, including, without limitation, the payment of Fixed Rent,
Additional Rent and other amounts payable hereunder, and shall continue to
possess its rights hereunder. In the event that Lessee shall have elected to
purchase the Leased Premises at the expiration of the Initial Term of this Lease
and the Closing shall be delayed beyond the expiration of the Initial Term, then
in lieu of requiring a determination of Fair Market Rental, Fixed Rent shall be
payable from the time of expiration of the Initial Term until the time of
closing a the rate of $300,000. per annum, prorated on a per diem basis.
Notwithstanding the foregoing, if such delay is solely the result of a failure
or inability by the Lessor to satisfy a condition for closing to be satisfied by
Lessor and Lessee, or a person claiming under Lessee, is not occupying the
Leased Premises during such period, then Lessee shall not be responsible for
performing the obligations of the Lessee under the Lease during such period.
It is understood and agreed that if as a result of a delay in the closing
which is not the result of a default
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<PAGE>
of the Lessee, the closing shall take place after the Initial Term or Extension
Period has expired in accordance with its terms, such delay shall be considered
to be an exception to the requirement that the Lease be in full force and effect
at the time of the Closing.
(f) Lessor may use any portion of the purchase price to discharge any title
matters. In the event that the Leased Premises shall be encumbered by any liens
or encumbrances which are not set forth on Exhibit C-1 then: (a) if the Leased
Premises are encumbered by any liens or encumbrances not set forth on Exhibit
C-1 which have been voluntarily created by Lessor (other than liens or
encumbrances created by Lessee or at Lessee's request or with Lessee's consent)
which by their terms can be removed by the payment of a liquidated sum (such as,
but not limited to a mortgage) then Lessor shall be obligated to remove such
liens or encumbrances as of the Closing Date then Lessee as its sole and
exclusive remedy shall either (i) revoke its exercise of the purchase option by
notice to Lessor given by personal delivery to Lessor at the Closing or (ii)
proceed to a closing in which event Lessee shall be obligated to remove such
liens and encumbrances including any necessary costs or expenses relating there
to; (b) if the leased Premises are encumbered by any liens or encumbrances not
set forth on Exhibit C-1 which have been voluntarily created by Lessor (other
than liens or encumbrances created by Lessee or at Lessee's request or with
Lessee's consent) which cannot by their terms be removed by the payment of a
liquidated sum but which may be able to be cured by the payment of money (such
as but not limited to a lis pendens), then Lessor shall use its best efforts
prior to the Closing Date to remove such liens and encumbrances by payment of up
to One Hundred Thousand ($100,000.00) dollars in the aggregate and if all such
liens and encumbrances shall not be removed prior to the Closing Date then
Lessee shall as its sole and exclusive remedy either (1) revoke its exercise of
the purchase option by notice to Lessor (given by personal delivery to Lessor at
the closing), or (2) proceed to a closing subject to all liens and encumbrances
then existing without reduction in the Purchase Price, (C) if the Leased
Premises are encumbered by any liens or encumbrances not set forth on Exhibit
C-1 which have not been created voluntarily by Lessor (other than liens or
encumbrances created by Lessee or at Lessee's request or with Lessee's consent)
then Lessor shall not be obligated to remove or to endeavor to remove such liens
and encumbrances and Lessee as its sole and exclusive remedy shall either (i)
revoke its exercise of the purchase option by notice to Lessor (given prior to
the Determination Date) or (ii) proceed to a closing subject to all liens and
encumbrances then existing, without reduction in the Purchase Price.
In the event that there shall be any zoning violations affecting the Leased
Premises or in the event that the use of the Leased Premises by the Lessee for
warehouse, distribution center and related administrative office purposes shall
be prohibited by applicable zoning requirements, then Lessee may elect as its
sole remedy on account thereof either (1) to proceed to a closing subject to all
applicable zoning requirements and without reduction in the purchase price
otherwise payable hereunder or (2) to revoke its exercise of its purchase option
by notice to Lessor given prior to the Determination Date. Lessor shall be under
no obligation to undertake to remedy any such situation.
There is hereby substituted for Schedule C to the Lease, Schedule C in the
form attached hereto.
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<PAGE>
15. Except as modified hereby, the Lease shall remain unmodified in full
force and effect.
Executed as sealed instrument. Dated: March 1, 1989
WITNESS: SANDPY REALTY TRUST
/s/ Neil N Glaz By: /s/ Simon D. Young
- ----------------------- --------------------------
Simon D. Young, as Trustee
and aforesaid but not individually
WIGS BY PAULA, INC.
/s/ Neil N. Glaz By: /s/ Simon D. Young
- ----------------------- -------------------------
Simon D. Young, President
<PAGE>
SCHEDULE A-1
Page 1 of 2
Premises shown as Lot A-1-H on a Plan entitled Plan of Land in Easton,
Massachusetts, owned by Sandpy Realty Trust, Simon D. Young, Trustee, Scale 1" =
40', dated December 28, 1988, prepared by Hayward-Boynton & Williams, Inc.,
Surveyors, Civil Engineers, 140 School Street, Brockton, Massachusetts, and
outlined in red on the copy of the aforesaid Plan of Land attached hereto, being
a portion of the premises described in Schedule A-2 hereto.
<PAGE>
SCHEDULE A-1
Page 2 of 2
[MAP]
[PLAN OF LAND IN EASTON, MASSACHUSETTS]
<PAGE>
SCHEDULE A-2
Page 1 of 2
A certain parcel of land shown as Parcel A-1-C on a plan entitled "Plan of Land
in Easton, Massachusetts, owned by Carl and Albertina R. Kempf" dated January
21, 1977, by Hayward-Boynton & Williams, Inc. and recorded with the Bristol
County (North District) Registry of Deeds in Plan Book 162, Page 75. Parcel
A-1-C is more particularly bounded and described, according to said plan, as
follows:
NORTHEASTERLY by Bristol Drive, one hundred fifty and 00/100 (150.00) feet;
SOUTHEASTERLY by Parcel A-1-D, three hundred ninety-one and 98/100 (391.98)
feet;
SOUTHWESTERLY by land of Carl A. And Albertina R. Kempf, one hundred
fifty-two and 85/100 (152.85) feet; and
NORTHWESTERLY by Parcel A-1-B, four hundred twenty-one and
54/100 (421.54) feet.
Parcel A-1-C contains 1.401 acres, according to said plan.
PARCEL A-1-D:
A certain parcel of land shown as Parcel A-1-D on said plan recorded in Plan
Book 162, Page 75 and being more particularly bounded and described, according
to said plan, as follows:
NORTHEASTERLY by Bristol Drive, one hundred fifty and 00/100 (150.00) feet;
SOUTHEASTERLY by Parcel A-1-E, on two (2) courses, two hundred
sixty and 51/100 (260.51) feet and one hundred and
68/100 (100.68) feet;
SOUTHWESTERLY by land of Carl A. And Albertina R. Kempf, one hundred
fifty-nine and 24/100 (159.24) feet; and
NORTHWESTERLY by Parcel A-1-C, three hundred ninety-one
and 98/100 (391.98) feet.
Parcel A-1-D contains 1.306 acres, according to said plan.
LOT A-1-E:
A certain parcel of land shown as Lot A-1-E on a plan entitled "Plan of Land in
Easton, Massachusetts owned by Paramount Development Associates, Inc." dated
March 26, 1962, and recorded with the Bristol County (North District) Registry
of Deeds in Plan Book 197, Page 30. Lot A-1-E is more particularly bounded and
described, according to said plan, as follows:
<PAGE>
Page 2 of 2
NORTHEASTERLY by Bristol Drive, two hundred nineteen and 29/100 (219.29)
feet;
NORTHEASTERLY,
EASTERLY AND
SOUTHEASTERLY by the intersection of Bristol Drive and
Norfolk Avenue, seventy-eight and 54/100
(78.54) feet on a curve with a radius of
fifty and 00/100 (50.00) feet;
SOUTHEASTERLY by Norfolk Avenue, two hundred sixty-seven and
00/100 (267.00) feet;
SOUTHWESTERLY by Lot A-1-F, two hundred sixty-five and 29/100
(265.29) feet; and
NORTHWESTERLY by Parcel A-1-D, on two (2) courses,
seventy-four and 62/100 (74.62) feet and two
hundred sixty and 51/100 (260.51) feet.
Lot A-1-E contains 87,120 square feet (2.000 acres), according to said plan.
<PAGE>
EXHIBIT B-1
If the parties are unable to agree on said Fair Market Rental as of the
Determination Date, said question shall be submitted upon either party's request
to a board of appraisers two (2) in number, one named by Lessor and one named by
Lessee. Each appraiser appointed under this paragraph shall be a reputable real
estate broker of industrial and office space with at least ten (10) years
experience in the Boston Metropolitan Area. Each appraiser so appointed shall be
instructed to determine independently the Fair Market Rental within thirty (30)
days after the request of either party. If only one appraiser shall have been
appointed within ten (10) days after the first party's request, or if two
appraisers shall have been appointed, but only one appraiser shall have made
determination of Fair Market Rental within thirty (30) days after the request of
either party, then the determination of such appraiser shall be final and
binding upon both parties. If the appraisers shall have been appointed and shall
have made their determinations within the respective requisite periods set forth
above, and if the difference between the amounts so determined shall not exceed
ten (10%) percent of the lesser of such amount, then the Fair Market Rental
shall be the average of the amounts determined; if, however, the difference
between the amounts determined shall exceed ten (10%) percent of the lesser of
such amounts, then such two appraisers shall have ten (10) days to appoint a
third appraiser, but if such appraisers fail to do, then either party may
request the President of the Greater Boston Real Estate Board to appoint an
appraiser within ten (10) days of such request. Such third appraiser shall also
be a reputable estate broker of industrial and office space with at least ten
years experience in the Boston Metropolitan Area, and shall not have acted in
any capacity for either party within five (5) years of his selection. Both
parties shall be bound by any appointment
<PAGE>
so made within said ten (10) day period. If no such appraiser shall have been
appointed within said ten (10) days, either party may apply to any court having
jurisdiction to make such appointment. Any appraiser appointed by the original
appraisers, by the President of the Greater Boston Real Estate Board, or by the
court, shall be instructed to determine the Fair Market Rental within thirty
(30) days after his appointment. If the amount of the third appraisal shall be
less than the lower of the first two appraisals, the Fair Market Rental shall be
the lower of the first two appraisals. In all other cases, the Fair Market
Rental shall be equal to the third appraisal. This provision for determination
by appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by law.
Each party shall bear the costs of its own appraiser, and shall share equally
the cost of a third appraiser, if any.
<PAGE>
EXHIBIT B-2
If the parties are unable to agree on said Fair Market Value as of the
Determination Date, said question shall be submitted upon either party's request
to a board of appraisers two (2) in number, one named by Lessor and one named by
Lessee. Each appraiser appointed under this paragraph shall be a reputable real
estate broker of industrial and office space with at least ten (10) years
experience in the Boston Metropolitan Area. Each appraiser so appointed shall be
instructed to determine independently the Fair Market Value within thirty (30)
days after the request of either party. If only one appraiser shall have been
appointed within ten (10) days after the first party's request, or if two
appraisers shall have been appointed, but only one appraiser shall have made a
determination of Fair Market Value within thirty (30) days after the request of
either party, then the determination of such appraiser shall be final and
binding upon both parties. If two appraisers shall have been appointed and shall
have made their determinations within the respective requisite periods set forth
above, and if the difference between the amounts so determined shall not exceed
ten (10%) percent of the lesser of such amounts, then such two appraisers shall
have ten (10) days to appoint a third appraiser, but if such appraisers fail to
do so, then either party may request the President of the Greater Boston Real
Estate Board to appoint an appraiser within ten (10) days of such request. Such
third appraiser shall also be a reputable real estate broker of industrial and
office space with at least ten (10) years experience in the Boston Metropolitan
Area, and shall not have acted in any capacity for either party within five (5)
years of his selection. Both parties shall be bound by any appointment
<PAGE>
so made within said ten (10) day period. If no such appraiser shall have been
appointed within said ten (10) days, either party may apply to any court having
jurisdiction to make such appointment. Any appraiser appointed by the original
appraisers, by the President of the Greater Boston Real Estate Board, or by the
court, shall be instructed to determine the Fair Market Value within thirty (30)
days after his appointment. If the amount of the third appraisal shall be less
than the lower of the first two appraisals, the Fair Market Value shall be the
lower of the first two appraisals. In all other cases, the Fair Market Value
shall be equal to the third appraisal. This provision for determination by
appraisal shall be specifically enforceable to the extent such remedy is
available under applicable law, and any determination hereunder shall be final
and binding upon the parties except as otherwise provided by law.
Each party shall bear the costs of its own appraiser, and shall share
equally the cost of a third appraiser, if any.
<PAGE>
SCHEDULE C
AMENDED NONDISTURBANCE AND SUBORDINATION AGREEMENT
TERMS:
Lessor: SIMON D. YOUNG, Trustee of SANDPY REALTY
TRUST under Declaration of Trust dated January 2, 1985,
recorded with Bristol North Registry of Deeds in Book
2700, Page 276, of Brockton, Massachusetts.
Lessee: WIGS BY PAULA, INC.
21 Bristol Drive
Easton, MA 02375
Mortgagee: Rockland Trust Company, under an Indenture of Trust
and Mortgage dated as of July 10, 1985 between Lessor
and the Town of Easton, MA , as amended and
supplemented by First Amendment to Indenture of Trust
and Mortgage and Agreement dated as of March 15, 1986
("the Indenture").
Lease: A Lease dated July 10, 1985, by and between the
Lessor and Lessee as amended by First Amendment to
lease dated March 15, 1986 and by Second Amendment to
lease dated March 1, 1989 and having an Effective
Date as between Lessor and Lessee of January 1, 1989.
Leased Premises: The land described on Schedule A-1 hereto
together with all buildings and improvements now or
hereafter located thereon and all easements, rights,
restrictions and appurtenances relating to such land.
Mortgaged Premises: Premises on Bristol Drive, Easton, Massachusetts as
more fully described in the Indenture.
1. In order to induce Mortgagee to maintain the loan secured by the Mortgage,
Lessor and Lessee agree that the Lease shall be subject and subordinate to
the lien and priority of the Mortgage, to all the terms and provisions
thereof, to all advances, payments and claims of any nature made or to be
made thereunder and secured thereby and to any renewals, extensions,
modifications or replacements thereof. The foregoing shall be subject to
the provisions of the Mortgage whereby the holder thereof may as therein
described subordinate the Mortgage to the Lease.
2. In consideration of the foregoing subordination of the Lease to the
Mortgage and in the event Mortgagee shall hereafter either foreclose such
Mortgage and bid in our purchase the Mortgaged Premises at any foreclosure
sale or sales, or acquire title to the Mortgaged Premises by deed or
otherwise in lieu of foreclosure, Mortgagee agrees that:
<PAGE>
A. If Lessee shall pay the rent and any other payments reserved or
provided in the Lease, and shall keep, observe and perform all the
other terms, covenants, conditions, provisions and agreements
contained in the Lease which Lessee would have been obligated to keep,
observe and perform if the Lease had survived such foreclosure,
Mortgagee shall, for the same period as the term of the Lease would
have continued absent such foreclosure, permit Lessee peaceably and
quietly to continue in possession of the Leased Premises. Nothing
herein contained shall be deemed to cause or allow any option in favor
of Lessee to purchase the Leased Premises to survive a foreclosure
sale by Mortgagee effected pursuant to applicable law.
3. In no event shall Mortgagee and its successors and assigns, including any
purchaser at a foreclosure sale, be:
A. liable for any act or omission of the Lessor, its successors or
assigns, as landlord under the Lease;
B. subject to any offsets or defenses which Lessee might have against
Lessor, its successors and assigns, as landlord under the Lease;
C. bound by any rent or additional rent which Lessee might have paid to
the Lessor, its successors or assigns in advance of the time called
for under the Lease;
D. bound by any amendment or modification of the Lease made without
consent of Mortgagee; or
E. except as modified by Paragraph 2A above, required to restore the
Mortgaged Premises in the event of destruction or damage by casualty
or taking.
4. Lessee does hereby confirm its agreement to attorn to Mortgagee as provided
in Section 10 (a) of the Lease.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, but shall be binding upon
Mortgagee and any succeeding holder of the Mortgage only during the period it is
a holder, and shall be binding upon any purchaser at a foreclosure sale or
successor in title to such purchaser only during the period of its ownership.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
this 1st day March, 1989.
Mortgagee: ROCKLAND TRUST COMPANY
By:
-------------------------------------
Lessee: WIGS BY PAULA, INC.
By:
-------------------------------------
Simon D. Young, President
<PAGE>
COMMONWEALTH OF MASSACHUSETTS _________________ , 1989
COUNTY OF , SS.
Then personally appeared before me the above-named _____________________ ,
_________________________ of ROCKLAND TRUST COMPANY, and acknowledged the
foregoing to be the free act and deed of said Corporation.
-------------------------------------
NOTARY PUBLIC
My Commission Expires:
---------------
STATE OF _________________ , 1989
COUNTY OF , SS.
Then personally appeared before me the above-named Simon D. Young,
President and Treasurer of WIGS BY PAULA, INC., and acknowledged the foregoing
to the free act and deed of said Corporation.
-------------------------------------
NOTARY PUBLIC
My Commission Expires:
---------------
<PAGE>
EXHIBIT 10.21
THIRD AMENDMENT TO LEASE
Reference is made to a Lease dated July 10, 1985 by and between Simon D.
Young as Trustee of Sandpy Realty Trust under a Declaration of Trust dated
January 2, 1985, recorded with Bristol County North District Registry of Deeds
in Book 2700, Page 276, as Lessor (hereinafter referred to as "Lessor") and Wigs
by Paula, Inc., a Massachusetts corporation as Lessee (hereinafter referred to
as "Lessee"), pertaining to premises on Bristol Drive, Easton, Massachusetts
more fully described therein, as amended by First Amendment to Lease dated March
15, 1986, and as further amended by Second Amendment to Lease dated March 1,
1989 (said Lease as amended being hereinafter referred to as the "Lease").
For Ten Dollars ($10.00) and other good and valuable consideration, each to
the other paid, the receipt and sufficiency of which is hereby acknowledged by
Lessor and Lessee hereby further amend the Lease as follows:
1. The effective date of this Third Amendment to Lease (the "Effective
Date") as between Landlord and Tenant shall be the date hereof.
2. Paragraph 3 of the Lease entitled "Term" is hereby deleted and the
following substituted in lieu thereof: "The term of this Lease commenced on
April 15, 1986 (the "Commencement Date") and shall expire as of the one hundred
twentieth (120th) day after either Lessor or Lessee, on or after January 1,
1994, gives the other party written notice of its intention to terminate this
Lease."
3. The second sentence of the first paragraph of Paragraph 8(d) of the
Lease, and the third paragraph of said Paragraph 8(d), are each hereby deleted,
and the following substituted for said second sentence of said first paragraph:
"Lessee shall not make any structural change, alteration or modification to said
Building or construct any additional building on the Land."
4. Paragraph 11 of the Lease, entitled "Assignment by Lessee and
Subletting. is hereby deleted, it being agreed that the Lessee shall have no
right to sublet or assign any portion of the Leased Premises.
<PAGE>
5. The first sentence of Paragraph 12(a) of the Lease is hereby deleted and
the following substituted in lieu thereof: "If the Building, or any part
thereof, shall be damaged or destroyed by fire, the elements or any other
casualty, then Lessor shall have the right to terminate this Lease by giving
written notice of such intention within thirty days of the occurrence of said
casualty, unless the cost of the restoration is less than $10,000.00 and would
take less than thirty days to restore, in which event the Lessor shall be
obligated to proceed with such restoration". In addition, Paragraph 12(b) of the
Lease is hereby deleted.
6. There is hereby deleted from the Lease, Paragraph 2, entitled "Option to
Purchase".
In all other aspects not inconsistent with the foregoing, said Lease shall
remain in full force and effect in accordance with its terms.
Executed under seal as of the 22nd day of October, 1993.
Witness: SANDPY REALTY TRUST
/s/ [Illegible] /s/ Simon D. Young, Trustee
------------------------ ----------------------------
Simon D. Young, Trustee
and not individually
WIGS BY PAULA, INC.
/s/ [Illegible} /s/ Steven L. Bock
------------------------ ----------------------------
Its CEO
--2--
<PAGE>
Signal Capital Corporation Merchant Banking
55 Ferncroft Road
Danvers, MA 01923
(508) 777-3866
FAX (508) 750-1301
July 19, 1993
Mr. Steven L. Bock
SC Corporation
Six Landmark Square, 4th Floor
Stamford, CT 06901
Re: SC Corporation et. a1.
Dear Steve:
Reference is made to your letter to Signal Capital Corporation ("Signal")
dated June 21, 1993 regarding unpaid lease payments under the lease between Wigs
by Paul, Inc. ("Wigs") and; Sandpy Realty Trust. It is Signal's understanding
that Wigs has failed to pay $40,000 due under the lease for each month, April
and May 1993, instead, Wigs has paid only S20, 000 for each of these two months,
resulting in unpaid lease payments in the aggregate amount of $40,000.
Signal consents to the payment by Wigs to Sandpy Realty in the amount of
$40,000 regarding lease arrearages for the months of April and May 1993.
If you should have any questions, please contact me.
Sincerely,
/s/ Willis A. Williams
Willis A. Williams
Portfolio Manager
WAW/aa
<PAGE>
Kleban & Samor, P.C.
[LETTERHEAD]
WRITER'S DIRECT DIAL
254-8913
December 9, 1993
James McGinley, Esq. VIA FAX 617-439-4170
Edwards and Angell AND FEDERAL EXPRESS
101 Federal Street
Boston, MA 02110
RE: WIGS BY PAULA, INC.
Dear Jim:
My sincerest apologies for not forwarding the enclosed, executed the Third
Amendment to Lease sooner. As we discussed, I am delivering the amendment to you
on the following conditions: (i) the landlord would agree that if its execution
is later held to be void because it is outside the ordinary course of business,
11 U.S.C. ss.549(a), a 120-day notice period would nevertheless apply as a
condition to termination; and (ii) Mr. Young's agreement to settle his other
claims in accordance with our outstanding agreement, which, of course, is
subject to court approval under Rule 9019. My recollection is that you were
going to confirm that the foregoing conditions were acceptable to your client.
Thank you for your patience.
Very truly yours,
/s/ Irve J. Goldman
Irve J. Goldman
IJG/cfh
enclosures
cc: Mr. Steven L. Bock
<PAGE>
Kleban & Samor, P.C.
[LETTERHEAD]
WRITER'S DIRECT DIAL
254-8913
December 10, 1993
Michael R. Enright, Esq. VIA HAND-DELIVERY
Robinson & Cole
One Commercial Plaza
Hartford, CT 06103-3597
Re: Western Schools, Inc.
Chapter 11, Case No. 92-54265
Doc. I.D. No. 335
Dear Mike:
Enclosed are copies of the followings: 1) List of Witnesses; 2) List of
Exhibits, together with copies of exhibits identified therein; and 3) Debtor's
Expert Report.
Very truly yours,
/s/ Irve J. Goldman
Irve J. Goldman
IJG/cf.
enclosures
cc: Mr. Steven L. Bock (with enclosures)
David Weitman, Esq. (via Federal Express)~ with enclosures)
<PAGE>
Kleban & Samor, P.C.
[LETTERHEAD]
WRITER'S DIRECT DIAL
254-8913
December 10, 1993
Hon. Alan H. W. Shiff VIA HAND-DELIVERY
United States Bankruptcy Court
915 Lafayette Blvd.
Bridgeport, CT 06604
Re: Western Schools, Inc.
Chapter 11, Case No. 92-54265
Doc. I.D. No. 33
Dear Judge Shiff:
Enclosed are Chambers' copies of the following documents relative to the
Emergency Application of Signal Capital Corporation Objecting to the Use of Cash
Collateral by Western Schools, Inc.: 1) Debtor's List of Exhibits; 2) Debtor's
List of Witnesses; and 3) Debtor's Expert Report.
Respectfully submitted,
/s/ Irve J. Goldman
Irve J. Goldman
IJG/cfh
enclosures
cc. Mr. Steven L. Bock (with enclosures)
Michael R. Enright, Esq. (via hand-delivery) (with enclosures)
David Weitman, Esq. (via Federal Express) (with enclosures)
<PAGE>
EXHIBIT 10.22
SC
- ----------------------------------------------
CORPORATION Six Landmark Square
Fourth Floor
Stamford, Ct. 06901-2792
Telephone (203) 359-5640
Facsimile (203) 359-5840
February 21, 1995
Via Airborne Express
--------------------
Sandpy Realty Trust
C/O Simon D. Young
16 Westwood Avenue
Brockton, MA 02401
Re: Lease of Premises at 21 Bristol Drive South Easton, MA
------------------------------------------------------
Dear Simon:
This will confirm that, effective June 1, 1995, the Fixed Rent for the
above-captioned premises shall be reduced from $480,000 per annum to $300,000
per annum.
In all other respects, the Lease, as amended through the date hereof, shall
remain in full force and effect in accordance with its terms.
SC Direct, Inc. Witnessed
/s/ STEVEN L. BOCK By: /s/
------------------- -------------------
Steven L. Bock
CEO
Acknowledged and agreed to:
Sandpy Realty Trust Witnessed
By: /s/
-------------------
/s/ SIMON D. YOUNG
- ------------------
Simon D. Young
Trustee
<PAGE>
SC
- ----------------------------------------------
CORPORATION Six Landmark Square
Fourth Floor
Stamford, Ct. 06901-2792
Telephone (203) 359-5640
Facsimile (203) 359-5840
February 21, 1995
Via Airborne Express
--------------------
Simon D. Young
16 Westwood Avenue
Brockton, MA 02401
Dear Simon:
Thank you for agreeing to the June 1 rent reduction, which gives us some
additional flexibility regarding the timing of our decision to address our
longer term space needs. I am enclosing a letter for Sandpy's signature,
reflecting the new rent. Please return an executed copy to me.
As I indicated to you, we need to complete our market research in order to
more thoroughly assess your proposal. Based on our current information, your
proposal seems very high.
We will keep you advised as we work through the process.
Very truly yours,
/s/ Steven
Steven L. Bock
<PAGE>
EXHIBIT 10.23
LEASE
LEASE dated October 20, 1995, between FREDRIC SNYDERMAN, as Trustee of J V
Realty Trust (mailing address: 14 Norfolk Avenue, South Easton, MA 02375)
("Landlord") and SC DIRECT, INC., a Massachusetts Corporation, of 21 Bristol
Drive, South Easton, MA 02375 (hereafter "Tenant").
I. PREMISES
Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord.
upon the terms, covenants and conditions hereinafter set forth:
the exclusive use of the premises consisting of the entire free standing
building and parcel of land known as 23 Norfolk Avenue, South Easton, MA,
being approximately 22,000 square feet more or less interior space, said
parcel of land is more particularly described in Schedule "A" attached
hereto and made a part hereof.
II. USE
The Tenant may use and occupy the Premises for the purposes of warehouse
distribution and office support or, subject to the Landlord's prior written
consent, any other lawful purpose.
<PAGE>
III. TERM
Subject to the terms, covenants and conditions contained herein, Tenant
shall have and hold the premises for a term of eighteen (18) months commencing
on November 1, 1995 and ending on April 30, 1997.
IV. RENT
Tenant covenants and agrees to pay to Landlord rent during the term of
this Lease, at the rate of $93,500.00 per year in installments of $7,791.67 per
month.
All such rent shall be payable on the first day of every month beginning
November 1, 1995 during the term hereof. Tenant will pay such rent to the
Landlord without request or demand at its address set forth or at such other
place as is designated from time to time by Landlord.
V. LATE CHARGE
Tenant shall pay a late charge of 3% of all sums required to be paid
hereunder if paid more than fifteen (15) days after its due date until all such
sums have been paid in full.
VI. TAXES
(A) In addition to the rent set forth in Paragraph IV above, Tenant
covenants and agrees to pay Landlord as additional rent 100% of the real estate
taxes assessed for any fiscal year on the land and buildings shown on Schedule
"A".
-2-
<PAGE>
(B) If this Lease commences during a fiscal year, Tenant shall be liable
only for the same proportion of its 100% share of the real estate taxes as the
period of time it occupies the Premises.
(C) Tenant shall pay Landlord its share of the real estate taxes as
aforesaid within fourteen (14) days after receipt from Landlord of a copy of the
real estate tax bill and a statement showing the share thereof for which it is
liable.
(D) If any abatement of real estate taxes is obtained, the amount thereof
shall first be applied to the reasonable costs and expenses of obtaining such
abatement. Tenant shall then be entitled to its percentage thereof in accordance
with the percentage of the real estate taxes for which it is liable, and
Landlord shall be entitled to the remainder. In addition, Tenant has the right
in name of Landlord to contest validity or amount of taxes or to file for an
abatement at Tenant's cost.
VII. INSURANCE
The Tenant shall pay, as additional rent, the cost of the following
insurance coverages on the Premises. All policies shall be with responsible
insurance companies licensed to do business in Massachusetts. All such policies
which affect the premises shall name Landlord and Tenant as insured parties as
their interests may appear.
(a) Hazard Insurance
The Tenant shall pay the cost of the Landlord's policy for all risk
coverage on the building and improvements on the Premises for physical loss in
an amount equal to the
-3-
<PAGE>
full insurable value of the building and such improvements as hereinafter
defined. "Full Insurable Value" shall mean actual full replacement cost of the
building, without deduction for depreciation, and in any event an amount
sufficient to prevent Landlord from being deemed a co-insurer under the terms of
such policy. Full Insurable Value shall be reasonably determined from time to
time by the Landlord but not less frequently than each twelve calendar months,
and a copy of said determination shall be provided to Tenant.
b) Rent Insurance
The Tenant shall pay the cost of rental income insurance (Rent Form No. 1
endorsement) protecting the Landlord against abatement or loss of rent in an
amount equal to at least one year's Base Rent, estimated real estate taxes and
insurance premiums.
c) Liability Insurance
The Tenant shall pay the cost of the policy of comprehensive public
liability insurance insuring Landlord against liability arising out of the
ownership, use, occupancy or maintenance of the Premises. At the beginning of
the Lease Term the limits of such policy shall be at least $1,000,000 for injury
or death to one person, and $1,000,000 for injury or death to more than one
person in the same accident and $500,000 for damage to property. Such limits
shall be subject to a reasonable and necessary increase from time to time during
the Lease Term. The amount of such insurance shall not limit the Tenant's
liability nor relieve the Tenant of any obligation hereunder. The Tenant may, at
Tenant's cost and expense, maintain such other liability insurance as the Tenant
may deem necessary to protect it.
-4-
<PAGE>
d) Indemnity
Subject to the provisions of Massachusetts General Laws, Chapter 186,
Section 15, the Tenant shall assume exclusive control of the Premises and the
adjacent sidewalks, if any, and agrees to hold the Landlord free and harmless
from any and all liability, penalties, losses, damages, costs and expenses,
causes of action, claims, or judgments or encumbrances created or suffered by
the Tenant, and from any and all liability, penalties, losses, damages, costs
and expenses, causes of action, claims, or judgments arising from injury during
said term to persons of any nature whether on the leased Premises or its
approaches, occasioned by any acts or omissions of the Tenant or of the
employees, agents, servants, subtenants, or independent contractors of the
Tenant, and arising out of the use or occupation of said Premises or by reason
of the bursting or leakage of pipes occasioned by the negligence of Tenant from
any neglect or misuse on the leased Premises caused by Tenant's negligence or by
any reason of nuisance made or suffered on the Premises and caused by the
Tenant's negligence; and also against all legal costs and charges, including
reasonable counsel fees, reasonably incurred in and about such matters and the
defense of any action arising out of the same, or in discharging the Premises or
any part thereof from any and all liens that may be placed thereon from charges
incurred by Tenant. If the Landlord intervenes in or becomes a party to any such
action or actions growing out of this Lease in order to protect its rights, and
such intervention is caused by Tenant's conduct, then the Tenant shall pay
Landlord's reasonable attorneys' fees in such action or actions.
-5-
<PAGE>
(e) Payment of Premiums:
The Tenant shall pay to the Landlord an amount equal to the cost of the
premiums paid or incurred by the Landlord for the insurance coverages set forth
in this Section within fourteen (14) days after written request therefor by the
Landlord.
VIII. OPERATING EXPENSES
Tenant shall pay to Landlord as additional rent 100% of all Landlord's
operating expenses for maintaining the Premises including and limited to water
and sewer, utilities, betterments, landscaping, maintenance of the building, its
parking lot and grounds, snow plowing and ordinary and necessary repairs. Tenant
shall pay said operating expenses as aforesaid within 14 days after submittal of
detailed itemization and accounting of operating expenses along with copies of
all invoices and other documentation evidencing the expenses. Landlord and
Tenant may agree in writing to have Tenant contract directly for certain of the
above expenses.
IX. UTILITIES
The Tenant shall pay directly to the proper authorities concurrent with the
collection thereof all charges for heat, water, sewer, gas, electricity,
telephone and other utilities or services used or consumed on the Premises. The
Tenant shall make its own arrangements for such utilities and the Landlord shall
not be liable for any interruption or failure in the supply of any such
utilities to the Premises not caused by conduct or lack of action by the
-6-
<PAGE>
Landlord. The Tenant agrees that it will at all times keep sufficient heat in
the building to prevent the pipes from freezing.
X. SECURITY DEPOSIT
Upon the execution of this Lease, Tenant shall also pay to Landlord the sum
of $15,583.34 which shall be held by Landlord as security for the full and
faithful performance and compliance by Tenant of and with all its covenants and
obligations hereunder. Each party expressly acknowledges that this sum is not to
be applied as rent at the end of the term hereof.
Landlord acknowledges that it has received from Tenant the amount of
Fifteen Thousand Five Hundred Eighty Three and 34/100 ($15,583.34) Dollars, as
security for the payment of rent and the performance and observance of the
agreements and conditions in this Lease contained on the part of the Tenant to
be performed and observed. In the event of any default or defaults in such
payment, performance or observance. Landlord may apply said amount plus interest
earned and not yet paid to Landlord (hereinafter "the sum") or any part thereof
toward the curing of any such default or defaults and/or toward compensating
Landlord for any loss or damage arising from any such default or defaults. Upon
the yielding up of the Premises at the expiration or other termination of the
term of the Lease, and if the Tenant shall not then be in substantial default
said sum or the unapplied balance thereof shall be returned to the Tenant within
10 days. The Landlord agrees to deposit the security in a separate
interest-bearing escrow bank account and, provided Tenant shall not be in
default
-7-
<PAGE>
or otherwise liable to the Landlord, agrees to pay the interest earned by such
security to the Tenant. Upon deposit of said money, Landlord shall notify the
Tenant in writing of the name and address of the bank and account number where
the money is being held. Landlord shall not commingle the money with its own
funds. Landlord agrees to pay such interest annually on the anniversary date of
the execution of this Lease. Whenever the holder of Landlord's interest in this
Lease, whether it be the Landlord named in this lease or any transferee of said
Landlord, immediate or remote, shall transfer its interest in this Lease, said
holder shall turn over to its transferee said sum or the unapplied balance
thereof.
XI. CONDITION OF PREMISES
(A) Landlord shall deliver the Premises to Tenant in broom clean condition
and in its current condition as of the time of execution of this Lease and shall
have no obligation to make any changes or alterations to it.
(B) Tenant may make non-structural changes to the Premises but only with
Landlord's prior written consent which consent shall not be unreasonably delayed
or withheld following his receipt of Tenant's written request specifying the
desired changes and plans showing the proposed changes in detail.
XII. IMPROVEMENTS AND ALTERATIONS BY TENANT
Tenant may place office fixtures, office equipment and the like (Tenant's
Property) in the Premises without Landlord's consent, provided that no signs may
be erected
-8-
<PAGE>
on the exterior of the Premises without Landlord's prior written approval as to
the size, design and location thereof, which approval shall not be unreasonably
withheld or delayed. Tenant may not make any structural alterations, additions
or improvements to the Premises except with Landlord's prior written consent and
in accordance with plans submitted in advance to and approved in writing by
Landlord, such consent not to be unreasonably withheld or delayed. Tenant's
improvements, such as carpeting, shall remain Tenant's Property during the Term
but shall become and remain part of the Premises as of the expiration or earlier
termination of the Term of this Lease. All structural alterations, additions and
improvements shall, upon the making thereof, become a part of the building.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished to Tenant and that no mechanic's or other lien for any such
material or labor shall attach to or affect the reversion or other estate or
interest of Landlord in and to the Premises and Tenant hereby indemnifies
Landlord against any claim against Landlord for labor or materials. At the
expiration or earlier termination of the Term of this Lease. Tenant shall remove
Tenant's Property. Landlord shall not require removal of pipes, wires and the
like from walls, ceilings or floors, provided that Tenant properly cuts, caps
and disconnects such pipes and wires and seals them off in a safe and lawful
manner flush with the applicable wall, floor or ceiling. Tenant shall maintain
the improvements and Tenant's Property during the Term of this Lease and shall
be responsible for any damage to the Premises caused by the installation or
removal of Tenant's Property or any improvements. Tenant shall repair any damage
or disturbance to the Premises resulting from the removal of its Property in
such
-9-
<PAGE>
a manner that there is no appearance of any such removal or damage and the
damaged or disturbed areas shall match the existing conditions of the Premises.
XIII. INSPECTION
Landlord and his authorized representatives shall have the right upon
reasonable notice and consent of the Tenant (which consent shall not be
unreasonably withheld or delayed) and at all reasonable times to enter the
Premises to inspect the same, and to show it to prospective tenants and
purchasers; provided that Landlord shall not disturb Tenant's use and occupancy.
XIV. MAINTENANCE OF BUILDING AND PREMISES
(A) Landlord shall (i) maintain the building structure except the interior
and additions thereto and any utility service lines exclusively serving the
Premises, in good condition and repair; (ii) comply with all applicable
governmental rules, regulations, laws and ordinances affecting the building. If
at any time the Premises (or portion thereof) become untenantable for the
conduct of Tenant's business as a result of the interruption or suspension of
any such maintenance services (except for causes beyond Landlord's control),
Tenant shall be entitled to an abatement of Rent (or portion thereof) until the
Premises again become suitable for the conduct of Tenant's business.
-10-
<PAGE>
(B) Tenant shall (i) maintain the interior of the Premises (including the
plate and window glass) and; (ii) comply with all applicable governmental rules,
regulations, laws and ordinances affecting the building.
Landlord shall, at its sole cost and expense, keep and maintain in good
working order and repair and in a clean and safe condition the interior and
exterior structural portions of the building, including, but not by way of
limitation, the foundation, roof, walls, driveways, structural columns and
beams, and common areas, except for loss by fire or other casualty and shall
remove snow accumulation from the roof. The Landlord shall also, at its sole
cost and expense, keep and maintain in good working order and repair and if
necessary, replace, the plumbing and electrical service lines furnished by the
Landlord to the Premises and the heating, plumbing, and HVAC system servicing
the Premises. The Tenant shall give immediate written notice to the Landlord of
the need for any repairs or replacements to the areas the Landlord is
responsible for as described above and the Landlord shall then proceed
immediately to make such repairs as are necessary. In the event that the
Landlord fails to maintain the above-mentioned structure or fulfill the above
obligations or fails to make any necessary repair or replacement within a
reasonable time after notification from Tenant, then the Tenant shall have the
right to make such repair or replacement and deduct the cost of same from the
rent due and owing. The following restrictions apply to this paragraph B:
a) Landlord is not obligated to perform any repairs hereunder if the
alleged problem or condition was caused by the negligence or conduct
of Tenant, its employees or agents;
-11-
<PAGE>
b) If the problem or condition arises during the first 30 days of this
tenancy, Landlord shall be fully responsible to correct same; and
c) after said 30 days, Landlord's responsibility hereunder arises only if
the cost of repairing any single item or problem exceeds $2,000.00.
(C) Tenant shall act with care in its use and occupancy of the Premises,
and except as otherwise provided under the terms of this Lease, shall keep the
Premises in good order and condition.
XV. CONDEMNATION
(A) If the entire Premises or any portion thereof or the access thereto
shall be permanently or temporarily taken, appropriated or condemned, such that
Tenant is precluded or adversely affected from utilizing the Premises for the
conduct of its business, this Lease and the Term hereof may be terminated at
Tenant's election by giving written notice of termination to Landlord within
sixty (60) days following the date on which Tenant shall have received notice of
such taking, appropriation or condemnation. In the event of the giving of such
notice, this Lease and the Term hereof shall terminate as of the date on which
Tenant shall be required to vacate any portion of the area so taken,
appropriated or condemned and the Rent shall be apportioned as of such date.
(B) If Tenant does not elect to terminate this Lease, Landlord, with
reasonable diligence and at his expense, shall restore the remainder of the
Premises or the access thereto, as nearly as feasible to the condition thereof
prior to such taking, appropriation or
-12-
<PAGE>
condemnation and in such event the Rent shall be adjusted in a manner such that
(i) a just proportion of the Rent, according to the nature and extent of the
taking, appropriation or condemnation and the resulting permanent injury to the
Premises shall be permanently abated, and (ii) a just proportion of the
remainder of the Rent, according to the nature, extent of the taking,
appropriation or condemnation and the resultant injury sustained by the Premises
shall be abated until the remainder of the Premises shall have been restored as
fully as feasible for permanent use and occupation by Tenant hereunder. In the
event such restoration is not complete within 60 days after the occurrence of
the damage, Tenant may, upon notice to Landlord, either terminate this Lease or
complete such restoration and deduct the cost thereof from the Rent. Landlord
expressly reserves and Tenant hereby assigns to Landlord all rights to all
awards and compensation created, accrued or accruing by reason of any permanent
taking, appropriation or condemnation, except for any portion of such award
allocated to Tenant's estate hereunder, Tenant's improvements, Tenant's Property
or Tenant's moving and relocation expenses.
XVI. CASUALTY
(A) If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give prompt notice to Landlord. Upon receipt of such
notice, Landlord (except as provided in paragraph (B)) shall proceed with
diligence, and at its expense, to have such damage repaired but in no event
shall the damage be repaired in more than four (4) months. All repairs to and
replacements of Tenant's Property or any improvements shall be made by
-13-
<PAGE>
and at the expense of Tenant. If the Premises or any part thereof shall have
been rendered untenantable for the conduct of its business by reason of such
damage, the Rent or a just and proportionate part thereof, according to the
nature and extent to which the Premises shall have been so rendered
untenantable, shall be abated until the Premises shall have been restored as
nearly as feasible to the condition thereof immediately prior to such fire or
other casualty. In the event such repairs are not completed within four months
from the occurrence of such damage, Tenant may, upon notice to Landlord either
terminate this Lease or complete such repairs and deduct the cost thereof from
the Rent.
(B) If the Premises shall be so damaged by fire or other casualty to the
extent of more than 50% of their then replacement cost, this Lease and the Term
hereof may be terminated at the election of Landlord or Tenant by giving a
notice of termination to the other party within sixty (60) days following such
fire or other casualty, the termination date being specified in such notice as a
date not less than sixty (60) days after the day on which such termination
notice is given. In the event of any such termination, this Lease and the Term
hereof shall expire as of such termination date and the Rent (subject to any
abatement thereof required pursuant to paragraph (A) hereof) shall be
apportioned as of such date.
(C) During the time the Premises may be untenantable, Tenant shall have the
right to have a trailer or other temporary structure in the Parking Area for the
purpose of conducting its business, provided such temporary structure is legally
permissible and does not use more than 25% of the total Parking Area.
-14-
<PAGE>
XVII. INDEMNIFICATION
(A) Tenant hereby indemnifies and covenants to save Landlord harmless, from
and against any and all claims, liabilities, costs and expenses (including
reasonable attorneys' fees) or penalties asserted by or on behalf of any
person, firm, corporation or public authority on account of any injury to
person, or loss of or damage to property, sustained or occurring on the Premises
on account of the act, omission, fault, negligence or misconduct of Tenant or
its servants, agents or employees.
(B) Landlord hereby indemnifies and covenants to save Tenant harmless, from
and against any and all claims, liabilities or penalties asserted by or on
behalf of any person, firm, corporation or public authority on account of any
injury to person, or loss of or damage to property, sustained or occurring on
the Premises on account of the act, omission, fault, negligence or misconduct of
Landlord or his servants, agents or employees.
XVIII. WAIVER OF SUBROGATION
(A) Tenant and Landlord covenant that with respect to any insurance
coverage carried by either Tenant or Landlord in connection with the building or
the Premises whether or not such insurance is required by the terms of this
Lease, such insurance shall provide for the waiver by the insurance carrier of
any subrogation rights against Landlord, his agents, servants and employees
under Tenant's insurance policies or against Tenant, its agents, servants and
employees under Landlord's insurance policies, where such waiver of subrogation
rights does not require the payment of an additional premium, or, if an
additional
- 15-
<PAGE>
premium is required to be paid, the other party shall offer to pay such premium
after being notified thereof.
(B) Landlord and Tenant shall each seek to recover for any loss or damage
incurred from its own insurer and notwithstanding any other provisions of this
Lease, (i) Landlord shall not be liable to Tenant for any loss or damage,
whether or not such loss or damage is caused by the negligence of Landlord or
his agents, servants, employees, to the extent that compensation for such loss
or damage shall be actually recovered under insurance carried by Tenant; and
(ii) Tenant shall not be liable to Landlord for any loss or damage, whether or
not such loss or damage is caused by the negligence of Tenant or its agents,
servants or employees, to the extent that compensation for such loss or damage
is actually recovered under insurance carried by Landlord.
XIX. DEFAULT
(A) If Tenant shall fail to make any payment of rent or additional rent
and such failure shall continue for fourteen (14) days after notice thereof to
Tenant; or if Tenant shall fail to perform any other of its obligations
hereunder and such failure shall continue for thirty (30) days after notice
thereof to Tenant (except that if Tenant cannot reasonably cure any such failure
within such thirty (30) day period, such period may be extended for a reasonable
time, provided that Tenant shall commence to cure such failure within such
period. and proceed continuously and diligently thereafter to effect such cure);
or if Tenant shall file a voluntary petition in bankruptcy or shall be
adjudicated bankrupt or insolvent, or shall make
-16-
<PAGE>
an assignment for the benefit of creditors or shall file any petition seeking a
reorganization, arrangement or similar relief, then Landlord, upon notice to
Tenant, may terminate this Lease without prejudice to any other remedies which
Landlord may have for arrears of rent or breach of covenant. Tenant covenants,
in case of any default by Tenant hereunder, to pay to Landlord as agreed
liquidated damages an amount equal to the rent and additional rent which would
have been payable had Tenant not defaulted (subject to offset for net rents
actually received from reletting).
(B) Tenant further covenants to indemnify Landlord against all loss and
damage caused by Tenant's default or breach of this Lease, including but not
limited to loss of rent, reasonable broker's commissions, advertising costs,
reasonable costs of cleaning and repairing the premises to re-let them, moving
and storage charges and reasonable attorney's fees and expenses.
(C) Landlord may bring legal proceedings for the recovery of such damages.
or any installments thereof, from time to time at his election, and nothing
contained herein shall be deemed to require Landlord to postpone suit until the
date when the Term of this Lease would have expired if it had not been
terminated hereunder.
XX. SURRENDER
Upon the expiration or earlier termination of the Term of this Lease,
Tenant shall surrender the Premises in the same condition as they were on the
Commencement Date or as they were put by Tenant except for reasonable wear and
tear and damage caused by fire
-17-
<PAGE>
or other casualty. Any holding over by Tenant after the expiration or
termination of this Lease shall constitute a tenancy at will on a month to
month basis on all the terms and conditions hereof except that the rent shall be
the then fair rental value of the Premises.
XXI. ASSIGNMENT AND SUBLETTING
The Tenant agrees not to assign this Lease, in whole or in part, sublet the
Premises or any portion thereof, or otherwise transfer its interest or right to
possession under this lease without first obtaining, on each occasion, the
written consent of the Landlord, which consent shall not to be unreasonably
withheld. No such assignment, subletting or transfer shall be permitted unless,
in the opinion of the Landlord, the use to be made of the Premises by the
prospective assignee, subtenant or transferee is compatible and consistent with
its uses. No assignment, subletting or other transfer of the Tenant's interest
or right to possession shall in any way impair the continuing liability of the
Tenant hereunder, and no consent to any assignment, subletting, or the transfer
of the Tenant's interest or right to possession in a particular instance shall
be deemed a waiver of the obligation to obtain the Landlord's approval in the
case of any other assignment, subletting or other transfer of the Tenant's
interest or right to possession.
If Landlord shall consent to any assignment or subletting by Tenant at a
rent which exceeds the rent payable hereunder by Tenant. then Tenant shall pay
to Landlord as additional rent, upon Tenant's receipt of each installment of any
such excess rent, the full amount of any such excess rent.
-18-
<PAGE>
Any request by Tenant for consent to assign or sublet this Lease shall be
accompanied by a warranty by Tenant as to the amount of rent to be paid to
Tenant by the proposed assignee or subtenant. For this purpose, the term "rent"
shall mean all annual rent, additional rent or other payments and/or
consideration payable by the proposed assignee or sublessee to the Tenant for
the use and occupancy of the premises.
XXII. QUIET ENJOYMENT
Tenant, on paying the rent, additional rent and all other sums payable
hereunder and substantially performing the covenants of this Lease on its part
to be performed, shall peaceably and quietly have, hold and enjoy the Premises
for the Term of this Lease without hindrance of interruption by Landlord or any
other person or persons lawfully or equitably claiming by, through or under the
Landlord.
XXIII. NOTICES
Any notice or demand hereunder shall be in writing and shall be deemed to
have been given if it shall be delivered by hand or sent by registered or
certified mail as follows: (i) if to Landlord, addressed to Landlord at the
address set forth above, or at such other address as may be directed by
Landlord; and (ii) if to Tenant, addressed to Tenant at its address set forth
above until the Commencement Date and, thereafter, at the Premises, or at such
other address as may be directed by Tenant.
-19-
<PAGE>
XXIV. REMEDYING DEFAULTS
If Tenant shall default in the observance or performance of any term,
covenant or condition on its part to be observed or performed under this Lease
beyond the applicable periods of grace set forth herein, Landlord, without being
under any obligation to do so and without thereby waiving such default, may,
upon reasonable notice to Tenant, remedy such default for the account and at the
expense of Tenant. If Landlord makes any expenditures or incurs any obligations
for the payment of money in connection therewith, including, but not limited to,
reasonable attorneys' fees, such sums paid or obligations incurred shall be paid
to Landlord by Tenant with interest thereon at the rate of prime plus 2% per
annum.
XXV. BINDING AGREEMENT
This Lease shall bind and inure to the benefit of the parties hereto and
their respective heirs, representatives and successors. This Lease contains the
entire agreement of the parties and may not be modified except by an instrument
in writing signed by both parties.
XXVI. GENERAL PROVISIONS
The various rights and remedies contained in this Lease and reserved to
each of the parties shall not be exclusive of any other right or remedy of such
party, but shall be construed as cumulative and shall be in addition to every
other remedy now or hereafter existing at law in equity or by statute. No delay
or omission in the exercise of any right or power by either party shall impair
any such right or power, or shall be construed as a waiver
-20-
<PAGE>
of any default or as acquiescence in any default. One or more waiver of any
term, covenant or condition of this Lease by either party shall not be construed
by the other party as a waiver of a subsequent breach of the same term, covenant
or condition. The consent or approval of either party to any act by the other
party of a nature requiring consent or approval shall not be deemed to waive or
render unnecessary consent to or approval of any subsequent similar act. All
sums payable hereunder by Tenant in addition to the rent shall constitute
additional rent hereunder. If any provision of the Lease shall be held to be
invalid, such invalidity shall not affect the other provisions hereof. This
Lease shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts.
XXVII. SUBORDINATION
This Lease shall be subject and subordinate in all respects to all
mortgages which now or hereafter may encumber the Premises provided that the
holder thereof shall enter into a written agreement with Tenant providing that
as a condition to such subordination and so long as Tenant shall not be in
default under the Lease, the right of possession and all other rights of Tenant
under this Lease will not be disturbed upon foreclosure of any mortgage or upon
the exercise of any remedy provided for in any mortgage or by law.
XXVIII. PARTIAL PAYMENTS
The acceptance by Landlord of rent, additional rent or other payment
hereunder shall not be construed as waiving any of Landlord's rights hereunder.
No payment by Tenant or
-21-
<PAGE>
acceptance by Landlord of a lesser amount than shall be due Landlord shall be
deemed to be anything but payment on account and the acceptance by Landlord of a
payment for a lesser amount with an endorsement or statement thereon or upon a
letter accompanying said payment that said lesser amount is payment in full,
shall not be deemed an accord and satisfaction, and Landlord may accept said
payment without prejudice to recover the balance due or pursue any other remedy.
XXIX. BROKER
The parties acknowledge that the Landlord has employed the Dartmouth
Company to lease the premises to Tenant. Both parties warrant that no other
broker other than Dartmouth Company was involved in this transaction. The
Landlord is responsible for all payments and/or commissions to be paid to the
broker. No fees are payable by the tenant.
XXX. EARLY TERMINATION
Both Landlord and Tenant have the absolute right to terminate this Lease
upon 120 days written notice to the other party. This right of early termination
cannot be exercised prior to July 15, 1996 to take effect no earlier than
November 15, 1996. In order to exercise this right of early termination, the
electing party shall give 120 days written notice to the other party and the
termination shall become effective on the 120th day after issuance of written
notice. Upon termination the terms of this Lease and all obligations of the
parties
-22-
<PAGE>
hereto shall cease and this Lease shall become void and without recourse to the
parties hereto.
XXXI. CLEAN UP
The Tenant shall keep the Premises in a safe, clean and neat condition. In
the event that the Tenant shall fail to so keep the Premises, then the Landlord,
after seven (7) days prior written notice to the Tenant, may cause such work to
be done as may be necessary to restore the Premises to a safe, clean and neat
condition and the reasonable cost for such work shall be payable by the Tenant
as additional rent.
XXXII. WASTE DISPOSAL
The Tenant agrees to obey all rules and regulations established by Landlord
from time to time pertaining to the storage and/or removal of waste and refuse.
XXXIII. OUTSIDE STORAGE
The Tenant shall not store any materials or equipment outside of the
building, except one dumpster.
-23-
<PAGE>
SCHEDULE A
Property: 23 Norfolk Avenue, Easton, MA
- --------------------------------------------------------------------------------
A certain parcel of land situated on the westerly side of Norfolk Avenue in the
Town of Easton, Bristol County, Massachusetts, together with the buildings and
improvements thereon, and shown as Lot A-1-G on a plan entitled "Plan of Land in
Easton, Massachusetts owned by Paramount Development Associates, Inc." dated
March 25, 1982, by Hayward-Boynton & Williams, Inc., which plan is recorded with
the Bristol County Northern District Registry of Deeds in P1an Book 197, Page
30. Lot A-1-G is more particularly bounded and described, according to said
plan, as follows:
EASTERLY by Norfolk Avenue on two (2) courses, three hundred eleven
and 98/100 (311.98) feet and twenty-four and 00/100 (24.00)
feet on a curve with a radius of one hundred seventy-five
and 00/100 (175.00) feet;
NORTHERLY by Lot A-1-F, two hundred fifty-nine and 28/100 (259.28)
feet;
SOUTHWESTERLY by land of the Kendall Company, three hundred forty-five
and 05/l00 (345.05) feet;
SOUTHERLY by Lot B-l-B, one hundred seventy-eiqht and 73/100
(178.73) feet.
Lot A-1-G contains 73,301 square feet or 1.683 acres according to said plan.
The fee in Norfolk Avenue, as shown on said plan, is excluded from the premises
conveyed hereby.
Lot A-1-G is conveyed subject to and with the benefit of easements and
restrictions of record and together with the right to pass and repass on foot
and in motor vehicles over Norfolk Avenue and Bristol Drive to and from Route
123 as shown on said plan and on a plan entitled "Easton Industrial Park in
Easton, Masschuaetts" dated January, 1975, and recorded with the Bristol County
(North District) Registry of Deeds in Plan Book 154, Pages 43-45 and the right
to connect to, use, maintain and repair utilites in the street and ways shown on
said plan recorded in Plan Book 154, Pages 43-45.
<PAGE>
Lot A-l-G is granted subject to an easement from Easton Induatria1 Park, Inc. to
New England Telephone and Telegraph Company and Brockton Edison Company dated
July 15, 1977 and recorded with said Deeds in Book 1737, page 623.
Lot A-1-G is granted subject to a Declaration of Protective Covenants dated
November 29, 1979 and recorded with said Deeds in Book 2011, Page 163.
Being the premises conveyed to this mortgagor by deed of Paramount Development
Associates, Inc. dated September 1, 1983 and recorded with said Registry of
Deeds in Book 2367, Page 182.
<PAGE>
XXXIV. CORPORATE AND PARTNERSHIP AUTHORITY
If Tenant is a corporation, each person signing this Lease on behalf of
Tenant represents that he has full authority to do so and this lease binds the
corporation. Not later than October 15, 1995, Tenant shall deliver to Landlord a
certified copy of a resolution of the Tenant's Board of Directors authorizing
the execution of this Lease or other evidence of such authority acceptable to
the Landlord. If the Tenant is a partnership, each person signing this Lease for
Tenant represents and warrants that he is a general partner of the partnership,
that he has full authority to sign for the partnership and that this Lease binds
the partnership and all general partners of the partnership.
XXXV. ADDITIONAL PROVISIONS
Attached hereto are "Additional Lease Provisions" marked "B" and
incorporated herein as part of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as a sealed
instrument, as of the day and year first above written.
JV REALTY TRUST (Landlord)
By: /s/ Fredric Snyderman Trustee
----------------------------------
FREDRIC SNYDERMAN, AS TRUSTEE
SC DIRECT, INC., (Tenant)
By: /s/ John P. Boyd
----------------------------------
Sr. V.P./CFO
----------------------------------
Title
-24-
<PAGE>
"B"
ADDITIONAL LEASE PROVISIONS
1. LANDLORD has not caused nor has any action been taken that would result in,
and LANDLORD is not subject to, any material liability or obligation relating to
(i) the environmental conditions on, under, or about the Premises, including
without limitation, the soil and groundwater conditions; or (ii) the past or
present use, management, handling, transport, treatment, generation, storage or
Release of any Hazardous Materials.
(1) Without limiting the generality of the foregoing:
(i) None of LANDLORD or its current or past tenants operations, or any
by-product thereof, on the Premises is related to or subject to any
investigation or evaluation by any governmental entity, as to
whether any Remedial Action is needed to respond to a Release or
threatened Release of any Hazardous Materials.
(ii) LANDLORD and its current or past tenants have filed all notices
required under any Environmental Law indicating a past or present
use, management, handling, transport, treatment, generation,
storage, or Release of Hazardous Materials.
(iii) There is not now at, on or in the PREMISES: (A) any treatment,
recycling, storage or disposal of any Hazardous Materials, (B) any
underground or above ground storage tank, surface impoundment,
lagoon or other containment facility (past or present) for the
temporary or permanent storage, treatment or disposal of Hazardous
Materials (C) any landfill or solid waste disposal area, (D) any
asbestos-containing material, (E) any polychlorinated biphenyl, or
(F) any Release of Hazardous Materials.
(iv) LANDLORD is not subject to any outstanding Order from, or
contractual or other obligation with, any governmental body or other
person in respect of which Landlord may be required to incur any
Environmental Liabilities and Costs arising from the Release or
threatened Release of a Hazardous Material and LANDLORD has not
entered in to any contractual or other obligation with any
governmental body or other person pursuant to which LANDLORD has
assumed responsibility for, either directly or indirectly, the
redemption of any condition arising from or relating to the
1
<PAGE>
Release or threatened Release of Hazardous Materials.
(v) [Intentionally Omitted]
(vi) There are no Environmental Laws applicable to LANDLORD, or the
PREMISES that would require LANDLORD, TENANT or any other party to
provide notice to, to take actions to satisfy, or to obtain the
approval of, any governmental entity as a condition to the
consummation of the transactions contemplated by this Agreement
(m) It shall be a condition precedent to Tenant's obligations hereunder
that the PREMISES (i) have not been and are not a generator of any Hazardous
Materials, (ii) do not contain Hazardous Materials, (iii) there has not been any
past or present use, management, handling, transport, treatment, storage or
release of any Hazardous Materials, and (iv) that there is not now at, on or in
the PREMISES any underground or above ground storage tank, surface impoundment,
lagoon or other containment facility (past or present) for the temporary or
permanent storage, treatment or disposal of Hazardous Materials, any landfill or
solid waste disposal area, any ashestos-containing material or any
polychlorinated biphenyl.
(n) As used in this Agreement, the following definitions shall apply in
this Agreement: "Environmental Laws" means all federal, state, local and foreign
Laws and Orders issued, promulgated, approved or entered relating to
environmental matters, the protection of the environment or the protection of
public health and safety from environmental concerns, including without
limitation Laws relating to the Release or threatened Release of Hazardous
Materials (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) or otherwise relating to the presence,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
"Environmental Liabilities and Costs" means all Losses, whether direct or
indirect, known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including without
limitation, all Losses related to Remedial Actions, and all reasonable fees,
disbursements and expenses of counsel,
2
<PAGE>
experts, personnel and consultants based on, arising out of or otherwise in
respect of:
(a) the ownership or operation of the Business Assets or the
PREMISES or any other real properties, assets, equipment or facilities, by
LANDLORD, or any of his predecessors or affiliates;
(b) the environmental conditions existing on, under, above or about
the PREMISES or the Business Assets or any other assets, equipment or
facilities currently or previously owned, leased or operated by LANDLORD,
or any of their predecessors or affiliates; and
(c) expenditures necessary to cause the PREMISES, or the Business
Assets to be in compliance with any and all reguirements of Environmental
Laws, including without limitation, all Permits issued under or pursuant
to such Environmental Laws, and reasonably necessary to make full economic
use of the PREMISES and Business Assets
"Hazardous Materials" means all hazardous substances, wastes, extremely
hazardous substances, hazardous materials, hazardous wastes, hazardous
constituents, solid wastes, special wastes, toxic substances, pollutants,
contaminants, petroleum or petroleum derived substances or wastes, and related
materials, including without limitation any such materials defined, listed,
identified under or described in any Environmental Laws.
"Law" means any federal, state, local or foreign laws, statute, code,
common law rule, ordinance, rule, regulation, permit, licensing or other
requirement, or judicial or administrative decision.
"Order" means any order, judgment, injunction, award, decree or writ.
"Permits" means any permit, license, certificates, certificate of occupancy
or use, grants, franchises, exceptions, variances, orders, governmental
authorizations or approvals, or any other permits.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leeching or migration into the
environment or out of any property, including the movement of materials through
or in the air, soil, surface water, ground water or property.
"Remedlal Action" means all actions required to (a) clean up, remove, treat
or in any other way remediate any Hazardous Materials; (b) prevent the Release
of Hazardous
3
<PAGE>
Materials so that they do not migrate or endanger or threaten to endanger public
health or welfare or the environment; or (c) perform studies, investigations,
and care related to any such Hazardous Materials.
2. Lessor covenants and warrants to Lessee that it has full right and lawful
authority to enter into this Lease for the term of this Lease, or any renewal,
extension or option hereof; that Lessor is lawfully seized of the leased
Premises and has good and marketable title thereto, free and clear of all
Tenancies, and that the Lessee shall and may peacefully and quietly hold and
enjoy the Premises throughout the term hereof without hindrance by the Lessor or
any other person claiming through or under the Lessor.
3. Lessor represents and warrants to Lessee that on the date of delivery of
possession of the Premises to Lessee, the Premises and the building in which the
Premises are located will be in compliance with all laws, ordinances, orders,
rules, regulations, and other governmental requirements relating to the use,
condition and occupancy of the Premises, including the Americans for
Disabilities Act and all handicap access related requirements, and all rules,
orders, regulations, and requirements of the board of fire underwriters or
insurance service office, or any similar body having jurisdiction over the
Premises.
<PAGE>
EXHIBIT 10.24
[LOGO]
PRINTING AGREEMENT
AGREEMENT dated as of January 1, 1995, by and between QUEBECOR PRINTING (USA)
CORP., (The Printer) a Delaware corporation, having an office at 125 High
Street, Boston, Massachusetts 02110 and SC Holdings, Specialty Catalog
Corporation, DBA, SC Direct, Inc. (in Massachusetts), SC Publishing, and Royal
Advertising (The Customer) a Massachusetts corporation having an office at 21
Bristol Drive, S. Easton, Massachusetts, 02375.
WHEREAS, The Printer and The Customer desire to enter into an agreement for
the printing by The Printer of certain quantities of The Customer's catalogs
[and any other similar product that The Customer may from time to time publish
or designate] on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter set forth, the parties agree as follows:
1. QUANTITIES
A. The Printer agrees to print and The Customer agrees to purchase during
the term of this agreement, The Customer's entire printing requirements for The
Customer's catalog program.
B. In order to assist The Printer in providing for The Customer's
requirements, The Customer shall provide a production and mailing schedule for
each year, supplemented with amended print, mail and tape instructions. The
Customer shall not in any way be limited by nor obligated to the requirements
shown on such forecast.
2. THE WORK
Subject to the provisions of the agreement, The Printer shall perform,
cause to be performed or supply all labor, supervision, equipment, utilities and
facilities, paper and production materials for (cylinder or plate making), press
work, binding, packing, loading, and all other work necessary to complete the
printing, manufacture and readying for delivery of the catalogs, including,
without limitation, all preliminary work, (collectively, the "Work") at The
Printers facility in St. Paul, Minnesota or at any other plants or facilities of
The Printer or its affiliates (at no additional manufacturing cost to The
Customer) in accordance with the specifications and production schedule set
forth in Exhibit A. If overtime is required to meet The Customer's, delivery or
quantity requirements, The Printer will use its best efforts to make any
necessary overtime available and will charge for such overtime at its then
current rates. If overtime is required due to The Printer's internal scheduling
problems arising after a production schedule is agreed upon and not due to The
Customer's failure to comply with the production schedule, overtime charges will
not be made.
<PAGE>
[LOGO]
No chargeable overtime will be worked without The Customer's prior approval, and
in the absence of such approval, delivery of the Work will be made as promptly
as practicable consistent with The Printer's then available capacity.
3. GUARANTEE
A. The Printer shall perform the Work in a good and workmanlike manner and
in accordance with the specifications and production schedule set forth in
Exhibit A and its quarterly updates.
4. PRICES, PRICE ADJUSTMENTS AND TERMS OF PAYMENT
A. The prices charged to The Customer for the Work shall be as set forth in
the Price Schedule attached hereto as Exhibit B (the "Prices"). Such prices are
based on the cost of materials furnished by The Printer, scales of wage rates
and payroll taxes, hours of work, cost of employee benefits and other terms of
employment of The Printer in effect on January 1, 1995.
B. The price components as outlined above shall be adjusted on or about
July 1, 1995, January 1, 1996 and January 1 of each year thereafter during the
term of this agreement (the "Adjustment Date") to reflect one hundred percent
(100%) of the percentage increase or decrease in the CPI, as defined below, in
the preceding year provided that such percentage increase or decrease shall not
exceed 3 1/2%. The percentage of change in CPI for the purpose of determining
the price adjustment to be applied hereunder, if any, will be calculated from
the CPI upon which the last adjustment of manufacturing prices was based. For
purposes of the paragraph, the CPI means the Consumer Price Index (1967=100),
All Urban Wage Earners and Clerical Workers, U.S. City Average, published
monthly by the Bureau of Labor Statistics, U.S. Department of Labor. If the CPI
as defined is revised or discontinued, the calculation described herein shall be
made using the price index with which the Bureau of Labor Statistics replaces
it.
C. The prices on Exhibit B hereto for paper, ink, other materials and
utilities shall be adjusted when increases or decreases from The Printer's
suppliers are announced by adding thereto or subtracting therefrom the actual
percentage increase or decrease to The Printer for such materials since the
prior escalation.
D. Each time the Prices shall become effective as to all Work performed for
jobs following the date on which the notification of the change in prices to The
Customer was received, irrespective of the date of billing.
E. The Printer shall furnish The Customer with a revised Price Schedule as
soon as practicable after each such increase/decrease, together with a detailed
breakdown of all such adjustments in Prices. Such revised Price Schedule shall
be the basis for subsequent price adjustments.
<PAGE>
[LOGO]
F. Upon request by The Customer within six (6) months of notice of a price
change, The Printer shall furnish The Customer with documentary proof, including
invoices, bills and statements, reasonable supporting invoices of The Printer to
The Customer and establishing and justifying price adjustments provided for in
the agreement. The Customer shall also be entitled to receive, provided The
Customer so requests and pays for, a signed opinion of The Printer's then
independent certified public accounts (which accountants shall be permitted to
examine invoices, statements and other such documents of The Printer that show
costs of materials and all other costs which are relevant to determining price
adjustments hereunder) to the effect that they have examined such records of The
Printer and that the adjustments in Prices result from actual changes in costs
and have been computed correctly and in accordance with the terms of this
agreement. If any price adjustment or amount payable to The Printer is
incorrectly or improperly determined, the price or amount in question shall be
properly recomputed and appropriate adjustments shall promptly be made and The
Printer agrees to pay for the independent certified public accountants in this
circumstance.
G. An invoice will be issued for paper at the date of shipment from the
mill in which a 2% discount can be taken if paid within 10 days of the date of
the invoice, or the total payment will be due net 30 days of the date of the
invoice. An invoice will be issued for the manufacturing, ink, list services
etc. in which a 2% discount can be taken if paid within 10 days of the date of
the invoice or the total payment will be due net 45 days of the date of the
invoice. A $300,000 accounts payable cap for all costs excluding paper will be
in effect. At any time if the total outstanding balances exceed $300,000 The
Customer shall pay the amount exceeding $300,000 upon receipt of written
notification by The Printer If The Customer misses any two payments by more than
5 days each, the credit terms would revert to 2/10 net 11. The Customer shall
pay interest on any invoice amount outstanding after the due date, except for
amounts disputed in good faith by The Customer as provided below, at the prime
lending rate established by Chase Manhattan Bank plus one percent (1%).
The above credit terms and exposure levels will be reviewed on January 1, 1996
and annually thereafter. At this time, The Printer will consider adjusting the
exposure cap, and if adjusted, the revised terms will replace the specified
terms spelled out above.
In the event The Customer shall dispute any amount of any invoices, The Customer
shall notify The Printer in writing of the dispute, specifying in detail the
basis for disputing the invoice, and the amount in dispute and pay to The
Printer that portion of the invoice not in dispute in accordance with the
foregoing. The parties shall use their best efforts to resolve any such disputes
as promptly as possible.
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H. All copies of the catalogs shall be shipped F.O.B. The Printer's dock
and all freight will be arranged for by The Customer. The delivery schedules and
methods of delivery are to be in accordance with the production schedule in
Exhibit A hereto as amended or revised time to time. All handling charges inside
The Printer's plants, including loading on carriers, shall be paid by The
Printer.
I. The Customer shall reimburse The Printer for any personal property taxes
imposed after the date of this agreement on all materials owned by The Customer
and kept at The Printer's plants, if any, and on completed copies of the
catalogs, and for all additional taxes levied upon the manufacturing,
production, processing or changing the form of any article or commodity or upon
the sale of any article or commodity, which may be imposed upon and paid by The
Printer on account of any act required to be done by The Printer in the
performance of its services hereunder, whether such taxes shall be called excise
taxes, processing taxes, sales taxes, or by any other name (except franchise and
income taxes). The Customer will be notified in writing of these taxes and has
the right to dispute any such taxes at The Customer's expense.
J. Unless otherwise specified, the Prices do not cover storage of paper,
other materials, work in process or finished goods beyond the production
schedule span. If The Customer delays completion of the Work or postpones
delivery of finished goods beyond the date specified in the production schedule,
or if The Customer's furnished materials arrive prior to the dates specified in
the production schedule, storage will be charged at the prevailing rates for the
period that the finished goods, work in process or furnished materials remain in
The Printer's possession.
K. In consideration of various purchase volumes, The Customer shall be
entitled to a rebate of $1.25 for each one thousand books produced in excess of
25 million books produced in St. Paul during each year of the term of this
agreement. The rebate will be calculated on an annual basis and will be remitted
to The Customer within 60 days after the close of the agreement year. The rebate
total may be applied to a scheduled payment if The Customer so chooses.
5. PAPER
The Printer shall furnish all paper for the Work at the grade and quality
specified by The Customer and shall charge The Customer for such paper at the
prices quoted in Exhibit B of the mill supplying such paper, plus a handling fee
of three percent (3%) of The Printer's invoice price to The Customer for such
paper. In the event that The Customer obtains a written quote from a paper
supplier allowing it to purchase paper which meets the specifications of the
paper required for the Work at a price that is less than the price quoted by The
Printer for such paper, The Printer shall have the right, but not the
obligation, to furnish such paper, or paper of a similar grade and quality, at a
price equal to that offered to The Customer by such paper supplier. If the
Printer elects not to purchase such paper a handling fee of $8/ton (not to
exceed 3 1/4%) would be charged by The Printer.
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6. TERM AND TERMINATION
A. The Term of this agreement shall commence as of January 1, 1995 and end
upon the completion of the Work for the issue date closest to June 30, 1998.
B. The Customer may terminate this agreement upon the permanent
discontinuance in good faith of the catalog program without publication of a
successor or similar catalog program, whether named The Customer or not. The
Customer shall notify The Printer at least three (3) months in advance of the
effective date of such discontinuance. The publication of a nominal number of
copies for the sole purpose of protecting a trademark shall not be deemed a
continuation of publication
C. The Customer reserves the right to terminate, subject to The Printer's
right to cure, this contract (as outlined below) whenever the quality of the
service provided by The Printer, including without limitation the printing,
binding, inkjetting, mailing or packing fall below standards of the industry or
fails to live up to the needs of The Customer.
a. If Termination process is initiated by The Customer, because of any of
the reasons above, The Customer must notify The Printer in writing
specifying the issues or problems at hand; if The Printer fails to
correct those conditions to The Customer's reasonable satisfaction
within 60 days, the contract will be terminated. Should this agreement
be terminated, The Printer, will remit all credits and rebates within
60 days of the termination of this agreement.
D. Upon termination of this agreement for whatever cause, all unpaid sums
for any of the Work done or in process as of the date of termination, whether or
not invoiced at the date, "shall become immediately due and payable" for causes
attributable to The Customer. Notwithstanding the foregoing, in the event this
Agreement is terminated for causes attributable to the negligence of The Printer
or for the reasons stated in 6C, all unpaid sums for any of the work done or in
process excluding handling fees to load product for shipment as of the date of
such termination shall be payable in accordance with the terms set forth in
section 4G of this Agreement.
In the event of termination pursuant to Paragraph 6B above, The Customer shall
also reimburse The Printer for actual costs incurred without limitation
including paper (limited to that paper which has been shipped and not used) in
connection with its performance under this Agreement which it cannot avoid
through reasonable control. Any materials reimbursed for, become the property of
The Customer.
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7. FORCE MAJEURE
A. If either party is unable to perform hereunder because of war, fire,
strikes, labor strife or slowdown, civil commotion, freight embargoes, material
shortages, floods, or other acts of God, action of any governmental authority
(including, without limitation, priorities or restrictions effected pursuant to
the provisions of emergency legislation by any governmental authority) or any
other causes of like or unlike nature beyond its reasonable control, the party
so unable to perform shall give prompt notice thereof and shall thereby be
excused from such performance during the continuation of such period of
inability, provided, however, that The Customer shall accept and pay for all
copies of the catalogs that have been printed for it before its written notice
to The Printer of any such inability to perform.
If such interruption shall continue for a period of six (6) months or more,
either party shall have the right to terminate this agreement at the expiration
of said period by giving the other party thirty (30) days advance notice
thereof.
B. If The Printer notifies The Customer in writing that it is unable to
secure one or more of the materials necessary for production of the catalog
program required, after reasonable efforts to acquire such materials, hereunder
to be furnished by The Printer, The Customer may, at its option, purchase such
materials and furnish them to The Printer until such inability ceases. In such
case, The Customer shall be granted an allowance equal to the cost of the
materials supplied, and The Customer shall not be charged the handling fee
provided for in Article 5 above on such materials.
8. LIBEL
The Customer shall indemnify and hold The Printer harmless from and against
any and all claims for libel, copyright infringement, plagiarism, unauthorized
additions, omissions, or modifications, and any other claims that any rights
have been infringed by the literary or artwork included in the catalog program;
provided that such claims are based upon matters which were contained in the
copy furnished to The Printer by The Customer and are not based on any
unauthorized deletions, modifications or additions to such copy by The Printer.
The Printer shall promptly notify The Customer of any and all such claims in
writing, and shall afford The Customer an opportunity to defend the same for and
on behalf of The Printer. The Customer shall pay the cost for such defense,
whether it shall be conducted by The Customer or by The Printer at The
Customer's request, provided that notice of suit and opportunity to defend shall
have been given as aforesaid.
If The Customer elects to defend such suit, The Printer may participate in such
defense at its own expense. The Printer similarly shall indemnify and hold The
Customer harmless from and against all such claims or suits for libel, copyright
infringement, plagiarism, unauthorized additions, omissions, or modifications,
and any other claims that any such rights have been infringed as aforesaid,
because of the failure of The Printer or any of its
<PAGE>
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employees accurately to reproduce the copy, artwork and illustrations furnished
by The Customer. All the foregoing terms shall apply mutatis mutandis.
9. CREDIT REVIEW
Should there be substantial adverse change in The Customer's credit
standing or in the event that The Customer does not comply with the payment
provisions hereunder, The Printer shall have the right to change terms of
payment and its obligation to perform further work will be subject to reaching
mutual agreement on such revised terms. Upon the request of The Customer, The
Printer will initiate a credit review 120 days following the change in terms and
180 days thereafter. The Customer has the right to terminate this contract if
The Printer wants to change the terms of this Agreement due to a credit review
and The Customer has not breached the terms of this Agreement and The Customer
and The Printer cannot come to a mutual agreement.
1O. BANKRUPTCY
If either party shall be adjudicated a bankrupt, institute voluntary
proceedings for bankruptcy or reorganization, make an assignment for the benefit
of its creditors, apply for or consent to the appointment of a receiver for it
or its property, or admit in writing its inability to pay its debts as they
become due, the other party may terminate this agreement by written notice. Any
such termination shall not relieve either party from any accrued obligations
hereunder.
11. ADDITIONS OR MODIFICATIONS OF EQUIPMENT
The Customer may from time to time request The Printer in writing to
install new equipment or modify its existing equipment either (i) to take into
account technological changes and changes in the practices of the web offset
catalog industry or (ii) to print copies of the catalogs other than by the web
offset process. As soon as practicable after such request, The Printer shall
notify The Customer in writing whether or not the requested addition or
modification is technologically possible, practical and whether or not such
change can be effected. If The Printer determines that such changes are
feasible, the parties shall thereafter negotiate in good faith the adjustment of
the Prices necessary to reflect any change in cost or any resulting savings
which will be realized in the Work as a result of such change and enable The
Printer to recover the cost of all capital expenditures necessary for such
addition or modification, over a reasonable period of time.
12. INSURANCE
The Printer shall carry, at its expense, fire, sprinkler leakage and
extended coverage insurance, subject to the usual exclusions, limitations and
conditions of such policies, for The Customer, and all work in process and any
finished or furnished goods on the premises for less than 30 days while in The
Printer's facilities, excluding the value
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of any materials furnished by The Customer, and on all materials furnished by
The Printer, to the earlier of the date of shipping or date of invoicing. The
Customer shall carry such insurance as it deems desirable on furnished
positives, copy, paper, and other materials furnished by it, whether or not in
process or completed, including the value of work performed in crating or
producing such furnished items and, as to the value of The Printer's work or
materials furnished by The Printer, on production completed which has been
finally invoiced and not shipped after 30 days of invoicing. To the extent that
The Customer carries such insurance, The Customer shall provide a waiver of
subrogation in The Printer's favor on a materials furnished by The Customer.
13. CHANGES IN PRODUCTION SCHEDULE OR SPECIFICATIONS
Any last minute change requested by The Customer in the production schedule
or specifications for the catalog program shall require, in each case, the prior
consent of The Printer. The Printer shall use its best efforts to accommodate
such request but may refuse to do so if (i) such changes are not feasible or
practical because of limitations of labor or equipment, (ii) the equipment being
utilized by The Printer for the Work is unable to accommodate such change; or
(iii) The Customer and The Printer fail to agree to such adjustment of PRICES as
is necessary to reflect any resulting increases in unit cost.
14. LIMITATION OF LIABILITY
In the event Work is defective or delayed due to the Printer's fault, The
Printer will be liable for direct damages i.e. replacement costs associated with
materials, printing, binding, and ink jet addressing. The Printer shall not be
liable for any special, indirect or consequential damages, including, but not
limited to, loss of advertising, circulation, profits, income or revenue, except
that the foregoing limitations shall not be applicable in the event of a bad
faith or willful refusal of The Printer to perform its obligations pursuant to
this agreement or an anticipatory repudiation by The Printer of this agreement.
15. SALE OF COMPANY
If The Customer has agreed to sell its catalog program Paula Young or
substantially all of its assets, The Customer shall give The Printer 30 days'
written notice of the closing of such sale, stating the name of the purchaser.
Thereafter, The Customer shall keep The Printer fully advised of such closing
and The Printer shall keep such information confidential. If The Printer
consents to such assignment, The Customer shall use its best efforts to cause
the purchaser concurrently with the consummation of such sale to assume all of
The Customer's obligations under this Agreement by an instrument in writing
satisfactory to both The Printer and The Customer.
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If The Printer shall not consent to the assignment by The Customer to such
purchaser, this Agreement shall terminate upon the first to occur of the
following events: (i) the closing of such sale, or (ii) the expiration of 180
days after The Printer advises The Customer that The Printer will not consent to
the proposed assignment, unless within such 180 day period The Customer notifies
The Printer that The Customer does not close such sale.
16. LIEN ON PROPERTY
As security for payment of any sum due or to become due to The Printer
under the terms of this Agreement, The Printer shall have the right, if
necessary, to retain possession of and shall have a lien on all materials, film,
paper, catalogues, printed signatures and similar property owned by The Customer
and in The Printer's possession, and all work in process and undelivered work.
17. REPRESENTATIVES
The Customer may at any time designate a production representative to visit
the Printer's plant to observe, monitor and review quality, production,
scheduling, delivery, paper, and other matters related to performance under this
agreement. The Printer shall cooperate with and afford such employee reasonable
access to its premises and personnel to facilitate performance of such
functions.
18. ASSIGNMENT
This agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. The Customer may not
assign this agreement to any party other than a party who has acquired or is
acquiring The Customer. No assignment of this agreement shall be made by either
party to anyone other than an affiliate without consent of the other party,
which consent shall not be unreasonably withheld.
In determining reasonableness as provided above, the relevant factors shall be
the financial strength and the reputation of the assignee and the assignee's
ability to comply with the provisions and obligations of this agreement. The
assignee shall in each case assume in writing all of the obligations of the
assignor.
19. APPLICABLE LAW
This agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
therein, and each party consents to jurisdiction over it of any Federal or State
courts in New York.
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20. NOTICES
All notices claims, requests, demands and other communications hereunder
will be in writing and will be deemed to have been duly given if delivered
personally or transmitted by telecopier as follows:
(a) If to The Customer
Attention:__________________________
Telecopy No:________________________
With a copy to:
(b) If to The Printer QUEBECOR PRINTING (USA) CORP.
Attention:__________________________
Telecopy No: (612)690-7520 and:
QUEBECOR PRINTING (USA) CORP.
125 High Street, 23rd Floor
Boston, MA 02110
Telecopy No: (617) 346-7300
21. ACCEPTANCE
This agreement, and any supplement, modification or amendment thereto,
shall not be valid or become effective unless signed by a duly authorized
officer of The Printer and The Customer.
22. PRICING IN THE EVENT OF ACQUISITION
In the event that The Customer acquires all of the outstanding stock or
substantially all of the assets of a corporation which has entered into a
printing agreement with The Printer at the date of such acquisition which
printing agreement provides for comparatively lower manufacturing prices as
measured on a unit cost basis than provided for in this Agreement, The Printer
shall adjust the pricing of this Agreement effective as of the date of such
acquisition by The Customer so as to match the pricing provided for in such
printing agreement. In the event The Customer acquires all of the outstanding
stock or all of the assets of a corporation whose annual printing requirements
equal or exceed 50% (fifty percent) of the annual print volume purchased by the
customer under the terms of this Agreement and the Customer agrees to purchase
such corporations annual print volume from the Printer, the Printer agrees to
review the prices set forth in the price schedule.
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23. ENTIRE AGREEMENT
This agreement and the attached exhibits contain the entire agreement
between the parties with respect to the subject matter thereof and supersedes
all prior negotiations, memoranda, agreements and understandings. This agreement
cannot be changed or terminated orally.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
in Boston, Massachusetts as of the day and year first above written.
By: /s/ Robert Sanford
-----------------------
By: /s/ James Monti 6/2/95
-----------------------
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FIRST AMENDMENT
TO
PRINTING AGREEMENT
THIS AMENDMENT AGREEMENT (the "Amendment") effective as of March 8, 1996, is
between QUEBECOR PRINTING (USA) CORP., a Delaware corporation, with offices at
125 High Street, Boston MA 02110 ("Printer") and SC Incorporated (d/b/a SC
Direct, Inc. in the state of Massachusetts) SC Publishing, and Royal
Advertising, a Massachusetts corporation with offices at 21 Bristol Drive, S.
Easton, Massachusetts 02375 ("Customer").
WHEREAS, Customer and Printer have previously entered into an agreement dated as
of June 2, 1995 ("the Agreement") under which Printer agreed to print and
Customer agreed to purchase certain quantities of Customer's catalog program,
and
WHEREAS, Customer and Printer desire to amend the Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements set forth
herein, the parties hereto agree as follows:
1. All capitalized terms herein, unless otherwise defined herein,
shall have the same meanings as provided in the Agreement.
2. The first paragraph of Section 4.G of the Agreement is deleted in
its entirety and replaced with the following:
"Printer shall issue invoices for paper no less than
fourteen (14) days prior to press dates. If Printer receives
payment within ten (10) days of the date of such invoice,
the invoice amount shall be discounted by two percent (2%).
Otherwise, Customer shall pay said invoice no later than
thirty (30) days from the date thereof. Printer shall issue
invoices for (i) manufacturing, ink, list services, etc. on
or about the fourteenth (14th) day after the press date and
(ii) all bindery production on or about the eighth (8th) day
of every month for Work produced in the preceding month. If
Printer receives payment within ten (10) days of the date of
such invoices the invoice amounts shall be discounted by two
percent (2%). Otherwise, Customer agrees and shall pay said
invoices no later than sixty (60) days from the dates
thereof.
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Customer's credit limit shall include its entire accounts
payable and all costs, including paper, work in process and
finished Work for which an invoice has not yet been issued
(the "Exposure Cap"). The Exposure Cap shall be $550,000. If
at any time Customer exceeds its Exposure Cap, Customer
shall, upon receipt of written notice from Printer,
immediately remit to Printer the amount exceeding the
Exposure Cap. If (i) Customer is overdue on invoices for
paper, manufacturing or binding during a period of ninety
(90) consecutive days or (ii) Printer notifies Customer that
invoices are overdue six (6) times within a period of any
twelve (12) consecutive months, Customer's payment terms
shall be changed to 2% 10, Net 20 five (5) days after the
date of the sixth notice. If Customer then complies with the
revised payment terms on all invoices for a period of sixty
(60) consecutive days, Customer's payment terms shall revert
to 2% 10, Net 30 for paper invoices and 2% 10, Net 60 for
manufacturing and binding invoices. Customer shall pay
interest on any invoice amount outstanding after the due
date, except for amounts disputed in good faith as provided
below, at the prime lending rate as from time to time
established by Chase Manhattan/Bank plus one percent (1%).
No delay or omission on the part of the Printer in
exercising any right hereunder shall be deemed a waiver of
such right or any other remedy. A waiver on any one occasion
shall not be construed as a bar to or waiver of such right
or remedy on any future occasion.
3. In all other respects, the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to be
effective as of the day and year just above written.
SC DIRECT, INC. QUEBECOR PRINTING (USA) CORP.
/s/ James M. Crowley /s/ James Monti
- ------------------------ -------------------
Name: Name: James Monti
Title: Director, Production Title: V.P. Sales, N.E. Region
<PAGE>
EXHIBIT 10.26
SCHEDULE X
PLAN OF REORGANIZATION
PLEASE SEE ATTACHED
<PAGE>
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF CONNECTICUT
BRIDGEPORT DIVISION
- -------------------------------------x
IN RE: : CHAPTER 11
SC CORPORATION, : Case Nos. 92-54262(ASD)
:
WIGS BY PAULA, INC., : 92-54263
A/K/A PAULA YOUNG, :
A/K/A ROYAL ADVERTISING, INC., :
:
AFTER THE STORK, INC., : 92-54264
:
WESTERN SCHOOLS, INC., : 92-54265
A/K/A WESTERN SCHOOLS, :
:
BROTMAN ACQUISITION CORP., : 92-54266
a/k/a SPECIALTY FABRIC CLUB, :
a/k/a NATURAL FIBER FABRIC CLUB, :
a/k/a SEVENTH AVENUE DESIGNER :
FABRIC CLUB, :
a/k/a FABRICS IN VOGUE/BUTTERICK, :
: (JOINTLY ADMINISTERED)
DEBTORS. :
- -------------------------------------x
FIRST AMENDED AND RESTATED JOINT PLAN OF REORGANIZATION
OF
SC CORPORATION, WESTERN SCHOOLS, INC.
AND WIGS BY PAULA, INC.
-----------------------
SEPTEMBER 21, 1994/1/
KLEBAN & SAMOR, P.C. CUMMINGS & LOCKWOOD
Elliot I. Miller, Esq. John F. Carberry, Esq.
Irve J. Goldman, Esq. Ten Stamford Forum
2425 Post Road P.O. Box 120
Southport, CT 06490 Stamford, CT 06904
(203) 255-4646 (203) 327-1700
Attorneys for SC Corporation, et al. Attorneys for Viking Holdings
-- -- Limited
The Debtors and Debtors-in-Possession Attorneys for Dickstein Partners Inc.
KRAMER, LEVIN, NAFTALIS, NESSEN,
KAMIN & FRANKEL
Paul S. Pearlman, Esq.
Mark Chass, Esq.
919 Third Avenue
New York, New York 10022-3903
(212) 715-9413
Attorneys for Dickstein Partners Inc.
Attorneys for Viking Holdings Limited
____________________
/1/ As amended by the Bankruptcy Court on October 26, 1994.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
Article I Definitions....................................... 1
Article II Administrative Expense Claims..................... 6
Article III Classification.................................... 6
Article IV Treatment of Unimpaired Classes................... 7
Article V Treatment of Impaired Classes..................... 9
Article VI Implementation of the Plan........................ 10
Article VII Executory Contracts and Unexpired Leases.......... 17
Article VIII Conditions Precedent.............................. 17
Article IX Modification, Revocation or Withdrawal of the Plan 18
Article X Retention of Jurisdiction......................... 19
Article XI Miscellaneous Provisions.......................... 21
</TABLE>
Exhibits
- --------
A Form of Debtor Securities Purchase Agreement
B Form of Signal Securities Purchase Agreement
C Form of Noteholder Securities Purchase Agreement
D Form of Release
E Term Sheet for New Subordinated Notes
F Term Sheet for New Preferred Stock
i
<PAGE>
SC Corporation, Wigs by Paula, Inc. and Western Schools, Inc., as
debtors and debtors-in-possession, and Dickstein Partners Inc. and Viking
Holdings Limited propose this joint plan of reorganization of SC Corporation,
Wigs by Paula, Inc. and Western Schools, Inc.:
ARTICLE I
DEFINITIONS
Rules of Interpretation. As used herein, the following terms have the
respective meanings specified below, and such meanings shall be equally
applicable to both the singular and plural, and masculine and feminine, forms of
the terms defined. The words "herein", "hereof", "hereto", "hereunder" and
others of similar import refer to the Plan as a whole and not to any particular
section, subsection or clause contained in the Plan. Headings are used in the
Plan for convenience and reference only, and shall not constitute a part of the
Plan for any other purpose or affect the interpretation of the Plan in any way.
The rules of construction set forth in Section 102 of the Bankruptcy Code shall
apply. Any capitalized term used herein that is not defined herein but is
defined in the Bankruptcy Code shall have the meaning ascribed to that term in
the Bankruptcy Code. In addition to such other terms as are defined in other
sections of the Plan, the following terms (which appear in the Plan as
capitalized terms) have the following meanings as used in the Plan.
1.01. Administrative Expense Claim means any Claim entitled to the
priority afforded by Sections 503(b) and 507(a)(1) of the Bankruptcy Code, other
than the Signal Claims.
1.02. Allowed means (i) with respect to a Claim (other than an
Administrative Expense Claim), any such Claim, proof of which was timely and
properly filed or, if no proof of claim was so filed, which is listed on the
Schedules as liquidated in amount and not disputed or contingent, and, in either
case, a Claim as to which no objection to the allowance thereof, or motion to
estimate for purposes of allowance, shall have been filed on or before any
applicable period of limitation that may be fixed by the Bankruptcy Code, the
Bankruptcy Rules or the Bankruptcy Court, or as to which any objection, or any
motion to estimate for purposes of allowance, shall have been so filed, to the
extent allowed by a Final Order and (ii) with respect to an Administrative
Expense Claim, any such Administrative Expense Claim as to which no objection to
the allowance thereof has been interposed on or before any applicable period of
limitation that may be fixed by the Bankruptcy Code, the Bankruptcy Rules or the
Bankruptcy Court, or as to which any objection has been so interposed, to the
extent allowed by a Final Order.
1.03. Bankruptcy Code means the Bankruptcy Reform Act of 1978, as
amended from time to time, set forth in Sections 101 et seq. of title 11 of the
-- ----
United States Code.
<PAGE>
1.04. Bankruptcy Court means the United States Bankruptcy Court for
the District of Connecticut, Bridgeport Division, or such other court that
exercises jurisdiction over the Chapter 11 Cases or any proceeding therein,
including the United States District Court for the District of Connecticut to
the extent reference of the Chapter 11 Cases or any proceeding therein is
withdrawn.
1.05. Bankruptcy Rules means the Federal Rules of Bankruptcy
Procedure, as amended from time to time, including the local rules and standing
orders of the Bankruptcy Court.
1.06. Business Day means a day other than a Saturday, Sunday or other
day on which banks in New York, New York are authorized or required by law to be
closed.
1.07. Chapter 11 Cases means the pending cases under chapter 11 of
the Bankruptcy Code with respect to the Debtors, jointly administered, pending
in the District of Connecticut, Bridgeport Division, Chapter 11 Case Nos. 92-
54262, 92-54263 and 94-54265 (ASD).
1.08. Claim means (a) any right to payment from a Debtor arising on
or before the Effective Date, whether or not such right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured or (b) any right to an
equitable remedy against a Debtor arising on or before the Effective Date for
breach of performance if such breach gives rise to a right of payment from a
Debtor, whether or not such right to an equitable remedy is reduced to judgment,
fixed, contingent, matured, unmatured, disputed, undisputed, secured or
unsecured.
1.09. Class means one of the classes of Claims or Interests defined
in Article III hereof.
1.10. Confirmation Date means the date on which the Confirmation
Order is entered on the docket of the Bankruptcy Court.
1.11. Confirmation Order means the order of the Bankruptcy Court
confirming the Plan in accordance with the provisions of chapter 11 of the
Bankruptcy Code.
1.12. Debtor Securities Purchase Agreement means an agreement, in the
form of EXHIBIT A hereto, among the Reorganized Debtors and one or more of the
Investors.
1.13. Debtors means SC Corporation, Wigs and Western, as debtors and
debtors-in-possession. From and after the Effective Date, the term Debtors
shall mean the Reorganized Debtors.
1.14. DIP Financing Stipulation and Order means the Joint Stipulation
and Agreed Order Authorizing Post-Petition Financing, Providing for Adequate
Protection, and Granting Liens and Super-Priority Expense entered by the
Bankruptcy Court on January 15, 1993, in these Chapter 11 Cases.
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1.15. Dickstein means Dickstein Partners Inc.
1.16. Disclosure Statement means the disclosure statement approved by
the Bankruptcy Court for the solicitation of votes on the Plan (as such
disclosure statement may be amended from time to time).
1.17. Effective Date means the Business Day on which all of the
conditions specified in Section 8.01 hereof are first satisfied and/or waived in
accordance with Section 8.02 of the Plan.
1.18. Final Order means an order or judgment entered on the docket of
the Bankruptcy Court or any other court exercising jurisdiction over the subject
matter and the parties (a) that has not been reversed, stayed, modified or
amended, (b) as to which no appeal, certiorari proceeding, reargument or other
review or rehearing has been requested or is still pending and (c) as to which
the time for filing a notice of appeal or petition for certiorari, or request
for reargument or further review or rehearing shall have expired.
1.19. Interest means any equity security (as defined in the
Bankruptcy Code) in any Debtor.
1.20. Investors means Dickstein and/or Viking and/or their respective
designees. To the extent that the Signal Agreement places restrictions on who
such designees may be, the Plan shall comply with such restrictions.
1.21. New Agreements means the Debtor Securities Purchase Agreement,
the Signal Securities Purchase Agreement, the Noteholder Securities Purchase
Agreement and the Release.
1.22. New Common Stock means the common stock of Reorganized SC
Corporation, par value $.01 per share, to be authorized for issuance under the
amended certificate of incorporation of SC Corporation provided for in Section
6.03 of this Plan.
1.23. New Financing Facility means a credit agreement and related
documents to be entered into pursuant to the Plan among the Reorganized Debtors
and one or more lenders, which agreements and documents shall be acceptable to
Dickstein and Viking.
1.24. New Preferred Stock means the preferred stock of Reorganized SC
Corporation, to be authorized for issuance under the amended certificate of
incorporation of SC Corporation provided for in Section 6.03 of this Plan,
consistent with the Term Sheet annexed hereto as EXHIBIT F.
1.25. New Subordinated Notes means the subordinated notes of
Reorganized SC Corporation with terms consistent with the Term Sheet annexed
hereto as EXHIBIT E, which form of New Subordinated Notes shall be filed with
the Bankruptcy Court on or prior to the Confirmation Date.
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1.26. Noteholder Agreement means the agreement dated as of August 31,
1994, among Simon D. Young, Dickstein, Viking and the other signatories thereto.
1.27. Noteholder Securities Purchase Agreement means an agreement, in
the form of EXHIBIT C hereto, between one or more of the Investors and Simon D.
Young.
1.28. Old SC Corporation Common Stock means the existing class of
common stock of SC Corporation, par value $ .01 per share.
1.29. Old Subordinated Notes means (i) the Promissory Note of SC
Corporation to Simon D. Young, dated January 1, 1989, in the original principal
amount of $1,500,000, (ii) the Promissory Note of SC Corporation to Alan Stopper
and Janis Zloto, dated March 3, 1989, in the original principal amount of
$350,000, (iii) the Promissory Note of SC Corporation to Daniel Stopper, dated
March 3, 1989, in the original principal amount of $150,000, and (iv) the
Guaranty of SC Corporation to Fabrics In Vogue, Brotman, Inc., Elaine Brotman
and Robert Brotman dated February 1989, as each may have been amended, and any
guaranties of the foregoing.
1.30. Old Western Common Stock means the existing class of common
stock of Western.
1.31. Old Wigs Common Stock means the existing class of common stock
of Wigs.
1.32. Other Priority Claim means any Claim for an amount entitled to
priority in right of payment under Section 507(a)(3), (4), (5) or (6) of the
Bankruptcy Code.
1.33. Person means an individual, a corporation, a partnership, a
limited liability company, an association, a joint stock company, a joint
venture, an estate, a trust, an unincorporated organization, a government or any
political subdivision thereof or any other entity.
1.34. Plan means this joint plan of reorganization, as it may be
amended from time to time.
1.35. Priority Tax Claim means a Claim, other than an Administrative
Expense Claim, of a governmental unit of the kind entitled to priority under
Section 507(a)(7) of the Bankruptcy Code.
1.36. Proponents means the Debtors, Dickstein and Viking, so long as
each remains a proponent of the Plan.
1.37. Related Debtors means Brotman Acquisition Corp., After the
Stork, Inc. and Mocat, L.P., as debtors and debtors-in-possession in pending
chapter 11 cases.
1.38. Release means the Release to be executed by Signal in the form
of EXHIBIT D hereto.
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1.39. Reorganized Debtors means Reorganized SC Corporation,
Reorganized Western and Reorganized Wigs.
1.40. Reorganized SC Corporation means SC Corporation from and after
the Effective Date.
1.41. Reorganized Western means Western from and after the Effective
Date.
1.42. Reorganized Wigs means Wigs from and after the Effective Date.
1.43. SC Corporation means SC Corporation, a Delaware corporation.
1.44. Schedules means, collectively, the schedules of assets and
liabilities and the statement of financial affairs filed by the Debtors pursuant
to Section 521 of the Bankruptcy Code, as the same may be amended from time to
time.
1.45. Secured Claim means any Claim, to the extent it constitutes a
secured Claim under Section 506(a) or 1111(b) of the Bankruptcy Code, other than
a Claim that is an Administrative Expense Claim or Class 1 or Class 2 Claim.
1.46. Signal means Signal Capital Corporation, a Delaware
corporation.
1.47. Signal Agreement means the Agreement dated as of August 8,
1994, among Signal, Dickstein, Viking and the other signatories thereto.
1.48. Signal Claims means (i) all of Signal's pre- and post-petition
claims against and equity securities (as defined in the Bankruptcy Code) in any
or all of the Debtors and the Related Debtors (in each case including, without
limitation, any claims for substantial contribution by or on behalf of Signal or
its attorneys under Section 503 of the Bankruptcy Code), including without
limitation any and all claims in respect of or in connection with (x) the DIP
Financing Stipulation and Order or (y) any or all of the nine orders in these
Chapter 11 Cases authorizing the Debtors to use cash collateral (the "Cash
Collateral Orders"), (ii) all of Signal's interests in any property of any or
all of the Debtors and the Related Debtors (including without limitation cash
reserve accounts and other collateral), and (iii) all of Signal's claims (if
any) against present or former creditors, equity holders, control persons,
affiliates, officers, directors, employees, consultants and agents of any or all
of the Debtors and the Related Debtors. It is specifically acknowledged that
Signal's interest in the "Second Reserve" accounts for Wigs and Western
established under the Cash Collateral Orders is included within the preceding
clause "ii". The word "claims" in this definition shall mean "claims" as
defined in Section 101(5) of the Bankruptcy Code, but disregarding for this
purpose the words "if such breach gives rise to a right of payment" in that
Section.
1.49. Signal Securities Purchase Agreement means an agreement, in the
form of EXHIBIT B hereto, between Signal and one or more of the Investors.
1.50. Viking means Viking Holdings Limited, a British Virgin Islands
corporation.
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1.51. Western means Western Schools, Inc., a California corporation.
1.52. Wigs means Wigs By Paula, Inc., a Massachusetts corporation.
ARTICLE II
ADMINISTRATIVE EXPENSE CLAIMS
2.01. Administrative Expense Claims. Each holder of an Allowed
Administrative Expense Claim shall be paid in full in cash as soon as
practicable after (but in any event within 10 days of) the later of (a) the
Effective Date and (b) the date on which such Administrative Expense Claim
becomes Allowed, unless such holder shall agree to a different treatment of such
Claim (including, without limitation, any different treatment that may be
provided for in the documentation governing such Claim).
ARTICLE III
CLASSIFICATION
For purposes of the Plan, Claims and Interests are classified as
provided below. A Claim or Interest is classified in a particular Class only to
the extent that such Claim or Interest qualifies within the description of that
Class and is classified in a different Class to the extent that such Claim or
Interest qualifies within the description of such different Class.
3.01. Class 1: Priority Tax Claims. Class 1 consists of all
Priority Tax Claims.
3.02. Class 2: Other Priority Claims. Class 2 consists of all Other
Priority Claims, other than the Signal Claims.
3.03. Class 3: Miscellaneous Secured Claims. Class 3 consists of
each Secured Claim, other than the Signal Claims.
3.04. Class 4: Signal Claims. Class 4 consists of the Signal
Claims. Notwithstanding anything to the contrary herein, all of the Signal
Claims shall be classified exclusively in Class 4.
3.05. Class 5: General Unsecured Claims Against SC Corporation.
Class 5 consists of all Claims against SC Corporation, other than Claims that
are otherwise classified hereby or are Administrative Expense Claims.
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3.06. Class 6: General Unsecured Claims Against Western. Class 6
consists of all Claims against Western, other than Claims that are otherwise
classified hereby or are Administrative Expense Claims.
3.07. Class 7: General Unsecured Claims Against Wigs. Class 7
consists of all Claims against Wigs, other than Claims that are otherwise
classified hereby or are Administrative Expense Claims.
3.08. Class 8: Old Subordinated Note Claims. Class 8 consists of
all Claims relating to, or arising under, in respect of, or in connection with
the Old Subordinated Notes.
3.09. Class 9: Old SC Corporation Common Stock. Class 9 consists of
all Old SC Corporation Common Stock, and all Claims arising from rescission of a
purchase or sale of such stock, or for damages arising from such a purchase or
sale.
3.10. Class 10: Old Western Common Stock. Class 10 consists of all
Old Western Common Stock, and all Claims arising from rescission of a purchase
or sale of such stock, or for damages arising from such a purchase or sale.
3.11. Class 11: Old Wigs Common Stock. Class 11 consists of all Old
Wigs Common Stock, and all Claims arising from rescission of a purchase or sale
of such stock, or for damages arising from such a purchase or sale.
3.12. Class 12: Old SC Corporation Interests. Class 12 consists of
all Interests in SC Corporation, other than Interests that are otherwise
classified hereby, and all Claims arising from rescission of a purchase or sale
of such Interests, or for damages arising from such a purchase or sale.
3.13. Class 13: Old Western Interests. Class 13 consists of all
Interests in Western, other than Interests that are otherwise classified hereby,
and all Claims arising from rescission of a purchase or sale of such Interests,
or for damages arising from such a purchase or sale.
3.14. Class 14: Old Wigs Interests. Class 14 consists of all
Interests in Wigs, other than Interests that are otherwise classified hereby,
and all Claims arising from rescission of a purchase or sale of such Interests,
or for damages arising from such a purchase or sale.
ARTICLE IV
TREATMENT OF UNIMPAIRED CLASSES
4.01. Class 1 (Priority Tax Claims). Each holder of an Allowed Class
1 Claim shall be paid in full in cash the amount of its Allowed Class 1 Claim on
the later of
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(i) the Effective Date and (ii) the date on which such Claim becomes Allowed,
unless such holder shall agree to a different treatment of such Claim.
4.02. Class 2 (Other Priority Claims). Each holder of an Allowed
Class 2 Claim shall be paid in full in cash the amount of its Allowed Class 2
Claim on the later of (i) the Effective Date and (ii) the date on which such
Claim becomes Allowed, unless such holder shall agree to a different treatment
of such Claim (including, without limitation, any different treatment that may
be provided for in the documentation governing such Claim).
4.03. Class 3 (Miscellaneous Secured Claims). With respect to each
Allowed Class 3 Claim, unless the holder thereof shall agree to a different
treatment of such Claim, such Claim shall receive one of the following
alternative treatments, at the election of the pertinent Debtor made on or prior
to the Effective Date:
(i) Such Claim shall be paid in full in cash on the later of (i)
the Effective Date and (ii) the date on which such Claim becomes Allowed,
unless such holder shall agree to a different treatment of such Claim
(including, without limitation, any different treatment that may be
provided for in the documentation governing such Claim).
(ii) The legal, equitable and contractual rights to which such
Claim entitles the holder thereof shall be unaltered by the Plan.
(iii) Such Claim shall receive the treatment described in
Section 1124(2) of the Bankruptcy Code.
(iv) All collateral securing such Claim shall be transferred and
surrendered to such holder, without representation or warranty by or
recourse against the Debtors.
With respect to any Claim which receives the treatment described in clause "ii"
or "iii" above, the Debtors' failure to object to such Claim in these Chapter 11
Cases shall be without prejudice to the Debtors' right to contest or otherwise
defend against such Claim in an applicable non-bankruptcy forum when and if such
Claim is sought to be enforced by the holder thereof after the Effective Date.
4.04. Class 10 (Old Western Common Stock). SC Corporation, as the
holder of all of the outstanding Old Western Common Stock, shall retain
ownership thereof upon the Effective Date. Upon the Effective Date, Western
shall be a direct, wholly-owned subsidiary of Reorganized SC Corporation.
4.05. Class 11 (Old Wigs Common Stock). SC Corporation, as the
holder of all of the outstanding Old Wigs Common Stock, shall retain ownership
thereof upon the Effective Date. Upon the Effective Date, Wigs shall be a
direct, wholly-owned subsidiary of Reorganized SC Corporation.
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4.06. Acceptance by Unimpaired Classes. By virtue of the foregoing
provisions of this Article IV, the Claims in Classes 1, 2, 3, 10 and 11 are not
impaired by the Plan. Pursuant to Section 1126(f) of the Bankruptcy Code, those
classes are conclusively presumed to have accepted the Plan, and solicitation of
acceptances of holders in such classes is not required.
ARTICLE V
TREATMENT OF IMPAIRED CLASSES
5.01. Class 4 (Signal Claims). On the Effective Date, Signal, as the
holder of the Signal Claims, shall receive, in exchange for the Signal Claims,
(i) $15,508,726, less any amounts applied as indefeasible payments made to
Signal in respect of the Signal Claims between August 8, 1994 and the Effective
Date, other than amounts paid as interest on Signal's post-petition loans
pursuant to the DIP Financing Stipulation and Order, (ii) $1,673,453 of New
Subordinated Notes, (iii) 10,227 shares of New Preferred Stock and (iv) 295,121
shares of New Common Stock; provided, however, that the exact proportions of
cash, New Subordinate Notes, New Preferred Stock and New Common Stock to be
distributed to Signal may be modified by the Proponents, on notice to Signal, on
or prior to the commencement of voting on the Plan. Pursuant to the Signal
Agreement, any and all Signal Claims that are not discharged or released
pursuant to the Plan shall, on the Effective Date, be deemed transferred to
Reorganized SC Corporation with no further action by Signal, any of the
Reorganized Debtors or any other Person, and, in connection therewith, Signal
shall be deemed to have made the representations and warranties to Reorganized
SC Corporation set forth in Sections 12(iii)(A) and (B) of the Signal Agreement.
Pursuant to the Debtor Securities Purchase Agreement, Viking is cancelling its
participation interest in the Signal Claims as of the Effective Date in exchange
for securities of Reorganized SC Corporation, and it shall not share in any of
the distributions to Signal. Signal will not share in any distributions to
Viking, whether in respect of or in connection with such cancellation or
otherwise.
5.02. Class 5 (General Unsecured Claims Against SC Corporation). On
the Effective Date, the holder of an Allowed Class 5 Claim shall receive, in
exchange for such Claim, cash in the amount of 10% of such Allowed Class 5
Claim, unless such holder shall agree to a lesser treatment. No distribution
shall be made to holders of Class 5 Claims in respect of post-petition interest.
5.03. Class 6 (General Unsecured Claims Against Western). On the
Effective Date, the holder of an Allowed Class 6 Claim shall receive, in
exchange for such Claim, cash in the amount of 60% of such Allowed Class 6
Claim, unless such holder shall agree to a lesser treatment. No distribution
shall be made to holders of Class 6 Claims in respect of post-petition interest.
5.04. Class 7 (General Unsecured Claims Against Wigs). On the
Effective Date, the holder of an Allowed Class 7 Claim shall receive, in
exchange for such Claim,
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cash in the amount of 60% of such Allowed Class 7 Claim, unless such holder
shall agree to a lesser treatment. No distribution shall be made to holders of
Class 7 Claims in respect of post-petition interest.
5.05. Class 8 (Old Subordinated Note Claims). The holders of Allowed
Class 8 Claims shall receive, in the aggregate, 100,000 shares of New Common
Stock. Such shares shall be distributed pro rata to such holders based on the
amount of Allowed Class 8 Claims, and in exchange for such Claims, held by such
holders. No distributions shall be made to holders of Class 8 Claims in respect
of post-petition interest.
5.06. Class 9 (Old SC Corporation Common Stock). No distributions
shall be made in respect of Class 9. All Claims and Interests in Class 9 shall
be discharged and cancelled.
5.07. Class 12 (Old SC Corporation Interests). No distributions
shall be made in respect of Class 12. All Claims and Interests in Class 12
shall be discharged and cancelled.
5.08. Class 13 (Old Western Interests). No distributions shall be
made in respect of Class 13. All Claims and Interests in Class 13 shall be
discharged and cancelled.
5.09. Class 14 (Old Wigs Interests). No distributions shall be made
in respect of Class 14. All Claims and Interests in Class 14 shall be
discharged and cancelled.
5.10. Impaired Classes and Equity Interests. By virtue of the
foregoing provisions of this Article V, Classes 4, 5, 6, 7, 8, 9, 12, 13 and 14
are impaired under the Plan. Pursuant to Section 1126(a) of the Bankruptcy
Code, holders of Claims in Classes 4, 5, 6, 7 and 8 are entitled to vote to
accept or reject the Plan. Holders in Classes 9, 12, 13 and 14 are receiving no
distribution under the Plan and, pursuant to Section 1126(g) of the Bankruptcy
Code, are deemed to reject the Plan.
ARTICLE VI
IMPLEMENTATION OF THE PLAN
6.01. Debtor Securities Purchase Agreement. On the Effective Date,
Reorganized SC Corporation will sell, pursuant to the Debtor Securities Purchase
Agreement, (i) $1,926,547 of New Subordinated Notes, (ii) 11,773 shares of New
Preferred Stock and (iii) 454,879 shares of New Common Stock, for an aggregate
purchase price (before fees and expenses) of not less than $3,558,726 (payable
in cash or the other consideration referred to in the Debtor Securities Purchase
Agreement); provided, however, that the exact proportions and amounts of New
Subordinated Notes, New Preferred Stock and New Common Stock to be received
under the Debtor Securities Purchase Agreement may be modified by the
Proponents, so long as such aggregate purchase price is not reduced, and at
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the election of the Proponents, additional capital may be raised in return for
additional New Subordinated Notes, New Preferred Stock, New Common Stock and/or
other securities.
6.02. Other Securities Purchase Agreements. On the Effective Date
(a) pursuant to the Signal Agreement, Signal and one or more of the Investors
shall enter into and consummate the Signal Securities Purchase Agreement, and
(b) pursuant to the Noteholder Agreement, one or more of the Investors and Simon
D. Young shall enter into and consummate the Noteholder Securities Purchase
Agreement.
6.03. Charter Amendments. On the Effective Date, (i) the certificate
of incorporation of SC Corporation shall be amended to authorize the issuance of
New Preferred Stock and New Common Stock in amounts at least sufficient to
provide for the issuance of shares provided hereby and (ii) the certificate of
incorporation of each of SC Corporation, Western and Wigs shall be amended to
prohibit the issuance of nonvoting equity securities to the extent required by
Section 1123(a)(6) of the Bankruptcy Code and to include such other changes as
Dickstein and Viking may determine. The forms of such amendments shall be filed
with the Bankruptcy Court on or prior to the Confirmation Date and filed with
the Department of State of the respective Reorganized Debtors' states of
incorporation on or promptly after the Effective Date. After the Effective
Date, each of the Reorganized Debtors may further amend its certificate of
incorporation and may amend its by-laws, in accordance with such certificate,
such by-laws and applicable state law.
6.04. Issuance of New Securities. On the Effective Date, Reorganized
SC Corporation shall issue the New Subordinated Notes, the New Preferred Stock
and the New Common Stock for distribution or sale in accordance with the
provisions of the Plan.
6.05. New Financing Facility. On the Effective Date, the Reorganized
Debtors shall enter into the New Financing Facility.
6.06. Cancellation of Existing Securities, Instruments and
Agreements. On the Effective Date, except as otherwise provided herein, all
securities, instruments and agreements governing any Claims or Interests
impaired hereby shall be deemed cancelled and terminated, and the obligations of
the Debtors relating to, arising under, in respect of or in connection with such
securities, instruments or agreements shall be discharged; provided, however,
that except as otherwise provided herein, notes and other evidences of Claims
shall, effective upon the Effective Date, represent the right to participate in
the distributions contemplated by the Plan.
6.07. Effectiveness of Securities, Instruments and Agreements. On
the Effective Date, all securities, instruments and agreements issued or entered
into pursuant to the Plan, including, without limitation, (i) the New
Subordinated Notes, (ii) the New Preferred Stock, (iii) the New Common Stock,
(iv) the Debtor Securities Purchase Agreement, (v) the Signal Securities
Purchase Agreement, (vi) the Noteholder Securities Purchase Agreement, (vii) the
Release and (viii) any security, instrument or agreement entered into in
connection with any of the foregoing, in each case, shall become effective and
binding in accordance with their respective terms and conditions upon the
parties thereto.
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6.08. Waiver of Subordination. The distributions under the Plan take
into account the relative priority of each class in connection with any
contractual subordination provisions relating thereto. Accordingly, the
distributions under this Plan shall not be subject to levy, garnishment,
attachment, or other legal process by any holder (a "Senior Creditor") of a
Claim or Interest purporting to be entitled to the benefits of such contractual
subordination. On the Effective Date, all Senior Creditors shall be deemed to
have waived any and all contractual subordination rights which they may have
with respect to such distribution, and shall be permanently enjoined from
enforcing or attempting to enforce any such rights with respect to the
distributions under this Plan.
6.09. Surrender of Securities. Each holder of a share certificate,
promissory note or other instrument evidencing or securing an Interest or a
Claim impaired hereby shall surrender the same to the pertinent Debtor, and the
pertinent Debtor shall distribute or shall cause to be distributed to the
holders thereof the appropriate distribution of property hereunder. No
distribution of property hereunder shall be made to or on behalf of any such
holder unless and until such promissory note, instrument or share certificate is
received by the pertinent Debtor, or the unavailability of such note, instrument
or share certificate is established to the satisfaction of the pertinent Debtor.
Any such holder that fails to surrender or cause to be surrendered such
promissory note, instrument or share certificate, or to execute and deliver an
affidavit of loss and indemnity satisfactory to the pertinent Debtor, and, in
the event that the pertinent Debtor so requests, fails to furnish a bond in form
and substance (including, without limitation, with respect to amount)
satisfactory to the pertinent Debtor within two years after the Confirmation
Date, shall be deemed to have forfeited all Claims or Interests against the
pertinent Debtor represented by such note, instrument or share certificate and
shall not participate in any distribution hereunder in respect of such note,
instrument or share certificate and all property in respect of such forfeited
distribution, including (if applicable) interest accrued thereon, shall revert
to the pertinent Reorganized Debtor. Notwithstanding the foregoing, all Claims
shall be discharged by this Plan and all Interests shall be terminated to the
extent provided herein regardless of whether and when any surrender, indemnity
or bond required by this Section is provided, and regardless of whether a Debtor
makes a distribution hereunder in the absence of compliance by any holder of a
Claim with the requirements of this Section. The pertinent Debtor may waive the
requirements of this Section. If a Debtor waives these requirements, that
Debtor may (but need not), as an alternative to those requirements, make
distributions on account of securities solely to holders of record on such date
(on or after the Confirmation Date) as the Bankruptcy Court may designate for
this purpose (in which event transfers of record after that date shall be
disregarded for the purpose of making distributions under the Plan).
6.10. Releases.
(a) Effective on the Effective Date, and without the necessity of any
further act (but subject to Signal's compliance with Section 6.10(b) hereof):
(i) Each of the Debtors and the Related Debtors, on behalf of
itself and its successors, assigns, employees, agents, officers, directors,
attorneys and representatives (in their capacity as such) (collectively,
the "Releasors") hereby releases, acquits and forever discharges Signal,
its affiliates, parents and subsidiaries,
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and each of its and their respective officers, directors, employees,
shareholders, partners, attorneys, representatives, agents, heirs,
successors and assigns (in their capacity as such) (all of which are
collectively called the "Releasees") of and from any and all claims,
liabilities, causes of action, obligations or demands of whatsoever nature,
whether known or unknown, liquidated or unliquidated, direct or indirect,
whether suspected or unsuspected, whether having arisen or hereafter to
arise, in each case in any way relating to any of the Debtors or the
Related Debtors, including but not limited to any claims of fraudulent
conveyance, actual and constructive fraud, preferential transfers, breach
of fiduciary, contractual or other duties, negligence, misconduct,
conversion, or wrongful action or failure to act, which the Releasors ever
had, now have or claim to have, or hereafter can, shall or may for any
reason have, against the Releasees arising out of any matter or event
relating to the Debtors or the Related Debtors and occurring
contemporaneously with or prior to the Effective Date (collectively, the
"Signal Liabilities"); provided, however, that none of the Releasors
releases any of the Releasees from any claims or demands arising out of or
in connection with the Signal Agreement.
(ii) The Releasors agree never to institute any action or suit
at law or in equity against Releasees, or any one of them, nor to
institute, prosecute, or (unless required by law, court order, subpoena or
similar legal process) in any way aid in the institution or prosecution of
any claim, demand, action, or cause of action, for damages, costs, loss of
services, expenses, or compensation for, on account of, or in respect of
any damage, loss, or injury either to person or to property, or to both,
whether developed, undeveloped, resulting to, to result, known or unknown,
past, present or future, arising out of or relating to the claims released
hereby.
(iii) If any legal or equitable action or proceeding is brought
by any Releasors and such action is deemed to be barred, in whole or in
part, by reason hereof, the party bringing such barred action or
proceeding, whether such action is settled or prosecuted to final judgment,
shall pay all of the attorneys' fees and costs incurred by the party
released hereby.
(b) On the Effective Date, Signal shall execute and deliver the
Release to the Debtors and the Related Debtors.
(c) Effective on the Effective Date, and without the necessity of any
further act:
(i) The Debtors and the Impaired Parties (as defined below)
shall be deemed to have released the Debtors' Personnel (as defined below)
from all Liabilities (as defined below), other than (in the case of
releases by the Debtors) Liabilities in the form of financial debts or
contractual obligations owing to any of the Debtors.
(ii) The Impaired Parties shall be deemed to have released all
Indemnified Parties (as defined below) from all Liabilities, to the extent
that the incurrence or payment of such Liabilities would entitle the
respective Indemnified Parties or any third party (such as an insurer,
whether by way of subrogation or
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otherwise) to indemnification, reimbursement or contribution from any of
the Debtors in respect of such Liabilities.
(d) The following definitions shall apply in this Section:
(i) "Debtors' Personnel" means all Persons (other than Signal)
that, at or after the commencement of the Chapter 11 Cases, are or were
employees, officers, directors, Affiliates, agents or representatives or
holders of Interests of, consultants or advisors to, or professionals for
any of the Debtors, acting in their capacity as such.
(ii) "Impaired Parties" means all holders of Claims or Interests
impaired by the Plan, other than Signal, who have voted to accept the Plan,
and any person or entity acting in a "derivative" capacity, that is,
asserting a claim by or on behalf of such holder.
(iii) "Indemnified Parties" means all entities entitled to the
benefits of indemnification, reimbursement or contribution obligations of
any of the Debtors (whether such obligations arise in charter documents, by
operation of law, pursuant to contract or otherwise) in effect at or before
the commencement of the Chapter 11 Cases.
(iv) "Liabilities" means any and all claims, liabilities and
causes of action, of any kind, nature or description, whether matured or
unmatured, contingent or absolute, liquidated or unliquidated, arising from
or in connection with any act, omission or occurrence on or prior to the
Solicitation Date.
(v) "Solicitation Date" means the date on which the Debtors
commence their solicitation of votes on this Plan.
(e) Notwithstanding the foregoing, if and to the extent that the
Bankruptcy Court concludes that the Plan cannot be confirmed with any portion of
the foregoing Section 6.10(a) (as it relates to releases by the Related Debtors,
whether on behalf of themselves or their respective successors, assigns,
employees, agents, officers, directors, attorneys or representatives (in their
capacity as such)) or Section 6.10(c) or (d), then the Plan may be confirmed
with that portion excised so as to give effect as much as possible to those
Sections without precluding confirmation of the Plan. If and to the extent the
Bankruptcy Court confirms the Plan but excises any portion of Section 6.10(a)
hereof, then, as of the Effective Date (but subject to Signal's compliance with
Section 6.10(b) hereof), the Reorganized Debtors shall indemnify Releasees
against any of the Signal Liabilities that would have been released hereby had
the Bankruptcy Court not made such excision.
6.11. Management of Reorganized Debtors. On the Effective Date, the
operation of each Reorganized Debtor shall become the general responsibility of
the board of directors of that Reorganized Debtor in accordance with applicable
law.
6.12. Setoffs. Other than with respect to Signal and the Signal
Claims, each Reorganized Debtor may, but shall not be required to, set off
against any Claim and the
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payments or other distributions to be made pursuant to the Plan in respect of
such Claim, any claims of any nature whatsoever that such Debtor may have
against the holder of such Claim, but neither the failure to do so nor the
allowance of any Claim hereunder shall constitute a waiver or release of any
such claim any Debtor may have against such holder.
6.13. Indefeasibility of Distributions. All distributions provided
for under the Plan shall be indefeasible.
6.14. Distribution of Unclaimed Property. Any distribution of
property (cash or otherwise) provided for under the Plan which is unclaimed
after two years following the Effective Date shall irrevocably revert to the
applicable Reorganized Debtor.
6.15. Saturday, Sunday or Legal Holiday. If any payment or act under
the Plan is required to be made or performed on a date that is not a Business
Day, then the making of such payment or the performance of such act may be
completed on the next succeeding Business Day, but shall be deemed to have been
completed as of the required date.
6.16. Corporate Action. Upon entry of the Confirmation Order by the
Clerk of the Bankruptcy Court, all actions contemplated by the Plan shall be
authorized and approved in all respects (subject to the provisions of the Plan),
including, without limitation, the following: (i) the adoption and filing of
the amended certificate of incorporation of each of SC Corporation, Western and
Wigs, (ii) the issuance by Reorganized SC Corporation of the New Subordinated
Notes, the New Preferred Stock and the New Common Stock as provided herein,
(iii) the execution, delivery and performance of the New Agreements and (iv) the
execution, delivery and performance of all documents and agreements relating to
any of the foregoing (including, without limitation, any security documents or
mortgages). The issuance of the New Subordinated Notes, the New Preferred Stock
and the New Common Stock pursuant to the Plan, the election of directors and
officers of Reorganized SC Corporation pursuant to the Plan and the other
matters provided for under the Plan involving the corporate structure of SC
Corporation and/or Reorganized SC Corporation or any corporate action required
by SC Corporation and/or Reorganized SC Corporation in connection with the Plan
shall be deemed to have occurred and shall be in effect pursuant to Section 303
of the Delaware General Corporation Law and the Bankruptcy Code, without any
requirement of further action by the shareholders or directors of SC Corporation
and/or Reorganized SC Corporation. The election of directors and officers of
Reorganized Western pursuant to the Plan and the other matters provided for
under the Plan involving the corporate structure of Western and/or Reorganized
Western or any corporate action required by Western and/or Reorganized Western
in connection with the Plan shall be deemed to have occurred and shall be in
effect pursuant to Section 1400 of the California Corporations Code and the
Bankruptcy Code, without any requirement of further action by the shareholders
or directors of Western and/or Reorganized Western. The election of directors
and officers of Reorganized Wigs pursuant to the Plan and the other matters
provided for under the Plan involving the corporate structure of Wigs and/or
Reorganized Wigs or any corporate action required by Wigs and/or Reorganized
Wigs in connection with the Plan shall be deemed to have occurred and shall be
in effect pursuant to Section 73 of the Massachusetts Business Corporation Law
and the Bankruptcy Code, without any requirement of further action by the
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shareholders or directors of Wigs and/or Reorganized Wigs. On the Effective
Date, the appropriate officers and directors of the Reorganized Debtors are
authorized and directed to execute and deliver the agreements, documents and
instruments contemplated by the Plan in the name of and on behalf of the
Reorganized Debtors. Pursuant to Section 303(a) of the Delaware General
Corporation Law, actions taken pursuant to a confirmed plan of reorganization of
a Delaware corporation have the same effect as if taken by unanimous action of
the directors and shareholders of such corporation. Pursuant to Section 1400(a)
of the California Corporations Code, actions taken pursuant to a confirmed plan
of reorganization of a California corporation have the same effect as if taken
by unanimous action of the directors and shareholders of such corporation.
Pursuant to Section 73(a) of the Massachusetts Business Corporation Law, actions
taken pursuant to a confirmed plan of reorganization of a Massachusetts
corporation have the same effect as if taken by unanimous action of the
directors and shareholders of such corporation. Accordingly, pursuant to such
Section 303(a), such Section 1400(a) and such Section 73(a), the Plan shall
serve as consent of shareholders in lieu of an annual meeting and all action
that would be required at such a meeting shall be deemed taken pursuant to the
Plan.
6.17. Retiree Benefits. On and after the Effective Date, to the
extent required by Section 1129(a)(13) of the Bankruptcy Code, each Reorganized
Debtor shall continue to pay all retiree benefits (if any) as that term is
defined in Section 1114 of the Bankruptcy Code, maintained or established by the
corresponding Debtor prior to the Confirmation Date, without prejudice to the
rights of each of the Reorganized Debtors under applicable non-bankruptcy law to
amend, terminate or otherwise modify the foregoing arrangements.
6.18. Timing of Distributions. Notwithstanding anything to the
contrary herein, and except for distributions in respect of the Signal Claims,
any distribution required by the Plan to be made on the Effective Date in
respect of a Claim shall be made as soon as practicable after (but in any event
within 10 days of) the later of (i) the Effective Date and (ii) the date on
which such Claim becomes Allowed and any other conditions to distribution with
respect to such Claim have been satisfied. However, if, in reliance upon this
Section 6.18, the Reorganized Debtors fail to remit on the Effective Date the
cash distribution payable with respect to any Claim which has theretofore been
Allowed, the Reorganized Debtors shall, on the Effective Date, deposit the
amount of such delayed cash distribution in a segregated reserve account. The
Reorganized Debtors shall hold such reserved amounts in trust for the benefit of
the holders of Claims entitled thereto pending the distribution thereof in
accordance with this Plan or as the Bankruptcy Court may otherwise order.
6.19. Final Order. Any requirement in the Plan for a Final Order may
be waived by the Proponents.
6.20. Means for Execution. On the Effective Date, Signal shall
execute and deliver to each of the Non-Signal Parties (as defined in the Signal
Agreement), and each of the Non-Signal Parties shall execute and deliver to
Signal, the release contemplated by Section 2(b)(iii) of the Signal Agreement.
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ARTICLE VII
EXECUTORY CONTRACTS AND UNEXPIRED LEASES
7.01. Assumption. Effective on and as of the Effective Date, all
executory contracts and unexpired leases that exist between a Debtor and any
Person are hereby specifically assumed, except for any executory contracts and
unexpired leases that have been specifically rejected by the pertinent Debtor on
or before the Effective Date with the approval of the Bankruptcy Court, or in
respect of which a motion for rejection has been filed with the Bankruptcy Court
on or before the Effective Date. Entry of the Confirmation Order by the Clerk
of the Bankruptcy Court, but subject to the condition that the Effective Date
occur, shall constitute approval of such assumptions pursuant to subsection
365(a) of the Bankruptcy Code. Claims created by the rejection of executory
contracts and unexpired leases must be filed with the Bankruptcy Court no later
than 30 days after entry of a Final Order authorizing such rejection. Any such
Claims not filed within such time shall be forever barred from assertion against
the Debtors, the Reorganized Debtors and any and all of their respective
properties and estates.
7.02. Officers' and Directors' Indemnification Rights.
Notwithstanding other provisions of the Plan, the obligations of each Debtor to
indemnify its or its Affiliates' present and former directors, officers and
employees against any obligations, liabilities, costs or expenses pursuant to
the certificate of incorporation or by-laws of such Debtor, applicable state law
or specific agreement, or any combination of the foregoing, shall survive
confirmation of the Plan, remain unaffected thereby and not be discharged,
regardless of whether indemnification is owed in connection with an event
occurring prior to, upon or subsequent to the commencement of the Chapter 11
Cases.
7.03. Compensation and Benefit Programs. All employment and
severance agreements and policies, and all employee compensation and benefit
plans, policies and programs of any of the Debtors applicable generally to their
respective employees or officers as in effect on the Effective Date, including,
without limitation, all savings plans, retirement plans, health care plans,
disability plans, severance benefit plans, incentive plans and life, accidental
death and dismemberment insurance plans, shall continue in full force and
effect, without prejudice to the pertinent Reorganized Debtor's rights under
applicable non-bankruptcy law to modify, amend or terminate any of the foregoing
arrangements.
ARTICLE VIII
CONDITIONS PRECEDENT
8.01. Conditions to Effective Date. The Plan shall not become
effective unless and until the following conditions shall have been satisfied or
waived pursuant to Section 8.02 hereof:
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(a) The Confirmation Order shall have become a Final Order.
(b) The New Agreements and all documents contemplated by such
documents to be executed simultaneously therewith shall have been executed
and delivered by the respective parties thereto.
(c) The investment contemplated by Section 6.01 hereof shall
have been made and, together with other funds available to the Reorganized
Debtors (including, without limitation, pursuant to the New Financing
Facility), shall provide the Reorganized Debtors with sufficient funds to
make the distributions required hereunder.
(d) Signal shall have indefeasibly received all of the
distributions it is entitled to hereunder.
(e) All other actions required by Article VI hereof to occur on
or before the Effective Date shall have occurred.
8.02. Waiver of Conditions. Any of the conditions set forth in
Section 8.01 hereof may be waived with the consent of the Proponents to the
extent such waiver does not affect the distributions hereunder.
8.03. Notice to Bankruptcy Court. The Debtors shall notify the
Bankruptcy Court in writing promptly after the Effective Date that the Plan has
become effective.
ARTICLE IX
MODIFICATION, REVOCATION OR WITHDRAWAL OF THE PLAN
9.01. Modification of Plan.
(a) Generally. The Proponents may alter, amend or modify the Plan
pursuant to Section 1127 of the Bankruptcy Code at any time prior to the
Confirmation Date. After such time and prior to the substantial consummation of
the Plan, the Debtors and any party in interest may, so long as the treatment of
holders of Claims or Interests under the Plan is not adversely affected,
institute proceedings in Bankruptcy Court to remedy any defect or omission or to
reconcile any inconsistencies in the Plan, the Disclosure Statement or the
Confirmation Order, and any other matters as may be necessary to carry out the
purposes and effects of the Plan; provided, however, prior notice of such
proceedings shall be served in accordance with Bankruptcy Rule 2002 or as the
Bankruptcy Court shall otherwise order.
(b) Ancillary Documents. Notwithstanding any reference herein to
documents in the forms annexed to this Plan, and without limiting the preceding
paragraph (a), the Proponents may revise those forms (i) by filing such revised
forms with the Bankruptcy
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Court prior to the commencement of voting on the Plan, or (ii) with the written
consent of any party in interest that is entitled to vote on the Plan and is
adversely affected thereby.
9.02. Revocation or Withdrawal of Plan.
(a) Right to Revoke. The Proponents reserve the right to revoke or
withdraw the Plan at any time; provided, however, that Dickstein and Viking may
pursue confirmation of the Plan regardless of any such revocation or withdrawal
of the Plan by the Debtors. If Dickstein and Viking withdraw the Plan, the
Debtors shall also withdraw the Plan.
(b) Effect of Withdrawal or Revocation. Subject to Section 9.02(a)
hereof, if the Proponents revoke or withdraw the Plan, then the Plan shall be
deemed null and void, and nothing contained herein shall be deemed to constitute
a waiver or release of any claims by or against the Debtors or any other Person
or to prejudice in any manner the rights of the Debtors or any Person in any
further proceedings involving the Debtors.
9.03. Nonconsensual Confirmation. In the event that all of the
applicable requirements for confirmation of the Plan shall have been satisfied
in accordance with Section 1129(a) of the Bankruptcy Code other than subsection
(8) thereof, the Proponents may request that the Bankruptcy Court confirm the
Plan pursuant to section 1129(b) of the Bankruptcy Code on the basis that the
Plan is fair and equitable and does not discriminate unfairly with respect to
any impaired Class that has not accepted the Plan. The Proponents reserve the
right to modify the Plan at the confirmation hearing, including, without
limitation, to provide that the treatment of any Class that has failed to accept
the Plan and any class junior to that Class shall be equal to the minimal
treatment required to satisfy the requirements of Section 1129(b) of the
Bankruptcy Code with respect to such Classes.
9.04. Severability of Debtors. Notwithstanding anything to the
contrary herein, this Plan may (at the Proponents' election) be confirmed or
consummated as to Wigs and Western alone, in which event SC Corporation may
either continue to pursue this Plan as its own Plan or may withdraw this Plan as
to itself; provided that nothing herein shall affect Signal's rights to receive
the distribution it is entitled to hereunder.
ARTICLE X
RETENTION OF JURISDICTION
10.01. Jurisdiction of Bankruptcy Court.
(a) Following the Effective Date, the Bankruptcy Court will retain
exclusive jurisdiction of the Chapter 11 Cases for the following purposes:
(i) To hear and determine any pending applications for the
assumption or rejection of executory contracts or unexpired leases, and the
allowance of Claims resulting therefrom.
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(ii) To determine any adversary proceedings, applications,
contested matters and other litigated matters pending on the Effective
Date.
(iii) To ensure that distributions to holders of Allowed Claims
are accomplished as provided herein.
(iv) To hear and determine objections to or requests for
estimation of Claims, including any objections to the classification of any
Claims, and to allow, disallow and/or estimate Claims, in whole or in part.
(v) To enter and implement such orders as may be appropriate in
the event the Confirmation Order is for any reason stayed, revoked,
modified or vacated.
(vi) To issue any appropriate orders in aid of execution of the
Plan or to enforce the Confirmation Order and/or the discharge, or the
effect of such discharge, provided to the Debtors.
(vii) To hear and determine any applications to modify the Plan,
to cure any defect or omission or to reconcile any inconsistency in the
Plan or in any order of the Bankruptcy Court, including, without
limitation, the Confirmation Order.
(viii) To hear and determine all applications for compensation
and reimbursement of expenses of professionals under Sections 330, 331 and
503(b) of the Bankruptcy Code.
(ix) To hear and determine disputes arising in connection with
the interpretation, implementation or enforcement of the Plan.
(x) To hear and determine other issues presented or arising
under the Plan.
(xi) To hear and determine any other matters related hereto and
not inconsistent with chapter 11 of the Bankruptcy Code.
(xii) To enter a final decree closing the Chapter 11 Cases.
(b) Following the Effective Date, the Bankruptcy Court will retain
non-exclusive jurisdiction of the Chapter 11 Cases for the following purposes:
(i) To recover all assets of the Debtors and property of their
estates, wherever located.
(ii) To hear and determine any motions or contested matters
involving taxes, tax refunds, tax attributes and tax benefits and similar
or related matters with respect to the Debtors or their estates arising
prior to the Effective Date or relating to the period of administration of
the Chapter 11 Cases, including, without limitation,
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matters concerning state, local and federal taxes in accordance with
Sections 346, 505 and 1146 of the Bankruptcy Code.
(iii) To hear any other matter not inconsistent with the
Bankruptcy Code.
10.02. Failure of Bankruptcy Court to Exercise Jurisdiction. If the
Bankruptcy Court abstains from exercising or declines to exercise jurisdiction
over any matter arising under, arising in or related to the Chapter 11 Cases,
including with respect to the matters set forth above in this Article, this
Article shall not prohibit or limit the exercise of jurisdiction by any other
court having competent jurisdiction with respect to such subject matter.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01. Payment of Statutory Fees. All fees payable pursuant to
Section 1930 of title 28 of the United States Code, as determined by the
Bankruptcy Court at the hearing pursuant to Section 1128 of the Bankruptcy Code,
shall be paid on or before the Effective Date.
11.02. Discharge of Debtor. Except as otherwise expressly provided
herein, the entry of the Confirmation Order shall, provided that the Effective
Date shall have occurred, discharge all Claims and terminate all Interests to
the fullest extent authorized or provided for by the Bankruptcy Code, including,
without limitation, to the extent authorized or provided for by Sections 524 and
1141 thereof.
11.03. Injunction. Except as otherwise expressly provided herein,
the entry of the Confirmation Order shall, provided that the Effective Date
shall have occurred, operate to enjoin permanently all Persons that have held,
currently hold or may hold a Claim or other debt or liability that is discharged
or released pursuant to the Plan or who have held, currently hold or may hold an
Interest that is terminated pursuant to the Plan from taking any of the
following actions in respect of such discharged Claim, debt or liability or such
terminated Interest: (a) commencing, conducting or continuing in any manner,
directly or indirectly, any suit, action or other proceeding of any kind against
any or all of the Debtors, the Reorganized Debtors or their respective property;
(b) enforcing, levying, attaching, collecting or otherwise recovering in any
manner or by any means, whether directly or indirectly, any judgment, award,
decree or order against any or all of the Debtors, the Reorganized Debtors or
their respective property; (c) creating, perfecting or enforcing in any manner,
directly or indirectly, any lien or encumbrance of any kind against any or all
of the Debtors, the Reorganized Debtors or their respective property; (d)
asserting any setoff, right of subrogation or recoupment of any kind, directly
or indirectly, against any debt, liability or obligation due to the Debtors, the
Reorganized Debtors or their respective property; and (e)
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proceeding in any manner in any place whatsoever that does not conform to or
comply with or is inconsistent with the provisions of the Plan.
11.04. Revesting. Except as otherwise expressly provided herein, on
the Effective Date, all property and assets of the Debtors' respective estates
(including, without limitation, (i) all causes of action accruing to the Debtors
that are not released hereby and (ii) the "First Reserve" and "Second Reserve"
accounts for Wigs and Western established under the orders in these Chapter 11
Cases authorizing the Debtors to use cash collateral) shall revest in the
respective Reorganized Debtors, free and clear of all Claims, liens,
encumbrances, charges, Interests and other interests of creditors and equity
security holders arising on or before the Effective Date, and the Reorganized
Debtors may operate their respective businesses, from and after the Effective
Date, free of any restrictions imposed by the Bankruptcy Code or the Bankruptcy
Court. Without limiting the generality of the foregoing, all such property and
assets in the possession of any creditor of any of the
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Debtors, including, without limitation, the share certificates for Wigs,
Western, Brotman Acquisition Corp. and After the Stork, Inc. heretofore pledged
to Signal, shall be returned to the Debtors on the Effective Date.
11.05. Exculpation. None of the Reorganized Debtors, Dickstein,
Viking, the Investors or any affiliates of the foregoing, nor any of their
respective officers, directors, partners, shareholders, employees, agents,
attorneys, accountants or other advisors, shall have or incur any liability for
any act or omission in connection with, or arising out of, the pursuit of
confirmation of the Plan, the consummation of the Plan or the administration of
the Plan or the property to be distributed under the Plan, except for willful
misconduct or gross negligence; and in all respects, such Persons shall be
entitled to rely upon the advice of counsel with respect to their duties and
responsibilities under the Plan and shall be fully protected from liability in
acting or in refraining from action in accordance with such advice; provided
that, (i) this Section shall not limit the obligations of the Debtors or the
Reorganized Debtors under the Plan, and (ii) the foregoing shall not affect the
obligations of any party under the Signal Agreement.
11.06. Governing Law. Except to the extent the Bankruptcy Code, the
Bankruptcy Rules or other federal laws are applicable, or as otherwise specified
in the New Agreements, the laws of the State of New York shall govern the
construction and implementation of the Plan, and all rights and obligations
arising under the Plan.
11.07. Withholding and Reporting Requirements. In connection with
the Plan and all instruments issued in connection therewith and distributions
thereon, the respective Debtors shall comply with all withholding, reporting,
certification and information requirements imposed by any federal, state, local
or foreign taxing authority and all distributions hereunder shall, to the extent
applicable, be subject to any such withholding, reporting, certification and
information requirements. Persons entitled to receive distributions hereunder
shall, as a condition to receiving such distributions, provide such information
and take such steps as the Reorganized Debtors may reasonably require to ensure
compliance with such withholding and reporting requirements, and to enable the
Reorganized Debtors to obtain the certifications and information as may be
necessary or appropriate to satisfy the provisions of any tax law.
11.08. Section 1146 Exemption. Pursuant to Section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of any security under the
Plan, or the execution, delivery or recording of an instrument of transfer
pursuant to, in implementation of or as contemplated by the Plan, or the
revesting, transfer or sale of any real property of any of the Debtors pursuant
to, in implementation of or as contemplated by the Plan shall not be taxed under
any state or local law imposing a stamp tax, transfer tax or similar tax or fee.
Consistent with the foregoing, each recorder of deeds or similar official for
any county, city or governmental unit in which any instrument hereunder is to be
recorded shall, pursuant to the Confirmation Order, be ordered and directed to
accept such instrument, without requiring the payment of any documentary stamp
tax, deed stamps, stamp tax, transfer tax, intangible tax or similar tax.
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11.09. Severability. In the event that any provision of the Plan is
determined to be unenforceable, such determination shall not limit or affect the
enforceability and operative effect of any other provisions of the Plan. To the
extent that any provision of the Plan would, by its inclusion in the Plan,
prevent or preclude the Bankruptcy Court from entering the Confirmation Order,
the Bankruptcy Court, on the request of the Proponents, may modify or amend such
provision, in whole or in part, as necessary to cure any defect or remove any
impediment to the confirmation of the Plan existing by reason of such provision;
provided, however, that such modification shall not be effected except in
compliance with Section 9.01 of the Plan.
11.10. Binding Effect; Counterparts. The provisions of the Plan
shall bind all holders of Claims and Interests, whether or not they have
accepted the Plan. The Plan may be executed in any number of counterparts and
by different parties hereto on separate counterparts, each of which
counterparts, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Plan.
[The rest of this page is intentionally left blank.]
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11.11. Plan Controls. In the event and to the extent that any
provision of the Plan is inconsistent with the provisions of the Disclosure
Statement, the provisions of the Plan shall control and take precedence.
Dated: September 21, 1994
Respectfully submitted,
SC CORPORATION
Debtor and Debtor-in-Possession
By /s/ Steven Bock
------------------------------------
Steven Bock
Chairman and Chief Executive Officer
WESTERN SCHOOLS, INC.
Debtor and Debtor-in-Possession
By /s/ Steven Bock
------------------------------------
Steven Bock
Chairman and Chief Executive Officer
WIGS BY PAULA, INC.
Debtor and Debtor-in-Possession
By /s/ Steven Bock
------------------------------------
Steven Bock
Chairman and Chief Executive Officer
DICKSTEIN PARTNERS INC.
By /s/ Mark D. Brodsky
---------------------------------
Mark D. Brodsky
Vice President
VIKING HOLDINGS LIMITED
By /s/ Steven Bock
------------------------------------
Steven Bock
Attorney-in-Fact
<PAGE>
EXHIBIT 10.27
AT&T CONTRACT TARIFF ORDER
- --------------------------------------------------------------------------------
CUSTOMER AT&T
- --------------------------------------------------------------------------------
1. NAME: S.C. Direct, Inc. xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
- --------------------------------------------------------------------------------
2. STREET: 21 Bristol Drive 6. STREET: 100 Summer Street, Floor 24
- --------------------------------------------------------------------------------
3. CITY: So. Easton 7. CITY: Boston
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4. STATE & ZIP: MA 02375 8. STATE & ZIP: MA 02110
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5. ATTN: 9. ATTN:
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1. (Customer) hereby orders and AT&T agrees to provide communications services
("Services") as more particularly described in Attachment A, which is
incorporated by reference. Services will be provided in accordance with the
rates, terms and conditions described in Attachment A and, except as provided in
Attachment A, the rates, terms and conditions in Applicable Tariffs are the AT&T
tariffs referenced in Attachment A, as such tariffs may be revised from time to
time.
2. The term of this Agreement is as specified in Attachment A. Notices pursuant
to this Agreement shall be in writing to the addresses specified above.
3. AT&T will file a Contract Tariff ("CT") consistent with Attachment A with the
Federal Communications Commission ("FCC") to implement this Agreement.
(Customer) may, as its sole remedy, terminate this Agreement without liability
at any time before the CT becomes effective if, without the consent of
(Customer), AT&T fails to file the CT on or before thirty (30) days after the
effective date of this Agreement, or if the CT as filed is not consistent with
Attachment A, or if the CT does not go into effect 120 days after filing. In no
event, however, shall (Customer) have a right to terminate this Agreement for
any action which is caused by (Customer).
4. In the event of any inconsistency between the terms of any Applicable Tariff
and the CT, the terms of the CT shall prevail. In the event of any inconsistency
between the terms of this Agreement, and any Applicable Tariff or the CT, the
terms of the Applicable Tariff or the CT shall prevail. Nothing contained in
this Agreement shall require AT&T to take any action prohibited or omit to take
any action required by the FCC or any other regulatory authorities.
5. EXCEPT FOR ANY WARRANTIES EXPRESSLY MADE IN THE CT OR THE APPLICABLE TARIFFS,
AT&T EXCLUDES ALL WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
AT&T'S LIABILITY TO (CUSTOMER) IS SUBJECT TO THE LIMITATIONS STATED IN THE CT
AND APPLICABLE TARIFFS.
6. This Agreement (whether in contract, indemnity, warranty, strict liability,
tort or otherwise, except choice of law) shall be governed by the law of the
State of New York, or applicable federal statutes.
7. If any provision of the CT is held to be invalid or unenforceable, then AT&T
and (Customer) shall cooperate to develop a mutually agreeable replacement for
such provision. If the parties are unable to reach agreement on a replacement
for the CT provision within 30 days after the provision is held to be invalid or
unenforceable (or within such additional time as the parties agree in writing),
then this Agreement shall be immediately terminated. (Customer) shall remain
liable for all charges and liabilities for services provided under the CT prior
to such termination.
8. Neither party shall publish or use any advertising, sales promotions, press
releases or other publicity matters which use the other party's name, logo,
trademarks or service marks without the prior written approval of the other
party. Neither party is licensed hereunder to conduct business under any name,
logo, trademark, service mark or tradename (or any derivative thereof) of the
other party.
9. AT&T's relationship with (Customer) under this Agreement shall be that of an
independent contractor.
10. In the event of a business downturn beyond (Customer's) control or a
corporate divestiture, that reduces the volume of network services required by
the (Customer) with the result that (Customer) will be unable to meet its
revenue and/or volume commitments under this Agreement (notwithstanding
(Customer)'s best efforts to avoid such a shortfall), AT&T and (Customer) will
cooperate in efforts to develop a mutually agreeable alternative to this
Agreement that will satisfy the concerns of both parties and comply with all
applicable legal and regulatory requirements. By way of example and not
limitation, such alternative may include changes in rates, nonrecurring charges,
revenue and/or volume commitments, discounts, the multi-year service period and
other provisions. Subject to all applicable legal and regulatory requirements,
including the requirements of the FCC and the Communications Act of 1934, AT&T
will prepare and file any tariff revisions necessary to implement such mutually
agreeable alternative. This provision shall not apply to a change resulting from
a decision by (Customer) to transfer portions of its tariff or projected growth
to carriers other than AT&T. (Customer) must give AT&T written notice of the
condition it believes will require the application of this provision. This
provision does not constitute a waiver of any charges, including shortfall
charges, incurred by (Customer) prior to the time the parties mutually agree to
amend or replace this Agreement.
11. THIS AGREEMENT, THE CT, AND THE APPLICABLE TARIFFS CONSTITUTE THE ENTIRE
AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SERVICES TO BE PROVIDED
HEREUNDER. THIS AGREEMENT SUPERSEDES ALL PRIOR AGREEMENTS, PROPOSALS,
REPRESENTATIONS, STATEMENTS, OR UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
CONCERNING SUCH SERVICES OR THE RIGHTS AND OBLIGATIONS RELATING THERETO. NO
change, modification or waiver of any of the terms of this Agreement, except for
revisions to the tariffs cited in Attachment A, shall be binding unless reduced
to writing and signed by authorized representatives of both parties hereto.
12. Each party represents and warrants that the person executing this Agreement
on its behalf is fully authorized to do so.
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ORDERED BY CUSTOMER: ACCEPTED BY AT&T:
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10. Signature: /s/Stephen O'Hara 14. Signature:
- --------------------------------------------------------------------------------
11. Printed Name: Stephen O'Hara 15. Printed Name: Jane Sanders
- --------------------------------------------------------------------------------
12. Title: President 16. Title: Branch Manager
- --------------------------------------------------------------------------------
13. Date: 2/9/95 17. Date:
- --------------------------------------------------------------------------------
<PAGE>
AT&T UniPlan Service (sm) with Simple Pricing
Attachment "A"
1. Services Provided: AT&T UNIPLAN Service and the associated optional AT&T 800
Services, ACCUNET T1.5 Access Connections and Terrestrial 1.544 Mbps Local
Channel Service.
2. Term of the Term Plan; Renewal Options - The Term of this Term Plan is two
years or three years beginning with the first day of the first full billing
month (hereinafter referred to as the Customer's Initial Service Date (CISD) for
the Services provided under this Term Plan; no renewal option.
3. Monthly Usage Commitment - The Customer's Gross Monthly Minimum Revenue
Commitments (MRC) for AT&T UniPlan Service and the Associated Optional AT&T 800
Services is $40,000 monthly and $480,000 annually for each year of the Term
Plan. If the Customer fails to meet the MRC, the customer will be billed the
difference between the MRC and the actual billed charges.
4. Price. The price for AT&T UNIPLAN Service and the Associated Optional AT&T
800 Services is the same as specified in AT&T Tariff F.C.C. No. 1, as amended
from time to time.
The price for ACCUNET T1.5 Access Connections is the same as specified in AT&T
Tariff F.C.C. No. 9, as amended from time to time.
The price for Terrestrial 1.554 Mbps Local Channel Service is the same as
specified in AT&T Tariff F.C.C. No. 11, as amended from time to time.
5. Volume Discounts: The Customer will receive the following discounts
associated with the services provided under this Term Plan:
A. Customers with the AT&T UniPlan Nation Option will receive a discount of
10%, not to exceed $2,500 per month based on the customer's total International
Direct Dial station usage charges to the two countries with the highest usage in
each billing month, before the application of Volume and Term Discounts. The
discounts will not apply to calls made via Maritime Mobile Service to Atlantic,
Pacific and Indian Ocean Regions.
Customer Initials and Date [initial]
Revision 1/6/95
Ver H
AT&T Proprietary (Restricted)
1
<PAGE>
AT&T UniPlan Service (sm) with Simple Pricing
Attachment "A"
Term Length: 36 Months
The Customer will receive one of the following discounts monthly, on AT&T
UNIPLAN Service and the Associated Optional AT&T 800 Services usage charges on
amounts up to $150,000. The amount of the discount will be based on the Customer
selected Monthly Usage Commitment and Term. No discounts will apply to amounts
above $150,000.
VOLUME DISCOUNTS BY COMMITMENT AND TERM LENGTH
Gross Monthly
Usage Commitment 36 Month Term
---------------- -------------
$40,000 44%
C. The Customer will receive the Business-to-Business Discount Plan as
specified in AT&T Tariff F.C.C. No. 1.
D. No other Tariff F.C.C. No. 1 or No. 2 Volume or Term Plan Discounts will
apply.
6. Classifications, Practices and Regulations
A. Except as otherwise provided, the terms, conditions, regulations and
charges for AT&T UNIPLAN Service and the UniPlan Nation Option as set forth in
AT&T Tariff F.C.C. No. 1, for ACCUNET T1.5 Access Connections as set forth in
AT&T Tariff F.C.C. No. 9 and for Terrestrial 1.544 Mbps Local Channel Service as
set forth in AT&T Tariff F.C.C. No. 11 apply, as these tariffs are amended from
time to time.
B. Credits/Waivers. -- The Customer will receive the following
Credits/Waivers provided the Customer is current in payment to AT&T for all
services provided under this Term Plan, at the time the credit is to be applied.
If the Customer is not current in its payment, the credit will not be applied
until payment is made.
1. AT&T will waive the nonrecurring installation charges for no more than 5 AT&T
Terrestrial 1.544 MBPS local channels, associated ACCUNET T1.5 Access
Connections, and the Service Establishment Charges associated with AT&T UniPlan
Service and the associated optional AT&T 800 Services, provided these services
remain in service for at least 1 year. If the customer discontinues any such
services prior to the one year period, all waived charges for such services will
be billed at the time of discontinuance.
Customer Initials and Date [initial]
Revision 1/6/95
Ver H
AT&T Proprietary (Restricted)
2
<PAGE>
AT&T UniPlan Service (sm) with Simple Pricing
Attachment "A"
2. AT&T will reimburse a Customer a total of $5.00 for the Local Exchange
Carrier's Carrier Change Charge for each switched access line the Customer
converts to AT&T PIC'd Code 10288 for AT&T UniPlan Service within 90 days after
the CISD. There is a limit of one such reimbursement per Customer per line. The
reimbursement will be applied in the form of a usage credit to the Customer's
AT&T UNIPLAN bill.
C. The Customer is ineligible for any promotional offerings or discounts
which are or may be filed in AT&T Tariff F.C.C. Nos. 1, 2, 9 and 11 for the same
services under this Term Plan, except for F.C.C. No. 1, section 8.1.1.784.
D. Monitoring Conditions: The following conditions apply to the services
provided under this Term Plan:
1. The Customer must meet the MRC for each year of the Term Plan.
2. The Customer may have no more than 100 Customer Premises associated
with switched access at any time during this Term Plan.
Compliance with these provisions shall be monitored annually, on each
anniversary of the CISD. If in any such monitoring period the Customer has
failed to satisfy any of the above monitoring conditions, the Customer will be
in violation of this Term Plan and AT&T reserves the right to terminate this
Term Plan at its sole discretion.
E. Discontinuance With Liability: If the Customer discontinues this Term
Plan before expiration of the selected term, the Customer will be billed the MRC
for each whole year remaining in the term and an amount equal to the difference
between the MRC and the actual usage billing for the partial year.
F. Discontinuance Without Liability: The Customer may discontinue this Term
Plan without liability provided the Customer replaces this Term Plan with a new
Term Plan for AT&T Service with a total revenue value equal to or exceeding the
remaining total revenue value of this AT&T UniPlan Service Term Plan, regardless
of the time remaining in the existing term. The customer may not discontinue
this Term Plan without liability under the AT&T UniPlan Service Term Plan
Satisfaction Guarantee regulation contained in Tariff F.C.C. No. 1.
G. Availability - This Attachment has been developed for Customers who
order this Contract Tariff only once. This Term Plan is available to any
similarly situated Customer that orders service within 90 days after the
effective date of this Term Plan and requests initial installation no later than
30 days after the date service is ordered.
Customer Initials and Date [initial]
Revision 1/6/95
Ver H
AT&T Proprietary (Restricted)
3
<PAGE>
AT&T COMMUNICATIONS TARIFF F.C.C. NO. 1
Adm. Rates and Tariffs 1st Revised Page 199.1.807
Bridgewater, NJ 08807 Cancels Original Page 199.1.807
Issued: Effective:
**All material on this page is reissued as otherwise noted.**
8.1.1. Service Promotion (continued)
784. AT&T UNIPLAN Service Term Plan Promotion - AT&T will provide the following
promotional offer for all AT&T UNIPLAN Service Customers who have no lines
previously subscribed to AT&T UNIPLAN Service and who subscribe to a new AT&T
UNIPLAN Service 36 Month Term Plan with a Net Monthly Usage Commitment of at
least $20,000.00. Specifically, AT&T will provide usage credits to be applied to
the Customer's bill for its AT&T UNIPLAN Service interstate outbound usage and
Associated Optional AT&T 800 Service's interstate usage that terminates in the
617 NPA as specified following:
AT&T will provide three 15% usage credits, not to exceed $70,000.00 each, on all
the Customer's AT&T UNIPLAN Service interstate outbound usage and Associated
Optional 800 Service's interstate usage that terminates in the 617 NPA. To
determine the first credit, the actual monthly AT&T UNIPLAN outbound interstate
usage and Associated Optional 800 Services' interstate usage charges for the
first twelve complete billing months will be totaled and multiplied by 15%. This
first credit will appear as a usage credit on the billing statement rendered in
the fourteenth billing month. The amount of this credit shall not exceed
$70,000.00. To determine the second and third credits, the actual monthly AT&T
UNIPLAN outbound interstate usage and Associated Optional 800 Services'
interstate usage charges for months twelve through twenty-three will be totaled
and multiplied by 15%. The second and third credits will appear simultaneously
as usage credits on the billing statement rendered in the twenty-fourth month.
The amount of the second and third usage credits shall not exceed $70,000.00
each.
Customers who enroll in this promotion and subsequently discontinue their AT&T
UNIPLAN Service 36 Month Term Plan at any time during the period beginning with
enrollment and ending 24 months after enrollment, will forfeit all credits
otherwise due but not yet received under this promotion and the Customer will be
billed an amount equal to any credits received.
The Customer must select a 36 month Term Plan with a net monthly usage
commitment greater than $20,000.00. If at the end of the first twelve month
period the average monthly billed usage level described above is not maintained
AT&T will bill the Customer, in the fourteenth month, in an amount equal to the
credit received and the Customer will forfeit any credit(s) not yet provided. If
at the end of the second twelve month period the average monthly billed usage
level described above is not maintained AT&T will bill the Customer, in the
twenty-sixth month, in an amount equal to the credits received.
In order to qualify for this promotion Customers must: (1) place an order for an
AT&T UNIPLAN Service 36 Month Term Plan between February 6, 1995 and March 6,
1995, with a requested installation date of no later than May 6, 1995, (2)
commit to an AT&T UNIPLAN Service Associated Optional 800 Service Net Monthly
Usage Commitment of at least $20,000.00, and (3) have their interstate AT&T
UNIPLAN Associated Optional 800 Service usage terminate in the 617 NPA.
This promotion cannot be used with any other AT&T promotions which are or may be
filed.
Material filed under Tranmittal No. 8124 became effective on February 6, 1995
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
AT&T
AIS318 7/94
PAGE ( ) OF ( )
AT&T UNIPLAN SERVICE ORDER
QUALITY ASSURANCE CHECKLIST
CUSTOMER INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Company Billing Name (as it appears on letterhead): Billing Street Address, City, State and Zip Code:
S.C. Direct, Inc. 21 Bristol Dr.
- --------------------------------------------------------- So. Easton, MA 02375
Customer Billing Contact and Telephone Number:
Bruce Rosenbaum --------------------------------------------------------------
508-238-0199
Main Billing Local Serving Office (NPA-NXX):
- ------------------------------------------------------------------------------------------------------------------------------------
Customer Description:
Catalog Sales
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL # OF SWITCHED TOTAL # OF DEDICATED
TOTAL # OF LOCATIONS ACCESS ACCOUNTS ACCESS ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------------
Outbound 800 Service Outbound 800 Service
2 2 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) KEY DATES TAX INFORMATION
Customer Requested Due Date (CRDD): Complete table below if tax exemptions apply:
--------------------------------------------------------------
[ / / ] Exempted by: |_| Statute |_| Certificate
--------------------------------------------------------------
|_| Federal |_| County
|_| State |_| Municipal
o Final dates will be set after data collection is completed |_| Sub-Municipal
Is this an Expedite? |_| YES |_| NO --------------------------------------------------------------
If YES, has the Customer been advised that Additional Charges List Other
will apply? |_| YES |_| NO Exemptions:
--------------------------------------------------------------
(2) UNIPLAN VOLUME AND TERM PLAN INFORMATION Select one: |_| All Locations
Volume Discount Plans: (Select one) |_| Only Certain Locations
|_| Standard Volume Discount --------------------------------------------------------------
|_| Global Volume Discount (Requires Term Plan)
|_| Off-peak Volume Discount (Requires Term Plan)
Domestic Term Plan International Term Plan Other Volume Discount Plans
Length of Term: Net Monthly Commitment Length of Term: Net Monthly Commitment (Select if applicable)
- --------------------------------------- ---------------------------------------
36 Months $40,000 Months $ |X| UniPlan Nation Option
- --------------------------------------- --------------------------------------- |_| Partners by Association
Starting Month:____________________ Starting Month:____________________ |_| Other: Specify: ___________
- ------------------------------------------------------------------------------------------------------------------------------------
(3) APPLICABLE PROMOTIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Promotion Name Description PROMOTION ID#s
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THE SERVICE(S) AND PRICING PLAN(S) YOU HAVE SELECTED WILL BE GOVERNED BY THE RATES, TERMS, AND CONDITIONS IN THE APPROPRIATE AT&T
TARIFFS AS MAY BE MODIFIED FROM TIME TO TIME. YOUR SIGNATURE ACKNOWLEDGES THAT YOU UNDERSTAND THE TERMS AND CONDITIONS UNDER WHICH
THE SERVICE(S) SELECTED WILL BE PROVIDED AND THAT YOU ARE DULY AUTHORIZED TO MAKE THE COMMITMENT(S) AND TO ORDER SERVICE FOR EACH OF
THESE LOCATIONS.
- ------------------------------------------------------------------------------------------------------------------------------------
Authorizing Customer Signature Authorizing Representative Signature
/s/ Stephen O'Hara Date 2/9/95
- ---------------------------------- ---------------------------------------------------------
Signature Signature Date
508-238-0199
- ---------------------------------- -----------------------------------------------
Telephone Number Telephone Number
Stephen O'Hara, President
- ---------------------------------- -----------------------------------------------
Name and Title (please print) Name and Title (please print)
Remarks Attached: |_| YES |_| NO
</TABLE>
<PAGE>
EXHIBIT 10.28
SHAREHOLDERS' AGREEMENT
AGREEMENT, dated this 30th day of November, 1994, by and among
Specialty Catalog Corp., a Delaware corporation (the "Corporation"), SC Holdings
L.L.C., a Delaware limited liability company ("Holdings"), SC Corporation, a
Delaware corporation ("SC"), and those persons set forth on Schedule A annexed
hereto (each such person set forth on such schedule, individually, a
"Shareholder", and together the "Shareholders"). The Shareholders, other than
Dickstein & Co., L.P. and Dickstein International Limited (together,
"Dickstein"), Wigs, L.P. and Stephen O'Hara ("O'Hara"), are sometimes referred
to as the "Original Shareholders".
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, SC has issued and outstanding $3,680,186 in
subordinated notes dated November 23, 1994 (the "Subordinated Notes"); and
WHEREAS, Dickstein, Viking Holdings Limited ("Viking") and
Wigs, L.P. held all of the Subordinated Notes, and the Shareholders held all
of the issued and outstanding shares of capital stock of SC; and
WHEREAS, SC and the Shareholders (other than O'Hara) are
parties to that certain Shareholders' Agreement dated as of November 23, 1994
(the "Old Shareholders' Agreement"), which provides for the management of SC,
the transfer or disposition of the Subordinated Notes and capital stock of SC
and certain other matters; and
WHEREAS, the Shareholders have contributed all of their
capital stock of SC to the Corporation in return for capital stock of the
Corporation; and
WHEREAS, Dickstein, Viking and Wigs, L.P. have contributed all of
their Subordinated Notes to Holdings in return for equity interests in Holdings;
and
WHEREAS, the Corporation now holds all of the capital stock of
SC, and the parties thereto have agreed to terminate the Old Shareholders'
Agreement;
WHEREAS, the Corporation is authorized to issue a total of
20,000 shares, par value $.01, of Common Stock (the "Common Stock"), and a total
of 30,000 shares, par value $100.00, of Preferred Stock (the "Preferred Stock";
together with the Common Stock, the "Stock"); and
WHEREAS, there are 8,683.65 shares of Common Stock and 22,491
shares of Preferred Stock presently issued and outstanding, and each Shareholder
is the record and beneficial owner of the numbers of shares of Common Stock and
Preferred Stock set forth opposite the name of such Shareholder on Schedule A
hereto; and
<PAGE>
WHEREAS, each of Dickstein, Viking and Wigs, L.P. is the
record and beneficial owner of that percentage of equity interests in Holdings
set forth opposite the name of such Shareholder on Schedule A hereto (the "LLC
Interests"; together with the Stock, the "Securities"); and
WHEREAS, the Corporation and Steven L. Bock ("Bock") and the
Corporation and O'Hara are parties to certain stock option agreements, pursuant
to which Bock and O'Hara may acquire stock after the date hereof;
WHEREAS, the parties desire to enter into an agreement with
respect to the management of the Corporation and Holdings, the transfer or other
disposition of the Securities and certain other matters.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants, agreements, representations and warranties herein contained,
the parties hereto, intending to be legally bound, covenant and agree as
follows:
1. Legend on Certificates. For so long as this Agreement remains
in effect, the following statement shall be inscribed on all
certificates representing shares of Stock (or any certificates
representing shares of Stock received with respect thereto):
"The stock represented by this certificate is subject to a
certain Shareholders' Agreement dated the 30th day of
November, 1994, and any amendments thereto, a copy of which is
on file at the principal office of the corporation, and any
sale, pledge, gift, bequest, transfer, assignment, encumbrance
or other disposition of this certificate or the shares
represented hereby, or any interest therein or proxy with
respect thereto, in violation of such Shareholders' Agreement
shall be void. The stock represented by this certificate has
not been registered under the Securities Act of 1933, as
amended. This stock may not be sold, offered for sale or
otherwise transferred in the absence of such registration or
an exemption therefrom under such Act.
2. Term of Agreement. This Agreement shall terminate on the
earliest of (i) the date of the dissolution or liquidation of the Corporation
and Holdings, (ii) such time as one Shareholder or other person or entity owns
all of the Securities, (iii) the date of the consummation of a bona fide primary
or secondary public offering under the Securities Act of 1933, as amended, of
any capital stock of the Corporation or SC, and (iv) such time as all of the
parties hereto elect in a written agreement to terminate this Agreement.
3. Restrictions on Transfer of Stock.
(a) Except as expressly permitted by Sections 3(d), 4, 5, 6,
7, 10 or 16(j) of this Agreement, each of which constitutes an alternative and
independent means of effecting a Transfer (as defined herein), no Shareholder
(or its Related Transferee, as defined below) shall (whether by operation of law
or otherwise), directly or indirectly, sell, pledge,
-2-
<PAGE>
give, bequeath, transfer, grant an option in, create a security interest in or
lien upon, assign or otherwise, voluntarily or involuntarily, encumber or
dispose of, or grant any interest in or a proxy (other than a revocable proxy
related to a specific vote or a particular meeting) with respect to (each of the
foregoing events, a "Transfer"), any of the Securities now owned or hereafter
acquired; provided, however that Wigs, L.P. shall pledge certain of its
Securities (the "Pledged Securities") to SC pursuant to the Pledge and Security
Agreement dated as of November 23, 1994, between SC and Wigs, L.P. and the
Acknowledgement of Substitution of Collateral dated as of November 30, 1994,
related thereto. The term "Stock" as used in this Agreement shall include Stock
certificates, scrip representing fractional shares of Stock, options and
warrants for Stock, or Stock received by way of dividend or upon an increase,
reduction, substitution or reclassification of stock of the Corporation, or upon
any reorganization of the Corporation. Without limiting the generality of the
foregoing, any Stock acquired by Bock or O'Hara pursuant to the stock options
granted to them by the Corporation shall be included as "Stock" hereunder and
subject to the terms hereof.
(b) The Corporation shall not transfer on its books any
certificates for Securities owned by any Shareholder or Related Transferee, nor
issue any certificate in respect of such Securities, in contravention of this
Agreement. Holdings shall not record on its books any transfer of any Securities
owned by any Shareholder or Related Transferee in contravention of this
Agreement. Any purported Transfer made in violation of this Agreement shall be
null and void and of no force or effect and the purported transferee shall not
be entitled to any rights as a holder of Securities in respect of or in
connection with the Securities purportedly the subject of the Transfer.
(c) Sections 3(d), 5 and 10 of this Agreement to the contrary
notwithstanding, prior to the earlier of (i) November 24, 1997 and (ii) the date
that the consolidated group of which the Corporation is the common parent shall
have fully utilized all of its net operating loss carryovers ("NOLs") for
federal income tax purposes (as those carryovers existed on November 23, 1994)
(the earlier of such dates being hereinafter referred to as the "Ownership
Change Date"), the Original Shareholders (and their Related Transferees) shall
not (whether by operation of law or otherwise), directly or indirectly, Transfer
any Securities; provided, however, that Bock and Bruce G. Pollack may Transfer
their Common Stock prior to the Ownership Change Date to their Related
Transferees (as defined herein), but only with the prior written consent of (i)
the Corporation, which consent will not be unreasonably withheld or delayed and
(ii) Holdings, which consent will not be withheld or delayed unless the Transfer
could reasonably be expected to affect adversely the ability of the consolidated
group of which the Corporation is the common parent to utilize fully all of its
NOLs (as those NOLs existed on November 23, 1994).
(d) Subject to Section 3(c) hereof, (i) Bock may Transfer
shares of Stock pursuant to, and as set forth in, the Employment Agreement dated
November 23, 1994, between Bock and SC (as amended from time to time), and (ii)
the Shareholders may Transfer any or all of their Securities to their respective
Related Transferees (as defined herein); provided, however, that each such
Related Transferee shall first have executed and delivered an instrument, in
form and substance satisfactory to the Corporation, Holdings, Dickstein and
Viking, in their reasonable judgment, agreeing to be a party to and be bound by
the provisions hereof applicable to Related Transferees. The "Related
Transferees" of
-3-
<PAGE>
each Shareholder who is an individual person shall consist of the spouse and
adult lineal descendants of such Shareholder and trusts solely for the benefit
of such spouse and minor and/or adult lineal descendants of such Shareholder.
The "Related Transferees" of Dickstein shall consist of Dickstein Partners Inc.
and each investment entity directly or indirectly controlling or managing,
controlled or managed by or under common control or management with Dickstein or
Dickstein Partners Inc. The "Related Transferees" of Wigs, L.P. shall consist of
Patricof & Co. Capital Group; provided, however, that the only permitted
Transfer to such Related Transferee shall be a pledge of those Securities of
Wigs, L.P. other than the Pledged Securities pursuant to a pledge agreement in
form and substance satisfactory to Dickstein and Viking. Viking does not have
any Related Transferees. Each Shareholder and its Related Transferees are
referred to herein as a "Shareholder Group". Related Transferees who acquire
Securities pursuant to this Section 3(d) may make further Transfers thereof in
accordance with Section 3(d) only to other members of the same Shareholder Group
(i.e., the initial Shareholder and its Related Transferees).
(e) Each Related Transferee receiving Securities pursuant to
Section 3(d) shall receive, hold and vote the same according to the terms of
this Agreement and subject to the rights and obligations of the Shareholder from
whom such Securities were originally transferred as though such Securities were
still owned by such Shareholder, and such Shareholder's Shareholder Group shall
be treated as, and may exercise rights hereunder only as, a single Shareholder.
For all purposes of exercising rights hereunder, the initial Shareholder shall
be the exclusive representative of, and shall alone be entitled to exercise
rights hereunder on behalf of, that Shareholder's Shareholder Group unless and
until that Shareholder has Transferred all of its Securities to one or more of
its Related Transferees, in which event that Shareholder may, by notice to the
other parties hereto, substitute for this purpose one of its Related Transferees
that holds Securities.
(f) If one of Dickstein or Viking (the "Remaining
Shareholder") purchases all of the Securities of the other then (i) the
Remaining Shareholder shall be deemed to have all of the rights of Dickstein and
Viking under this Agreement (including without limitation all of the rights of
the other under Section 12 hereof), and (ii) at any time thereafter, and in
addition to and separate from its rights under Sections 3(d) and 10 hereof, the
Remaining Shareholder may Transfer its Securities in a Bona Fide Sale (as
defined below) at any time; provided, however, that, in connection with any
Transfer made in reliance upon this clause "ii", the Remaining Shareholder shall
be obligated to cause to be purchased, and the other Shareholders and their
Related Transferees, if any, shall be obligated (if requested by the Remaining
Shareholder) to sell, all Securities held by such Shareholders and such Related
Transferees on terms and conditions no less favorable than those obtained by the
Remaining Shareholder in respect of each class of Securities being so sold by
the Remaining Shareholder. Each party hereto shall take all actions as may be
reasonably necessary or desirable to effectuate any purchase and sale pursuant
to the foregoing clause "ii". As used in this and other provisions of this
Agreement, a "Bona Fide Sale" by or caused by a Shareholder (as the case may be)
means a bona fide, arms' length sale to any person or entity other than that
Shareholder, any members of its Shareholder Group, or any entity in which any of
the foregoing have (or acquire in connection with the sale) a material economic
interest.
-4-
<PAGE>
4. Buy-Sell Rights.
(a) After the Ownership Change Date, either Dickstein or
Viking may offer to sell to the other all, but not less than all, of the
Securities held by it and its Related Transferees (together, for purposes of
this Section 4, the "Offered Securities"). The one making such offer to sell
(the "Offeror") shall notify the other one (the "Offeree") of such offer to sell
by delivering to the Offeree a written notice of such offer (the "Buy-Sell
Notice"). The Buy-Sell Notice shall (i) identify the Offered Securities, (ii)
state the aggregate proposed price for the Offered Securities (the "Strike
Price"), which shall be payable in cash, and (iii) specify a business day for
the consummation of the proposed sale, which day shall not be less than 120 days
and not more than 125 days after delivery of the Buy-Sell Notice to the Offeree
(the "Closing Date").
(b) Upon delivery of the Buy-Sell Notice, the Offeree may,
within 30 days thereafter (the "Acceptance Period"), by written notice to the
Offeror elect (i) to accept such offer or (ii) to cause the Corporation and/or
Holdings (for the purposes of this Section 4, the "Corporate Buyer") to accept
such offer, in each case subject only to the ability of the Offeree or the
Corporate Buyer, as the case may be, to obtain financing in connection
therewith. If the Offeree shall have delivered a timely notice of its election
to purchase or to cause the Corporate Buyer to purchase all of the Offered
Securities, then the Offeror and its Related Transferees shall sell to the
Offeree or the Corporate Buyer, as the case may be, and the Offeree or the
Corporate Buyer shall purchase from them, at the Strike Price, all of the
Offered Securities; provided, however, that if, within 60 days of the
termination of the Acceptance Period (the "Confirmation Period"), the Offeree or
the Corporate Buyer, as the case may be, shall not have (i) obtained and
delivered to Offeror a bona fide commitment letter from a reputable financial
institution regarding the funding of such purchase and sale (the "Commitment
Letter") or (ii) delivered to the Offeror a written waiver of the financing
condition (the "Waiver"), then the sale of the Offered Securities to the Offeree
pursuant to the Buy-Sell Notice shall not occur. If that sale does occur, it
shall be at the proposed price (adjusted dollar for dollar to reflect any
changes in the accrued but unpaid interest and dividends between the date of the
notice and the date of the sale from that anticipated in the Buy-Sell Notice)
and shall be held in accordance with Section 8 hereof, except that the closing
shall take place on the Closing Date.
(c) If the Offeree shall not have delivered to the Offeror
(i) within the Acceptance Period notice of its election to purchase or to cause
the Corporate Buyer to purchase all of the Offered Securities, or (ii) within
the Confirmation Period the Commitment Letter or the Waiver, then the Offeror
may effect a Bona Fide Sale of either (x) the Corporation and Holdings or (y) SC
(each, a "Sale Transaction"). The Sale Transaction must entail the substantially
contemporaneous cash payment or cash distribution in respect of the Securities
(such distribution to be applied in the following order of priority: first to
pay in full the LLC Interests (in an amount equal to the outstanding aggregate
principal amount of the Subordinated Notes, together with accrued but unpaid
interest thereon through the consummation of the Sale Transaction), then to
redeem in full the Preferred Stock, and thereafter to the Common Stock, with all
holders of the same class to be treated on an equivalent basis with respect to
the Securities held by them). Such payment or distribution (together with any
other payments or distributions made by the Corporation or Holdings in
-5-
<PAGE>
respect of the Securities subsequent to the delivery of the Buy-Sell Notice)
must result in the Offeror and its Related Transferees receiving in respect of
the Offered Securities cash (before taxes) of not less than 90 percent of (x)
the Strike Price plus (y) the additional unpaid interest and dividends that have
accrued on the Subordinated Notes and Preferred Stock between the Closing Date
and the consummation of the Sale Transaction. A Sale Transaction may be effected
in any manner, including through a merger or consolidation of any or all of the
Corporation, Holdings and/or SC with or into any other entity, a sale of
securities, a sale, lease, transfer or exchange of all or substantially all of
the property and assets of any or all of the Corporation, Holdings and/or SC or
otherwise; provided, that such a Sale Transaction may not be consummated later
than 180 days after the expiration of the later of the Acceptance Period and, if
applicable, the Confirmation Period.
(d) The Offeror shall promptly, but in any event at least 30
days prior to consummation thereof, notify all other Shareholders in writing of
any Sale Transaction it intends to effect pursuant to this Section 4. Such
notice shall set forth in reasonable detail the material terms and conditions of
the Sale Transaction. Each party shall take all actions as may be reasonably
necessary or desirable to effectuate any purchase and sale pursuant to this
Section 4, including voting its shares of Stock and its LLC Interests in favor
of such Sale Transaction at the request of the Offeror; provided, however, that
the non-monetary terms of the Sale Transaction must be reasonably acceptable to
the Offeree. Holders of options to purchase Stock must either (x) exercise such
options and participate in the Sale Transaction as holders of Stock or (y)
surrender such options for cancellation. However, if and to the extent that, in
the good faith judgment of the Board of Directors of the Corporation, it is
practicable for holders of such options to participate in the Sale Transaction
on a "cashless exercise" basis (as if shares of Stock were issued solely in
respect of the gain underlying the options, and then such shares participated in
the Sale Transaction), the Corporation shall offer such option holders the right
to participate in that fashion.
5. Right of First Refusal for Transfer of Securities.
-------------------------------------------------
After the Ownership Change Date:
(a) If any Shareholder Group (the "Selling Shareholder")
desires to sell (i) all, but not less than all, of its shares of Common Stock,
or (ii) all, but not less than all, of its shares of Preferred Stock, or (iii)
all, but not less than all, of its LLC Interests, or (iv) any combination of the
foregoing (for purposes of this Section 5, the "Offered Securities"), and, in
connection therewith, shall have received an irrevocable and unconditional
(except as provided herein) bona fide arm's length written offer (a "Bona Fide
Offer") for the purchase of the Offered Securities for cash at closing from a
party (an "Outside Party") that is not a member of the Selling Shareholder's
Shareholder Group or any entity in which any member(s) of that Shareholder Group
has a material economic interest, the Selling Shareholder shall give a notice in
writing within 10 days of the delivery of such Bona Fide Offer (the "Option
Notice") to each Shareholder and to the Corporation and Holdings setting forth
the Selling Shareholder's intention to sell the Offered Securities, which notice
shall be accompanied by a photocopy of the originally executed Bona Fide Offer
and shall set forth at least the name and address of the Outside Party and the
price and all of the other material terms of such offer, and, if desired, the
minimum number or amount of its Securities that the Selling Shareholder will
require to be sold in the event other Shareholders exercise their
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<PAGE>
rights to sell under Section 5(c) below. Upon the giving of such Option Notice,
(i) each of Dickstein and Viking (or only Dickstein or Viking if the other is
the Selling Shareholder) shall have the non-assignable option to purchase all,
but not less than all, of the Offered Securities and (ii) Dickstein and Viking
jointly (or Dickstein or Viking alone if the other is the Selling Shareholder)
may cause the Corporation and/or Holdings (for the purposes of this Section 5,
the "Corporate Buyer") to purchase all, but not less than all, of the Offered
Securities. Dickstein and Viking each may exercise, or jointly (or alone if the
other is the Selling Shareholder) may cause the Corporate Buyer to exercise,
such option by giving a counter-notice to the Selling Shareholder and to each
other Shareholder within 30 days after the receipt of the Option Notice (the
"Option Notice Period").
(b) If Dickstein and/or Viking elect, or Dickstein and Viking
jointly (or Dickstein or Viking alone if the other is the Selling Shareholder)
cause the Corporate Buyer to elect, pursuant to the counter-notice(s), to
purchase all of the Offered Securities, Dickstein, Viking or the Corporate
Buyer, as the case may be, shall be obligated to purchase for cash and the
Selling Shareholder shall be obligated to sell the Offered Securities at the
price and on the terms set forth in the Bona Fide Offer, except that the closing
shall be held as provided in Section 8 hereof; provided, however, that if both
Dickstein and Viking elect to purchase all of the Offered Securities during such
30-day period, each of Dickstein and Viking shall be obligated to purchase its
respective Pro Rata Share of the Offered Securities, unless they otherwise
agree. The term "Pro Rata Share" of Dickstein or Viking, as used in this
Agreement, means the number of shares of Common Stock held by such Shareholder's
Shareholder Group on the date of the Option Notice, divided by the sum of (i)
the number of shares of Common Stock held by the Dickstein Shareholder Group on
such date plus (ii) the number of shares of Common Stock held by the Viking
Shareholder Group on such date.
(c) If counter-notice(s) shall not have been duly and timely
given as to all of the Offered Securities, (x) each other Shareholder may elect
on behalf of its Shareholder Group, by delivering a written notice of such
election to the Selling Shareholder and the Outside Party within 30 days
following the expiration of the Option Notice Period (the "Tag Along Period"),
to sell all, but not less than all, of the Securities owned by it to the Outside
Party at the price and on the terms contained in the Bona Fide Offer (to the
extent such Securities are of the same class as the Offered Securities) (subject
to the consummation of the sale by the Selling Shareholder of Securities to the
Outside Party), and (y) the Selling Shareholder thereafter, at any time within a
period of 60 days from the expiration of the Tag Along Period, may sell all, but
not less than all, of the Offered Securities to the Outside Party at the price
and on the terms contained in the Bona Fide Offer; provided, however, that:
(i) if the Outside Party elects to purchase less than all of
the Securities offered by the Selling Shareholder and the electing
Shareholders hereunder, then each such Shareholder shall sell and the
Outside Party shall purchase the respective Shareholder's pro rata
share of that number or amount of Securities that the Outside Party
elects to purchase (but not less than the amount of Securities included
in the Bona Fide Offer); provided, however, that in the event the
Outside Party is unwilling to purchase sufficient Securities to enable
the Selling Shareholder to sell the minimum number or amount of
Securities specified by the Selling Shareholder in the Option
-7-
<PAGE>
Notice, then the Selling Shareholder may terminate the Bona Fide Offer,
in which case no sale of Securities will occur pursuant to this Section
5 in connection with the Bona Fide Offer and the Offered Securities and
the other Securities offered to the Outside Party pursuant hereto shall
thereafter continue to be held by the respective Shareholders and their
Related Transferees, and be subject to the restrictions contained in
this Agreement as if no such Option Notice had been delivered;
(ii) no purchase and sale pursuant to this Section 5(c) shall
be valid or effective unless and until such Outside Party shall first
have executed and delivered an instrument, in form and substance
satisfactory to the Corporation, Holdings, Dickstein and Viking, in
their reasonable judgement, agreeing to be a party hereto and bound by
all of the terms and conditions hereof; and
(iii) in the event the purchases and sales of Securities
contemplated by this Section 5(c) have not occurred within 60 days of
the expiration of the Tag Along Period, no sale of Securities will
occur pursuant to this Section 5 in connection with the Bona Fide Offer
and the Offered Securities and the other Securities offered to the
Outside Party pursuant hereto shall thereafter continue to be held by
the respective Shareholders and their Related Transferees, and be
subject to the restrictions contained in this Agreement as if no such
Option Notice had been delivered.
(d) If Dickstein or Viking sells its Securities under this
Section 5, then all of its rights under this Agreement shall automatically
terminate, and the purchaser of such Securities shall have only those rights and
obligations of Shareholders generally under this Agreement, and shall have no
rights exclusive to Dickstein or Viking hereunder; provided, however, that the
purchaser of such Securities shall be deemed to be, and shall have all the
rights and obligations of, the "Offeree" in the event a Buy-Sell Notice is
delivered pursuant to Section 4 hereof.
6. Change in Control.
-----------------
(a) Dickstein shall promptly notify Viking, the other
Shareholders, Holdings and the Corporation in the event that Dickstein is no
longer majority-owned (directly or indirectly) by Mark Dickstein, his wife, his
adult lineal descendants or any trust solely for the benefit of any of the
foregoing and/or his minor lineal descendants, and the delivery of such notice
shall be deemed (unless such event resulted from the death of Mr. Dickstein) to
constitute the delivery of a Buy-Sell Notice under Section 4 hereof, pursuant to
which Dickstein shall be deemed to be the Offeror, Viking shall be deemed to be
the Offeree and the Strike Price shall equal 90 percent of the fair market value
of the Securities held by Dickstein and its Related Transferees; provided,
however, that Dickstein shall not, for purposes of this paragraph "a", have the
right to effect a Sale Transaction pursuant to Section 4(c) hereof.
(b) Viking shall promptly notify Dickstein, the other
Shareholders, Holdings and the Corporation in the event that Viking is no longer
majority-owned (directly or indirectly) by Guy Naggar, his wife, his adult
lineal descendants or any trust solely for the benefit of any of the foregoing
and/or his minor lineal descendants, and the delivery of such
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<PAGE>
notice shall be deemed (unless such event resulted from the death of Mr. Naggar)
to constitute the delivery of a Buy-Sell Notice under Section 4 hereof, pursuant
to which Viking shall be deemed to be the Offeror, Dickstein shall be deemed to
be the Offeree and the Strike Price shall equal 90 percent of the fair market
value of the Securities held by Viking; provided, however, that Viking shall
not, for purposes of this paragraph "b", have the right to effect a Sale
Transaction pursuant to Section 4(c) of this Agreement; and provided further,
that if the delivery of such notice occurs prior to the Ownership Change Date,
then (in addition to the foregoing) upon the occurrence of November 24, 1997,
Dickstein shall have 30 days to notify Viking that it elects to treat such
occurrence as a subsequent delivery of a Buy-Sell Notice under Section 4 hereof,
and the provisions of this Section 6(b) shall again apply as if the change of
control of Viking happened on such Ownership Change Date.
7. Sale of Company. Viking and Dickstein jointly, or Viking
---------------
and Dickstein alone, if one of them has previously purchased all of the
Securities of the other under this Agreement, may effect a Sale Transaction.
Viking and/or Dickstein, as the case may be, shall promptly, but in any event at
least 30 days prior to consummation thereof, notify all other Shareholders in
writing of any Sale Transaction it intends to effect pursuant to this Section 7.
A Sale Transaction may be effected in any manner, including through a merger or
consolidation of any or all of the Corporation, Holdings and/or SC with or into
any other entity, a sale of securities, a sale, lease, transfer or exchange of
all or substantially all of the property and assets of any or all of the
Corporation, Holdings and/or SC or otherwise. Each Shareholder shall take all
action as may be reasonably necessary or desirable to effectuate any Sale
Transaction pursuant to this Section 7, including voting its shares of Stock and
its LLC Interests in favor of such Sale Transaction at the joint request of
Dickstein and Viking (or the request of Dickstein or Viking alone if it has
previously purchased all of the other's Securities). Holders of options to
purchase Stock must either (x) exercise such options and participate in the Sale
Transaction as holders of Stock or (y) surrender such options for cancellation.
However, if and to the extent that, in the good faith judgment of the Board of
Directors of the Corporation, it is practicable for holders of such options to
participate in the Sale Transaction on a "cashless exercise" basis (as if shares
of Stock were issued solely in respect of the gain underlying the options, and
then such shares participated in the Sale Transaction), the Corporation shall
offer such option holders the right to participate in that fashion.
8. Closing.
-------
(a) The closing for all purchases by Dickstein, Viking,
Holdings or the Corporation of Securities as provided in Section 4 or 5 hereof
shall be held at the office of the Corporation or at such other place as shall
be agreed upon by the parties thereto (i) in the case of a purchase and sale
provided in Section 4, on the Closing Date (as defined therein), and (ii) in the
case of a purchase and sale provided in Section 5, on the 90th day after the
giving of the Option Notice (as defined therein) or on such earlier date as the
parties to the transaction shall agree; provided, however, that if the
Shareholder (or a Related Transferee) who has become obligated to sell shares of
Securities hereunder is deceased on the date so scheduled for closing and such
deceased person's personal representative shall not have been appointed and
qualified by such date, then the closing shall be postponed until the 10th day
after the appointment and qualification of such personal representative. If the
closing date
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<PAGE>
falls on a Saturday, a Sunday or a legal or religious holiday pertaining to any
party to the transaction, then the closing shall be held on the next succeeding
business day.
(b) The purchase price for the purchase and sale of
Securities pursuant to Section 4 or 5 hereof (the "Purchase Price") shall be
paid in full by certified check(s) of the Corporation, Holdings, Dickstein or
Viking, as the case may be, as the purchaser of such Securities (the
"Purchaser"), or by cashier's or official bank check(s), drawn on an account at
a major U.S. money center commercial bank to the order of the selling Security
holder(s); provided, however, that if both Dickstein and Viking timely elected
to purchase the Offered Securities, then each of Dickstein and Viking shall be
obligated to pay its respective Pro Rata Share of the Purchase Price, unless
they otherwise agree. Contemporaneously with the receipt of the Purchase Price,
the seller shall duly endorse and deliver to the Purchaser any and all
certificates representing the sold Securities, free and clear of all liens,
security interests, charges or any other encumbrances (other than the
restrictions imposed by this Agreement), together with all necessary documentary
transfer stamps and any other documentation as the Purchaser may reasonably
request in connection with the transfer of such Securities.
9. Failure to Deliver. In the event that any Shareholder or
------------------
Related Transferee shall fail to sell Securities when and as required by this
Agreement, the intended purchaser of such Securities may, at its option, in
addition to all other remedies it may have, send to such seller by registered
mail, return receipt requested, the Purchase Price for such Securities in the
manner provided in this Agreement. Upon the Purchase Price being so remitted,
(i) the pertinent Securities shall be deemed transferred to the intended
purchaser, and (ii) the Corporation and/or Holdings (as the case may be) shall
record such transfer on its books and records and shall (in the case of a
certificated Security) issue a replacement certificate(s) reflecting the new
ownership of those Securities.
10. Registration of Common Stock. The Shareholders and their
----------------------------
Related Transferees have certain registration rights as provided in, and shall
be able to sell their shares of Common Stock pursuant to the terms and
conditions of, the Registration Rights Agreement of even date herewith.
11. Pre-Emptive Rights. In the event that Viking and/or
------------------
Dickstein purchases any securities of and from the Corporation, then each other
Shareholder and its Related Transferees, as a group, shall, upon no less than 15
days' notice, have the right to acquire from the Corporation, for that
Shareholder Group's own account, all (but not less than all) of its Share
Percentage (as defined below) of each and every class of securities being so
issued by the Corporation at that time. A Shareholder Group's "Share Percentage"
is the percentage of the outstanding Common Stock owned by that Shareholder
Group immediately before the transaction in question. Such purchase of
securities shall be on the same terms and conditions, and contemporaneously
with, the corresponding purchase by Dickstein and/or Viking; provided, however,
that Dickstein and/or Viking may consummate its purchase before the other
Shareholders or Related Transferees do if the Corporation's Board of Directors
determines that the Corporation (or SC, if it is to benefit from the financing)
has an urgent need for the funds. Notwithstanding the foregoing, Bock may waive
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<PAGE>
the rights of all Shareholders and Related Transferees, other than Dickstein,
Dickstein's Related Transferees and Viking, under this Section 11.
12. Management of the Corporation.
-----------------------------
(a) The Board of Directors of the Corporation and each
subsidiary of the Corporation (each, a "Subsidiary") shall consist of five
members, two of whom shall be selected by Dickstein and designated as "Class A
Directors" and two of whom shall be selected by Viking and designated as "Class
B Directors." The remaining director shall be Bock from the date hereof and for
as long as he shall be chief executive officer of the Corporation and the
Subsidiaries. Dickstein may remove and replace any Class A Director with or
without cause. Viking may remove and replace any Class B Director with or
without cause. In the event Bock is no longer chief executive officer of the
Corporation and the Subsidiaries, Viking and Dickstein jointly (or Viking or
Dickstein alone if the other no longer owns any shares of Stock) shall select a
director to replace Bock and, thereafter, may (acting together or, if the other
no longer owns any shares of Stock, alone) remove and replace such director with
or without cause and fill any vacancy in such directorship. This Section 12(a)
shall terminate upon the Transfer by Viking and Dickstein of all of their
Securities.
(b) The Shareholders and their Related Transferees shall
vote their shares of Stock from time to time as required to elect and remove
directors as provided in this Agreement, to cause the Corporation to purchase
(i) the Stock of the Offeror as and when contemplated by Section 4(b) hereof,
(ii) the Offered Securities as and when contemplated by Section 5 hereof and
(iii) the stock of any Shareholder Group as and when contemplated by Section
16(j) hereof, and to cause the Corporation to take any other action it is
required to take hereunder.
(c) The Shareholders and their Related Transferees shall
from time to time amend, and vote their shares of Stock to amend, the
certificate of incorporation and the by-laws of the Corporation and the
Subsidiaries to the extent that any such amendment is necessary to give effect
to the terms of this Agreement or to conform the certificate of incorporation
and the by-laws to this Agreement.
13. Consent Required for Certain Actions. The affirmative
--------------------------------------
vote of a majority of the respective Board of Directors, including at least
one Class A Director and one Class B Director, shall be required to permit
or authorize any of the following actions by the Corporation or any
Subsidiary:
(a) any issuance, sale or purchase of capital stock or other
securities of the Corporation or any Subsidiary (other than pursuant to
Section 4(b), 5(b), 7 or 16(j) hereof), including pursuant to a stock
split or bonus;
(b) any creation, incurrence or assumption of financial
indebtedness (including capitalized lease obligations and purchase
money debt) other than accounts payable and capitalized leases, in each
case solely as incurred in the ordinary course of business
("Indebtedness"), or any optional prepayment, optional redemption,
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<PAGE>
extension, amendment, waiver or request for any of the foregoing
relating to any of the Corporation's or any Subsidiary's existing
Indebtedness or capital stock, in each case other than in the ordinary
course of business;
(c) any merger, consolidation or recapitalization involving
the Corporation or any Subsidiary (other than pursuant to Section 4 or
7 hereof) or the creation of any subsidiary by the Corporation or any
Subsidiary;
(d) any termination, dissolution or liquidation of the
Corporation or any Subsidiary or voluntary filing or commencement of
any proceeding under any bankruptcy, insolvency or similar law or
statute;
(e) the creation or assumption of any mortgage, pledge or
other encumbrance upon any of the Corporation's or any Subsidiary's
material properties or assets now owned or hereafter acquired, other
than in the ordinary course of business;
(f) any declaration or payment of a dividend or distribution
on or in respect of capital stock of the Corporation now or hereafter
outstanding (whether in cash or otherwise), or application of any
property or assets to the purchase, acquisition, redemption or other
retirement of any shares of such capital stock, directly or indirectly;
(g) any assumption, guaranty or endorsement of, or otherwise
becoming liable upon, the obligation of any person, corporation or
other entity, except by the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(h) any purchase or acquisition of any property or assets or
obligations or stock of or interest in, any capital contribution to, or
other investment directly or indirectly in, or loans or advances to,
any person, corporation or other entity, except by the Corporation or
any Subsidiary to the Corporation or any Subsidiary, and in each case
other than in the ordinary course of business;
(i) the consent by the Corporation to any Transfer pursuant
to Section 3(c) of this Agreement and the offer by the Corporation to
option holders to participate in a Sale Transaction on a "cashless
exercise" basis, pursuant to Section 3(d) or 7 hereof;
(j) the consent by the Corporation to any Transfer that would
otherwise be restricted or prohibited by the Agreement dated November
23, 1994, among SC, Viking, Guy A. Naggar, Central Investments Limited,
New Henley Overseas Investment Incorporated, G.A. Naggar 1982
Settlement and Marion Naggar Childrens Settlement;
(k) any amendment of or change to the Corporation's or any
Subsidiary's certificate of incorporation or by-laws, including,
without limitation, any change in the capitalization of the Corporation
or any Subsidiary ;
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<PAGE>
(l) any sale, lease, transfer or other disposition of
any of the Corporation's or any Subsidiary's assets or properties, except in
the ordinary course of business;
(m) any change in the character of the Corporation's or any
Subsidiary's business or the undertaking of any material new ventures
or transactions or engaging in any type of business not incidental and
directly related to such entity's present business, in each case which
is not contemplated by the Corporation's annual budget or operating
plan;
(n) (x) any payment or incurrence of any obligation by the
Corporation or any Subsidiary for the payment of fees, salaries or
other remuneration in excess of $75,000, or (y) any bonus or more than
a 5 percent change in the rate or amount of compensation or other
remuneration, in each case only if such compensation or remuneration
equals or exceeds $75,000;
(o) payment of any debts claimed to be owing, directly or
indirectly, to any Shareholder or Related Transferee, any affiliate,
director or officer of the Corporation or any Subsidiary (other than
ordinary course repayments of reasonable out-of-pocket expenses,
properly documented, incurred by any of the foregoing in the ordinary
course of business), or to any firm, corporation or other entity in
which any of them has an interest (other than entities that are
publicly traded on a securities exchange or in the over-the-counter
market in which no Shareholder Group, affiliate, director or officer
beneficially owns more than a 15 percent voting equity interest);
(p) any adoption, assumption, establishment, material
amendment or termination of, any employee benefit, equity
participation, incentive, stock option or bonus plan;
(q) any retention, appointment or termination of chief
executive officers, chief financial officers or other senior management
of the Corporation or any Subsidiary and the determination of their
compensation and terms of employment;
(r) the entry into any material transaction, contract
or commitment other than in the ordinary course of business;
(s) the establishment of annual budgets (including
operating and capital expenditure budgets) or operating plans; and
(t) the establishment or designation of any members of any
committee of the Board of Directors of the Corporation or any
Subsidiary and the election and designation of members of the board of
directors of each Subsidiary.
In all matters where a vote of any class of outstanding shares
of capital stock of the Corporation or any Subsidiary is required by applicable
law or is otherwise being taken, including, without limitation, electing
directors and amending, altering, changing or repealing any one or more of the
provisions contained in the charter or by-laws of the Corporation or any
Subsidiary, the affirmative vote of at least 70 percent of such outstanding
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<PAGE>
shares of such class shall be required to constitute the act of the holders of
such shares; provided, however, that after Viking or Dickstein and Dickstein's
Related Transferees have sold all of their shares of a class, (i) the
affirmative vote of at least 50 percent of such outstanding shares of such class
shall be required to constitute the act of the holders of such shares and (ii)
the Shareholders and Related Transferees shall vote their shares of Stock to
amend the by-laws of the Corporation and the Subsidiaries to so provide.
One or more Shareholder Groups owning in the aggregate at
least 30 percent of the outstanding shares of Common Stock shall have the right
to call a special meeting of shareholders at any time, and from time to time,
for any purpose whatsoever, including the removal of directors.
14. Notices. Any and all notices or consents required or
-------
permitted to be given under any of the provisions of this Agreement shall be
written and shall be effective upon receipt at the address indicated on Schedule
A hereto, or at such other address as any party may from time to time indicate
by notice to the other parties. In addition, copies of all notices shall be sent
to the directors of the Corporation; provided, however, that the inadvertent or
good faith failure or delay in sending such copies shall not affect the efficacy
thereof.
15. Specific Performance. Due to the fact that the Securities
--------------------
cannot be readily purchased or sold in the open market, and for other reasons,
the parties hereto understand that they will be irreparably damaged, and cannot
be adequately compensated by monetary damages, in the event that this Agreement
is not specifically enforced. In the event of a breach or threatened breach of
the terms, covenants and/or conditions of this Agreement by any of the parties
hereto, the other parties shall, in addition to all other remedies, be entitled
to specific performance of this Agreement, without showing any actual damage.
16. Miscellaneous.
-------------
(a) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. This Agreement may be
modified or amended by a written agreement signed by (i) all of the parties
hereto, (ii) by Dickstein and Viking or (iii) by a Shareholder that owns at
least 70 percent of the outstanding shares of Common Stock; provided, however,
that the consent of each Shareholder (on behalf of itself and its Related
Transferees) shall be required if such modification or amendment would remove or
impair any contractual right of that Shareholder's Shareholder Group hereunder
to sell its Securities pursuant to Section 4 or 7 hereof or otherwise, or any
Shareholder's rights under Section 11 hereof (unless waived in accordance with
the last sentence thereof).
(b) No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
(c) If any provision of this Agreement shall be held invalid
or unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable
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<PAGE>
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
(d) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of the Corporation and Holdings
and their respective successors and assigns and the Shareholders and their
heirs, personal representatives, successors and assigns; provided, however, that
nothing contained herein shall be construed as granting any Shareholder Group
the right to Transfer any Stock except as expressly provided in this Agreement,
and no party shall be deemed a Shareholder hereunder after it (and its Related
Transferees, if any) ceases to own any shares of Stock. No right of a party
hereunder to purchase Securities shall be assignable, except to a Related
Transferee to whom such party has the right to Transfer the Securities so to be
purchased.
(e) The section headings contained herein are for the purposes
of convenience only and are not intended to define or limit the contents of such
sections.
(f) Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(g) Whenever the pronouns "it" or "its" are used herein they
shall also be deemed to mean "he" and/or "she" or "his" and/or "hers" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
(h) This Agreement may be executed in one or more
counterparts, all of which taken together shall be deemed one original.
(i) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflict of laws thereof. Any legal action or proceeding under,
arising out of or in any manner relating to this Agreement, or any other
document being entered into by any Shareholder in connection with the closing on
the date hereof at which this Agreement is being entered into, shall be brought
in the federal or state courts in the Borough of Manhattan in the City of New
York, State of New York. Each party hereto expressly and irrevocably assents and
submits to the personal jurisdiction of all of such courts in any such action or
proceeding. Each such party further irrevocably consents to the service of any
complaint, summons, notice or other process relating to any such action or
proceeding by delivery thereof to it personally by hand, by prepaid overnight
courier or by mail at the address provided herein. Each party expressly and
irrevocably waives any claim or defense in any such action or proceeding based
on any alleged lack of personal jurisdiction, improper venue or forum non
conveniens.
(j) If any Shareholder Group Transfers its LLC Interests
or its Preferred Stock to a purchaser that does not also purchase the Common
Stockowned by that Shareholder Group, then (i) each of Dickstein and Viking (or
only Dickstein or Viking if the other's Shareholder Group was the seller) shall
have the option to purchase, and (ii) Dickstein and Viking jointly (or Dickstein
or Viking alone, if the other's Shareholder Group
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<PAGE>
was the seller) may cause the Corporation and/or Holdings to purchase, all, but
not less than all, of such Shareholder Group's remaining Common Stock, and the
purchase price therefor shall be 90 percent of the Fair Market Value thereof.
(k) Effective from and after the date hereof, the Old
Shareholders' Agreement is in all respects hereby cancelled and terminated and
shall be of no further force or effect.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands as of the day and year first above written.
SPECIALTY CATALOG CORP.
By:_______________________________
Name: Steven L. Bock
Title: Chief Executive Officer
SC CORPORATION
By:_______________________________
Name: Steven L. Bock
Title: Chief Executive Officer
DICKSTEIN & CO., L.P., for itself
and on behalf of SC Holdings L.L.C.
By: DICKSTEIN PARTNERS, L.P., its
general partner
By: DICKSTEIN PARTNERS INC., its
general partner
By:_______________________________
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<PAGE>
DICKSTEIN INTERNATIONAL LIMITED, for
itself and on behalf of SC Holdings
L.L.C.
By: DICKSTEIN PARTNERS INC., its agent
By:________________________________
VIKING HOLDINGS LIMITED, for itself
and on behalf of SC Holdings L.L.C.
By:_______________________________
Name:
Title:
----------------------------------
Steven L. Bock
---------------------------------
Bruce G. Pollack
WIGS, L.P., for itself and on behalf
of SC Holdings L.L.C.
By:_______________________________
Name: Arthur Kowaloff
Title: General Partner
----------------------------------
Stephen O'Hara
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<PAGE>
SCHEDULE A
LLC
Name and Address Common Preferred Interests
- ---------------- ------ --------- ---------
Dickstein & Co., L.P. 2,665.88 7,272 32.33%
c/o Dickstein Partners Inc.
9 West 57th Street
Suite 4630
New York, New York 10019
Attn.: Mark Brodsky and
Samuel Katz
Fax No. (212) 754-5825
Dickstein International 1,332.94 3,636 16.17%
Limited
c/o Dickstein Partners Inc.
(address above)
Viking Holdings Limited 3,998.82 10,908 48.50%
La Motte Chambers
La Motte Street
St. Helier
Jersey JE1 1BJ
Channel Islands
Tel. No. 011-44-534-602-000
Fax No. 011-44-534-602-002
Steven L. Bock 303.93 0 0%
c/o SC Corporation
Six Landmark Square, 4th Floor
Stamford, CT 06901-2792
Tel. No. (203) 359-5640
Fax No. (203) 359-5840
Bruce G. Pollack 121.57 0 0%
c/o Centre Partners, L.P.
One Rockefeller Plaza, Suite 1025
New York, NY 10020
Tel. No. (212) 632-4821
Fax No. (212) 632-4846
Wigs, L.P. 260.51 675 3.00%
c/o Patricof & Co. Capital Corp.
445 Park Avenue, 11th Floor
New York, NY 10022
Tel. No. (212) 935-5151
Fax No. (212) 832-6946
Stephen O'Hara 0 0 0%
20 Pleasant Heights Drive
North Easton, MA 02356
Tel. No. (508) 238-8029
Fax No. (508) 238-3305
<PAGE>
EXHIBIT 10.29
AMENDMENT TO SHAREHOLDERS' AGREEMENT
This Amendment (the "Amendment"), dated as of April __, 1995, by and
among the undersigned, being all of the parties to that certain Shareholders'
Agreement, dated as of November 30, 1994 (the "Shareholders' Agreement") by and
among Specialty Catalog Corp., a Delaware corporation, SC Holdings L.L.C., a
Delaware limited liability company, SC Corporation, a Delaware corporation,
Dickstein & Co., L.P., Dickstein International Limited, Viking Holdings Limited,
Wigs, L.P., Steven L. Bock, Bruce G. Pollack and Stephen O'Hara.
WHEREAS, Specialty Catalog Corp. (the "Corporation") has amended its
Certificate of Incorporation to recapitalize its common stock, par value $.01
per share (the "Old Common Stock"), into three separate classes, consisting of
Class A Common Stock, Class B Common Stock and Class C Common Stock;
NOW, THEREFORE, the undersigned do hereby agree among themselves
that the Shareholders' Agreement is hereby amended as follows:
1. Definitions. All capitalized terms not otherwise defined in
-----------
this Amendment are used as defined in the Shareholders' Agreement.
2. Exchange of Stock. Each Shareholder promptly shall surrender to
-----------------
the Corporation the certificate(s) evidencing such Shareholder's ownership of
Old Common Stock , and, as soon as practicable thereafter, the Corporation shall
issue to such Shareholder a certificate evidencing an equal number of shares of
the Corporation's Class A Common Stock, par value $.01 per share; provided,
however, that (i) the Corporation shall issue to Dickstein International Limited
a certificate for an equal number of shares of the Corporation's Class B Common
Stock, par value $.01 per share and (ii) the Corporation shall issue to
Dickstein & Co., L.P. one certificate for 1,332.94 shares of its Class A Common
Stock, par value $.01 per share, and one certificate for 1,332.94 shares of its
Class C Common Stock, par value $.01 per share.
3. Amendment to Shareholders' Agreement.
------------------------------------
(A) The Shareholders' Agreement is hereby amended by deleting
the seventh and eighth "WHEREAS" clauses thereof as they now exist
and inserting in lieu thereof the following new "WHEREAS" clauses:
"WHEREAS, the Corporation is authorized to issue 16,000
shares of Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"), 2,000 shares of Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), 2,000
shares of Class C Common Stock, par value $.01 per share (the
"Class C Common Stock; and the Class A Common Stock, the Class
B Common Stock and the Class C Common Stock are hereinafter
referred to, individually and collectively, as the "Common
Stock"), and 30,000 shares, par
<PAGE>
value $100.00 per share, of Preferred Stock (the "Preferred
Stock"; together with the Common Stock, the "Stock"); and
WHEREAS, there are 6,017.77 shares of Class A Common
Stock, 1,332.94 shares of Class B Common Stock, 1,332.94
shares of Class C Common Stock and 22,491 shares of Preferred
Stock presently issued and outstanding, and each holder is the
record and beneficial owner of the numbers of shares of Class
A Common Stock, Class B Common Stock, Class C Common Stock and
Preferred Stock set forth opposite the name of such
Shareholder on Schedule A hereto; and"
(B) Section 3(a) of the Shareholders' Agreement is hereby
amended by replacing the words "or 16(j)" in the first line thereof
with the words ", 16(j), 16(k) or 16(l)".
(C) Section 16 of the Shareholders' Agreement is hereby
amended by relettering subsection (k) as subsection (m).
(D) Section 16 of the Shareholders' Agreement is hereby
amended by adding thereto after subsection (j) the following:
"(k) If Dickstein's or Viking's Shareholder Group
Transfers any shares of its Common Stock to a purchaser that
does not also purchase a corresponding portion of the
Preferred Stock owned by that Shareholder Group, then the
other of Dickstein and Viking (the "Other Shareholder") shall
have the right, exercisable within 10 business days of the
delivery to it of notice of such Transfer, to sell to the
Corporation and the Corporation must purchase, all, but not
less than all, of the Preferred Stock of the Other
Shareholder's Shareholder Group. Upon the exercise of that
right, each other Shareholder Group shall have the right,
exercisable within 10 business days of the delivery to it of
notice thereof, to sell to the Corporation, and the
Corporation must purchase, its Preferred Stock. The purchase
price for any purchase of Preferred Stock described in this
Section 16(k) shall equal the par value per share of all
shares of Preferred Stock owned by the selling Shareholder
Group, plus an amount in cash equal to all accrued but unpaid
dividends thereon, whether or not declared or due, and the
Corporation shall consummate any such purchase within six
months of the exercise by a Shareholder Group of its rights
under this Section 16(k).
(l) Shares of Class B Common Stock and shares of Class
C Common Stock may be converted into and exchanged for shares
of Class A Common Stock as provided in the certificate of
incorporation of the Corporation."
- 2 -
<PAGE>
(E) The penultimate paragraph of Section 13 of the
Shareholders' Agreement is hereby amended in its entirety to read as
follows:
"In all matters where a vote of any class of outstanding
shares of capital stock of the Corporation or any Subsidiary
is required by applicable law or is otherwise being taken,
including, without limitation, electing directors and
amending, altering, changing or repealing any one or more of
the provisions contained in the charter or by-laws of the
Corporation or any Subsidiary, (i) shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock shall
vote together as a single class, and (ii) the affirmative vote
of shares representing at least 70 percent of the voting power
of a class of shares shall be required to constitute the act
of the holders of such class of shares; provided, however,
that after Viking or Dickstein and Dickstein's Related
Transferees have sold all of their shares of a class, (x) the
affirmative vote of shares representing at least 50 percent of
the voting power of such class shall be required to constitute
the act of the holders of such shares and (y) the Shareholders
and Related Transferees shall vote their shares of Stock to
amend the by-laws of the Corporation and the Subsidiaries to
so provide."
(F) Section 16(a) of the Shareholders' Agreement is hereby
amended by replacing the words "at least 70 percent of the
outstanding shares of Common Stock;" in line 4 thereof with the
words "shares representing at least 70 percent of the voting power
of the Common Stock;"
(G) The Shareholders' Agreement is hereby amended by deleting
Schedule A thereto as it now exists and inserting in lieu thereof
the Schedule A attached hereto as Exhibit I.
4. Full Force and Effect. Except as expressly amended hereby, the
---------------------
Shareholders' Agreement shall continue in full force and effect in accordance
with its provisions on the date of this Amendment, and each share of the Stock,
whether issued pursuant hereto or prior to the date hereof, continues to be held
pursuant to the terms and provisions of the Shareholders' Agreement, as amended
by this Amendment.
5. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall constitute one agreement.
[Remainder of Page Intentionally Left Blank]
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
as of the day and year first above written.
SPECIALTY CATALOG CORP.
By:_______________________________
Name: Steven L. Bock
Title: Chief Executive Officer
SC CORPORATION
By:_______________________________
Name: Steven L. Bock
Title: Chief Executive Officer
DICKSTEIN & CO., L.P., for itself and on behalf of
SC Holdings L.L.C.
By: DICKSTEIN PARTNERS, L.P., its
general partner
By: DICKSTEIN PARTNERS INC., its
general partner
By:_______________________________
DICKSTEIN INTERNATIONAL LIMITED, for itself and on
behalf of SC Holdings L.L.C.
By: DICKSTEIN PARTNERS INC., its agent
By:_______________________________
- 4 -
<PAGE>
VIKING HOLDINGS LIMITED, for itself and on behalf
of SC Holdings L.L.C.
By:_______________________________
Name:
Title:
----------------------------------
Steven L. Bock
---------------------------------
Bruce G. Pollack
WIGS, L.P., for itself and on behalf of SC
Holdings L.L.C.
By:_______________________________
Name: Arthur Kowaloff
Title: General Partner
----------------------------------
Stephen O'Hara
- 5 -
<PAGE>
EXHIBIT I
SCHEDULE A
<TABLE>
<CAPTION>
LLC
Name and Address Class A Class B Class C Preferred Interests
- ---------------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Dickstein & Co., L.P. 1,332.94 0 1,332.94 7,272 32.33%
c/o Dickstein Partners Inc.
9 West 57th Street
Suite 4630
New York, New York 10019
Attn.: Mark Brodsky and
Samuel Katz
Fax No. (212) 754-5825
Dickstein International 0 1,332.94 0 3,636 16.17%
Limited
c/o Dickstein Partners Inc.
(address above)
Viking Holdings Limited 3,998.82 0 0 10,908 48.50%
La Motte Chambers
La Motte Street
St. Helier
Jersey JE1 1BJ
Channel Islands
Tel. No. 011-44-534-602-000
Fax No. 011-44-534-602-002
Steven L. Bock 303.93 0 0 0 0%
c/o SC Corporation
Six Landmark Square, 4th Floor
Stamford, CT 06901-2792
Tel. No. (203) 359-5640
Fax No. (203) 359-5840
Bruce G. Pollack 121.57 0 0 0 0%
c/o Centre Partners, L.P.
One Rockefeller Plaza, Suite 1025
New York, NY 10020
Tel. No. (212) 632-4821
Fax No. (212) 632-4846
Wigs, L.P. 260.51 0 0 675 3.00%
c/o Patricof & Co. Capital Corp.
445 Park Avenue, 11th Floor
New York, NY 10022
Tel. No. (212) 935-5151
Fax No. (212) 832-6946
Stephen O'Hara 0 0 0 0 0%
20 Pleasant Heights Drive
North Easton, MA
Tel. No. (508) 238-8029
Fax No. (508) 238-3305
- 6 -
</TABLE>
<PAGE>
EXHIBIT 10.30
SC HOLDINGS L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
This Limited Liability Company Agreement of SC Holdings
L.L.C., a Delaware limited liability company (the "Company"), is made and
entered into by and among the persons executing this Agreement as Members and
shall be effective as of the Effective Date (as defined below).
ARTICLE I
DEFINITIONS
For purposes of this Agreement, unless the context otherwise
requires, terms shall be used with the meanings given to them under the Act, and
the following terms shall have the meanings set forth hereafter:
1. ACT - The Delaware Limited Liability Company Law
and any and all amendments and modifications thereto.
2. AGREEMENT - This Limited Liability Company Agreement, as
the same may be amended from time to time.
3. CAPITAL CONTRIBUTION - Any contribution of Property
actually made by or on behalf of a Member.
4. CODE - The Internal Revenue Code of 1986, as the
same may be amended from time to time.
5. DISPOSITION (DISPOSE) - Any sale, assignment, transfer,
exchange, mortgage, pledge, grant, hypothecation or other transfer, whether
absolute or as security or encumbrance (including dispositions by operation of
law).
6. DISSOLUTION EVENT - An event, the occurrence of which will
result in the dissolution of the Company under Article VIII hereof.
7. EFFECTIVE DATE - The date on which the certificate of
formation of the Company is first filed with the Delaware Secretary of State.
8. MEMBER - Each Person who executes this Agreement as a
Member, and their respective successors.
9. NET LOSSES - The losses and deductions of the Company as
determined for federal income tax purposes.
10. NET PROFITS - The income and gains of the Company as
determined for federal income tax purposes.
<PAGE>
11. PERSON - Any individual, estate, corporation, trust, joint
venture, partnership or limited liability company of every kind and nature, and
any other individual or entity in its own or any representative capacity.
12. PROCEEDING - Any judicial or administrative trial, hearing
or other activity, civil, criminal or investigative, or any appeal thereof, the
result of which may be that a court, arbitrator or governmental agency may enter
a judgment, order, decree or other determination which, if not appealed and
reversed, would be binding upon the Company, a Member or other Person subject to
the jurisdiction of such court, arbitrator or governmental agency.
13. PROPERTY - Any property, real or personal, tangible or
intangible, including Money, and any legal or equitable interest in such
property, but excluding services and promises to perform services in the future.
14. SHAREHOLDERS' AGREEMENT - The Shareholders' Agreement,
dated as of November 30, 1994, by and among Specialty Catalog Corp., a Delaware
corporation, and those persons set forth on Schedule A annexed thereto
(including but not limited to each Member).
15. TAXING JURISDICTION - Any state, local or foreign
government that collects tax, interest or penalties, however designated, on any
Member's share of the income or gain attributable to the Company.
ARTICLE II
FORMATION
1. ORGANIZATION - The Members hereby organize the Company as
a Delaware limited liability company pursuant to the provisions of the Act .
2. TERM - The Company shall be dissolved and its affairs
wound up as provided in the Act and this Agreement on December 31, 2020, unless
the Company shall be sooner dissolved and its affairs wound up in accordance
with the Act or this Agreement.
3. REGISTERED AGENT AND OFFICE - The registered agent for the
service of process and the registered office shall be that Person and location
reflected in the certificate of formation. In the event the registered agent
ceases to act as such for any reason or the registered office shall change, the
Members shall promptly designate a replacement registered agent or file a notice
of change of address, as the case may be.
2
<PAGE>
4. PRINCIPAL OFFICE - The principal office of the Company
shall be located at such location as the Members shall from time to time decide.
ARTICLE III
RIGHTS AND DUTIES OF MEMBERS
1. MANAGEMENT RIGHTS - All Members shall be entitled to vote
on any matter submitted to a vote of the Members. Unless the Members otherwise
agree, all actions of the Company shall be taken only upon the approval of the
Members. All matters submitted for the approval of the Members shall require the
affirmative vote of Members then owning an aggregate percentage interest in the
Company of at least 70%; provided, however, that after Viking Holdings Limited
("Viking") and Dickstein & Co., L.P., Dickstein International Limited and their
respective Related Transferees (as defined in the Shareholders' Agreement)
(collectively, "Dickstein") shall no longer be Members, such approval shall
require the affirmative vote of Members then owning an aggregate percentage
interest in the Company of at least 50%. Any action which may be taken at a
meeting of the Members may be taken without a meeting if Members casting votes
sufficient to approve such action consent thereto in writing.
2. AUTHORITY TO BIND THE COMPANY - Unless the Members
otherwise agree, no agreement, undertaking, instrument, written obligation,
certificate or other commitment shall be made by or on behalf of the Company
unless made in an instrument signed by Members then owning the requisite
aggregate percentage interest in the Company as provided in Section 1 of this
Article III. Any third party dealing with the Company shall be entitled to rely
(unless such third party has actual notice to the contrary) on any such
instrument as being fully authorized under the terms of this Agreement if the
same has been executed on behalf of the Company by (x) Dickstein or its duly
authorized representative and (y) Viking or its duly authorized representative.
Each Member hereby approves the execution and delivery by any single Member on
behalf of the Company of (x) the Pledge Agreement, dated as of November 30,
1994, among Specialty Catalog Corp. ("Specialty"), the Company and Banque
Nationale de Paris, New York Branch, as Agent (the "Agent"), (y) the Guaranty,
dated November 30, 1994, among Specialty, the Company and the Agent and (z) all
certificates, instruments and other agreements and undertakings contemplated by
such Pledge Agreement or Guaranty to be executed and delivered by the Company
contemporaneously with the execution and delivery of such Pledge Agreement and
Guaranty.
3. COMPANY INTERESTS - The interest in the Company of each
Member shall be based on such Member's contribution to the Company of such
Member's ownership of Subordinated Notes issued by SC Corporation in connection
with the consummation of its plan of reorganization on November 23, 1994
("Subordinated Notes") as
3
<PAGE>
set forth in Schedule A. Each Member's percentage interest in the Company shall
be determined by dividing the principal amount of Subordinated Notes so
contributed by such Member by the aggregate principal amount of all Subordinated
Notes so contributed by all Members.
4. LIABILITY OF MEMBERS - No Member shall be liable as such
for the liabilities of the Company. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs under this Agreement or the Act shall not be grounds
for imposing personal liability on any Member for the liabilities of the
Company.
5. CONFLICTS OF INTEREST
5.1 A Member shall be entitled to enter into
transactions that may be considered to be competitive with, or
enter into business opportunities that may be beneficial to,
the Company, without any liability or obligation to the
Company or any other Member. A Member does not violate a duty
or obligation to the Company merely because the Member's
conduct furthers the Member's own interest.
5.2 No transaction with the Company shall be voidable
solely because a Member has a direct or indirect interest in
the transaction if the other Members, knowing the material
facts of the transaction and the Member's interest, authorize,
approve or ratify the transaction, or the interested Member
establishes that the transaction was fair and reasonable as to
the Company.
ARTICLE IV
CONTRIBUTIONS
1. CONTRIBUTIONS - On or prior to its execution of this
Agreement, each of the Members shall have contributed to the capital of the
Company the principal amount of Subordinated Notes set forth next to its name on
Exhibit A hereto. No interest shall accrue on any such contribution, and no
Member shall have the right to withdraw or be repaid any such contribution,
except as provided in this Agreement.
2. ADDITIONAL CONTRIBUTIONS - No additional capital contributions
shall be required of, or may be made by, any Member except upon the approval of
all Members.
4
<PAGE>
ARTICLE V
DISTRIBUTIONS
Distributions of cash and other property of the Company (including
Subordinated Notes and any other securities or property received as a
distribution in respect of or in exchange for Subordinated Notes) shall be made
at such times, in such manner and in such amounts as the Members may determine;
provided, however, that each such distribution shall be made to the Members in
accordance with their respective percentage interests in the Company.
ARTICLE VI
TAXES
1. TAX MATTERS PARTNER - Dickstein & Co., L.P. shall act as
tax matters partner of the Company pursuant to section 6231(a)(7) of the Code .
2. TAXES OF TAXING JURISDICTIONS - To the extent that the
laws of any Taxing Jurisdiction require, the Company may withhold and pay over
to such Taxing Jurisdiction the amount of tax, penalty and interest determined
under the laws of the Taxing Jurisdiction with respect to a Member's share of
the Company's income. Any such payments with respect to the income of a Member
shall be treated as a distribution for purposes of Article V hereof.
ARTICLE VII
DISPOSITION OF MEMBERSHIP INTERESTS
1. DISPOSITION - Except in accordance with the Shareholders'
Agreement, no Member may resign from the Company or Dispose of all or any
portion of such Member's interest in the Company prior to the dissolution and
winding up of the Company.
2. DISPOSITIONS NOT IN COMPLIANCE WITH THIS ARTICLE VOID -Any
attempted Disposition of a Member's interest in the Company, or any part
thereof, not in compliance with this Article VII and the applicable provisions
of the Shareholders' Agreement is null and void ab initio.
3. SHAREHOLDERS' AGREEMENT OBLIGATIONS - Each Member and the
Company acknowledge and agree to be bound by all applicable provisions of the
Shareholders' Agreement including without limitation the provisions thereof
relating to certain required purchases or sales of, and certain rights of first
refusal with respect to, a Member's interest in the Company. For the avoidance
of doubt, each Member agrees that if any provision
5
<PAGE>
hereof conflicts with any provision of the Shareholders' Agreement, the
provisions of the latter shall control.
ARTICLE VIII
DISSOLUTION AND WINDING UP
1. DISSOLUTION - The Company shall be dissolved and its
affairs wound up, upon the first to occur of the following events (each of which
shall constitute a Dissolution Event):
1.1 the expiration of the term established in Section 2
of Article II hereof;
1.2 the written consent of the Members; or
1.3 the bankruptcy (as defined in the Act) of any Member,
subject to the right of continuation provided in Section 18-
801 of the Act; or
1.4 the entry of a decree of judicial dissolution
under Section 18-802 of the Act.
2. EFFECT OF DISSOLUTION - Upon dissolution, the Company
shall cease carrying on and begin winding up the Company business, but the
Company is not terminated, and shall continue, until the winding up of the
affairs of the Company is completed and articles of dissolution have been filed
with the Delaware Department of State.
3. DISTRIBUTION OF ASSETS ON DISSOLUTION - Upon the winding
up of the Company, the Property of the Company shall be distributed as provided
in the Act and among the Members in accordance with their respective percentage
interests in the Company.
4. WINDING UP AND CERTIFICATE OF CANCELLATION - The winding
up of the Company shall be completed when all debts, liabilities and obligations
of the Company have been paid and discharged or reasonably adequate provision
therefor has been made, and all of the remaining Property of the Company has
been distributed to the Members. Upon the completion of winding up of the
Company, a certificate of cancellation, which shall set forth the information
required by the Act, shall be filed in the Delaware Department of State.
ARTICLE IX
MISCELLANEOUS PROVISIONS
1. ENTIRE AGREEMENT; AMENDMENT - This Agreement represents
the entire agreement among the Members and between the
6
<PAGE>
Members and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a written instrument adopted by the Company as
provided in this Agreement.
2. RIGHTS OF CREDITORS AND THIRD PARTIES UNDER LIMITED
LIABILITY COMPANY AGREEMENT - This Agreement is entered into among the Company
and the Members for the exclusive benefit of the Company, the Members and their
successors. This Agreement is expressly not intended for the benefit of any
creditor of the Company or any other Person. Except and only to the extent
provided by applicable statute, no such creditor or third party shall have any
rights under this Agreement or any agreement between the Company and any Member
with respect to any capital contribution, any Member's interest in the Company
or otherwise.
3. INDEMNIFICATION - The Company shall indemnify and hold
harmless, and advance expenses to, any Member, from and against any and all
claims and demands whatsoever relating to, or arising out of, actions taken or
not taken by such Member in its capacity as such; provided, however, that no
indemnification may be made to or on behalf of any Member if a judgment or other
final adjudication adverse to such Member establishes (a) that its acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated or (b) that it
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled.
4. COUNTERPARTS - This Agreement may be executed in
two or more counterparts, all of which taken together shall be
deemed one agreement.
5. NOTICE - Notice shall be in writing. Notice to the Company
shall be addressed to the Company at the address of its principal office
established as provided in Section 4 of Article II. Notice to a Member shall be
addressed to the Member at the address of such Member reflected in the records
of the Company. Notice shall be considered duly given (i) on the day when
delivered personally, (ii) on the Business Day when sent by facsimile provided
receipt of such transmission is confirmed, (iii) on the Business Day immediately
succeeding the day on which Notice is sent by recognized overnight courier, and
(iv) when received if mailed by first class mail postage prepaid.
7
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands on the date
set forth beside our names.
DICKSTEIN & CO., L.P.
By: DICKSTEIN PARTNERS, L.P., its
general partner
By: DICKSTEIN PARTNERS, INC., its
general partner
By____________________________________
Vice President
DICKSTEIN INTERNATIONAL LIMITED
By: DICKSTEIN PARTNERS, INC., its agent
By__________________________________________
Vice President
VIKING HOLDINGS LIMITED
By: ----------------------------------------------
Name:
Title:
WIGS, L.P.
By: -----------------------------------------------
Name: Arthur Kowaloff
Title: General Partner
8
<PAGE>
EXHIBIT A
---------
Principal Amount
of
Member Subordinated Notes
- ------ ------------------
Dickstein & Co., L.P. $1,189,926
Dickstein International Limited $ 594,964
Viking Holdings Limited $1,784,890
Wigs, L.P. $ 110,406
<PAGE>
EXHIBIT 11.01
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
----------------------------------------- ---------------------------
1-JAN-94 31-DEC-94 30-DEC-95 1-JUL-95 29-JUN-96
------------- ------------- ------------- ------------- -------------
PRIMARY AND PRIMARY AND PRIMARY AND PRIMARY AND PRIMARY AND
FULLY DILUTED FULLY DILUTED FULLY DILUTED FULLY DILUTED FULLY DILUTED
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCOME
Net Income.............. 9,977,393 12,788,811 522,262 554,552 149,300
Preferred Dividends..... (31,241) (292,383) (146,191) (146,188)
--------- ---------- --------- --------- ---------
Net Income Available to
Common Stockholders.... 9,977,393 12,757,570 229,879 408,361 3,112
========= ========== ========= ========= =========
NUMBER OF SHARES
Weighted Average Shares. 2,826,666 2,826,666 2,826,666 2,826,666 2,826,666
Incremental Shares
Attributed to Exercise
of Warrants............ 198,668 198,668 198,668 198,668 198,668
Incremental Shares
Attributed to Exercise
of Stock Options....... 559,119
--------- ---------- --------- --------- ---------
3,025,334 3,025,334 3,025,334 3,025,334 3,584,453
========= ========== ========= ========= =========
</TABLE>
- --------
(a) For all periods presented, primary earnings per share equals fully diluted
earnings per share
<PAGE>
EXHIBIT 23.02
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of
Specialty Catalog Corp.
We consent to the use in this Registration Statement of Specialty Catalog
Corp. on Form S-1 of our report dated April 19, 1996 (except for Note 13, for
which the date is August 16, 1996), appearing in the Prospectus, which is a
part of this Registration Statement, and to the references to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
__________________________________________
Deloitte & Touche LLP
New York, New York
August 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-30-1995 JUN-29-1996
<PERIOD-START> JAN-01-1995 DEC-31-1995
<PERIOD-END> DEC-30-1995 JUN-29-1996
<CASH> 113,364 864,176
<SECURITIES> 0 0
<RECEIVABLES> 1,527,929 1,189,469
<ALLOWANCES> 160,000 51,000
<INVENTORY> 5,073,743 4,090,560
<CURRENT-ASSETS> 10,017,854 9,680,096
<PP&E> 3,982,348 4,118,407
<DEPRECIATION> 3,040,751 3,178,992
<TOTAL-ASSETS> 18,170,360 17,776,724
<CURRENT-LIABILITIES> 9,368,783 9,865,216
<BONDS> 0 0
0 0
2,249,100 2,249,100
<COMMON> 28,267 28,267
<OTHER-SE> (6,693,248) (6,690,136)
<TOTAL-LIABILITY-AND-EQUITY> 18,170,360 17,776,724
<SALES> 42,568,120 18,754,741
<TOTAL-REVENUES> 42,568,120 18,754,741
<CGS> 16,423,590 7,003,241
<TOTAL-COSTS> 22,835,086 10,590,938
<OTHER-EXPENSES> 512,943 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,917,664 909,216
<INCOME-PRETAX> 878,837 251,346
<INCOME-TAX> 356,575 102,046
<INCOME-CONTINUING> 522,262 149,300
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 522,262 149,300
<EPS-PRIMARY> 0.08 0.00
<EPS-DILUTED> 0.08 0.00
</TABLE>
