<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
July 21, 1998
------------------------------------------------
Date of Report (Date of earliest event reported)
Factory Card Outlet Corp.
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(Exact name of registrant as specified in its charter)
Delaware 21859 36-3652087
- ------------------------ ------------ -------------------
(State of incorporation) File Number) Identification No.)
2727 Diehl Road, Naperville, Illinois 60563
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(Address of principal executive offices) (Zip Code)
(630) 579-2000
-------------------------------
(Registrant's telephone number)
<PAGE> 2
ITEM 5. OTHER EVENTS.
On July 21, 1998, Factory Card Outlet Corp. (the "Registrant") announced
that it has revised its second quarter expectations and that it has amended its
existing credit facility and entered into an agreement for an additional $10
million credit facility. In connection with the new facility, the Registrant
granted warrants to purchase 215,000 shares of its common stock at an exercise
price of $7.50 per share.
A copy of the Registrant's press release, dated July 21, 1998, is attached
hereto as Exhibit 99.1 and is incorporated by reference herein.
A copy of the (i) First Amendment dated July 17, 1998 to the Loan and
Security Agreement dated as of January 30, 1998 between BankBoston Retail
Finance Inc. as agent for the lenders named therein, and Factory Card Outlet of
America, Ltd., (ii) Term Loan and Security Agreement dated July 17, 1998
between Back Bay Capital, LLC and Factory Card Outlet of America, Ltd., (iii)
Warrant Purchase Agreement dated July 17, 1998 between the Registrant and Back
Bay Capital, LLC, MLQ Investors, L.P. and FINOVA Capital Corporation, (iv)
Warrant dated July 17, 1998 between the Registrant and Back Bay Capital, LLC,
(v) Warrant dated July 17, 1998 between the Registrant and Goldman Sachs & Co.
and (vi) Warrant dated July 17, 1998 between the Registrant and FINOVA Capital
Corporation is attached hereto as Exhibit 10.1, 10.2, 10.3, 10.4, 10.5 and
10.6, respectively, and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
99.1 Press Release of Factory Card Outlet Corp. issued July 21, 1998.
10.1 First Amendment dated July 17, 1998 to Loan and Security
Agreement dated January 30, 1998 between BankBoston Retail
Finance Inc., as agent for the lenders named therein, and
Factory Card Outlet of America, Ltd.
10.2 Term Loan and Security Agreement dated July 17, 1998 between
Back Bay Capital, LLC and Factory Card Outlet of America, Ltd.
10.3 Warrant Purchase Agreement dated July 17, 1998 between the
Registrant and Back Bay Capital, LLC, MLQ Investors, L.P. and
FINOVA Capital Corporation.
10.4 Warrant dated July 17, 1998 between the Registrant and Back Bay
Capital, LLC.
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
10.5 Warrant dated July 17, 1998 between the Registrant and Goldman
Sachs & Co.
10.6 Warrant dated July 17, 1998 between the Registrant and FINOVA
Capital Corporation.
</TABLE>
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FACTORY CARD OUTLET CORP.
By: /s/ Stewart M. Kasen
-------------------------
Stewart M. Kasen
Dated: July 20, 1998 President
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
99.1 Press Release of Factory Card Outlet Corp. issued July 21, 1998.
10.1 First Amendment dated July 17, 1998 to Loan and Security
Agreement dated January 30, 1998 between BankBoston Retail
Finance Inc., as agent for the lenders named therein, and
Factory Card Outlet of America, Ltd.
10.2 Term Loan and Security Agreement dated July 17, 1998 between
Back Bay Capital, LLC and Factory Card Outlet of America, Ltd.
10.3 Warrant Purchase Agreement dated July 17, 1998 between the
Registrant and Back Bay Capital, LLC, MLQ Investors, L.P. and
FINOVA Capital Corporation.
10.4 Warrant dated July 17, 1998 between the Registrant and Back Bay
Capital, LLC.
10.5 Warrant dated July 17, 1998 between the Registrant and Goldman
Sachs & Co.
10.6 Warrant dated July 17, 1998 between the Registrant and FINOVA
Capital Corporation.
</TABLE>
<PAGE> 1
Exhibit 10.1
===============================================================================
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT BANKBOSTON RETAIL FINANCE INC.
AGENT
===============================================================================
July 17, 1998
THIS FIRST AMENDMENT is made to the Loan and Security Agreement (the "LOAN
AGREEMENT") dated as of January 30, 1998, between
BankBoston Retail Finance Inc. (in such capacity, the "AGENT"), a
Delaware corporation with offices at 40 Broad Street Boston,
Massachusetts 02109, as agent for the ratable benefit of the "LENDERS",
who are, at present, those financial institutions identified on the
signature pages of the within Agreement and who in the future are those
Persons (if any) who become "Lenders" in accordance with the provisions
of Section 2-18 of the Loan Agreement,
and
Factory Card Outlet of America, Ltd. (hereinafter, the "BORROWER"),
an Illinois corporation with its principal executive offices at 2727
Diehl Road, Naperville, Illinois 60563
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
1. AGREEMENT TO AMEND
Provided each of those "Conditions to Amendment" set forth in Section 2,
below, is satisfied on or before July 31, 1998, the Loan Agreement shall be
amended, as set forth below, such amendment to take effect contemporaneous with
the making of the Tranche B Loan (as described in the Amendments to Article 1
of the Loan Agreement, below):
ARTICLE 1 of the Loan Agreement is Amended so that the Definitions
of the following terms, included therein, read as follows:
"APPLICABLE ADVANCE RATE": The following percentage during the period
indicated:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
FROM TO RATE
----------------------------------------------------------------------
<S> <C> <C>
December 1 March 31 50%
----------------------------------------------------------------------
April 1 June 30 55%
----------------------------------------------------------------------
July 1 August 31 50%
----------------------------------------------------------------------
September 1 November 30 55% 50%
(1998) (1999
and 2000)
----------------------------------------------------------------------
</TABLE>
<PAGE> 2
"Base Margin Rate": (a) Base plus 50 Basis Points, subject, however, to
reduction as provided in (b) and (c) of this Definition.
(b) Base plus 25 Basis Points, commencing not more than 10
Business Days after the Agent's being providing with a certificate,
from the Borrower's accountants, which confirms (with supporting
calculations) that the Borrower's Consolidated EBITDA for its
fiscal year ending in January, 1999, was not less than
$14,000,000.00, but only if the Borrower's average daily Excess
Availability, during its fiscal month of January, 1999, was not
less than $4,000,000.00 and no Event of Default has occurred.
(c) Base, commencing not more than 10 Business Days after
the Agent's being providing with a certificate, from the Borrower's
accountants, which confirms (with supporting calculations) that the
Borrower's Consolidated EBITDA for its fiscal year ending in
January, 2000, was not less than $19,000,000.00, but only if the
Borrower's average daily Excess Availability, during its fiscal
month of January, 2000, was not less than $10,000,000.00 and no
Event of Default has occurred.
In all instances, the "Base Margin Rate" shall be determined on a
360 day year and actual days elapsed.
"BUSINESS PLAN": The Borrower's annual business plan dated June 24, 1998
which has been furnished to the Agent, and the projections hereafter
furnished to the Agent in accordance with the provisions of Section
5-11(c) hereof.
"CONSOLIDATED EBITDA": The Borrower's Consolidated earnings (excluding
any non-cash restructuring charges, non-cash write-offs or
write-downs of capital assets) before interest, taxes, depreciation,
and amortization, each as determined in accordance with GAAP.
"EXCESS PACKAWAY INVENTORY": (a) Until December 31, 1998:
Packaway Inventory then having an aggregate Cost in excess of the
product of (a) the per store cost for Packaway Inventory for the
relevant month, as set forth on EXHIBIT 1-0(b),
<PAGE> 3
annexed hereto, multiplied by (b) the number of Stores in
operation on the first day of the relevant month,
(b) On and after January 1,1999:
Packaway Inventory having a Cost in excess of the following
percentage of all Inventory:
<TABLE>
<CAPTION>
------------------------------------------------------------
FROM TO PERCENTAGE
------------------------------------------------------------
<S> <C> <C>
January 1, 1999 June 29, 1999 6%
------------------------------------------------------------
June 30, 1999 January 30, 2000 5%
------------------------------------------------------------
January 31, 2000 Maturity Date 3%
------------------------------------------------------------
</TABLE>
"LIBOR MARGIN": (a) 250 Basis Points, subject, however, to reduction as
provided in (b) and (c) of this Definition.
(b) 225 Basis Points, commencing not more than 10 Business
Days after the Agent's being providing with a certificate, from the
Borrower's accountants, which confirms (with supporting
calculations) that the Borrower's Consolidated EBITDA for its
fiscal year ending in January, 1999, was not less than
$14,000,000.00, but only if the Borrower's average daily Excess
Availability, during its fiscal month of January, 1999, was not
less than $4,000,000.00 and no Event of Default has occurred.
(c) 200 Basis Points, commencing not more than 10 Business
Days after the Agent's being providing with a certificate, from the
Borrower's accountants, which confirms (with supporting
calculations) that the Borrower's Consolidated EBITDA for its
fiscal year ending in January, 2000, was not less than
$19,000,000.00, but only if the Borrower's average daily Excess
Availability, during its fiscal month of January, 2000, was not
less than $10,000,000.00 and no Event of Default has occurred.
"LOAN DOCUMENTS": The within Agreement, each instrument and document executed
and/or delivered as contemplated by Article 3, below, and each
other instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated hereby
or in connection with any transaction with the Agent or any Lender
or any Affiliate of the Agent or any Lender, including, without
limitation, any transaction which arises out of any cash
management, depository, investment, letter of credit, interest rate
protection, or equipment leasing services provided by the Agent or
any Lender or any
..3..
<PAGE> 4
Affiliate of the Agent or any Lender, as each may be amended from time to
time. (The "Loan Documents" do not include any Tranche B Loan
Documents).
"YEAR 2000 PROBLEM": The risk that a computer application which is
material to the operation of the Borrower is unlikely to recognize
certain dates or properly perform date sensitive functions involving
dates prior to and after December 31, 1999.
ARTICLE 1 of the Loan Agreement is amended by the addition of the
following Definitions in alphabetical order therein:
"CONSOLIDATED FIXED CHARGES": Cash payments for Consolidated Capital
Expenditures and income taxes.
"CONSOLIDATED FIXED CHARGE RATIO": The following, for the period being
calculated:
(Consolidated EBITDA minus Consolidated Fixed Charges) (Cash
payments of principal of all funded debt other than the Revolving
Credit plus cash payments of interest on all funded debt plus cash
payments on Capital Leases)
"CONSOLIDATED CAPITAL EXPENDITURES": Cash payments for the purchase of
assets or the incurrence of liabilities, the purchase or incurrence
of which may be capitalized in accordance with GAAP.
"TRANCHE B LENDER": Back Bay Capital, LLC, a Delaware limited partnership
with its offices at 40 Broad Street, Boston, Massachusetts.
"TRANCHE B LOAN": The $10,000,000.00 term loan made to the Borrower on or
about July 17, 1998, by the Tranche B Lender.
"TRANCHE B LOAN AGREEMENT": The Loan and Security Agreement between the
Borrower and the Tranche B Lender pursuant to which the Tranche B
Loan was made, as amended from time to time.
"TRANCHE B LOAN DOCUMENTS": "Loan Documents" as defined in the Tranche B
Loan Agreement.
"UMBRELLA CAP": Described in Section 2-1(e).
..4..
<PAGE> 5
"TRAILING TWELVE MONTH CONSOLIDATED EBITDA CERTIFICATE."
ARTICLE 1 is amended by the deletion of the following Definitions
included therein:
"TRAILING TWELVE MONTH CONSOLIDATED NET INCOME CERTIFICATE"
"TRAILING TWELVE MONTH"
SECTION 2-1(a) of the Loan Agreement is amended to read as follows:
(a) The Lenders hereby establish a revolving line of credit (the
"REVOLVING CREDIT") in the Borrower's favor pursuant to which each Lender,
subject to, and in accordance with, the within Agreement, acting through the
Agent, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrower as provided herein, in
each instance equal to that Lender's Commitment Percentage of Availability, up
to the maximum amount of that Lender's Dollar Commitment, but subject,
commencing on October 1, 1999, to the Umbrella Cap. The amount of the Revolving
Credit shall be determined by the Agent by reference to Availability, as
determined by the Agent from time to time hereafter. All loans made under this
Agreement, and all of the Borrower's other Liabilities under or pursuant to
this Agreement, are payable as provided herein.
SECTION 2-1(d) of the Loan Agreement is amended to read as follows:
(d) The proceeds of borrowings under the Revolving Credit shall be used
solely in accordance with the Business Plan for working capital purposes of the
Borrower and general corporate purposes, all solely to the extent permitted by
the within Agreement. No proceeds of the Revolving Credit may be used, directly
or indirectly, to repay any of the principal owed under the Tranche B Loan.
SECTION 2-1 of the Loan Agreement is amended by the addition of the
following as Section (e) thereof:
(e) Commencing on October 1, 1999, and at all times thereafter, the
aggregate of (i) the unpaid principal balance of Loan Account plus (ii) the
stated amount of outstanding L/C's plus (iii) Availability Reserves, shall not
exceed 85% of the appraised value of Acceptable Inventory as stated on the then
most recent inventory appraisal. The Borrower's compliance with this Section
2-1(e) may be measured, in the Agent's discretion, by synthetic appraised
values for up to six months after the date of the subject appraisal, which
synthetic appraised values shall be determined by the application of an
analytical methodology which is consistent with standard industry practice and
shall be based on the
..5..
<PAGE> 6
Business Plan; the Borrower's financial statements and performance; and current
operating trends . The foregoing limitation (herein, the "UMBRELLA CAP") shall
take effect on not less than Ten (10) Business Days notice by the Agent to the
Borrower of the then effective appraised value or synthetic appraised value of
the Borrower's Acceptable Inventory and any change to the Umbrella Cap shall
likewise taken effect on not less than Ten (10) Business Days notice by the
Agent to the Borrower of the then effective appraised value or synthetic
appraised value of the Borrower's Acceptable Inventory.
SECTION 2-9(b) of the Loan Agreement is amended to read as follows:
(b) The Borrower, without notice or demand from the Agent or any
Lender, shall pay the Agent those amounts, from time to time, which are
necessary, as follows:
(i) So that the unpaid balance of the Loan Account does not exceed
Borrowing Base, provided, however, in the event that, solely by reason of
the creation of one or more Reserves not extant when a Revolving Credit
Loan is made, the unpaid principal balance of the Loan Account exceeds
the Borrowing Base, then the Borrower shall have up to ten (10) Business
Days from the date on which the Loan Account first so exceeded the
Borrowing Base by reason of such creation, to cause the unpaid principal
balance of the Loan Account to not exceed Borrowing Base (during which
period, neither the Agent nor any Lender shall have any obligation to
make any advance under the Revolving Credit nor to provide any other
financial accommodations contemplated by this Agreement). The adjustment
or resetting of a then existing Reserve, by reason of changed
circumstances, shall not be deemed the creation of a Reserve as to which
the foregoing proviso shall apply.
(ii) So that the Borrower is in compliance with the Umbrella Cap
described in Section 2-1(e).
(ii) So that the Borrower is in compliance with the BaseLine
Covenant. Any payments made pursuant to this Section 2-9(b) shall be applied
first to Base Margin Loans and only then to Libor Loans.
SECTION 4-4(b) of the Loan Agreement is amended to read as follows:
(b) The Borrower's Year 2000 Problem is described on EXHIBIT 4-4,
annexed hereto. The Borrower will cure its Year 2000 Problem by no later than
August 31, 1999.
SECTION 4-5(a) of the Loan Agreement is amended so that its introductory
provision reads as follows:
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<PAGE> 7
(a) At the execution of this Agreement, the Collateral, and the books,
records, and papers of Borrower pertaining thereto, are kept and maintained only
at the Borrower's chief executive offices at
SECTION 4-5(b)(iii) of the Loan Agreement is amended to read as follows:
(iii) store and transport the Collateral to and from such locations
and utilize such of the Collateral as is removed from such locations in
the ordinary course of business (such as motor vehicles).
SECTION 4-5(e) of the Loan Agreement is amended by the addition of the
following as Section (vi) thereof:
(vi) Not more than the following number of new stores may be opened
during the period indicated:
(a) July 1, 1998 to the end of the Borrower's fiscal year in
January, 1999: 15 new Stores.
(b) During the Borrower's fiscal year ending in January, 2000: 14
new Stores.
SECTION 4-6(a) of the Loan Agreement is amended by the addition of the
following as Section (iv) thereof:
(iv) Encumbrances in favor of the Tranche B Lender.
SECTION 4-7 of the Loan Agreement is amended by the addition of the
following as Section (d) thereof:
(d) Indebtedness on account of the Tranche B Loan. The Borrower
shall not amend any of the Tranche B Loan Documents, except upon the prior
written consent of the Agent in each instance.
SECTION 4-24(a) of the Loan Agreement is amended to read as follows:
(a) All financial statements furnished to the Lender by or on behalf of
the Borrower have been prepared in accordance with GAAP consistently applied and
present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business,
..7..
<PAGE> 8
which changes have not been materially adverse, either singularly or in the
aggregate which has not been disclosed in writing to the Agent and each Lender
prior to the execution of the within Agreement.
SECTION 5-3(a)(iii) of the Loan Agreement is amended to read as follows:
(iii) Any failure of the Borrower to make payment to any
creditor, which payment, when aggregated with all other payments claimed
by that creditor to be due to that creditor, aggregates more than
$250,000.00 prior to such amount's becoming more than the following
number of days past customary payment dates of such creditor (other than
the failure to make such payment on account of a bona fide good faith
dispute with the subject creditor): (x) if prior to October 1, 1998,
sixty (60) days; (y) if after October 1, 1998, thirty (30) days.
SECTION 5-3(a) of the Loan Agreement is amended by the addition of the
following Section thereof:
(ix) The occurrence of any "Event of Default" (within the meaning
of the Tranche B Loan Agreement) or of any Suspension Event.
SECTION 5-6(a)(i) of the Loan Agreement is amended to read as follows:
(i) For all of its fiscal months, other than its fiscal January,
the Borrower shall provide the following within fifteen (15) days of the
end of the previous month and for its fiscal January, the Borrower shall
provide the following within thirty (30) days of the end of the previous
month:
SECTION 5-6(a)(ii)(F) AND (G) are amended to read as follows:
(F) Omitted.
(G) Omitted.
SECTION 5-10 of the Loan Agreement is amended by the addition of the
following preamble:
In all events, each of the limits (if any) on the number of events
which may take place in any Twelve (12) month period, and each "cap" (if
any) on costs and expenses for which the Borrower is obligated, as
included in this Section 5-10 shall be applied as if the like event or
payment of such costs and expenses, under the cognate styled Section of
the Tranche B Loan Agreement had taken place or been made under this
Section 5-10, it being the intention of the parties that the Borrower
shall not be subjected to a doubling of the number of such events or of
..8..
<PAGE> 9
such costs and expenses by reason of the inclusion of such requirements
in the Tranche B Loan Agreement and in this Section 5-10.
SECTION 5-10(c) of the Loan Agreement is amended to read as follows:
(c) The Borrower shall permit the Agent to obtain appraisals of the
Borrower's Inventory, conducted by such appraisers as are satisfactory to the
Agent. Provided that no Suspension Event has occurred, the Borrower shall be
obligated to reimburse the Agent for not more than (i) $55,000.00 of the fees
charged, in any twelve (12) month period, plus (ii) reasonable out of pocket
expenses. In the event that a Suspension Event has occurred, the Borrower shall
reimburse the Agent for the fees and expenses for each such appraisal without
regard to the forgoing fee cap. The Agent shall provide the Borrower with a
copy of each appraisal obtained pursuant to this Section 5-10(c) promptly
following receipt by the Agent. Notwithstanding any input which may be provided
to the appraiser by or on behalf of the Agent in connection with the preparation
of the subject appraisal and the conclusions and recommendations included
therein, each such appraisal, conclusions, and recommendations, shall be deemed
to have been prepared and provided by a Person which, as to the Agent, is an
independent contractor.
SECTION 5-12 of the Loan Agreement is amended to read as follows:
5-12. Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBIT 5-12,
annexed hereto. Compliance with such financial performance covenants shall be
made as if no Material Accounting Changes had been made. The Agent may
determine the Borrower's compliance with such covenants based upon financial
reports and statements provided by the Borrower to the Agent (whether or not
such financial reports and statements are required to be furnished pursuant to
the within Agreement).
ARTICLE 5 of the Loan Agreement is amended by the addition of the
following as Section 5-11A thereof:
5-11A. Coordination with Tranche B Lender
(a) The Agent shall endeavor to coordinate the application of the
financial reporting requirements included in the Loan Documents with those which
are imposed upon the Borrower under the Tranche B Loan Documents, with a view
towards the containment of compliance costs to, and avoidance of the imposition
of redundant compliance burdens on, the Borrower on account of such financial
reporting requirements imposed under the Tranche B Loan documents and those
which are included herein.
..9..
<PAGE> 10
(b) The Borrower hereby consents to and authorizes the Agent to
provide the Tranche B Lender with copies of all financial statements, reports,
analysis, inventory appraisals, field audits, and other materials received or
developed by or for the Agent in the Agent's administration of the financial
transaction contemplated by the Loan Documents and to share all information and
opinions likewise received, developed, or reached by the Agent in such
administration.
SECTION 7-4 of the Loan Agreement is amended to read as follows:
7-4. Proceeds and Collection of Accounts.
(a) All Receipts constitute Collateral and proceeds of Collateral
and shall be held in trust by the Borrower for the Agent; shall not be
commingled with any of the Borrower's other funds; and shall be deposited and/or
transferred only to the Concentration Account.
(b) The Borrower shall cause the ACH or wire transfer to the
Concentration Amount, no less frequently than daily (and whether or not there is
then an outstanding balance in the Loan Account) of
(i) the then contents of each DDA (other than the Funding
Account), each such transfer to be net of any minimum balance, not to
exceed, with respect to each such DDA, the aggregate of $1,000.00 plus
not more than the sales deposited to that DDA since the then most recent
Business Day); and
(ii) the proceeds of all credit card charges not otherwise
provided for pursuant hereto.
At the Agent's request, from time to time, telephone advice (confirmed by
written notice) shall be provided to the Agent on each Business Day on which any
such transfer is made.
(c) In the event that, notwithstanding the provisions of this
Section 7-4, the Borrower receives or otherwise has dominion and control
of any Receipts, or any proceeds or collections of any Collateral, at a
time when such Receipts are to be transferred to the Concentration
Account, such Receipts, proceeds, and collections shall be held in trust
by the Borrower for the Agent and shall not be commingled with any of the
Borrower's other funds or deposited in any account of the Borrower other
than as instructed by the Agent.
SECTION 10-6 of the Loan Agreement is amended by the addition of the
following as Section (c) thereof:
(c) The occurrence of any "Event of Default" within the meaning of
the Tranche B Loan Agreement.
SECTION 12-1 of the Loan Agreement is amended so that the following
notice addresses, included therein, read as follows:
..10..
<PAGE> 11
If to the Agent:
BankBoston Retail Finance Inc., Agent
40 Broad Street
Boston, Massachusetts 02109
Attention : Mr. Michael Pizette
Director
Fax : 617 434-4312
Copies of Notices to the Borrower:
Sonnenschein, Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention : Neal Aizenstein, Esquire and Attorney Victoria Gilbert
Fax : 312 876-7934
SECTION 14-7 of the Loan Agreement is amended by the addition of the
following Section:
(e) Prior to, or within a reasonable period after, the Agent's charging
any cost or expense to the Borrower as provided in this Section 14-7, the Agent
shall provide the Borrower with a copy of the invoice against which such cost or
expense was so charged or other written explanation of such charge or expense.
EXHIBIT 4-4, annexed to this First Amendment, is added as EXHIBIT 4-2 of
the Loan Agreement.
EXHIBIT 5-12, annexed to this First Amendment, is added as EXHIBIT 5-12
of the Loan Agreement.
2. CONDITIONS TO EFFECTIVENESS OF AMENDMENT
The within Amendment shall be effective if each of the following
conditions is satisfied on or before July 31, 1998 and on the date on which such
amendment is to take effect, no Event of Default (as defined in the Loan
Agreement) is extant:
(1) Receipt by the Agent of a Certificate setting forth the text of the
resolutions adopted by the Directors of the Borrower authorizing the Borrower's
execution of the within Amendment, and attesting to the authority of the persons
who executed the within Amendment on behalf of the Borrower.
(2) Receipt by the Agent of a Certificate, executed by the Borrower's
President and its Chief Financial Officer, respectively confirming that no Event
of Default has occurred.
(3) Receipt by the Agent of an opinion of counsel to the Borrower as to
the due execution and effectiveness of the within Amendment (which opinion is
subject only to the same qualifications as had been included in the opinion
delivered by that counsel at the initial execution of the Loan Agreement).
..11..
<PAGE> 12
(4) Satisfaction of all Conditions Precedent to the closing on the
Tranche B Loan (as defined in the foregoing Amendment (or the due waiver of one
or more of such Conditions Precedent by the Tranche B Lender (likewise so
defined)).
The Borrower hereby represents that, at the execution of the within
Agreement, no Event of Default has occurred.
Except as amended hereby, all terms and provisions of the Loan
Agreement, as originally executed, shall remain in full force and effect.
..12..
<PAGE> 13
FACTORY CARD OUTLET OF AMERICA, LTD.
("BORROWER")
By_________________________________
Print Name:________________________________
Title:________________________________
BANKBOSTON RETAIL FINANCE INC.
("AGENT")
By_________________________________
Print Name:________________________________
Title:________________________________
The "LENDERS"
BANKBOSTON RETAIL FINANCE INC.
By_________________________________
Print Name:________________________________
Title:________________________________
BANKAMERICA BUSINESS CREDIT, INC.
By_________________________________
Print Name:________________________________
Title:________________________________
..13..
<PAGE> 1
EXHIBIT 10.2
===============================================
TERM LOAN AND SECURITY AGREEMENT
===============================================
Back Bay Capital, LLC
THE LENDER
===============================================
===============================================
FACTORY CARD OUTLET OF AMERICA, LTD.
THE BORROWER
===============================================
............
316169.5
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS:
ARTICLE 2 - THE TERM LOAN:
2-1. Commitment To Make Term Loan . 14 .
----------------------------------------------------------
2-2. The Term Note . 14 .
----------------------------------------------------------
2-3. Payment of Principal of the Term Loan . 14 .
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2-4. Interest. . 14 .
----------------------------------------------------------
2-5. Commitment Fee . 15 .
----------------------------------------------------------
2-6. Anniversary Fee . 16 .
----------------------------------------------------------
2-7. Collateral Monitoring Fee . 16 .
----------------------------------------------------------
2-8. Lender's Discretion . 16 .
----------------------------------------------------------
ARTICLE 3 - CONDITIONS PRECEDENT:
3-1. Corporate Due Diligence. . 17 .
----------------------------------------------------------
3-2. Opinion. . 17 .
----------------------------------------------------------
3-3. Intercreditor Agreement. . 17 .
----------------------------------------------------------
3-4. Warrants. . 17 .
----------------------------------------------------------
3-5. Additional Documents. . 17 .
----------------------------------------------------------
3-6. Officers' Certificates. . 17 .
----------------------------------------------------------
3-7. Representations and Warranties. . 17 .
----------------------------------------------------------
3-8. Amendment of Tranche A Loan. . 18 .
----------------------------------------------------------
3-9. All Fees and Expenses Paid. . 18 .
----------------------------------------------------------
3-10. No Event of Default. . 18 .
----------------------------------------------------------
3-11. No Adverse Change. . 18 .
----------------------------------------------------------
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
4-1. Payment and Performance of Liabilities. . 18 .
----------------------------------------------------------
4-2. Due Organization - Corporate Authorization - No Conflicts. . 18 .
----------------------------------------------------------
4-3. Trade Names. . 19 .
----------------------------------------------------------
4-4. Infrastructure. . 20 .
----------------------------------------------------------
4-5. Locations. . 20 .
----------------------------------------------------------
4-6. Title to Assets. . 21 .
----------------------------------------------------------
4-7. Indebtedness . 22 .
----------------------------------------------------------
4-8. Insurance Policies. . 22 .
----------------------------------------------------------
4-9. Licenses . 23 .
----------------------------------------------------------
4-10. Leases. . 23 .
----------------------------------------------------------
4-11. Requirements of Law . 24 .
----------------------------------------------------------
4-12. Maintain Properties . 24 .
----------------------------------------------------------
4-13. Pay Taxes. . 24 .
----------------------------------------------------------
4-14. No Margin Stock. . 26 .
----------------------------------------------------------
4-15. ERISA . 26 .
----------------------------------------------------------
4-17. Litigation . 27 .
----------------------------------------------------------
4-18. Dividends or Investments . 27 .
----------------------------------------------------------
4-19. Loans . 27 .
----------------------------------------------------------
4-20. Protection of Assets . 28 .
----------------------------------------------------------
4-21. Line of Business . 28 .
----------------------------------------------------------
4-22. Affiliate Transactions . 28 .
----------------------------------------------------------
.ii.
<PAGE> 3
4-23. Additional Assurances . 28 .
----------------------------------------------------------
4-24. Adequacy of Disclosure . 29 .
----------------------------------------------------------
4-25. Other Covenants . 29 .
----------------------------------------------------------
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5-1. Maintain Records . 30 .
----------------------------------------------------------
5-2. Access to Records . 30 .
----------------------------------------------------------
5-3. Immediate Notice to Lender . 31 .
----------------------------------------------------------
5-4. Financial Reports Provided to Tranche A Agent . 32 .
----------------------------------------------------------
5-5. Annual Reports . 32 .
----------------------------------------------------------
5-6. Officers' Certificates . 33 .
----------------------------------------------------------
5-7. Inventories, Appraisals, and Audits . 34 .
----------------------------------------------------------
5-8. Additional Financial Information . 35 .
----------------------------------------------------------
5-9. Coordination With Tranche A Agent . 36 .
----------------------------------------------------------
5-10. Financial Performance Covenants . 36 .
----------------------------------------------------------
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL:
6-1. Use of Inventory Collateral . 36 .
----------------------------------------------------------
6-2. Inventory Quality . 37 .
----------------------------------------------------------
6-3. Adjustments and Allowances . 37 .
----------------------------------------------------------
6-4. Validity of Accounts . 37 .
----------------------------------------------------------
6-5. Notification to Account Debtors . 37 .
----------------------------------------------------------
ARTICLE 7 - GRANT OF SECURITY INTEREST:
7-1. Grant of Security Interest . 37 .
----------------------------------------------------------
7-2. Extent and Duration of Security Interest . 38 .
----------------------------------------------------------
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
8-1. Appointment as Attorney-In-Fact . 38 .
----------------------------------------------------------
8-2. No Obligation to Act . 39 .
----------------------------------------------------------
ARTICLE 9 - EVENTS OF DEFAULT:
9-1. Failure to Pay Term Loan . 40 .
----------------------------------------------------------
9-2. Failure To Make Other Payments . 40 .
----------------------------------------------------------
9-3. Failure to Perform Covenant or Liability (No Grace Period) . 40 .
----------------------------------------------------------
9-4. Failure to Perform Covenant or Liability (Grace Period) . 40 .
----------------------------------------------------------
9-5. Misrepresentation . 40 .
----------------------------------------------------------
9-6. Acceleration of Other Debt. Breach of Lease . 40 .
----------------------------------------------------------
9-7. Default Under Other Agreements . 41 .
----------------------------------------------------------
9-8. Casualty Loss. . 41 .
----------------------------------------------------------
9-9. Judgment. Restraint of Business . 41 .
----------------------------------------------------------
9-10. Business Failure . 41 .
----------------------------------------------------------
9-11. Bankruptcy . 42 .
----------------------------------------------------------
9-12. Indictment - Forfeiture . 42 .
----------------------------------------------------------
9-13. Default by Guarantor, Parent, or Related Entity . 42 .
----------------------------------------------------------
9-14. Termination of Guaranty . 42 .
----------------------------------------------------------
9-15. Challenge to Loan Documents . 42 .
----------------------------------------------------------
9-16. Change in Control. . 43 .
----------------------------------------------------------
.iii.
<PAGE> 4
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT:
10-1. Rights of Enforcement . 43 .
----------------------------------------------------------
10-2. Sale of Collateral . 44 .
----------------------------------------------------------
10-3. Occupation of Business Location . 44 .
----------------------------------------------------------
10-4. Grant of Nonexclusive License. . 45 .
----------------------------------------------------------
10-5. Assembly of Collateral . 45 .
----------------------------------------------------------
10-6. Rights and Remedies . 45 .
----------------------------------------------------------
ARTICLE 11 - NOTICES:
11-1. Notice Addresses . 45 .
----------------------------------------------------------
11-2. Notice Given . 46 .
----------------------------------------------------------
ARTICLE 12 - MATURITY OF THE TERM LOAN:
12-1. Maturity . 47 .
----------------------------------------------------------
ARTICLE 13 - GENERAL:
13-1. Payments . 47 .
----------------------------------------------------------
13-2. Protection of Collateral . 47 .
----------------------------------------------------------
13-3. Successors, Assigns And Delegation of Authority. . 48 .
----------------------------------------------------------
13-4. Severability . 48 .
----------------------------------------------------------
13-5. Amendments. Course of Dealing . 48 .
----------------------------------------------------------
13-6. Power of Attorney . 49 .
----------------------------------------------------------
13-7. Application of Proceeds . 49 .
----------------------------------------------------------
13-8. Lender's Costs and Expenses . 49 .
----------------------------------------------------------
13-9. Copies and Facsimiles . 50 .
----------------------------------------------------------
13-10. Massachusetts Law . 50 .
----------------------------------------------------------
13-11. Consent to Jurisdiction . 50 .
----------------------------------------------------------
13-12. Indemnification . 51 .
----------------------------------------------------------
13-13. Rules of Construction. . 51 .
----------------------------------------------------------
13-14. Intent . 53 .
----------------------------------------------------------
13-15. Right of Set-Off . 53 .
----------------------------------------------------------
13-16. Maximum Interest Rate. . 53 .
----------------------------------------------------------
13-17. Waivers. . 53 .
----------------------------------------------------------
.iv.
<PAGE> 5
.v.
<PAGE> 6
EXHIBITS
2-2 : Term Note
2-4(c) : PIK Note
3-11 : Certain Events
3-4 : Outline of Warrants
4-2 : Related Entities
4-3 : Trade Names
4-4 : Year 2000 Problem
4-5 : Locations, Leases, and Landlords
4-6 : Encumbrances
4-7 : Indebtedness
4-8 : Insurance Policies
4-10 : Capital Leases
4-13 : Taxes
4-17 : Litigation
5-4 : Borrowing Base Certificate
5-10(a) : Financial Performance Covenants
5-10(b) : Supplemental Financial Performance Covenants
.vi.
<PAGE> 7
================================================================================
TERM LOAN AND SECURITY AGREEMENT BACK BAY CAPITAL, LLC
================================================================================
July 17, 1998
THIS AGREEMENT is made between
Back Bay Capital, LLC (the "LENDER"), a Delaware limited liability
company with offices at 40 Broad Street, Boston, Massachusetts 02109,
and
Factory Card Outlet of America, Ltd. (hereinafter, the "BORROWER"), an
Illinois corporation with its principal executive offices at 2727 Diehl
Road, Naperville, Illinois 60563
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
ARTICLE 1 - DEFINITIONS:
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"ACCOUNTS" and "ACCOUNTS RECEIVABLE" include, without limitation,
"accounts" as defined in the UCC, and also all: accounts, accounts
receivable, credit card receivables, notes, drafts, acceptances, and
other forms of obligations and receivables and rights to payment for
credit extended and for goods sold or leased, or services rendered,
whether or not yet earned by performance; all "contract rights" as
formerly defined in the UCC; all Inventory which gave rise thereto,
and all rights associated with such Inventory, including the right
of stoppage in transit; all reclaimed, returned, rejected or
repossessed Inventory (if any) the sale of which gave rise to any
Account.
"ACCOUNT DEBTOR":Has the meaning given that term in the UCC.
"AFFILIATE": With respect to any two Persons, a relationship in which (a)
one holds, directly or
.1.
<PAGE> 8
indirectly, not less than Twenty Five Percent (25%) of the capital
stock, beneficial interests, partnership interests, or other equity
interests of the other; or (b) one has, directly or indirectly, the
right, under ordinary circumstances, to vote for the election of a
majority of the directors (or other body or Person who has those
powers customarily vested in a board of directors of a
corporation); or (c) not less than Twenty Five Percent (25%) of
their respective ownership is directly or indirectly held by the
same third Person.
"AGGREGATE INDEBTEDNESS COVENANT":Is defined on EXHIBIT 5-10(b), annexed
hereto.
"ANNIVERSARY FEE":Is defined in Section 2-6.
"BANKRUPTCY CODE":Title 11, U.S.C., as amended from time to time.
"BASELINE COVENANT":Is defined on EXHIBIT 5-10(a), annexed hereto.
"BORROWER": Is defined in the Preamble.
"BUSINESS DAY": Any day other than (a) a Saturday or Sunday; (b) any day
on which banks in Boston, Massachusetts or Chicago, Illinois,
generally are not open to the general public for the purpose of
conducting commercial banking business; or (c) a day on which the
Lender is not open to the general public to conduct business.
"BUSINESS PLAN": The Borrower's Business Plan provided, from time to
time, to the Tranche A Agent as provided in the Tranche A Loan
Agreement, provided, however, in the event of the termination of the
Tranche A Loan Agreement, those provisions of the Tranche A Loan
Agreement which require the Borrower's submission of a "Business
Plan" shall be deemed, for purposes of this Agreement, to remain in
full force and effect.
"CAPITAL LEASE": Any lease which may be capitalized in accordance with
GAAP.
"CHANGE IN CONTROL": The occurrence of any of the following:
(a) The acquisition, by any Person or by any group (within the
meaning of Section 13(d)(3) of the Exchange Act) or by any Person,
of beneficial ownership (within the meaning of Rule 13d-3 of the
Exchange Act) directly or indirectly of Fifty Percent
.2.
<PAGE> 9
(50%) or more of the issued and outstanding capital stock of the
Parent having the right, under ordinary circumstances, to vote for
the election of directors of the Parent, provided, however, a
"Change in Control" shall not be deemed to have occurred by reason
of such acquisition of Fifty Percent (50%) or more of such capital
stock if such Person or group holds such voting power (in good faith
and not for the purpose of circumventing the effect of Section 9-16)
as an agent, bank, broker, nominee, trustee, or holder of revocable
proxies given in response to a solicitation pursuant to the Exchange
Act, for one or more beneficial owners of such stock who do not,
individually, or, in a group acting in concert, as a group, have the
voting power specified in this clause.
(b) More than half of the persons who were directors of the
Parent (or of any parent of the Parent) on the first day of any
period consisting of six (6) consecutive calendar months (the first
of which six (6) month periods commencing with the first day of the
month during which the within Agreement was executed), cease, for
any reason other than death or disability, to be directors of the
Parent (or such parent, as applicable).
"CHATTEL PAPER": Has the meaning given that term in the UCC.
"CLOSING": The delivery, to the Lender, by, or on behalf of the Borrower,
at the offices of the Lender's counsel in Boston, Massachusetts, of
those of the Loan Documents to be executed by or on behalf of the
Borrower.
"COLLATERAL":Is defined in Section 7-1.
"COLLATERAL MONITORING FEE":Is defined in Section 2-7.
"COMMITMENT FEE": Is defined in Section 2-5.
"CONSOLIDATED": When used to modify a financial term, test, statement, or
report, refers to the application or preparation of such term, test,
statement, or report (as appropriate) based upon the consolidation,
in accordance with GAAP, of the financial condition or operating
results of the Borrower and the Parent.
"CONSOLIDATED CAPITAL EXPENDITURES": Cash payments for the purchase of
assets or the incurrence of liabilities, the purchase or incurrence
of which may be capitalized in accordance with GAAP.
.3.
<PAGE> 10
"CONSOLIDATED EBITDA": The Borrower's Consolidated earnings (excluding
any non-cash restructuring charges, non-cash write-offs or
write-downs of capital assets) before interest, taxes, depreciation,
and amortization, each as determined in accordance with GAAP.
"CONSOLIDATED FIXED CHARGES": Cash payments for Consolidated Capital
Expenditures and income taxes.
"CONSOLIDATED FIXED CHARGE RATIO": The following, for the period being
calculated:
(Consolidated EBITDA minus Consolidated Fixed Charges)
(Cash payments of principal of all funded debt other than the
Revolving Credit plus cash payments of interest on all funded debt
plus cash payments on Capital Leases)
"CONSOLIDATED NET INCOME": The Borrower's net income, as determined in
accordance with GAAP, provided, however, in the event of a Material
Accounting Change, "Consolidated Net Income" shall be determined as
if such Material Accounting Change had not taken effect.
"COSTS OF COLLECTION" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by
the Lender's attorneys, and all reasonable costs incurred by the
Lender in the administration of the Liabilities and/or the Loan
Documents, including, without limitation, reasonable costs and
expenses associated with travel on behalf of the Lender, which costs
and expenses are directly or indirectly related to or in respect of
the Lender's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan Document; or
efforts to preserve, protect, collect, or enforce the Collateral,
the Liabilities, and/or the Lender's Rights and Remedies and/or any
of the Lender's rights and remedies against or in respect of any
guarantor or other person liable in respect of the Liabilities
(whether or not suit is instituted in connection with such efforts).
Following the occurrence of any Event of Default, "Costs of
Collection" also includes all attorneys' reasonable fees and
reasonable out-of-pocket expenses incurred by each Participant's
attorneys (including, for such purpose, the reasonably allocated
cost of a Participant's in-house counsel), and all reasonable costs
incurred by each Lender in connection with efforts to preserve,
protect, collect, or enforce
.4.
<PAGE> 11
the Collateral, the Liabilities, and/or the Lender's Rights and
Remedies. The Costs of Collection are Liabilities, and at the
Lender's option may bear interest at the highest post-default rate
which the Lender may charge the Borrower hereunder as if such had
been lent, advanced, and credited by the Lender to, or for the
benefit of, the Borrower.
"DOCUMENTS":Has the meaning given that term in the UCC.
"DOCUMENTS OF TITLE": Has the meaning given that term in the UCC.
"EMPLOYEE BENEFIT PLAN":As defined in ERISA.
"ENCUMBRANCE": Each of the following:
(a) Any security interest, mortgage, pledge, hypothecation,
lien, attachment, or charge of any kind (including any agreement to
give any of the foregoing); the interest of a lessor under a
Capital Lease; conditional sale or other title retention agreement;
sale of accounts receivable or chattel paper; or other arrangement
pursuant to which any Person is entitled to any preference or
priority with respect to the property or assets of another Person
or the income or profits of such other Person or which constitutes
an interest in property to secure an obligation; each of the
foregoing whether consensual or non-consensual and whether arising
by way of agreement, operation of law, legal process or otherwise.
(b) The filing of any financing statement under the UCC or
comparable law of any jurisdiction.
"ENVIRONMENTAL LAWS": All of the following:
(a) Any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements which regulate or relate to, or impose any standard of
conduct or liability on account of or in respect to environmental
protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.
(b) The common law relating to damage to Persons or property
from Hazardous Materials.
"EQUIPMENT": Includes, without limitation, "equipment" as defined in the
UCC, and also all motor vehicles, rolling stock, machinery, office
equipment, plant equipment, tools, dies, molds,
.5.
<PAGE> 12
store fixtures, furniture, and other goods, property, and assets
which are used and/or were purchased for use in the operation or
furtherance of the Borrower's business, and any and all accessions
or additions thereto, and substitutions therefor.
"ERISA": The Employee Retirement Security Act of 1974, as amended.
"ERISA AFFILIATE": Any Person which is under common control with the
Borrower within the meaning of Section 4001 of ERISA or is part of a
group which includes the Borrower and which would be treated as a
single employer under Section 414 of the Internal Revenue Code of
1986, as amended.
"EVENTS OF DEFAULT": Is defined in Article 9. Each reference herein to an
"Event of Default" is to an Event of Default not then duly waived by
the Lender in the manner prescribed in Section 13-5(b). In the
event of such due waiver, the so-waived Event of Default shall be
deemed never to have occurred (other than with respect to any Costs
of Collection incurred by any Participant prior to such waiver).
"EXCHANGE ACT":The Securities Exchange Act of 1934, as amended.
"FIXTURES": Has the meaning given that term in the UCC.
"GAAP": Principles which are consistent with those promulgated or adopted
by the Financial Accounting Standards Board and its predecessors (or
successors) in effect and applicable to that accounting period in
respect of which reference to GAAP is being made, provided, however,
in the event of a Material Accounting Change, then unless otherwise
specifically agreed to by the Lender, (a) the Borrower's compliance
with the financial performance covenants imposed pursuant to Section
5-10 shall be determined as if such Material Accounting Change had
not taken place and (b) the Borrower shall include, with its
monthly, quarterly, and annual financial statements a schedule,
certified by the Borrower's chief financial officer, on which the
effect of such Material Accounting Change to the statement with
which provided shall be described.
"GENERAL INTANGIBLES": Includes, without limitation, "general
intangibles" as defined in the UCC; and also all: rights to payment
for credit extended; deposits; amounts due to the Borrower; credit
memoranda in favor of the Borrower; warranty claims; tax refunds and
.6.
<PAGE> 13
abatements; insurance refunds and premium rebates; all means and
vehicles of investment or hedging, including, without limitation,
options, warrants, and futures contracts; records; customer lists;
telephone numbers; goodwill; causes of action; judgments; payments
under any settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights of
admission; licenses; franchises; license agreements, including all
rights of the Borrower to enforce same; permits, certificates of
convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents
pending, and other intellectual property; internet addresses and
domain names; developmental ideas and concepts; proprietary
processes; blueprints, drawings, designs, diagrams, plans, reports,
and charts; catalogs; manuals; technical data; computer software
programs (including the source and object codes therefor), computer
records, computer software, rights of access to computer record
service bureaus, service bureau computer contracts, and computer
data; tapes, disks, semi-conductors chips and printouts; trade
secrets rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and
other manuals and materials; trade names, trademarks, service
marks, and all goodwill relating thereto; applications for
registration of the foregoing; and all other general intangible
property of the Borrower in the nature of intellectual property;
proposals; cost estimates, and reproductions on paper, or
otherwise, of any and all concepts or ideas, and any matter related
to, or connected with, the design, development, manufacture, sale,
marketing, leasing, or use of any or all property produced, sold or
leased, by the Borrower or credit extended or services performed,
by the Borrower, whether intended for an individual customer or the
general business of the Borrower, or used or useful in connection
with research by the Borrower.
"GOODS": Has the meaning given that term in the UCC.
"HAZARDOUS MATERIALS": Any (a) hazardous materials, hazardous waste,
hazardous or toxic substances, petroleum products, which (as to any
of the foregoing) are defined or regulated as a hazardous material
in or under any Environmental Law and (b) oil in any physical state.
"INDEBTEDNESS": All indebtedness and obligations of or assumed by any
Person on account of or in respect to any of the following:
(a) In respect of money borrowed (including any indebtedness
which is
.7.
<PAGE> 14
non-recourse to the credit of such Person but which is secured by an
Encumbrance on any asset of such Person) whether or not evidenced by
a promissory note, bond, debenture or other written obligation to
pay money.
(b) In connection with any letter of credit or acceptance
transaction (including, without limitation, the undrawn face amount
of all undrawn letters of credit and acceptances issued for the
account of such Person or reimbursement on account of which such
Person would be obligated).
(c) In connection with the sale or discount of accounts
receivable or chattel paper of such Person.
(d) On account of deposits or advances.
(e) As lessee under Capital Leases.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance on
any asset of such Person, whether or not such Indebtedness is
assumed by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint venture
in which such Person is a general partner or joint venturer.
"INDEMNIFIED PERSON":Is defined in Section 13-12.
"INSTRUMENTS": Has the meaning given that term in the UCC.
"INVENTORY": Includes, without limitation, "inventory" as defined in the
UCC and also all: packaging, advertising, and shipping materials
related to any of the foregoing, and all names or marks affixed or
to be affixed thereto for identifying or selling the same; Goods
held for sale or lease or furnished or to be furnished under a
contract or contracts of sale or service by the Borrower, or used or
consumed or to be used or consumed in the Borrower's business; Goods
of said description in transit: returned, repossessed and rejected
Goods of said description; and all documents (whether or not
negotiable) which represent any of the foregoing.
"INVESTMENT PROPERTY": Has the meaning given that term in the UCC.
.8.
<PAGE> 15
"LEASE": Any lease or other agreement, no matter how styled or
structured, pursuant to which the Borrower is entitled to the use or
occupancy of any space.
"LEASEHOLD INTEREST":Any interest of the Borrower as lessee under any
Lease.
"LENDER":Is defined in the Preamble to the within Agreement.
"LENDER'S RIGHTS AND REMEDIES": Is defined in Section 10-6.
"LIABILITIES" (in the singular, "LIABILITY") includes, without
limitation, all and each of the following, whether now existing or
hereafter arising:
(a) Any and all direct and indirect liabilities, debts, and
obligations of the Borrower to the Lender under this Agreement or
any of the Loan Documents, each of every kind, nature, and
description.
(b) Each obligation to repay any loan, advance, indebtedness,
note, obligation, overdraft, or amount now or hereafter owing by
the Borrower to the Lender under this Agreement or any of the Loan
Documents (including all future advances whether or not made
pursuant to a commitment by the Lender ), whether or not any of
such are liquidated, unliquidated, primary, secondary, secured,
unsecured, direct, indirect, absolute, contingent, or of any other
type, nature, or description, or by reason of any cause of action
which the Lender may hold against the Borrower.
(c) The Term Note, any PIK Note, and all notes and other
obligations of the Borrower under the Loan Documents which are now
or hereafter assigned to or held by the Lender , each of every
kind, nature, and description.
(d) All interest, fees, and charges and other amounts which
may be charged by the Lender to the Borrower under this Agreement
or any of the Loan Documents, and/or which may be due from the
Borrower to the Lender from time to time under this Agreement or
any of the Loan Documents.
(e) All costs and expenses incurred or paid by the Lender in
respect of under this Agreement or any of the Loan Documents and
all costs and expenses of each Lender which the Borrower, pursuant
to Section 13-8(b), is obligated to pay (including, without
limitation, Costs of Collection, attorneys' reasonable fees, and
all court and litigation costs and expenses).
.9.
<PAGE> 16
(f) Any and all covenants of the Borrower to or with the
Lender under this Agreement or any of the Loan Documents, and any
and all obligations of the Borrower to act or to refrain from
acting in accordance with under this Agreement or any of the Loan
Documents.
"LOAN DOCUMENTS": The within Agreement, each instrument and document
executed and/or delivered as contemplated by Article 3, below, and
each other instrument or document from time to time executed and/or
delivered in connection with the arrangements contemplated hereby or
in connection with any transaction with the Lender or any Affiliate
of the Lender, including, without limitation, any transaction which
arises out of any cash management, depository, investment, letter of
credit, interest rate protection, or equipment leasing services
provided by the Lender or any Affiliate of the Lender, as each may
be amended from time to time. (The "Loan Documents" do not include
any Tranche A Loan Documents).
"MATERIAL ACCOUNTING CHANGE": Any change in GAAP applicable to accounting
periods subsequent to the Borrower's fiscal year most recently
completed prior to the execution of the within Agreement, which
change has a material effect on the Borrower's financial condition
or operating results, as reflected on financial statements and
reports prepared by or for the Borrower, when compared with such
condition or results as if such change had not taken place or where
preparation of the Borrower's statements and reports in compliance
with such change results in the breach of a financial performance
covenant imposed pursuant to Section 5-10 where such a breach would
not have occurred if such change had not taken place or visa versa.
"MATURITY DATE":The earliest of (a) December 31, 1999.; or (b)the
occurrence of any "Termination Date" within the meaning of the
Tranche A Loan Agreement; or (c) the occurrence of any event
described in Section 9-11, below; or (d) the Lender's notice to the
Borrower setting the Maturity Date on account of the occurrence of
any Event of Default other than as described in Section 9-11, below.
"PARENT":Factory Card Outlet Corp., a Delaware corporation. (The Parent
is a guarantor of
.10.
<PAGE> 17
the Liabilities).
"PARTICIPANT":Is defined in Section 13-15, hereof.
"PERMITTED DISTRIBUTIONS": (a) Cash dividends to the Parent, not to exceed
the following:
(i) The Parent's administrative and other expenses, paid by the
Parent, consistent with practices of prior to January 15, 1998.
(ii) The actual cost to acquire capital stock of the Parent for
use in fulfillment of an employee stock purchase plan which is
included as a component of an Employee Benefit Plan.
(b) Internal transfers to the Parent, consistent with
practices of prior to January 15, 1998.
"PERMITTED ENCUMBRANCES": Those Encumbrances permitted as provided in Section
4-6(a) hereof.
"PERMITTED EQUITY INJECTION" refers to (a) the issuance of capital stock or (b)
the incurrance of indebtedness on terms which are reasonably satisfactory
to the Tranche A Agent which indebtedness is subordinated to the
Borrower's obligations under the Tranche A Loan on terms which are
reasonably satisfactory to the Tranche A Agent.
"PERMITTED INVESTMENT": An investment which fulfills any of the following
numbered criteria, which investment is made solely through BankBoston N.A.
(or other securities intermediary (within the meaning of the UCC) which has
executed a "control agreement" (so-called) in favor of the Tranche A Agent
and the Lender) and maintained on the books and records of said bank or
such securities intermediary as (x)(i) owned by the Borrower and (ii)
subject to a perfected first security interest therein in favor of the
Tranche A Agent and the Lender or (y) held by the Tranche A Agent as
pledgee of the Borrower and as bailee for the Lender:
(1) Debt entitled to the full faith and credit of the United
States with maturities not to exceed ninety-one (91) days.
(2) Banker's Acceptances, "Repo's", or Certificates of Deposit
entitled to the full faith and credit of BankBoston, N.A. or other
bank whose credit rating, as assigned by a national recognized credit
rating service, is equal to, or higher than, that of BankBoston,
N.A.
.11.
<PAGE> 18
(3) Commercial Paper rated A-1/P-1.
(4) Money market funds (so-called) whose investments are
limited to those investments described in (1) through and
including (3) of this Definition.
"PERSON": Any natural person, and any corporation, limited liability
company, trust, partnership, joint venture, or other enterprise or
entity.
"PIK NOTE": Defined in Section 2-4(c).
"PIK RATE": Defined in Section 2-4(c).
"PROCEEDS": Includes, without limitation, "Proceeds" as defined in the
UCC (defined below), and each type of property described in Section
7-1 hereof.
"RECEIPTS": All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral.
"RECEIVABLES COLLATERAL": That portion of the Collateral which consists
of the Borrower's Accounts, Accounts Receivable, General
Intangibles, Chattel Paper, Instruments, Documents of Title,
Documents, Investment Property, letters of credit for the benefit of
the Borrower, and bankers' acceptances held by the Borrower, and any
rights to payment.
"RELATED ENTITY": (a) Any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise which: is a parent,
brother-sister, subsidiary, or affiliate, of the Borrower; could
have such enterprise's tax returns or financial statements
consolidated with the Borrower's; could be a member of the same
controlled group of corporations (within the meaning of Section
1563(a)(1), (2) and (3) of the Internal Revenue Code of 1986, as
amended from time to time) of which the Borrower is a member;
controls or is controlled by the Borrower or by any Affiliate of the
Borrower.
(b) Any Affiliate.
"REQUIREMENT OF LAW": As to any Person:
(a)(i) All statutes, rules, regulations, orders, or other
requirements having the force of law and (ii) all court orders and
injunctions, arbitrator's decisions, and/or similar
.12.
<PAGE> 19
rulings, in each instance ((i) and (ii)) of or by any federal,
state, municipal, and other governmental authority, or court,
tribunal, panel, or other body which has or claims jurisdiction
over such Person, or any property of such Person, or of any other
Person for whose conduct such Person would be responsible.
(b) That Person's charter, certificate of incorporation,
articles of organization, and/or other organizational documents, as
applicable; and (c) that Person's by-laws and/or other instruments
which deal with corporate or similar governance, as applicable.
"TERM NOTE": Is defined in Section 2-2.
"TERM LOAN": Is defined in Section 2-6.
"TRANCHE A AGENT": BankBoston Retail Finance Inc., a Delaware corporation
with its principal executive offices at 40 Broad Street, Boston,
Massachusetts as Agent for the ratable benefit of the lenders under
the Tranche A Loan Agreement, as amended from time to time.
"TRANCHE A LOAN": The revolving credit facility, originally established
as of January 30, 1998, with the Tranche A Agent.
"TRANCHE A LOAN AGREEMENT": The Loan and Security Agreement, dated as of
January 30, 1998, between the Borrower and the Tranche A Agent, as
amended from time to time.
"TRANCHE A LOAN DOCUMENTS": Those instruments and documents which
evidence, govern, and control the Tranche A Loan.
"SEC": The Securities and Exchange Commission.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"YEAR 2000 PROBLEM": The risk that a computer application which is
material to the operation of the Borrower is unlikely to recognize
certain dates or properly perform date sensitive functions involving
dates prior to and after December 31, 1999.
.13.
<PAGE> 20
ARTICLE 2- THE TERM LOAN:
2-1. Commitment To Make Term Loan. Subject to satisfaction of the
Conditions Precedent (Article 3) on or before July 31, 1998 (or the due waiver
(in accordance with Section 13-5(b)) of one or more of such Conditions Precedent
by the Lender), the Borrower shall borrow from the Lender and the Lender shall
lend to the Borrower the sum of $10,000,000.00 (the "TERM LOAN"), repayable with
interest as provided herein. The Term Loan shall be made by transfer to the
Tranche A Agent for application against the then unpaid principal balance of the
Tranche A Loan.
2-2. The Term Note. The obligation to repay the Term Loan, with interest
as provided herein, shall be evidenced by a note (the "TERM NOTE") in the form
of EXHIBIT 2-2, annexed hereto, executed by the Borrower. Neither the original
nor a copy of the Term Note shall be required, however, to establish or prove
any Liability. In the event that the Term Note is ever lost, mutilated, or
destroyed, the Borrower shall execute a replacement thereof and deliver such
replacement to the Lender.
2-3. Payment of Principal of the Term Loan.
(a) The Borrower may repay all or any portion of the principal balance
of the Term Loan from time to time until the Maturity Date. Amounts which are
so prepaid may not be reborrowed.
(b) The Borrower, without notice or demand from the Lender, shall
repay the Tranche A Lender that amount, from time to time, which is necessary so
that the Borrower is in compliance with the BaseLine Covenant .
(c) On the Maturity Date, the Borrower shall repay the then entire
unpaid balance of the Term Loan and all other Liabilities not otherwise duly
waived.
2-4. Interest.
(a) The unpaid principal balance of the Term Loan shall bear interest,
until repaid (calculated based upon a 360-day year and actual days elapsed),
fixed at 14.5% per annum, payable as follow:
(b) Interest on the unpaid principal balance of the Term loan, at
12.0% per annum shall be payable monthly in arrears, on the first day of each
month, and on the Maturity Date.
(c) Interest on the unpaid principal balance of the Term loan, at 2.5%
per annum (the "PIK RATE") , shall be evidenced by a series of Notes (each, a
"PIK NOTE"), each substantially in the form of EXHIBIT2-4(C), annexed hereto.
(i) A PIK Note shall be prepared and dated by the Lender as of
the last
.14.
<PAGE> 21
day of each of the Borrower's fiscal quarters, for accrued interest, at
the PIK Rate, since the date (if any) of the then most recent PIK Note;
shall be presented to the Borrower; and in the absence of manifest error,
shall be accepted by the Borrower and returned to the Lender within five
(5) Business Days of when so presented. Each PIK Note shall mature on the
Maturity Date, on which date (unless waived in accordance with Section
2-4(c)(iv)) the then unpaid principal balance of the PIK Note, and all
accrued interest at the PIK Rate which has not then been added to the
unpaid principal balance of the PIK Note, shall be due and payable.
(ii) The unpaid principal balance of each PIK Note shall bear
interest (computed on a 360 day year and actual days elapsed) at the rate
of 12.5% per annum, which interest shall be compounded quarterly and
added to the then unpaid principal balance of such PIK Note as of the
first day of each fiscal quarter thereafter.
(iii) Neither the original nor a copy of any PIK Note shall be
required, however, to establish or prove any Liability on account of
interest at the PIK Rate. In the event that any PIK Note is ever lost,
mutilated, or destroyed, the Borrower shall execute a replacement thereof
and deliver such replacement to the Lender.
(iv) The Borrower's obligations under all PIK Notes, including each
PIK Note's unpaid principal balance and accrued interest which has not
then been added to the unpaid principal balance of a PIK Note, shall be
waived by the Lender in the event that on or prior to January 31, 1999,
the Term Loan, and all and any other amounts then payable hereunder
(other than interest at the PIK Rate) have been paid in full by the
Borrower (as distinguished from payment by reason of the application of
the proceeds of Collateral following the Lender's exercise of its rights
upon the occurrence of an Event of Default).
(d) Following the occurrence of any Event of Default (and whether or
not the Lender exercises any of the Lender's rights on account of such Event of
Default),
(i) the then unpaid principal balance of the Term Loan shall bear
interest, at the Lender's option, at 16.5% per annum; and
(ii) the then unpaid principal balance of each PIK Note shall
bear interest, at the Lender's option, at 14.5% per annum
2-5. Commitment Fee.
(a) As compensation for the Lender's having made the Term Loan, the
Lender has earned the "COMMITMENT FEE" (so referred to herein) of $350,000.00.
(b) The Commitment Fee shall be paid as follows:
(i) $175,000.00 has been paid prior to the execution of this
Agreement.
(ii) $175,000.00 shall be paid immediately following the making
of the Term
.15.
<PAGE> 22
Loan.
2-6. Anniversary Fee. Unless, prior to July 1, 1999, the Term Loan, and all
and any other amounts then payable hereunder have been paid in full by the
Borrower (as distinguished from payment by reason of the application of the
proceeds of Collateral following the Lender's exercise of its rights upon the
occurrence of an Event of Default), the Lender shall have earned, and the
Borrower shall pay on that date, the "ANNIVERSARY FEE" (so referred to herein)
of $200,000.00.
2-7. Collateral Monitoring Fee. As compensation for its monitoring the
Borrower's compliance with this Agreement, the Lender shall be paid a
"COLLATERAL MONITORING FEE" (so referred to herein) of $3,000.00, on the first
day of any month on which there is an unpaid principal balance of the Term Loan.
2-8. Lender's Discretion.
(a) Each reference in the Loan Documents to the exercise of discretion or
the like by the Lender shall be to that Person's exercise of its commercially
reasonable judgement, in good faith (which shall be presumed), based upon that
Person's consideration of any such factor as the Lender, taking into account
information of which that Person then has actual knowledge, believes:
(i) Will or reasonably could be expected to affect the value of the
Collateral, the enforceability of the Lender's security and collateral
interests therein, or the amount which the Lender would likely realize
therefrom (taking into account delays which may possibly be encountered
in the Lender's realizing upon the Collateral and likely Costs of
Collection).
(ii) Indicates that any report or financial information delivered to
the Lender by or on behalf of the Borrower is incomplete, inaccurate, or
misleading in any material manner or was not prepared in accordance with
the requirements of the within Agreement.
(iii) Suggests an increase in the likelihood that the Borrower will
become the subject of a bankruptcy or insolvency proceeding.
(iv) Constitutes an Event of Default.
(b) The burden of establishing the failure of the Lender to have acted in
a reasonable manner in such Person's exercise of discretion shall be the
Borrower's.
ARTICLE 3 - CONDITIONS PRECEDENT:
As a condition to the effectiveness of this Agreement and the making of
the Term Loan, each of the documents respectively described in Sections 3-1
through and including 3-6, (each in form and
.16.
<PAGE> 23
substance satisfactory to the Lender) shall have been delivered to the Lender,
and the conditions respectively described in Sections 3-7 through and including
3-11, shall have been satisfied:
3-1. Corporate Due Diligence.
(a) A Certificate of corporate good standing issued by the Secretary of
State of Illinois.
(b) Certificates of due qualification, in good standing, issued by the
Secretary(ies) of State of each State in which the Borrower is qualified to do
business.
(c) A Certificate of the Borrower's Secretary of the due adoption,
continued effectiveness, and setting forth the texts of, each corporate
resolution adopted in connection with the establishment of the loan arrangement
contemplated by the Loan Documents and attesting to the true signatures of each
Person authorized as a signatory to any of the Loan Documents.
3-2. Opinion. An opinion of counsel to the Borrower in form and substance
satisfactory to the Lender.
3-3. Intercreditor Agreement. An Intercreditor Agreement with the Tranche A
Agent in form and substance satisfactory to the Lender.
3-4. Warrants. There shall have been issued to those Persons designated by
the Lender, Warrants to purchase the common stock of the Parent as outlined on
EXHIBIT 3-4, annexed hereto.
3-5. Additional Documents. Such additional instruments and documents as the
Lender or its counsel reasonably may require or request.
3-6. Officers' Certificates. Certificates executed by the President and the
Chief Financial Officer of the Borrower and stating that the representations and
warranties made by the Borrower to the Lender in the Loan Documents are true and
complete as of the date of such Certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or both)
would be an Event of Default.
3-7. Representations and Warranties. Each of the representations made by or
on behalf of the Borrower in this Agreement or in any of the other Loan
Documents or in any other report, statement, document, or paper provided by or
on behalf of the Borrower shall be true and complete as of
.17.
<PAGE> 24
the date as of which such representation or warranty was made.
3-8. Amendment of Tranche A Loan. The amendment of the Tranche A Loan as
contemplated by the letter agreement, dated on or about July 2, 1998, between
the Tranche A Agent and the Borrower (or the amendment of the Tranche A Loan
contemporaneous with the closing on the Term Loan).
3-9. All Fees and Expenses Paid. All fees due at or immediately after the
first funding under the Term Loan and all out of pocket costs and expenses
incurred by the Lender in connection with the establishment of the credit
facility contemplated hereby (including the reasonable fees and expenses of
counsel to the Lender) shall have been paid.
3-10. No Event of Default. No Event of Default shall have occurred.
3-11. No Adverse Change. Except as described on EXHIBIT 3-11, annexed
hereto, no event shall have occurred or failed to occur, which occurrence or
failure is or could have a materially adverse effect upon the Borrower's
financial condition when compared with such financial condition at the end of
the Borrower's fiscal May, 1998.
No document shall be deemed delivered to the Lender until received and accepted
by the Lender at its head offices in Boston, Massachusetts or at the Closing.
Under no circumstances will the within Agreement take effect until executed and
accepted by the Lender at said head office.
ARTICLE 4 - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:
To induce the Lender to make the Term Loan, the Borrower, in addition to
all other representations, warranties, and covenants made by the Borrower in any
other Loan Document, makes those representations, warranties, and covenants
included in the within Agreement.
4-1. Payment and Performance of Liabilities. The Borrower shall pay each
Liability when due (or when demanded if payable on demand) and shall promptly,
punctually, and faithfully perform each other Liability.
4-2. Due Organization- Corporate Authorization - No Conflicts.
(a) The Borrower presently is and shall hereafter remain in good
standing as an Illinois corporation and is and shall hereafter remain duly
qualified and in good standing in every other State in which, by reason of the
nature or location of the Borrower's assets or operation of the Borrower's
.18.
<PAGE> 25
business, such qualification is necessary.
(b) Each Related Entity is listed on EXHIBIT 4-2, annexed hereto.
The Parent is and shall hereafter remain in good standing in the State in which
incorporated and is and shall hereafter remain duly qualified in which other
State in which, by reason of that entity's assets or the operation of such
entity's business, such qualification is necessary. The Borrower shall provide
the Lender with prior written notice of any entity's becoming or ceasing to be a
Related Entity.
(c) The Borrower shall not change its State of incorporation nor its
taxpayer identification number.
(d) The Borrower has all requisite corporate power and authority to
execute and deliver all Loan Documents to which the Borrower is a party and has
and will hereafter retain all requisite corporate power to perform all
Liabilities.
(e) The execution and delivery by the Borrower of each Loan Document
to which it is a party; the Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of security interests by the Borrower as contemplated hereby); the Borrower's
performance under those of the Loan Documents to which it is a party; the
borrowings hereunder; and the use of the proceeds thereof:
(i) Have been duly authorized by all necessary corporate
action.
(ii) Do not, and will not, contravene in any material
respect any provision of any Requirement of Law or obligation of the
Borrower.
(iii) Will not result in the creation or imposition of, or
the obligation to create or impose, any Encumbrance upon any assets of
the Borrower pursuant to any Requirement of Law or obligation, except
pursuant to the Loan Documents.
(f) The Loan Documents have been duly executed and delivered by
Borrower and are the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms.
4-3. Trade Names.
(a) EXHIBIT 4-3, annexed hereto, is a listing of:
(i) All names under which the Borrower ever conducted its
business.
(ii) All entities and/or persons with whom the Borrower ever
consolidated or merged, or from whom the Borrower ever acquired in a
single transaction or in a series of related transactions substantially
all of such entity's or person's assets.
(b) The Borrower will not change its name or conduct its business
under any name not listed on EXHIBIT 4-3 except (i) upon not less than
twenty-one (21) days prior written notice (with reasonable particularity) to the
Lender and (ii) in compliance with all other provisions of this Agreement.
.19.
<PAGE> 26
4-4. Infrastructure.
(a) The Borrower has and will maintain a sufficient infrastructure to
conduct its business as presently conducted and as contemplated to be conducted
as described in the Business Plan.
(b) The Borrower's Year 2000 Problem is described on EXHIBIT 4-4,
annexed hereto. The Borrower will cure its Year 2000 Problem by no later than
August 31, 1999.
(c) The Borrower owns and possesses, or has the right to use (and will
hereafter own, possess, or have such right to use) all patents, industrial
designs, trademarks, trade names, trade styles, brand names, service marks,
logos, copyrights, trade secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person necessary for the
Borrower's conduct of the Borrower's business.
(d) The conduct by the Borrower of the Borrower's business does not
presently infringe (nor will the Borrower conduct its business in the future so
as to infringe) the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
4-5. Locations.
(a) At the execution of this Agreement, the Collateral, and the books,
records, and papers of Borrower pertaining thereto, are kept and maintained only
at the Borrower's chief executive offices at
(i) 2727 Diehl Road, Naperville, Illinois 60563; and
(ii) those locations which are listed on EXHIBIT 4-5, annexed
hereto, which EXHIBIT includes, with respect to each such location, the
name and address of the landlord on the Lease which covers such location
(or an indication that the Borrower owns the subject location) and of all
service bureaus with which any such records are maintained and the names
and addresses of each of the Borrower's landlords.
(b) The Borrower shall not remove any of the Collateral from said chief
executive office or those locations listed on EXHIBIT 4-5 or those stores opened
as permitted by Section 4-5(d), except to:
(i) accomplish sales of Inventory in the ordinary course of
business; or
(ii) move Inventory from one such location to another such location;
or
(iii) store and transport the Collateral to and from such locations
and utilize such of the Collateral as is removed from such locations in
the ordinary course of business (such as motor vehicles).
.20.
<PAGE> 27
(c) The Borrower will not:
(i) Alter, modify, or amend any Lease without prior written
notice to the Lender.
(ii) Commit to, or open any Store other than as permitted by
Section 4-5(d).
(iii) Close or permit to "go dark" an aggregate of more than 15
Stores in any 12 month period.
(d) The Borrower may open up to fifteen (15) new Stores during the
period July 1, 1998 and ending with the end of the Borrower's fiscal year in
January, 1999, provided that, in each instance, each of the following conditions
has been or is then satisfied:
(i) The additional Store is contemplated by the Business Plan.
(ii) The Borrower is in compliance with Section 4-23 of the
within Agreement (which Section 4-23 provides, among other things, that
the Borrower shall not be the owner of, nor have any interest in, any
property or asset which is not, immediately upon such acquisition, subject
to a perfected security interest in favor of the Lender) and shall have
executed such additional financing statements, on account of the subject
new location, as may then be required by the Lender.
(iii) The Borrower's performance to date is substantially
congruent with the Business Plan.
(iv) If the Store is located in Virginia, Pennsylvania, or
Washington (or such other states as to which the Lender, in its discretion
determines, as appropriate), the Borrower will use its best efforts to
provide the Lender with a Landlord's Waiver (in form reasonably
satisfactory to the Lender) duly executed by the landlord for that new
Store.
(v) No Event of Default has occurred and none will occur by
reason of the Borrower's so becoming obligated.
(e) Except as otherwise disclosed pursuant to, or permitted by, this
Section 4-5, no tangible personal property of the Borrower is in the care or
custody of any third party or stored or entrusted with a bailee or other third
party and none shall hereafter be placed under such care, custody, storage, or
entrustment.
4-6. Title to Assets.
(a) The Borrower is, and shall hereafter remain, the owner of the
Collateral free and clear of all Encumbrances with the exceptions of the
following (the "PERMITTED ENCUMBRANCES"):
(i) Encumbrances in favor of the Lender.
(ii) Those Encumbrances (if any) listed on EXHIBIT 4-6,
annexed hereto.
(iii) Purchase money security interests in Equipment to
secure Indebtedness
.21.
<PAGE> 28
otherwise permitted hereby.
(b) The Borrower does not and shall not have possession of any
property on consignment to the Borrower.
(c) The Borrower shall not acquire any Equipment, the acquisition of
which Equipment is otherwise permitted by the within Agreement, in which
Equipment any third party has an interest, except for:
(i) Equipment which is merely incidental to the conduct of the
Borrower's business.
(ii) Equipment acquired pursuant to the Term Lease Master
Agreement dated as of October 28, 1996 between the Borrower and IBM Credit
Corporation, as supplemented through the date of this Agreement.
(iii) Equipment, the acquisition of which has been consented to
by the Lender, which consent may be conditioned upon the Lender's receipt
of such agreement with the third party which has an interest in such
Equipment as is satisfactory to the Lender.
4-7. Indebtedness.
(a) The Borrower does not and shall not hereafter have any
Indebtedness with the exceptions of:
(i) Any Indebtedness to the Lender.
(ii) The Indebtedness (if any) listed on EXHIBIT 4-7, annexed
hereto.
(iii) Indebtedness otherwise associated with the acquisition of
Equipment, provided, however, the maximum aggregate amount of such
Indebtedness permitted by this Section 4-7(a)(iii) to be outstanding at
any one time shall not exceed Fifteen Million Dollars ($15,000,000.00)
(Compliance with this Section 4-7(a)(iii) shall be based on Indebtedness,
incurred on or after the date of this Agreement, which is associated with
the acquisition of Equipment).
(b) The Borrower shall not amend any of the Tranche A Loan Documents,
except upon the prior written consent of the Lender in each instance.
4-8. Insurance Policies.
(a) EXHIBIT 4-8, annexed hereto, is a schedule of all insurance
policies owned by the Borrower or under which the Borrower is the named insured.
Each of such policies is in full force and effect. Neither the issuer of any
such policy nor the Borrower is in default or violation of any such policy.
(b) The Borrower shall have and maintain at all times insurance
covering such risks, in such amounts, containing such terms, in such form, for
such periods, and written by such companies as
.22.
<PAGE> 29
may be reasonably satisfactory to the Lender. The coverage reflected on
EXHIBIT 4-8 presently satisfies the foregoing requirements, it being recognized
by the Borrower, however, that such requirements may change hereafter to reflect
changing circumstances. All insurance carried by the Borrower shall provide for
a minimum of Thirty (30) days' written notice of cancellation to the Lender and
all such insurance which covers the Collateral shall include an endorsement in
favor of the Lender, which endorsement shall provide that the insurance, to the
extent of the Lender's interest therein, shall not be impaired or invalidated,
in whole or in part, by reason of any act or neglect of the Borrower or by the
failure of the Borrower to comply with any warranty or condition of the policy.
In the event of the failure by the Borrower to maintain insurance as required
herein, the Lender, at its option, may obtain such insurance, provided, however,
the Lender's obtaining of such insurance shall not constitute a cure or waiver
of any Event of Default occasioned by the Borrower's failure to have maintained
such insurance. The Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender regarding compliance by the Borrower with
the foregoing insurance provisions.
(c) The Borrower shall advise the Lender of each claim in excess of
$50,000.00 made by the Borrower under any policy of insurance which covers the
Collateral and will permit the Lender, at the Lender's option in each instance,
to the exclusion of the Borrower (but subject to any prior right of the Tranche
A Agent) to conduct the adjustment of each such claim (and of all claims
following the occurrence of any Event of Default). The Borrower hereby appoints
the Lender as the Borrower's attorney in fact to obtain, adjust, settle, and
cancel any insurance described in this section and (subject to any prior right
of the Tranche A Lender) to endorse in favor of the Lender any and all drafts
and other instruments with respect to such insurance. The within appointment,
being coupled with an interest, is irrevocable until this Agreement is
terminated by a written instrument executed by a duly authorized officer of the
Lender . The Lender shall not be liable on account of any exercise pursuant to
said power except for any exercise in actual willful misconduct and bad faith.
The Lender may apply any proceeds of such insurance against the Liabilities,
whether or not such have matured, in such order of application as the Lender may
determine.
4-9. Licenses. Each license, distributorship, franchise, and similar
agreement issued to, or to which the Borrower is a party and which is necessary
for the operation of the Borrower's business, as determined by the Borrower in
the exercise of the Borrower's best business judgment, is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. The Borrower has not received any notice or threat of cancellation of
any such license or agreement.
4-10. Leases.
(a As of the date of this Agreement, each of the Leases of the
locations identified on
.23.
<PAGE> 30
EXHIBIT 4-5 and Capital Leases identified on EXHIBIT 4-7 is in full force and
effect. As of the date of this Agreement, no party to any Lease or Capital
Lease is in default or violation of any such Lease or Capital Lease and the
Borrower has not received any notice or threat of cancellation of any such Lease
or Capital Lease.
(b The Borrower hereby authorizes the Lender at any time and from
time to time to contact any of the Borrower's landlords in order to confirm the
Borrower's continued compliance with the terms and conditions of the Lease(s)
between the Borrower and that landlord and to discuss such issues, concerning
the Borrower's occupancy under such Lease(s), as the Lender may determine.
4-11. Requirements of Law. The Borrower is in compliance with, and shall
hereafter comply with and use its assets in compliance with, all Requirements of
Law. The Borrower has not received any notice of any violation of any
Requirement of Law (whether or not such violation is material), which violation
has not been cured or otherwise remedied.
4-12. Maintain Properties. The Borrower shall:
(a Keep the Collateral in good order and repair (ordinary reasonable
wear and tear and insured casualty excepted).
(b Not suffer or cause the waste or destruction of any material
part of the Collateral.
(c Not use any of the Collateral in violation of any policy of
insurance thereon.
(d Not sell, lease, or otherwise dispose of any of the Collateral,
other than the following:
(i The sale of Inventory in the ordinary course and conduct of
the Borrower's business as conducted on July 1, 1998.
(ii The disposal of Equipment which is obsolete, worn out, or
damaged beyond repair, which Equipment is replaced to the extent
necessary, in the reasonable business judgment of the Borrower, to
preserve or improve the operating efficiency of the Borrower.
(iii The turning over to the Tranche A Agent of all Receipts as
provided in the Tranche A Loan Agreement.
4-13. Pay Taxes.
(a The Borrower has received written notice from the Internal Revenue
Service that the Internal Revenue Service has completed its examination of the
Borrower's federal income tax returns for all tax years through and including
the Borrower's taxable year referenced on EXHIBIT 4-13, annexed hereto, and that
all deficiencies, assessments, and other amounts asserted as a result of such
examinations have been fully paid or settled. As of the date of this Agreement,
no agreement exists
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<PAGE> 31
which waives or extends any statute of limitations applicable to the right of
the Internal Revenue Service to assert a deficiency or make any other claim for
or in respect to federal income taxes. As of the date of this Agreement, no
issue has been raised in any such examination which, by application of similar
principles, reasonably could be expected to result in the assertion of a
deficiency for any fiscal year open for examination, assessment, or claim by the
Internal Revenue Service.
(b The Borrower has received written notice from the respective
state and local taxing authorities to which the Borrower is subject that such
authorities have completed their respective examination of the Borrower's
returns for all state and local income, excise, sales, and other taxes for which
the Borrower is liable for the respective tax years referenced on EXHIBIT 4-13,
annexed hereto, and that all deficiencies, assessments, and other amounts
asserted as a result of such examinations have been fully paid or settled. As
of the date of this Agreement, no agreement exists which waives or extends any
statute of limitations applicable to the right of any state taxing authority to
assert a deficiency or make any other claim for or in respect to any such state
taxes. As of the date of this Agreement, no issue has been raised in any such
examination which, by application of similar principles, reasonably could be
expected to result in the assertion of a deficiency for any fiscal year open for
examination, assessment, or claim by any state or local taxing authority.
(c Except as disclosed on said EXHIBIT 4-13, as of the date of this
Agreement, there are no examinations of or with respect to the Borrower
presently being conducted by the Internal Revenue Service or any other taxing
authority.
(d The Borrower has, and hereafter shall: pay, as they become due
and payable, all taxes and unemployment contributions and other charges of any
kind or nature levied, assessed or claimed against the Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of the Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon the Borrower by reason of
withholding from employees' pay or by reason of the Borrower's receipt of sales
tax or other funds for the account of any third party; timely make all
contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
the Borrower is obligated to so file, provided, however, nothing contained in
this Section 4-13(d) shall require the Borrower to pay and discharge, or cause
to be paid and discharged, any such tax, assessment, charge, levy or claim so
long as the Borrower is contesting the validity thereof in good faith by
appropriate proceedings and both: (x) has set aside on the Borrower's books
adequate reserves with respect thereto as required by GAAP and (y) no lien is
filed with respect to such tax, assessment, charge, levy or claim.
(e At its option, the Lender may, but shall not be obligated to, pay
any taxes, unemployment contributions, and any and all other charges levied or
assessed upon the Borrower or the
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<PAGE> 32
Collateral by any person or entity or governmental authority, and make any
contributions or other payments on account of the Borrower's Employee Benefit
Plan as the Lender, in the Lender's discretion, may deem necessary or desirable,
to protect, maintain, preserve, collect, or realize upon any or all of the
Collateral or the value thereof or any right or remedy pertaining thereto,
provided, however, the Lender's making of any such payment shall not constitute
a cure or waiver of any Event of Default occasioned by the Borrower's failure to
have made such payment.
4-14. No Margin Stock. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations G,U,T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
4-15. ERISA. Neither the Borrower nor any ERISA Affiliate ever has or
hereafter shall:
(a Violate or fail to be in compliance in all material respects
with the Borrower's Employee Benefit Plan.
(b Fail timely to file all reports and filings required by ERISA
to be filed by the Borrower.
(c Engage in any "prohibited transactions" or "reportable
events" (respectively as described in ERISA).
(d Engage in, or commit, any act such that a tax or penalty could be
imposed upon the Borrower on account thereof pursuant to ERISA.
(e Accumulate any material funding deficiency within the meaning of
ERISA.
(f Terminate any Employee Benefit Plan such that a lien could be
asserted against any assets of the Borrower on account thereof pursuant to
ERISA.
(g Be a member of, contribute to, or have any obligation under any
Employee Benefit Plan which is a multiemployer plan within the meaning of
Section 4001(a) of ERISA.
4-16. Hazardous Materials.
(a As of the date of this Agreement, the Borrower has never:
(i been legally responsible for any release or threat of
release of any Hazardous Material; or
(ii received notification of any release or threat of release of
any Hazardous Material from any site or vessel occupied or operated by the
Borrower and/or of the incurrence of any expense or loss in connection with the
assessment, containment, or removal of any release or threat of
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<PAGE> 33
release of any Hazardous Material from any such site or vessel.
(b The Borrower shall:
(i dispose of any Hazardous Material only in compliance with all
Environmental Laws; and
(ii not store on any site or vessel occupied or operated by the
Borrower and not transport or arrange for the transport of any Hazardous
Material, except if such storage or transport is in the ordinary course of the
Borrower's business and is in compliance with all Environmental Laws.
(c The Borrower shall provide the Lender with written notice upon
the Borrower's obtaining knowledge of any incurrence of any expense or loss by
any governmental authority or other Person in connection with the assessment,
containment, or removal of any Hazardous Material, for which expense or loss the
Borrower may be liable.
4-17. Litigation. Except as described in EXHIBIT 4-17, annexed hereto,
there is not presently pending or threatened by or against the Borrower any
suit, action, proceeding, or investigation which, if determined adversely to the
Borrower, would have a material adverse effect upon the Borrower's financial
condition or ability to conduct its business as such business is presently
conducted or is contemplated to be conducted in the foreseeable future.
4-18. Dividends or Investments. The Borrower shall not:
(a Pay any cash dividend or make any other distribution in respect
of any class of the Borrower's capital stock other than cash dividends to the
Parent for Permitted Distributions.
(b Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity other
than Permitted Investments.
(d Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
(e Consolidate any of the Borrower's operations with those of any
other corporation or other entity.
(f Organize or create any Related Entity.
(g Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
4-19. Loans. The Borrower shall not make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
(a Advance payments made to the Borrower's suppliers in the
ordinary course.
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<PAGE> 34
(b Advances to the Borrower's officers, employees, and
salespersons with respect to reasonable expenses to be incurred by such
officers, employees, and salespersons for the benefit of the Borrower, which
expenses are properly substantiated by the person seeking such advance and
properly reimbursable by the Borrower.
4-20. Protection of Assets. The Lender, in the Lender's discretion, with
prior written notice to the Borrower, and from time to time, may discharge any
tax or Encumbrance on any of the Collateral, or take any other action that the
Lender may deem necessary or desirable to repair, insure, maintain, preserve,
collect, or realize upon any of the Collateral. The Lender shall not have any
obligation to undertake any of the foregoing and shall have no liability on
account of any action so undertaken except where there is a specific finding in
a judicial proceeding (in which the Lender has had an opportunity to be heard),
from which finding no further appeal is available, that the Lender had acted in
actual bad faith or in a grossly negligent manner. The Borrower shall pay to
the Lender, on demand, or the Lender, in its discretion, may add to the Loan
Account, all amounts paid or incurred by the Lender pursuant to this section.
The obligation of the Borrower to pay such amounts is a Liability.
4-21. Line of Business. The Borrower shall not engage in any business other
than the business in which it is currently engaged.
4-22. Affiliate Transactions. The Borrower shall not make any payment, nor
give any value to any Related Entity other than Permitted Distributions, except
for goods and services actually purchased by the Borrower from, or sold by the
Borrower to, such Related Entity for a price which shall
(a be competitive and fully deductible as an "ordinary and necessary
business expense" and/or fully depreciable under the Internal Revenue Code of
1986 and the Treasury Regulations, each as amended; and
(b not differ from that which would have been charged in an arms
length transaction.
4-23. Additional Assurances.
(a The Borrower is not the owner of, nor has it any interest in, any
property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby
(Article 3) will be not be subject to a perfected security interest or other
collateral interest in favor of the Lender (subject only to Permitted
Encumbrances) to secure the Liabilities.
(b The Borrower will not hereafter acquire any asset or any interest
in property which is not, immediately upon such acquisition, subject to such a
perfected security or other collateral interest in favor of the Lender to
secure the Liabilities (subject only to Permitted Encumbrances).
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<PAGE> 35
(c The Borrower shall execute and deliver to the Lender such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Lender may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Lender's security interests
in the Collateral; and to comply with all applicable statutes and laws, and
facilitate the collection of the Receivables Collateral. The Borrower shall
execute all such instruments as may be required by the Lender with respect to
the recordation and/or perfection of the security interests created herein.
(d The Borrower hereby designates the Lender as and for the
Borrower's true and lawful attorney, with full power of substitution, to sign
and file or record any financing or other statements in order to perfect or
protect the Lender's security interest in the Collateral.
(e A carbon, photographic, or other reproduction of this Agreement
or of any financing statement or other instrument executed pursuant to this
Section 4-23 shall be sufficient for filing to perfect the security interests
granted herein.
4-24. Adequacy of Disclosure.
(a All financial statements furnished to the Lender by or on behalf
of the Borrower have been prepared in accordance with GAAP consistently applied
and present fairly the condition of the Borrower at the date(s) thereof and the
results of operations and cash flows for the period(s) covered. There has been
no change in the financial condition, results of operations, or cash flows of
the Borrower since the date(s) of such financial statements, other than changes
in the ordinary course of business, which changes have not been materially
adverse, either singularly or in the aggregate which has not been disclosed in
writing to the Lender prior to the exectuion of the within Agreement.
(b The Borrower does not have any contingent obligations or
obligation under any Lease or Capital Lease which is not noted in the Borrower's
financial statements or other written information furnished to the Lender prior
to the execution of the within Agreement.
(c No document, instrument, agreement, or paper now or hereafter
given the Lender by or on behalf of the Borrower or any guarantor of the
Liabilities in connection with the execution of the within Agreement by the
Lender contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
therein not misleading. There is no fact known to the Borrower which has, or
which, in the foreseeable future could have, a material adverse effect on the
financial condition of the Borrower or any such guarantor which has not been
disclosed in writing to the Lender.
4-25. Other Covenants. The Borrower shall not indirectly do or cause to be
done any act which, if done directly by the Borrower, would breach any covenant
contained in this Agreement.
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<PAGE> 36
ARTICLE 5 - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:
5-1. Maintain Records. The Borrower shall:
(a At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrower's transactions, all in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the periods in question.
(b Timely provide the Lender with those financial reports,
statements, and schedules required by this Article 5 or otherwise, each of which
reports, statements and schedules shall be prepared, to the extent applicable,
in accordance with GAAP applied consistently with prior periods to fairly
reflect the financial condition of the Borrower at the close of, and its results
of operations for, the period(s) covered therein.
(c At all times, keep accurate current records of the Collateral
including, without limitation, accurate current stock, cost, and sales records
of its Inventory, accurately and sufficiently itemizing and describing the
kinds, types, and quantities of Inventory and the cost and selling prices
thereof.
(d At all times, retain independent certified public accountants who
are reasonably satisfactory to the Lender and instruct such accountants to fully
cooperate with, and be available to, the Lender to discuss the Borrower's
financial performance, financial condition, operating results, controls, and
such other matters, within the scope of the retention of such accountants, as
may be raised by the Lender.
(e Not change the Borrower's fiscal year.
5-2. Access to Records
(a The Borrower shall accord the Lender and the Lender's
representatives with access from time to time, on reasonable notice and during
the Borrower's normal business hours, as the Lender and such representatives
reasonably may require to all properties owned by or over which the Borrower has
control. The Lender and the Lender's representatives shall have the right, and
the Borrower will permit the Lender and such representatives from time to time,
on reasonable notice and during the Borrower's normal business hours, as the
Lender and such representatives reasonably may request, to examine, inspect,
copy, and make extracts from any and all of the Borrower's books, records,
electronically stored data, papers, and files. The Borrower shall make all of
the Borrower's copying facilities available to the Lender.`
(b The Borrower hereby authorizes the Lender and the Lender's
representatives to:
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<PAGE> 37
(i Inspect, copy, duplicate, review, cause to be reduced to hard
copy, run off, draw off, and otherwise use any and all computer or
electronically stored information or data which relates to the Borrower,
or any service bureau, contractor, accountant, or other person, and
directs any such service bureau, contractor, accountant, or other person
fully to cooperate with the Lender and the Lender's representatives with
respect thereto.
(ii Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with the Borrower's
computer billing companies, collection agencies, and accountants and to
sign the name of the Borrower on any notice to the Borrower's Account
Debtors or verification of the Collateral.
5-3. Immediate Notice to Lender.
(a The Borrower shall provide the Lender with written notice
immediately upon the occurrence of any of the following events, which written
notice shall be with reasonable particularity as to the facts and circumstances
in respect of which such notice is being given:
(i Any change in the Borrower's officers.
(ii The completion of any physical count of the Borrower's
Inventory (together with a copy of the certified results thereof).
(iii Any failure of the Borrower to make payment to any creditor,
which payment, when aggregated with all other payments claimed by that
creditor to be due to that creditor, aggregates more than $250,000.00
prior to such amount's becoming more than the following number of days
past customary payment dates of such creditor (other than the failure to
make such payment on account of a bona fide good faith dispute with the
subject creditor): (x) if prior to October 1, 1998, sixty (60) days; (y)
if after October 1, 1998, thirty (30) days.
(iv Any failure by the Borrower to pay rent at any of the
Borrower's locations, which failure continues for more than Fifteen (15)
days following the day on which such rent first came due.
(v Any material change in the business, operations, or financial
affairs of the Borrower.
(vi The occurrence of any "Suspension Event" (within the meaning
of the Tranche A Loan Agreement) or of any Event of Default.
(vii Any intention on the part of the Borrower to discharge the
Borrower's present independent accountants or any withdrawal or
resignation by such independent accountants from their acting in such
capacity (as to which, see Subsection 5-1(d)).
(viii Any litigation which, if determined adversely to the
Borrower, is likely to have a material adverse effect on the financial
condition of the Borrower.
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<PAGE> 38
(b The Borrower shall:
(i Provide the Lender, when so distributed, with copies of any
materials distributed to
the shareholders of the
Borrower (qua such
shareholders).
(ii Provide the Lender:
(A When filed, copies of all filings, by the Parent,
with the SEC.
(B When received by the Parent, copies of all
correspondence from the SEC, other than routine non-substantive general
communications from the SEC.
(iii Add the Lender as an addressee on all mailing lists
maintained by or for the Borrower.
(iv At the request of the Lender, from time to time, provide the
Lender with copies of all advertising (including copies of all print
advertising and duplicate tapes of all video and radio advertising).
(v Provide the Lender, when received by the Borrower, with a copy
of any management letter or similar communications from any accountant of
the Borrower.
5-4. Financial Reports Provided to Tranche A Agent. The Borrower shall
provide the Lender, when provided to the Tranche A Agent, those daily, weekly,
monthly, and quarterly financial statements and reports required, under the
Tranche A Loan Agreement, it being understood that
(a Unless and until the Lender gives notice to the Borrower to
provide such statements and reports directly to the Lender, the Borrower's
furnishing of such statements and reports to the Tranche A Agent shall satisfy
the requirements of this Section 5-4.
(b In the event of the termination of the Tranche A Loan Agreement,
the requirements included therein for the furnishing of daily, weekly, monthly,
and quarterly financial statements and reports shall be deemed, for purposes of
this Section 5-4, to remain in full force and effect until the Term Loan, and
all and any other amounts payable hereunder have been paid in full by the
Borrower.
5-5. Annual Reports.
(a Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Lender with an original
signed counterpart of the Parent's Consolidated annual financial statement,
which statement shall have been prepared by, and bear the unqualified opinion
of, the Borrower's independent certified public accountants (i.e. said statement
shall be "certified" by such
.32.
<PAGE> 39
accountants). Such annual statement shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders' equity, and cash flows.
(b No later than the earlier of Fifteen (15) days prior to the end
of each of the Borrower's fiscal years or the date on which such accountants
commence their work on the preparation of the Borrower's annual financial
statement, the Borrower shall give written notice to such accountants (with a
copy of such notice, when sent, to the Lender) that:
(i Such annual financial statement will be delivered by the
Borrower to the Lender.
(ii It is the primary intention of the Borrower, in its
engagement of such accountants, to satisfy the financial reporting
requirements set forth in this Article 5.
(iii The Borrower has been advised that the Lender will rely
thereon with respect to the administration of, and transactions under,
the credit facility contemplated by the within Agreement.
(c Each annual statement shall be accompanied by such accountant's
Certificate indicating that, in the preparation of such annual statement, such
accountants did not conclude that any Event of Default has occurred during the
subject fiscal year (or if one or more had occurred, the facts and circumstances
thereof).
5-6. Officers' Certificates.
(a The Borrower shall cause the Borrower's President and Chief
Financial Officer respectively to provide such PersZ12 on's Certificate with
those monthly, quarterly, and annual statements to be furnished pursuant to this
Agreement, which Certificate shall:
(i Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the financial
condition of the Borrower at the close of, and the results of the
Borrower's operations and cash flows for, the period(s) covered, subject,
however to the following:
(A usual year end adjustments (this exception shall not
be included in the Certificate which accompanies such annual
statement).
(B Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable detail) of the
effect of each such Material Accounting Change) not previously
specifically taken into account in the determination of the
financial performance covenant imposed pursuant to Section 5-10.
(ii Indicate either that (x) no Event of Default has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and
the steps (if any) being taken or
.3.
<PAGE> 40
contemplated by the Borrower to be taken on account thereof.
(iii Include calculations concerning the Borrower's compliance
(or failure to comply) at the date of the subject statement with each of
the financial performance covenants included in Section 5-10 hereof.
(b Unless and until the Lender gives notice to the Borrower, the
requirements of this Section 5-6 shall be satisfied by the Borrower's causing
of compliance with the cognate styled Section of the Tranche A Loan Agreement.
5-7. Inventories, Appraisals, and Audits. Unless and until the Lender gives
notice to the Borrower, the requirements of this Section 5-7 shall be satisfied
by the Borrower's compliance with the cognate styled Section of the Tranche A
Loan Agreement, and in all events, each of the limits (if any) on the number of
events which may take place in any Twelve (12) month period, and each "cap" (if
any) on costs and expenses for which the Borrower is obligated, as included in
this Section 5-7 shall be applied as if the like event or payment of such costs
and expenses, under such cognate styled Section of the Tranche A Loan Agreement
had taken place or been made under this Section 5-7, it being the intention of
the parties that the Borrower shall not be subjected to a doubling of the number
of such events or of such costs and expenses by reason of the inclusion of such
requirements in the Tranche A Loan Agreement and in this Section 5-7.
(a) The Lender, at the expense of the Borrower, may participate in
and/or observe each physical count and/or inventory of so much of the Collateral
as consists of Inventory which is undertaken on behalf of the Borrower. The
Borrower shall conduct not less than one (1) such count and/or inventory during
any Twelve (12) month period, each of which counts and/or inventories shall be
conducted by such inventory takers and shall employ such methodology as is
acceptable to the Lender.
(b Following the occurrence of any Suspension Event, the Borrower,
upon the Agent's request, shall obtain, or shall permit the Lender to obtain (in
all events, at the Borrower's expense) physical counts and/or inventories of the
Collateral, conducted by such inventory takers as are satisfactory to the Lender
and following such methodology as may be required by the Lender.
(c The Borrower shall permit the Lender to obtain appraisals of the
Borrower's Inventory, conducted by such appraisers as are satisfactory to the
Lender. Provided that no Suspension Event has occurred, the Borrower shall be
obligated to reimburse the Lender for not more than the aggregate of (i)
$55,000.00 of the fees charged, in any twelve (12) month period, plus (ii)
reasonable out of pocket expenses. In the event that an Event of Default has
occurred, the Borrower shall reimburse the Lender for the fees and expenses for
each such appraisal without regard to the forgoing fee cap. The Lender shall
provide the Borrower with a copy of each appraisal obtained pursuant to this
Section 5-7(c)promptly following receipt by the Lender. Notwithstanding any
input which may be provided to the
.34.
<PAGE> 41
appraiser by or on behalf of the Lender in connection with the preparation of
the subject appraisal and the conclusions and recommendations included therein,
each such appraisal, conclusions, and recommendations, shall be deemed to have
been prepared and provided by a Person which, as to the Lender, is an
independent contractor.
(d The Lender contemplates conducting Four (4) commercial finance
audits (in each event, at the Borrower's expense) of the Borrower's books and
records during any Twelve (12) month period during which the within Agreement is
in effect, but in its discretion, may undertake additional such audits during
such period. The fees and expenses for a routine audit (by which it is meant an
audit in connection with which the Borrower has made available appropriate
financial information and personnel to facilitate its completion in the ordinary
course) for which the Borrower shall be obligated to reimburse the Lender shall
not exceed $7,000.00. In the event that an Event of Default has occurred and/or
in the event that the Borrower has not made available appropriate financial
information and personnel to facilitate the completion of an audit in the
ordinary course, the Borrower shall reimburse the Lender for the fees and
expenses of the subject audit or audits without regard to the forgoing cap.
(e The Lender from time to time (in all events, at the Borrower's
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrower's business premises. The Lender shall provide the Borrower with a
copy of any non-company confidential results of such mystery shopping. Provided
that no Suspension Event has occurred, the Borrower shall be obligated to
reimburse the Lender for not more than an aggregate of $1,000.00 of the fees and
expenses charged for such mystery shopping visits in any twelve (12) month
period plus. In the event that an Event of Default has occurred, the Borrower
shall reimburse the Lender for the fees and expenses of all such visits without
regard to the forgoing cap.
5-8. Additional Financial Information.
(a In addition to all other information required to be provided
pursuant to this Article 5, the Borrower promptly shall provide the Lender (and
any guarantor of the Liabilities), with such other and additional information
concerning the Borrower, the Collateral, the operation of the Borrower's
business, and the Borrower's financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to
time request from the Borrower.
(b The Borrower may provide the Lender, from time to time hereafter,
with updated projections of the Borrower's anticipated performance and operating
results.
(c In all events, the Borrower, no sooner than Ninety (90) nor later
than Sixty (60) days prior to the end of each of the Borrower's fiscal years,
shall furnish the Lender with an updated and extended projection which shall go
out, on a monthly basis, at least through the end of the then next fiscal year.
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<PAGE> 42
(d Such updated and extended projections shall be prepared pursuant
to a methodology and shall include such assumptions as are satisfactory to the
Lender.
(e The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Lender may
obtain, develop, or receive with respect to the Borrower is confidential to the
Lender and that, except as otherwise provided herein, the Borrower is not
entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other materials, nor copies or extracts thereof or therefrom.
5-9. Coordination With Tranche A Agent.
(a The Lender shall endeavor to coordinate the application of the
financial reporting requirements included in the Loan Documents with those which
are imposed upon the Borrower under the Tranche A Loan Documents, with a view
towards the containment of compliance costs to, and avoidance of the imposition
of redundant compliance burdens on, the Borrower on account of such financial
reporting requirements imposed under the Tranche A Loan documents and those
which are included herein.
(b The Borrower hereby consents to and authorizes the Lender to
provide the Tranche A Lender with copies of all financial statements, reports,
analysis, inventory appraisals, field audits, and other materials received or
developed by or for the Lender in the Lender's administration of the financial
transaction contemplated by the Loan Documents and to share all information and
opinions likewise received, developed, or reached by the Lender in such
administration.
5-10. Financial Performance Covenants. The Borrower shall observe and
comply with those financial performance covenants set forth on EXHIBITS 5-10(A),
and 5-10(B) annexed hereto. Compliance with such financial performance covenants
shall be made as if no Material Accounting Changes had been made. The Lender
may determine the Borrower's compliance with such covenants based upon financial
reports and statements provided by the Borrower to the Lender (whether or not
such financial reports and statements are required to be furnished pursuant to
the within Agreement) .
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL:
6-1. Use of Inventory Collateral-1.Use of Inventory Collateral.
(a The Borrower shall not engage in any sale of the Inventory
other than in the conduct of the Borrower's business in the ordinary course and
shall not engage in sales or other dispositions to creditors; sales or other
dispositions in bulk; and any use of any of the Inventory in breach
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of any provision of this Agreement.
(b No sale of Inventory shall be on consignment, approval, or under
any other circumstances such that, with the exception of the Borrower's
customary return policy applicable to the return of inventory purchased by the
Borrower's retail customers in the ordinary course, such Inventory may be
returned to the Borrower without the consent of the Lender .
6-2. Inventory Quality. All Inventory now owned or hereafter acquired by
the Borrower is and will be of good and merchantable quality and free from
defects (other than defects within customary trade tolerances).
6-3. Adjustments and Allowances. The Borrower may grant such allowances or
other adjustments to the Borrower's Account Debtors as the Borrower may
reasonably deem to accord with the Borrower's business practices prior to
January 1, 1998.
6-4. Validity of Accounts.
(a The amount of each Account shown on the books, records, and
invoices of the Borrower represented as owing by each Account Debtor is and will
be the correct amount actually owing by such Account Debtor and shall have been
fully earned by performance by the Borrower.
(b As of the date of this Agreement, the Borrower has no knowledge
of any impairment of the validity or collectability of any of the Accounts and
shall notify the Lender of any such fact immediately after Borrower becomes
aware of any such impairment.
6-5. Notification to Account Debtors. The Lender shall have the right at
any time (after an Event of Default has occurred) to notify any of the
Borrower's Account Debtors to make payment directly to the Lender and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - GRANT OF SECURITY INTEREST:
7-1. Grant of Security Interest. To secure the Borrower's prompt, punctual,
and faithful performance of all and each of the Liabilities, the Borrower hereby
grants to the Lender a continuing security interest in and to, and assigns to
the Lender, the following, and each item thereof, whether now owned or now due,
or in which the Borrower has an interest, or hereafter acquired, arising, or to
become due, or in which the Borrower obtains an interest, and all products,
Proceeds, substitutions, and accessions of or to any of the following (all of
which is referred to herein as the "COLLATERAL"):
(a All Accounts and accounts receivable.
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(b All Inventory.
(c All General Intangibles.
(d All Equipment.
(e All Goods.
(f All Fixtures.
(g All Chattel Paper.
(h All books, records, and information relating to the
Collateral and/or to the operation of the Borrower's
business, and all rights of access to such books,
records, and information, and all property in which such
books, records, and information are stored, recorded,
and maintained.
(i All Investment Property, Instruments, Documents, Deposit
Accounts, policies and certificates of insurance,
deposits, impressed accounts, compensating balances,
money, cash, or other property.
(j All insurance proceeds, refunds, and premium rebates,
including, without limitation, proceeds of fire and
credit insurance, whether any of such proceeds, refunds,
and premium rebates arise out of any of the
foregoing.(7-1(a) through 7-1(i)) or otherwise.
(k All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (7-1(a) through
7-1(i)), including the right of stoppage in transit.
(l All Leasehold Interests.
7-2. Extent and Duration of Security Interest. The within grant of a
security interest is in addition to, and supplemental of, any security interest
previously granted by the Borrower to the Lender and shall continue in full
force and effect applicable to all Liabilities until all Liabilities have been
paid and/or satisfied in full and the security interest granted herein is
specifically terminated in writing by a duly authorized officer of the Lender .
ARTICLE 8 - LENDER AS BORROWER'S ATTORNEY-IN-FACT:
8-1. Appointment as Attorney-In-Fact. The Borrower hereby irrevocably
constitutes and appoints the Lender, effective upon the occurrence of any Event
of Default, as the Borrower's true and lawful attorney, with full power of
substitution, to convert the Collateral into cash at the sole risk, cost, and
expense of the Borrower, but for the sole benefit of the Lender. The rights and
powers granted the Lender by the within appointment include but are not limited
to the right and power to:
(a) Prosecute, defend, compromise, or release any action relating to
the Collateral.
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(b) Sign change of address forms to change the address to which the
Borrower's mail is to be sent to such address as the Lender shall designate;
receive and open the Borrower's mail; remove any Receivables Collateral and
Proceeds of Collateral therefrom and turn over the balance of such mail either
to the Borrower or to any trustee in bankruptcy, receiver, assignee for the
benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so
turn over such mail.
(c) Endorse the name of the Borrower in favor of the Lender upon any
and all checks, drafts, notes, acceptances, or other items or instruments; sign
and endorse the name of the Borrower on, and receive as secured party, any of
the Collateral, any invoices, schedules of Collateral, freight or express
receipts, or bills of lading, storage receipts, warehouse receipts, or other
documents of title respectively relating to the Collateral.
(d) Sign the name of the Borrower on any notice to the Borrower's
Account Debtors or verification of the Receivables Collateral; sign the
Borrower's name on any Proof of Claim in Bankruptcy against Account Debtors, and
on notices of lien, claims of mechanic's liens, or assignments or releases of
mechanic's liens securing the Accounts.
(e) Take all such action as may be necessary to obtain the payment
of any letter of credit and/or banker's acceptance of which the Borrower is a
beneficiary.
(f) Repair, manufacture, assemble, complete, package, deliver, alter
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any customer of the Borrower.
(g) Use, license or transfer any or all General Intangibles of the
Borrower.
.
8-2. No Obligation to Act. The Lender shall not be obligated to do any of
the acts or to exercise any of the powers authorized by Section 8-1 herein, but
if the Lender elects to do any such act or to exercise any of such powers, it
shall not be accountable for more than it actually receives as a result of such
exercise of power, and shall not be responsible to the Borrower for any act or
omission to act except for any act or omission to act as to which there is a
final determination made in a judicial proceeding (in which proceeding the
Lender has had an opportunity to be heard) which determination includes a
specific finding that the subject act or omission to act had been grossly
negligent or in actual bad faith.
ARTICLE 9 - EVENTS OF DEFAULT:
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The occurrence of any event described in this Article 9 respectively shall
constitute an "EVENT OF DEFAULT" herein. Upon the occurrence of any Event of
Default described in Section 9-11, any and all Liabilities shall become due and
payable without any further act on the part of the Lender. Upon the occurrence
of any other Event of Default, any and all Liabilities shall become immediately
due and payable, at the option of the Lender and without notice or demand. The
occurrence of any Event of Default shall also constitute, without notice or
demand, a default under all other agreements between the Lender and the Borrower
and instruments and papers given the Lender by the Borrower, whether such
agreements, instruments, or papers now exist or hereafter arise.
9-1. Failure to Pay Term Loan. The failure by the Borrower to pay any
amount when due under the Term Loan.
9-2. Failure To Make Other Payments. The failure by the Borrower to pay
when due (or upon demand, if payable on demand) any payment Liability other than
under the Term Loan.
9-3. Failure to Perform Covenant or Liability (No Grace Period). The
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Section 9-1 or Section 9-2 hereof, and included in any of the following
provisions hereof:
Section Relates to :
- ----------------------------------------------
4-5 Location of Collateral
4-6 Title to Assets
4-7 Indebtedness
4-8 Insurance Policies
4-13 Pay taxes
4-22 Affiliate Transactions
4-23 Additional Assurances
6-1 Use of Collateral
Article 5 Reporting Requirements and Financial Covenants
9-4. Failure to Perform Covenant or Liability (Grace Period). The failure
by the Borrower, upon Fifteen (15) days written notice by the Lender , to cure
the Borrower's failure to promptly, punctually and faithfully perform,
discharge, or comply with any covenant or Liability not described in any of
Sections 9-1, 9-2, or 9-3 hereof.
9-5. Misrepresentation. The determination by the Lender that any
representation or warranty at any time made by the Borrower to the Lender, was
not true or complete in all material respects
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when given.
9-6. Acceleration of Other Debt. Breach of Lease.
(a) The occurrence of any event such that any Indebtedness of the
Borrower in excess of One Million Dollars ($1,000,000.00) to any creditor other
than the Lender could be accelerated.
(b) The occurrence of any event such that, without the consent of
the Borrower, the Lease of any warehouse facility at which the Borrower's
Inventory having a Cost of more than One Million Dollars ($1,000,000.00) is
routinely stored, could be terminated.
(c) The occurrence of any "Event of Default" within the meaning of
the Tranche A Loan Agreement
9-7. Default Under Other Agreements. The occurrence of any breach or
default under any agreement between the Lender and the Borrower or instrument or
paper given the Lender by the Borrower, whether such agreement, instrument, or
paper now exists or hereafter arises (notwithstanding that the Lender or the
subject Lender may not have exercised its rights upon default under any such
other agreement, instrument or paper).
9-8. Casualty Loss. The occurrence of any uninsured loss, theft, damage, or
destruction of or to Collateral having a value of more than Two Million Five
Hundred Thousand Dollars ($2,500,000.00).
9-9. Judgment. Restraint of Business.
(a) The service of process upon the Lender or any Participant
seeking to attach, by trustee, mesne, or other process, any of the Borrower's
funds on deposit with, or assets of the Borrower in the possession of, the
Lender or such Participant.
(b) The entry of any judgment against the Borrower, which judgment
is not satisfied (if a money judgment) or appealed from (with execution or
similar process stayed) within Thirty (30) days of its entry.
(c) The entry of any order or the imposition of any other process
having the force of law, the effect of which is to restrain in any material way
the conduct by the Borrower of its business in the ordinary course.
9-10. Business Failure. Any act by, against, or relating to the Borrower,
or its property or assets, which act constitutes the application for, consent
to, or sufferance of the appointment of a receiver, trustee, or other person,
pursuant to court action or otherwise, over all, or any part of the Borrower's
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property; the granting of any trust mortgage or execution of an assignment for
the benefit of the creditors of the Borrower, or the occurrence of any other
voluntary or involuntary liquidation or extension of debt agreement for the
Borrower; the offering by or entering into by the Borrower of any composition,
extension, or any other arrangement seeking relief from or extension of the
debts of the Borrower; or the initiation of any judicial or non-judicial
proceeding or agreement by, against, or including the Borrower which seeks or
intends to accomplish a reorganization or arrangement with creditors; and/or the
initiation by or on behalf of the Borrower of the liquidation or winding up of
all or more than a de minimus part of the Borrower's business or operations.
9-11. Bankruptcy. The failure by the Borrower to generally pay the debts of
the Borrower as they mature; adjudication of bankruptcy or insolvency relative
to the Borrower; the entry of an order for relief or similar order with respect
to the Borrower in any proceeding pursuant to the Bankruptcy Code or any other
federal bankruptcy law; the filing of any complaint, application, or petition by
or against the Borrower initiating any matter in which the Borrower is or may be
granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code or any other insolvency statute or procedure.
9-12. Indictment - Forfeiture. The indictment of, or institution of any
legal process or proceeding against, the Borrower, under any federal, state,
municipal, and other civil or criminal statute, rule, regulation, order, or
other requirement having the force of law where the relief, penalties, or
remedies sought or available include the forfeiture of any property of the
Borrower and/or the imposition of any stay or other order, the effect of which
could be to restrain in any material way the conduct by the Borrower of its
business in the ordinary course.
9-13. Default by Guarantor, Parent, or Related Entity.
(a) The occurrence of any of the foregoing Events of Default with
respect to the Parent, as if the Parent were the "Borrower" described therein.
(b) The occurrence of an "Event of Default" or similar event under
any agreement between the Parent and the Lender, including, without limitation,
the Security Agreement of even date between the Parent and the Lender, each as
amended from time to time.
9-14. Termination of Guaranty. The termination or attempted termination of
any guaranty by any guarantor of the Liabilities.
9-15. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any guarantor
of the Liabilities to
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the validity of any Loan Document or the applicability or enforceability of any
Loan Document strictly in accordance with the subject Loan Document's terms or
which seeks to void, avoid, limit, or otherwise adversely affect any security
interest created by or in any Loan Document or any payment made pursuant
thereto.
(b) Any determination by any court or any other judicial or
government authority that any Loan Document is not enforceable strictly in
accordance with the subject Loan Document's terms or which voids, avoids,
limits, or otherwise adversely affects any security interest created by any Loan
Document or any payment made pursuant thereto.
9-16. Change in Control.
(a) The Parent's not being the beneficial holder of all of the
issued and outstanding capital stock of the Borrower.
(b) Any Change in Control.
ARTICLE 10 - RIGHTS AND REMEDIES UPON DEFAULT:
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Lender is provided prior to the occurrence of an Event of
Default, the Lender shall have the following rights and remedies upon the
occurrence of any Event of Default and at any time thereafter. No stay which
otherwise might be imposed pursuant to Section 362 of the Bankruptcy Code or
otherwise shall stay, limit, prevent, hinder, delay, restrict, or otherwise
prevent the Lender's exercise of any of such rights and remedies.
10-1. Rights of Enforcement. The Lender shall have all of the rights and
remedies of a secured party upon default under the UCC, in addition to which the
Lender shall have all and each of the following rights and remedies:
(a) To collect the Receivables Collateral with or without the taking
of possession of any of the Collateral.
(b) To take possession of all or any portion of the Collateral.
(c) To sell, lease, or otherwise dispose of any or all of the
Collateral, in its then condition or following such preparation or processing as
the Lender deems advisable and with or without the taking of possession of any
of the Collateral.
(d) To conduct one or more going out of business sales which include
the sale or other disposition of the Collateral.
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<PAGE> 50
(e) To apply the Receivables Collateral or the Proceeds of the
Collateral towards (but not necessarily in complete satisfaction of) the
Liabilities.
(f) To exercise all or any of the rights, remedies, powers,
privileges, and discretions under all or any of the Loan Documents.
10-2. Sale of Collateral.
(a) Any sale or other disposition of the Collateral may be at public
or private sale upon such terms and in such manner as the Lender deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Lender's disposition of the Collateral.
(b) The Lender, in the exercise of the Lender's rights and remedies
upon default, may conduct one or more going out of business sales, in the
Lender's own right or by one or more agents and contractors. Such sale(s) may be
conducted upon any premises owned, leased, or occupied by the Borrower. The
Lender and any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain
the sole property of the Lender or such agent or contractor). Any amounts
realized from the sale of such goods which constitute augmentations to the
Inventory (net of an allocable share of the costs and expenses incurred in their
disposition) shall be the sole property of the Lender or such agent or
contractor and neither the Borrower nor any Person claiming under or in right of
the Borrower shall have any interest therein.
(c) Unless the Collateral is perishable or threatens to decline
speedily in value, or is of a type customarily sold on a recognized market (in
which event the Lender shall provide the Borrower with such notice as may be
practicable under the circumstances), the Lender shall give the Borrower at
least seven (7) days prior written notice of the date, time, and place of any
proposed public sale, and of the date after which any private sale or other
disposition of the Collateral may be made. The Borrower agrees that such
written notice shall satisfy all requirements for notice to the Borrower which
are imposed under the UCC or other applicable law with respect to the exercise
of the Lender's rights and remedies upon default.
(d) The Lender may purchase the Collateral, or any portion of it at
any sale held under this Article.
(e) The Lender shall apply the proceeds of any exercise of the
Lender's Rights and Remedies under this Article 10 towards the Liabilities in
such manner, and with such frequency, as the Lender determines.
10-3. Occupation of Business Location. In connection with the Lender's
exercise of the Lender's rights under this Article 10, the Lender may enter
upon, occupy, and use any premises owned or occupied by the Borrower, and may
exclude the Borrower from such premises or portion thereof as may
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have been so entered upon, occupied, or used by the Lender. The Lender shall not
be required to remove any of the Collateral from any such premises upon the
Lender's taking possession thereof, and may render any Collateral unusable to
the Borrower. In no event shall the Lender be liable to the Borrower for use or
occupancy by the Lender of any premises pursuant to this Article 10, nor for any
charge (such as wages for the Borrower's employees and utilities) incurred in
connection with the Lender's exercise of the Lender's Rights and Remedies.
10-4. Grant of Nonexclusive License. The Borrower hereby grants to the
Lender a royalty free nonexclusive irrevocable license to use, apply, and affix
any trademark, trade name, logo, or the like in which the Borrower now or
hereafter has rights, such license being with respect to the Lender's exercise
of the rights hereunder including, without limitation, in connection with any
completion of the manufacture of Inventory or sale or other disposition of
Inventory.
10-5. Assembly of Collateral. The Lender may require the Borrower to
assemble the Collateral and make it available to the Lender at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Lender and Borrower.
10-6. Rights and Remedies. The rights, remedies, powers, privileges, and
discretions of the Lender hereunder (herein, the " LENDER'S RIGHTS AND
REMEDIES") shall be cumulative and not exclusive of any rights or remedies which
it would otherwise have. No delay or omission by the Lender in exercising or
enforcing any of the Lender's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Lender of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No single or partial
exercise of any of the Lender's Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Lender and
any person, at any time, shall preclude the other or further exercise of the
Lender's Rights and Remedies. No waiver by the Lender of any of the Lender's
Rights and Remedies on any one occasion shall be deemed a waiver on any
subsequent occasion, nor shall it be deemed a continuing waiver. All of the
Lender's Rights and Remedies and all of the Lender's rights, remedies, powers,
privileges, and discretions under any other agreement or transaction are
cumulative, and not alternative or exclusive, and may be exercised by the Lender
at such time or times and in such order of preference as the Lender in its sole
discretion may determine. The Lender's Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Liabilities.
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ARTICLE 11 - NOTICES:
11-1. Notice Addresses. All notices, demands, and other communications made
in respect of this Agreement (other than a request for a loan or advance or
other financial accommodation under the Term Loan) shall be made to the
following addresses, each of which may be changed upon seven (7) days written
notice to all others given by certified mail, return receipt requested:
If to the Lender:
Back Bay Capital, LLC
40 Broad Street
Boston, Massachusetts 02109
Attention : Mr. Edward Siskin
Director
Fax : 617 434-4312
With a copy to:
Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attention : Richard B. Jacobs, Esquire
Fax : 617 723-6831
If to the Borrower:
Factory Card Outlet of America, Ltd.
2727 Diehl Road
Naperville, Illinois 60563
Attention : Mr. Thomas W. Stoltz
Fax : 630 579-2712
With a copy to:
Sonnenschein, Nath & Rosenthal
8000 Sears Tower
Chicago, Illinois 60606
Attention : Neal Aizenstein, Esquire and
Attorney Victoria Gilbert
Fax : 312 876-7934
11-2. Notice Given.
(a) Except as otherwise specifically provided herein, notices shall
be deemed made and correspondence received, as follows (all times being local to
the place of delivery or receipt):
(i) By mail: the sooner of when actually received or Five (5)
days following deposit in the United States mail, postage prepaid.
(ii) By recognized overnight express delivery: the Business Day
following the
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day when sent.
(iii) By Hand: If delivered on a Business Day after 9:00 AM and
no later than Three (3) hours prior to the close of customary business
hours of the recipient, when delivered. Otherwise, at the opening of the
then next Business Day.
(iv) By Facsimile transmission (which must include a header on
which the party sending such transmission is indicated): If sent on a
Business Day after 9:00 AM and no later than Three (3) hours prior to the
close of customary business hours of the recipient, one (1) hour after
being sent. Otherwise, at the opening of the then next Business Day.
(b) Rejection or refusal to accept delivery and inability to deliver
because of a changed address or Facsimile Number for which no due notice was
given shall each be deemed receipt of the notice sent.
ARTICLE 12 - MATURITY OF THE TERM LOAN:
12-1. Maturity. The Term Loan shall mature on the Maturity Date, on which
date, the Borrower shall pay the Lender:
(a) The then unpaid principal balance of the Term Note and all
accrued interest thereon (other than any such accrued interest as is evidence by
a PIK Note or interest under a PIK Note).
(b) Except as provided in Section 2-4(c)(iv), the unpaid principal
balance of each PIK Note and all accrued interest thereon.
(c) Any accrued but unpaid Collateral Monitoring Fees.
(d) If the Maturity Date is after June 30, 1999, the Anniversary
Fee.
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ARTICLE 13 - GENERAL:
13-1. Payments. The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(a) Funds shall be deemed to have been received on that Business Day
on which notice of such receipt is available to the Lender by 2:00PM.
(b) If notice of such receipt is not available to the Lender until
after 2:00PM on a Business Day, such payment shall be deemed to have been made
at 9:00AM on the then next Business Day.
(c) All payments to the Lender are subject to clearance and
collection.
13-2. Protection of Collateral. The Lender has no duty as to the collection
or protection of the Collateral beyond the safe custody of such of the
Collateral as may come into the possession of the Lender and shall have no duty
as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Lender may include reference to the Borrower (and may
utilize any logo or other distinctive symbol associated with the Borrower) in
connection with any advertising, promotion, or marketing undertaken by the
Lender.
13-3. Successors, Assigns And Delegation of Authority.
(a) The Lender, by written notice to the Borrower, may delegate the
administration of the loan arrangement contemplated hereby to BankBoston Retail
Finance Inc. or any other Affiliate of the Lender, in which event, until written
notice by the Lender to the Borrower which terminates such delegation, such
delegatee shall have all rights, powers, privileges and duties vested in or
accorded to the Lender hereunder and shall be entitled to all benefits of the
Lender hereunder.
(b) This Agreement shall be binding upon the Borrower and the
Borrower's representatives, successors, and assigns and shall enure to the
benefit of the Lender and the Lender's successors and assigns provided,
however, no trustee or other fiduciary appointed with respect to the Borrower
shall have any rights hereunder. In the event that the Lender assigns or
transfers its rights under this Agreement, the assignee shall thereupon succeed
to and become vested with all rights, powers, privileges, and duties of the
Lender hereunder and the Lender shall thereupon be discharged and relieved from
its duties and obligations hereunder.
13-4. Severability. Any determination that any provision of this Agreement
or any application thereof is invalid, illegal, or unenforceable in any respect
in any instance shall not affect the validity,
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legality, or enforceability of such provision in any other instance, or the
validity, legality, or enforceability of any other provision of this Agreement.
13-5. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Lender, either express
or implied, concerning the matters included herein and in such other
instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of
dealings shall limit, modify, or otherwise affect the provisions thereof. No
failure by the Lender to give notice to the Borrower of the Borrower's having
failed to observe and comply with any warranty or covenant included in any Loan
Document shall constitute a waiver of such warranty or covenant or the amendment
of the subject Loan Document. No change made by the Lender in the manner by
which Availability is determined shall obligate the Lender to continue to
determine Availability in that manner.
(b) The Borrower may undertake any action otherwise prohibited
hereby, and may omit to take any action otherwise required hereby, upon and with
the express prior written consent of the Lender. No consent, modification,
amendment, or waiver of any provision of any Loan Document shall be effective
unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Lender shall be in reliance upon all representations and
warranties theretofore made to the Lender by or on behalf of the Borrower (and
any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not
true and complete in all material respects when given.
13-6. Power of Attorney. In connection with all powers of attorney included
in this Agreement, the Borrower hereby grants unto the Lender full power to do
any and all things necessary or appropriate in connection with the exercise of
such powers as fully and effectually as the Borrower might or could do, hereby
ratifying all that said attorney shall do or cause to be done by virtue of this
Agreement. No power of attorney set forth in this Agreement shall be affected
by any disability or incapacity suffered by the Borrower and each shall survive
the same. All powers conferred upon the Lender by this Agreement, being coupled
with an interest, shall be irrevocable until this Agreement is terminated by a
written instrument executed by a duly authorized officer of the Lender.
13-7. Application of Proceeds. The proceeds of any collection, sale, or
disposition of the Collateral, or of any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for
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<PAGE> 56
any deficiency remaining following such application.
13-8. Lender's Costs and Expenses.
(a) The Borrower shall pay on demand all Costs of Collection and all
reasonable expenses of the Lender in connection with the preparation, execution,
and delivery of this Agreement and of any other Loan Documents, whether now
existing or hereafter arising, and all other reasonable expenses which may be
incurred by the Lender in preparing or amending this Agreement and all other
agreements, instruments, and documents related thereto, or otherwise incurred
with respect to the Liabilities, and all costs and expenses of the Lender which
relate to the credit facility contemplated hereby.
(b) The Borrower shall pay on demand all costs and expenses
(including attorneys' reasonable fees (and including, for such purpose, the
reasonably allocated cost of a Lender's in-house counsel)) incurred by any
Participant in connection with the enforcement, attempted enforcement, or
preservation of any rights or remedies under this or any other Loan Document
following the occurrence of any Event of Default (including all such costs and
expenses incurred by each Lender in connection with any "workout", forbearance,
or restructuring regarding the Revolving Credit).
(c) The Borrower authorizes the Lender to pay all such fees and
expenses and in the Lender's discretion, to request that the Tranche A Agent
advance the amount of such fees and advances under the "Revolving Credit"
established under the Tranche A Loan Agreement and hereby instructs the Tranche
A Agent to honor such request, even if the result is to cause the unpaid balance
of the "Loan Account" thereunder to exceed the "Borrowing Base" as defined
therein.
(d) The undertaking on the part of the Borrower in this Section 13-8
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Lender in favor of the Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section 13-8.
(e) Prior to, or within a reasonable period after, the Lender's charging
any cost or expense to the Borrower as provided in this Section 13-8, the
Lender shall provide the Borrower with a copy of the invoice against which such
cost or expense was so charged or other written explanation of such charge or
expense.
13-9. Copies and Facsimiles. This Agreement and all documents which relate
thereto, which have been or may be hereinafter furnished the Lender may be
reproduced by the Lender by any photographic, microfilm, xerographic, digital
imaging, or other process, and the Lender may destroy any document so
reproduced. Any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not
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<PAGE> 57
such reproduction was made in the regular course of business). Any facsimile
which bears proof of transmission shall be binding on the party which or on
whose behalf such transmission was initiated and likewise shall be so admissible
in evidence as if the original of such facsimile had been delivered to the party
which or on whose behalf such transmission was received.
13-10. Massachusetts Law. This Agreement and all rights and obligations
hereunder, including matters of construction, validity, and performance, shall
be governed by the laws of The Commonwealth of Massachusetts.
13-11. Consent to Jurisdiction.
(a) The Borrower agrees that any legal action, proceeding, case, or
controversy against the Borrower with respect to any Loan Document may be
brought in the Superior Court of Suffolk County Massachusetts or in the United
States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender's sole discretion. By
execution and delivery of this Agreement, the Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
(b) The Borrower WAIVES personal service of any and all process upon
it, and irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by certified mail, postage prepaid, to the Borrower at the Borrower's
address for notices as specified herein, such service to become effective five
(5) Business Days after such mailing.
(c) The Borrower WAIVES any objection based on forum non conveniens
and any objection to venue of any action or proceeding instituted under any of
the Loan Documents and consents to the granting of such legal or equitable
remedy as is deemed appropriate by the Court.
(d) Nothing herein shall affect the right of the Lender to bring
legal actions or proceedings in any other competent jurisdiction.
(e) The Borrower agrees that any action commenced by the Borrower
asserting any claim or counterclaim arising under or in connection with this
Agreement or any other Loan Document shall be brought solely in the Superior
Court of Suffolk County Massachusetts or in the United States District Court,
District of Massachusetts, sitting in Boston, Massachusetts, and that such
Courts shall have exclusive jurisdiction with respect to any such action.
13-12. Indemnification. The Borrower shall indemnify, defend, and hold the
Lender and any employee, officer, agent of, or independent contractor retained
by, the Lender (each, an "INDEMNIFIED PERSON") harmless of and from any claim
brought or threatened against any Indemnified Person by the
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<PAGE> 58
Borrower, any guarantor or endorser of the Liabilities, or any other Person (as
well as from attorneys' reasonable fees and expenses in connection therewith) on
account of the relationship of the Borrower or of any other guarantor or
endorser of the Liabilities (each of claims which may be defended, compromised,
settled, or pursued by the Indemnified Person with counsel of the such
Indemnified Person's selection, but at the expense of the Borrower) other than
any claim by the Borrower directed against an Indemnified Person as to which a
final determination is made in a judicial proceeding (in which the Lender and
any other Indemnified Person has had an opportunity to be heard), which
determination includes a specific finding that the Indemnified Person seeking
indemnification had acted in a grossly negligent manner or in actual bad faith.
The within indemnification shall survive payment of the Liabilities and/or any
termination, release, or discharge executed by the Lender in favor of the
Borrower, other than a termination, release, or discharge which makes specific
reference to this Section 13-12.
13-13. Rules of Construction. The following rules of construction shall be
applied in the interpretation, construction, and enforcement of this Agreement
and of the other Loan Documents:
(a) Words in the singular include the plural and words in the plural
include the singular.
(b) Titles, headings (indicated by being underlined or shown in Small
Capitals) and any Table of Contents are solely for convenience of reference; do
not constitute a part of the instrument in which included; and do not affect
such instrument's meaning, construction, or effect.
(c) The words "includes" and "including" are not limiting.
(d) Text which follows the words "including, without limitation" (or
similar words) is illustrative and not limitational.
(e) Except where the context otherwise requires or where the
relevant subsections are joined by "or", compliance with any Section or
provision of any Loan Document which constitutes a warranty or covenant requires
compliance with all subsections (if any) of that Section or provision. Except
where the context otherwise requires, compliance with any warranty or covenant
of any Loan Document which includes subsections which are joined by "or" may be
accomplished by compliance with any of such subsections.
(f) Text which is shown in italics, shown in BOLD, shown IN ALL
CAPITAL LETTERS, or in any combination of the foregoing, shall be deemed to be
conspicuous.
(g) The words "may not" are prohibitive and not permissive.
(h) The word "or" is not exclusive.
(i) Terms which are defined in one section of any Loan Document are
used with such definition throughout the instrument in which so defined.
(j) The symbol "$" refers to United States Dollars.
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<PAGE> 59
(k) Unless limited by reference to a particular Section or
provision, any reference to "herein", "hereof", or "within" is to the entire
Loan Document in which such reference is made.
(l) References to "this Agreement" or to any other Loan Document is
to the subject instrument as amended to the date on which application of such
reference is being made.
(m) Except as otherwise specifically provided, all references to
time are to Boston time.
(n) In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder:
(i) Unless otherwise provided (I) the day of the act, event, or
default from which the designated period of time begins to run shall not
be included and the last day of the period so computed shall be included
unless such last day is not a Business Day, in which event the last day
of the relevant period shall be the then next Business Day and (II) the
period so computed shall end at 5:00 PM on the relevant Business Day.
(ii) The word "from" means "from and including".
(iii) The words "to" and "until" each mean "to, but excluding".
(iv) The work "through" means "to and including".
(o) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 13-14
hereof, provided, however, in the event of any inconsistency between the
provisions of the within Agreement and any other Loan Document, the provisions
of the within Agreement shall govern and control.
13-14. Intent. It is intended that:
(a) This Agreement take effect as a sealed instrument.
(b) The scope of the security interests created by this Agreement be
broadly construed in favor of the Lender.
(c) The security interests created by this Agreement secure all
Liabilities, whether now existing or hereafter arising.
(d) All reasonable costs and expenses incurred by the Lender in
connection with the Lender's relationship(s) with the Borrower shall be borne by
the Borrower.
13-15. Right of Set-Off. Any and all deposits or other sums at any time
credited by or due to the Borrower from the Lender or any participant (a
"PARTICIPANT") in the credit facility contemplated hereby or any from any
Affiliate of the Lender or any Participant and any cash, securities, instruments
or other property of the Borrower in the possession of the Lender any
Participant or any such Affiliate, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
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<PAGE> 60
constitute security for all Liabilities and for any and all obligations of the
Borrower to the Lender or any Participant or any such Affiliate and may be
applied or set off against the Liabilities and against such obligations at any
time following the occurrence of any Event of Default (notice of which set off
shall be given to the Borrower).
13-16. Maximum Interest Rate. Regardless of any provision of any Loan
Document, the Lender shall never be entitled to contract for, charge, receive,
collect, or apply as interest on any Liability, any amount in excess of the
maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest's exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were "Collateral."
13-17. Waivers.
(a) The Borrower (and all guarantors, endorsers, and sureties of the
Liabilities) make each of the waivers included in Section 13-17(b), below,
knowingly, voluntarily, and intentionally, and understands that the Lender, in
entering into the financial arrangements contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.
(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
(i) Except as otherwise specifically required hereby, notice of
non-payment, demand, presentment, protest and all forms of demand and
notice, both with respect to the Liabilities and the Collateral.
(ii) Except as otherwise specifically required hereby, the right
to notice and/or hearing prior to the Lender's exercising of the
Lender's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY
IN WHICH THE LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR
CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER OR IN WHICH THE LENDER
IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF
OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR
ANY OTHER PERSON AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT
TO A JURY IN ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
(iv) Any claim to consequential, special, or punitive damages.
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<PAGE> 61
FACTORY CARD OUTLET OF AMERICA, LTD.
("BORROWER")
By_________________________________
Print Name:________________________________
Title:________________________________
BACK BAY CAPITAL, LLC
("LENDER")
By_________________________________
Print Name:________________________________
Title:________________________________
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<PAGE> 1
EXHIBIT 10.3
WARRANT PURCHASE AGREEMENT
FACTORY CARD OUTLET CORP.
2727 Diehl Road
Naperville, Illinois 60563
July 17, 1998
To the Participants
Listed on the Schedule
of Participants
Ladies and Gentlemen:
The undersigned, Factory Card Outlet Corp., a Delaware corporation
(hereafter, with its successors and assigns, the "COMPANY"), proposes to sell
to the persons listed on the Schedule of Participants attached hereto
(individually referred to herein as a "PARTICIPANT", and collectively referred
to herein as the "PARTICIPANTS") a Common Stock Purchase Warrant of the Company
in the form of Exhibit A hereto, on and subject to the terms and conditions set
forth in this Agreement.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, including, without limitation,
the entry into a loan agreement, the parties hereto hereby agree as follows:
1. DEFINITIONS.
In addition to those terms defined elsewhere in this Agreement, for all
purposes of this Agreement the following terms shall have the meanings set
forth herein or elsewhere in the provisions hereof:
Affiliate shall mean any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the Company (or
other specified Person) and shall include (a) any Person who is an Executive
Officer, director or direct or indirect beneficial holder of, or who has the
right to acquire, at least 20% of any voting class of the then outstanding
capital stock (or other shares of beneficial interest) of the Company (or other
specified Person) and Family Members of any such Person, (b) any Person of
which the Company (or other specified Person) or an Affiliate (as defined in
clause (a) above) of the Company (or other specified Person) shall, directly or
indirectly, either beneficially own or have the right to acquire at least 20%
of any voting class of the then outstanding capital stock (or other shares of
beneficial interest) or constitute at least a 20%
<PAGE> 2
equity participant, and (c) in the case of a specified Person who is an
individual, Family Members of such Person; provided, however, that neither the
Participants, nor any Affiliate of the Participants, shall be an Affiliate of
the Company for the purposes of this Agreement.
BBC. Back Bay Capital, LLC.
Bank Affiliate. See Section 9.1 hereof.
Bank Holding Company Act. See Section 9.1 hereof.
Call Right. See Section 7.12.
Charter shall include the articles or certificate of incorporation,
statute, constitution, joint venture or partnership agreement or articles or
other organizational document of any Person other than an individual, each as
from time to time amended or modified.
Closing. See Section 2.2.
Closing Date. See Section 2.2.
Commission shall mean the Securities and Exchange Commission.
Common Stock shall mean, the Common Stock, $0.01 par value, of the Company
and, in addition, any capital stock or other securities into which or for which
Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company and any other
securities constituting "Common Stock" under the Warrant.
Company. See preamble.
Demand Registration. See Section 7.2.
Executive Officer shall mean a president, vice president, treasurer, or
chief financial officer, controller or principal accounting officer, and any
Person routinely performing corresponding functions with respect to any Person.
Exercise Price. As defined in the Warrant.
Family Members shall mean, as applied to any individual, any spouse, any
ancestor or descendent, or any other relative (by blood, adoption, or
marriage), within the third degree of such individual, and each trust created
for the benefit of one or more of such Persons and each custodian of a property
of one or more such Persons.
Fair Market Value. As defined in the Warrant.
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<PAGE> 3
Financing Agreements shall include this Agreement, the Securities, that
certain Term Loan and Security Agreement dated of even date herewith between
the Participants and Factory Card Outlet of America, Ltd., and agreements and
certificates executed and delivered to any of the Participants by any Person in
connection therewith.
Holder. See Section 7.1.
Lien shall mean (a) any encumbrance, mortgage, pledge, lien, charge or
other security interest of any kind upon any property or assets of any
character, or upon the income or profits therefrom; or (b) any acquisition of
or agreement to have an option to acquire any property or assets upon
conditional sale or other title retention agreement, device or arrangement
(including a capitalized lease); or (c) any sale, assignment, pledge or other
transfer for security of any accounts, general intangibles, or chattel paper,
with or without recourse.
Participant and Participants. See Preamble.
Person shall mean an individual, partnership, corporation, limited
liability company, association, trust, joint venture, unincorporated
organization, and any government, governmental department or agency or
political subdivision thereof.
Piggyback Registration. See Section 7.3.
Public Sale shall mean any sale of Common Stock to the public (a) pursuant
to a public offering registered under the Securities Act, (b) through a broker
or market-maker pursuant to the provisions of Rule 144 (or any successor rule)
adopted under the Securities Act, or (c) pursuant to any other public offering
not required to be registered under the Securities Act.
register, registered and registration. See Section 7.1.
Registrable Securities. See Section 7.1.
Registration Expenses. See Section 7.7.
Securities shall mean, collectively, the Warrants and the shares of
Warrant Stock.
Securities Act shall mean the Securities Act of 1933, as amended, or any
successor federal statute or code, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Small Business Act shall mean the Small Business Investment Act of 1958,
as amended, or any successor federal statute, and the rules and regulations of
the Small Business Administration thereunder, all as the same shall be in
effect from time to time.
Transfer Notice. See Section 10.3.
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<PAGE> 4
Underwriters' Maximum Number. See Section 7.1.
Warrant(s) shall mean each Common Stock Purchase Warrant of the Company
issued to the Participants pursuant to Section 2.1 hereof and any other
warrants transferred to any other holders pursuant to Section 10 hereof or
otherwise delivered in exchange or in substitution therefor.
Warrant Stock shall mean the shares of Common Stock issuable upon exercise
of the Warrant and any capital stock or other securities into which or for
which such Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company.
2. SALE AND PURCHASE OF WARRANT.
2.1. Sale and Purchase of Warrants. At the Closing hereunder, the Company
will issue and sell to the Participants, and, subject to all of the terms and
conditions hereof and in reliance on the representations and warranties of the
Company set forth or referred to herein, the Participants each agree to accept
from the Company, a Common Stock Purchase Warrant evidencing the right to
purchase the number of shares of Common Stock set forth opposite said
Participant's name on the Schedule of Participants (in the aggregate the Common
Stock Purchase Warrants shall evidence the right to purchase 215,000 shares of
Common Stock, subject to adjustment), at a purchase price upon exercise of $7.50
per share, with such number of shares and such purchase price being subject to
adjustment as provided therein. Each such Common Stock Purchase Warrant shall
be substantially in the form of Exhibit A attached hereto.
2.2. Closing. The closing of the purchase and sale of the Warrants (the
"Closing") will take place at the offices of Riemer & Braunstein, Three Center
Plaza, Boston, Massachusetts, at 10:00 a.m. on July , 1998, or at such other
time, date and place as the parties hereto may agree upon (the "Closing Date").
At the Closing, the Company will (among other things) deliver to the
Participants, the Warrants. The Warrants will be issued to the Participants or
any nominee specified by the Participants on or before the Closing Date and
registered in the Participant's name or the name of such specified nominee in
the Company's records.
3. REPRESENTATIONS AND WARRANTIES.
In order to induce the Participants to enter into this Agreement and to
acquire the Warrants, the Company hereby represents and warrants as follows:
3.1. Organization and Good Standing. The Company is duly organized and
existing in good standing in the State of Delaware and is duly qualified as a
foreign corporation and authorized to do business in all other jurisdictions in
which the nature of its business or property makes such qualification necessary.
The Company has the corporate power to own its properties and to carry on its
business as now conducted and as proposed to be conducted, except where the
failure to be qualified or authorized would not have a material adverse effect
on the Company and its subsidiaries, taken as a whole.
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<PAGE> 5
3.2. Authorization, The execution, delivery and performance by the Company
of this Agreement, and the issuance and sale by the Company of the Securities
hereunder, (a) are within the Company's corporate power and authority, (b) have
been duly authorized by all necessary corporate proceedings, and (c) do not
conflict, with or result in any breach of any provision of or the creation of
any Lien upon any of the property of the Company under, or require any consent
or approval pursuant to, the Charter or bylaws of the Company, or any law,
regulation, order, judgment, writ, injunction, license, permit, agreement or
instrument.
3.3. Enforceability. The execution and delivery by the Company of this
Agreement, and the issuance and sale by the Company of the Securities hereunder,
will result in legally binding obligations of the Company, enforceable against
the Company in accordance with the respective terms and provisions hereof and
thereof, except to the extent that (a) such enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights, (b) the availability
of the remedy of specific performance or in injunctive or other equitable relief
is subject to the discretion of the court before which any proceeding therefor
may be brought, and (c) the enforceability of the indemnities and contribution
provisions contained in Section 7 hereof may be limited under federal securities
laws.
3.4. Governmental Approvals. The execution, delivery and performance by
the Company of this Agreement and the issuance and sale of the Securities
hereunder, do not require the approval or consent of, or any filing with, any
governmental authority or agency, other than a filing with National Market
System of the National Association of Securities Dealers, Inc.
3.5. Capitalization.
(1) At Closing, the authorized capital stock of the Company will be
as set forth on Schedule 3.5(a) hereto. A description of the Common Stock and
any other class or series of securities of the Company and of the voting powers,
rights and privileges thereof are set forth in the Charter.
(2) At Closing, the Company has approximately 7,400,000 shares of
Common Stock issued and outstanding. All of the shares of Common Stock have
been duly and validly issued, are presently outstanding and are fully paid and
non-assessable.
(3) Options, Etc. Other than as created pursuant to this Agreement
or as disclosed on Schedule 3.5(b) hereto, the Company has no outstanding rights
(either preemptive or other) or options to subscribe for, or purchase from the
Company, and no warrants or other agreements providing for or requiring the
issuance by the Company of, any capital stock or any securities convertible into
or exchangeable for its capital stock.
(4) Reservation, Etc. Sufficient shares of authorized but unissued
Common Stock have been reserved by appropriate corporate action in connection
with the prospective exercise of the Warrant and any other agreements disclosed
on Schedule 3.5(b). The issuance of the Warrant
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<PAGE> 6
or the shares of Warrant Stock upon the exercise of the Warrant will not require
any further corporate action by the stockholders or directors of the Company,
will not be subject to preemptive rights in any present or future stockholders
of the Company and will not conflict with any provision of any agreement to
which the Company is a party or by which it is bound, and such Common Stock,
when issued upon exercise of the Warrant in accordance with its terms or upon
conversion, will be duly authorized, validly issued, fully paid and
non-assessable.
3.6. Governmental Regulations. The Company is not a "holding company", or
a "subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935; nor is the Company a "registered investment company", or an "affiliated
person" or a "principal underwriter" of a "registered investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
4. INVESTMENT REPRESENTATION.
Each Participant represents and warrants to the Company that it is (a) an
"accredited investor" within the meaning of Rule 501(a) promulgated under the
Securities Act, and (b) acquiring the Securities for investment and not with a
view to selling or otherwise distributing the Securities; provided, however,
that the disposition of a Participant's property shall at all times be and
remain in the Participant's control, subject to the provisions of Section 10
hereof.
5. CONDITIONS TO PURCHASE
The Participants' obligation to acquire the Warrants pursuant to this
Agreement is subject to compliance by the Company with its agreements herein
contained, and to the satisfaction, on or prior to the Closing Date, of the
following conditions:
5.1. Charter Documents; Good Standing Certificate. The Participants shall
have received from the Company a copy, certified by a duly authorized officer of
the Company to be true and complete as of the Closing Date, of the Charter and
the by-laws of the Company; and a certificate, dated a date satisfactory to the
Participants, of the Secretary of State or other appropriate official of each
state in which the Company is incorporated or qualified to do business, as to
the Company's corporate good standing or qualification to do business in such
state, as the case may be.
5.2. Proof of Corporate Action. The Participants shall have received from
the Company copies, certified by a duly authorized officer thereof to be true
and complete as of the Closing Date, of the records of all corporate action
taken to authorize the execution, delivery and performance of this Agreement.
5.3. Incumbency Certificate. The Participants shall have received from
the Company an incumbency certificate, dated the Closing Date, signed by a duly
authorized officer thereof and giving the name and bearing a specimen signature
of each individual who shall be authorized to sign,
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<PAGE> 7
in the name and on behalf of the Company, this Agreement, and to give notices
and to take other action on behalf of the Company under each of such documents.
5.4. Legal Opinion. The Participants shall have received from counsel to
the Company their favorable opinion covering such matters with respect to the
transactions contemplated by this Agreement as the Participants may reasonably
request.
5.5. Representations and Warranties; Officers' Certificates. The
representations and warranties contained herein shall be true and correct on and
as of the Closing Date. The Company shall have performed and complied with all
conditions and agreements required to be performed or complied with by it prior
to the Closing; and the Participants shall have received on the Closing Date a
certificate to these effects signed by an authorized officer of the Company.
5.6. Legality; Governmental Authorization. The purchase of the Securities
shall not be prohibited by any law or governmental order or regulation, and
shall not subject the Participants to any penalty, special tax, or other onerous
condition. All necessary consents, approvals, licenses, permits, orders and
authorizations of, or registrations, declarations and filings with, any
governmental or administrative agency or of or with any other Person, with
respect to any of the transactions contemplated by this Agreement or any of the
Financing Agreements shall have been duly obtained or made and shall be in full
force and effect.
5.7. SBIC Documentation. The Company shall have executed and delivered to
the Participants all documents required by the Participants in connection with
the investment contemplated hereby under the rules and regulations applicable to
any Participant by virtue of its status as a "small business investment
company".
5.8. General. All instruments and legal, governmental, administrative and
corporate proceedings in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory in form and substance to the
Participants, and the Participants shall have received copies of all documents,
including, without limitation, records of corporate or other proceedings,
opinions of counsel, consents, licenses, approvals, permits and orders which the
Participants may have requested in connection therewith.
6. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement, the
provisions of this Agreement that are for a Participant's benefit as the holder
of any Securities are also for the benefit of, and enforceable by, all
subsequent holders of Securities.
7. REGISTRATION RIGHTS.
7.1. Definitions. As used in this Section 7:
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<PAGE> 8
Holder means each Participant and all Persons to whom any Registrable
Securities are transferred in accordance with the provisions hereof. A Holder
shall, for all purposes of this Section 7, unless the context shall otherwise
require, be deemed to hold, at any particular time, all shares of Warrant Stock
issuable upon exercise of the Warrants held of record by such Holder at such
time.
register, registered and registration refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act and the declaration or ordering by the Commission of effectiveness of such
registration statement.
Registrable Securities means, at any particular time, all shares of
Warrant Stock (a) issuable upon exercise of the Warrants at such time, or (b)
issued and outstanding at such time. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable
Securities when (a) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such registration
statement, (b) they shall have been sold to the public pursuant to Rule 144 (or
any successor provision) under the Securities Act, (c) they shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and, in
the opinion of counsel reasonably satisfactory to the Company, subsequent
public distribution of them shall not require registration or qualification of
them under the Securities Act or any similar state law then in force, or (d)
they shall have ceased to be outstanding.
Underwriters' Maximum Number means for any Piggyback Registration, Demand
Registration or other registration which is an underwritten registration, that
number of securities to which such registration should, in the opinion of the
managing underwriters of such registration in the light of marketing factors,
be limited.
7.2. Demand Registration.
(1) Request for Demand Registration.
(1) Subject to the limitations contained in the following paragraphs
of this Section 7.2, the Holders of 51% or more of all Registrable
Securities at any time outstanding may at any time give to the Company,
pursuant to this clause (i), a written request for the registration by the
Company under the Securities Act of all or any part of the Registrable
Securities of such Holders (such registration being herein called a Demand
Registration). Within 10 days after the receipt by the Company of any such
written request, the Company will give written notice of such registration
request to all Holders of Registrable Securities.
(2) Subject to the limitations contained in the following paragraphs
of this Section 7.2, after the receipt of such written request for a Demand
Registration, (A) the Company will be obligated and required to include in
such Demand Registration all Registrable Securities with respect to which
the Company shall receive from Holders of Registrable Securities, within 30
days after the date on which the Company shall have given to all Holders a
written notice of registration request pursuant to Section 7.2(a)(i)
hereof, the
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<PAGE> 9
written requests of such Holders for inclusion in such Demand Registration,
and (B) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. All written
requests made by Holders of Registrable Securities pursuant to this clause
(ii) will specify the number of shares of Registrable Securities to be
registered and will also specify the intended method of disposition
thereof. Such method of disposition shall, in any case, be an underwritten
offering if an underwritten offering is requested by Holders of 51% or more
of the Registrable Securities to be included in such Demand Registration.
(2) Limitations on Demand Registration.
(1) The Holders of Registrable Securities shall jointly be entitled
to require the Company to effect a Demand Registration pursuant to Section
7.2(a) hereof on only two (2) occasions.
(2) Any registration initiated by Holders of Registrable Securities
as a Demand Registration pursuant to Section 7.2(a) hereof shall not count
as a Demand Registration for purposes of Section 7.2(b)(i) hereof unless
and until such registration shall have become effective [AND 51% OR MORE OF
THE REGISTRABLE SECURITIES REQUESTED TO BE INCLUDED IN SUCH REGISTRATION
SHALL HAVE BEEN ACTUALLY SOLD (PROVIDED, THAT IF ANY SUCH SECURITIES ARE
VOLUNTARILY WITHDRAWN FROM SALE BY A HOLDER THEN SUCH HOLDER'S SECURITIES
THAT ARE WITHDRAWN SHALL BE DEEMED TO HAVE BEEN ACTUALLY SOLD FOR PURPOSES
OF THIS SECTION)].
(3) The Company shall not be obligated or required to effect the
Demand Registration of any Registrable Securities pursuant to Section
7.2(a) hereof during the period commencing on the date falling 60 days
prior to the Company's estimated date of filing of, and ending on the date
180 days following the effective date of, any registration statement
pertaining to any underwritten registration initiated by the Company, for
the account of the Company, if the written request of Holders for such
Demand Registration pursuant to Section 7.3(a)(i) hereof shall have been
received by the Company after the Company shall have given to all Holders
of Registrable Securities a written notice stating that the Company is
commencing an underwritten registration initiated by the Company; provided,
however, that the Company will use its best efforts in good faith to cause
any such registration statement to be filed and to become effective as
expeditiously as shall be reasonably possible.
(3) Priority on Demand Registrations. If the managing underwriters
in any Demand Registration shall give written advice to the Company and the
Holders of Registrable Securities to be included in such registration of an
Underwriters' Maximum Number, then: (i) the Company will be obligated and
required to include in such registration that number of Registrable Securities
requested by the Holders thereof to be included in such registration which does
not exceed the Underwriters' Maximum Number, and such number of Registrable
Securities shall be allocated pro rata among the Holders of such Registrable
Securities on the basis of the number of Registrable Securities requested to be
included therein by each such Holder; (ii) if the Underwriters' Maximum
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<PAGE> 10
Number exceeds the number of Registrable Securities requested by the Holders
thereof to be included in such registration, then the Company will be entitled
to include in such registration that number of securities which shall have been
requested by the Company to be included in such registration for the account of
the Company and which shall not be greater than such excess; and (iii) if the
Underwriters' Maximum Number exceeds the sum of the number of Registrable
Securities which the Company shall be required to include in such Demand
Registration and the number of securities which the Company proposes to offer
and sell for its own account in such registration, then the Company may include
in such registration that number of other securities which persons (other than
the Holders as such) shall have requested be included in such registration and
which shall not be greater than such excess. Neither the Company nor any of its
securityholders (other than Holders of Registrable Securities) shall be entitled
to include any securities in any underwritten Demand Registration unless the
Company or such securityholders (as the case may be) shall have agreed in
writing to sell such securities on the same terms and conditions as shall apply
to the Registrable Securities to be included in such Demand Registration.
(4) Selection of Underwriters. If any Demand Registration or any
registration effected pursuant to Section 7.2 hereof is an underwritten
offering, or a best efforts underwritten offering, the investment bankers and
managing underwriters in such registration will be selected by the Company,
subject to the approval of Holders of 51% or more of the Registrable Securities
to be included in such registration, such approval not to be unreasonably
withheld.
7.3. Piggyback Registrations.
(1) Rights to Piggyback.
(1) If (and on each occasion that) the Company proposes to register
any of its securities under the Securities Act on Forms S-1, S-2, or S-3
either for the Company's own account or for the account of any of its
securityholders (each such registration not withdrawn or abandoned prior to
the effective date thereof being herein called a "Piggyback Registration"),
the Company will, at its expense, give written notice to all Holders of
Registrable Securities of such proposal not later than the earlier to occur
of (A) the tenth day following the receipt by the Company of notice of
exercise of any registration rights by any persons, and (B) [20] days prior
to the anticipated filing date of such Piggyback Registration.
(2) Subject to the provisions contained in paragraphs (b) and (c) of
this Section 7.3 and in the last sentence of this clause (ii), (A) the
Company will be obligated and required to include in each Piggyback
Registration all Registrable Securities with respect to which the Company
shall receive from Holders of Registrable Securities, within 15 days after
the date on which the Company shall have given written notice of such
Piggyback Registration to all Holders of Registrable Securities pursuant to
Section 7.3(a)(i) hereof, the written requests of such Holders for
inclusion in such Piggyback Registration, and (B) the Company will use its
best efforts in good faith to effect promptly the registration of all such
Registrable Securities. The Holders of Registrable Securities shall be
permitted to withdraw all or any part of the Registrable Securities of such
Holders from any Piggyback Registration
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<PAGE> 11
at any time prior to the effective date of such Piggyback Registration.
The Company will not be obligated or required to include any Registrable
Securities in any registration effected solely to implement an employee
benefit plan or issued as consideration in connection with an arms' length
acquisition.
(2) Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration initiated by the Company, and the
managing underwriters shall give written advice to the Company of an
Underwriters' Maximum Number, then (i) the Company shall be entitled to include
in such registration that number of securities which the Company proposes to
offer and sell for its own account in such registration and which does not
exceed the Underwriters' Maximum Number; (ii) if the Underwriters' Maximum
Number exceeds the number of securities which the Company proposes to offer and
sell for its own account in such registration, then the Company will be
obligated and required to include in such registration that number of
Registrable Securities requested by the Holders thereof to be included in such
registration and which does not exceed such excess and such Registrable
Securities shall be allocated for inclusion pro rata among the Holders thereof
on the basis of the number of Registrable Securities requested to be included
therein by such Holders; and (iii) if the Underwriters' Maximum Number exceeds
the sum of the number of Registrable Securities which the Company shall be
required to include in such registration and the number of securities which the
Company proposes to offer and sell for its own account in such registration,
then the Company may include in such registration that number of other
securities which persons shall have requested be included in such registration
and which shall not be greater than such excess.
(3) Priority on Secondary Registrations. If any Piggyback
Registration is an underwritten secondary registration initiated by holders of
the Company's securities (other than the Holders) and the managing underwriters
shall give written advice to the Company of an Underwriters' Maximum Number for
such registration, then: (i) the Company will be obligated and required to
include in such registration both (x) the number of securities requested by the
holders initiating such Piggyback Registration and (y) the number of Registrable
Securities requested by the Holders thereof to be included in such registration,
which together in the aggregate do not exceed the Underwriters' Maximum Number
and if such requests in the aggregate exceed the Underwriters' Maximum Number,
then such Registrable Securities shall be allocated for inclusion pro rata
among the two different groups of holders identified in clauses (x) and (y) of
this paragraph on the basis of the number of securities requested to be included
therein by each such group of holders (and shall be further allocated for
inclusion pro rata among the holders within each such group of holders
identified in clauses (x) and (y) of this paragraph on the basis of the number
of Registrable Securities requested to be included therein by the holders within
each group); and (ii) if the Underwriters' Maximum Number exceeds the sum of the
number of Registrable Securities which the Company shall be required to include
in such registration and the number of securities to be included in such
registration by holders initiating such registration, then the Company may
include in such registration that number of securities for its own account which
shall not be greater than such excess.
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<PAGE> 12
(4) Selection of Underwriters. In any Piggyback Registration, the
Company shall (unless the Company shall otherwise agree) have the right to
select the investment bankers and managing underwriters in such registration.
7.4. Registration Procedures. If (and on each occasion that) the Company
shall become obligated to effect any registration of any Registrable Securities
hereunder, the Company will use its best efforts in good faith to effect the
registration of such Registrable Securities under the Securities Act and to
permit the public offering and sale of such Registrable Securities in accordance
with the intended method of disposition thereof, and, in connection therewith,
the Company, as expeditiously as possible, will:
(1) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (provided, that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to counsel selected by the holders of a majority of the
Registrable Securities covered by such registration statement, copies of all
such documents proposed to be filed, which documents will be subject to the
timely review of such counsel);
(2) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
not more than six (6) months, and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such effective period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(3) furnish to each Holder selling Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus and each prospectus filed under Rule 424 of the
Securities Act) and such other documents as each such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by each such Holder:
(4) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests, use its best efforts to keep each such
registration or qualification effective, during the period such registration
statement is required to be kept effective, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such seller; provided that the Company will not be required (i) to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph (d), or (ii) to
subject itself to taxation in any such jurisdiction;
(5) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an
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<PAGE> 13
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller, the
Company will promptly prepare (and, when completed, give notice to each seller
of Registrable Securities) a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading; provided
that upon such notification by the Company, each seller of such Registrable
Securities will not offer or sell such Registrable Securities until the Company
has notified such seller that it has prepared a supplement or amendment to such
prospectus and delivered copies of such supplement or amendment to such seller;
(6) cause all such Registrable Securities to be listed, prior to
the date of the first sale of such Registrable Securities pursuant to such
registration on each securities exchange on which similar securities issued by
the Company are then listed and, if not so listed, to be listed with the
National Association of Securities Dealers automated quotation system
("NASDAQ");
(7) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(8) enter into such customary agreements (including underwriting
agreements in customary form) as the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities;
(9) make available for inspection on a confidential basis by any
Holder that is a seller of Registrable Securities, any underwriter participating
in any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and independent
accountants to supply on a confidential basis all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(10) permit any holder of Registrable Securities which holder, in
its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company within the meaning of Section 15 of the
Securities Act, to participate in the preparation of such registration or
comparable statement and to permit the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included, provided that such material shall be furnished
under such circumstances as shall cause it to be subject to the indemnification
provisions provided pursuant to Section 7.8(b) hereof; and
(11) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities included in such registration statement for sale in
any jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order.
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<PAGE> 14
7.5. Cooperation by Prospective Sellers, Etc.
(1) Each prospective seller of Registrable Securities will furnish
to Company in writing such information as the Company may reasonably require
from such seller, and otherwise reasonably cooperate with the Company in
connection with registration statement with respect to such Registrable
Securities.
(2) The failure of any prospective seller of Registrable Securities
to furnish any information or documents in accordance with any provision
contained in this Section 7 shall not affect the obligations of the Company
under this Agreement to any remaining sellers who furnish such information and
documents unless in the reasonable opinion of counsel to the Company or the
underwriters, such failure impairs or may impair the viability of the offering
or the legality of the registration statement or the underlying offering.
(3) The Holders of Registrable Securities included in any
registration statement will not (until further notice) effect sales thereof
after receipt of telegraphic or written notice from the Company to suspend sales
to permit the Company to correct or update such registration statement or
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect.
7.6. Limitations, Conditions, and Qualifications to Obligations Under
Registration Covenants. The obligations of the Company to use its reasonable
efforts to cause the Registrable Securities to be registered under the
Securities Act are subject to each of the following limitations, conditions,
and qualifications:
(1) The Company shall not be obligated to file or keep effective any
registration statement pursuant to Section 7 hereof at any time if the Company
would be required to include financial statements audited as of any date other
than the end of its fiscal year;
(2) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 30 days and not more than once in any
six-month period) the filing or effectiveness of any registration statement
otherwise required to be prepared and filed by it pursuant to Section 7 hereof
if the Company determines, in its reasonable judgment, that (i) the Company is
in possession of material information that has not been disclosed to the public
and the Company determines, in its reasonable judgment, that it would be
significantly detrimental to the Company and its stockholders to disclose such
information at such time in a registration statement or (ii) if the Company
determines, in its reasonable judgment, such registration and offering would
significantly interfere with any financing, acquisition, corporate
reorganization, or other material transaction involving the Company and, in any
such case, the Company promptly gives the requesting holders of Registrable
Securities written notice of such determination, containing a statement setting
forth the reasons for such postponement and an approximation of the anticipated
delay. If the Company shall so postpone the filing of a registration statement,
the requesting holders of Registrable Securities shall have the right to
withdraw the request for registration by giving written notice to the
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<PAGE> 15
Company within 30 days after receipt of the notice of postponement and, in the
event of such withdrawal, such request shall not be counted for purposes of the
requests for registration to which the Purchasers and their assignees are
entitled pursuant to Section 7 hereof.
7.7. Registration Expenses.
(1) All costs and expenses incurred or sustained in connection with
or arising out of each registration pursuant to Sections 7.2 and 7.3 hereof,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws (including reasonable
fees and disbursements of counsel for the underwriters in connection with the
blue sky qualification of Registrable Securities), printing expenses, messenger,
telephone and delivery expenses, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one counsel representing the
Holders of Registrable Securities, fees and disbursements of all independent
certified public accountants (including the expenses relating to the preparation
and delivery of any special audit or "cold comfort" letters required by or
incident to such registration), and fees and disbursements of underwriters
(excluding discounts and commissions), the reasonable fees and expenses of any
special experts retained by the Company of its own initiative or at the request
of the managing underwriters in connection with such registration, and fees and
expenses of all (if any) other persons retained by the Company (all such costs
and expenses being herein called, collectively, the "REGISTRATION EXPENSES"),
will be borne and paid by the Company. The Company will, in any case, pay its
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit, and the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities of the Company are then listed.
(2) The Company will not bear the cost of nor pay for any stock
transfer taxes imposed in respect of the transfer of any Registrable Securities
to any purchaser thereof by any Holder of Registrable Securities in connection
with any registration of Registrable Securities pursuant to this Section 7.
(3) To the extent that Registration Expenses incident to any
registration are, under the terms of this Section 7, not required to be paid by
the Company, each Holder of Registrable Securities included in such registration
will pay all Registration Expenses which are clearly solely attributable to the
registration of such Holder's Registrable Securities so included in such
registration, and all other Registration Expenses not so attributable to one
Holder will be borne and paid by all sellers of securities included in such
registration in proportion to the number of securities so included by each such
seller.
7.8. Indemnification.
(1) Indemnification by the Company. The Company will indemnify each
Holder requesting or joining in a registration and each underwriter of the
securities so registered, the officers, directors and partners of each such
Person and each Person who controls any thereof (within
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<PAGE> 16
the meaning of the Securities Act) against any and all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact contained in
any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, underwriter, officer, director, partner
and controlling person for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case (i) to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon written
information furnished to the Company in an instrument duly executed by such
Holder, underwriter, officer, director, partner or controlling person and stated
to be specifically for use in such prospectus, offering circular or other
document, or (ii) inure to the benefit of any underwriter or any person
controlling such underwriter, to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
such person's failure to send or give a copy of the final prospectus, as the
same may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
(2) Indemnification by Each Holder. Each Holder requesting or
joining in a registration will indemnify each underwriter of the securities so
registered, the Company and its officers and directors and each person, if any,
who controls any thereof (within the meaning of the Securities Act) and their
respective successors in title and assigns against any and all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of any material fact
contained in any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement therein not misleading, and such Holder will reimburse each
underwriter, the Company and each other person indemnified pursuant to this
paragraph (b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon written information furnished to such underwriter or the Company in an
instrument duly executed by any such Holder and stated to be specifically for
use in such prospectus, offering circular or other document (or related
registration statement, notification or the like) or any amendment or supplement
thereto; and provided further that each Holder's liability hereunder with
respect to any particular registration shall be limited to an amount equal to
the net proceeds received by such Holder from the Registrable Securities sold by
such Holder in such registration.
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<PAGE> 17
(3) Indemnification Proceedings. Each party entitled to
indemnification pursuant to this Section 7.8 (the "indemnified party") shall
give notice to the party required to provide indemnification pursuant to this
Section 7.8 (the "indemnifying party") promptly after such indemnified party
acquires actual knowledge of any claim as to which indemnity may be sought, and
shall permit the indemnifying party (at its expense) to assume the defense of
any claim or any litigation resulting therefrom; provided that counsel for the
indemnifying party, who shall conduct the defense of such claim or litigation,
shall be reasonably acceptable to the indemnified party, and the indemnified
party may participate in such defense at such party's expense; and provided,
further, that the failure by any indemnified party to give notice as provided in
this paragraph (c) shall not relieve the indemnifying party of its obligations
under this Section 7.8 except to the extent that the failure results in a
failure of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give notice. No indemnifying
party, in the defense of any such claim or litigation, shall, except with the
consent of each indemnified party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation. The reimbursement
required by this Section 7.8 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
7.9. Contribution in Lieu of Indemnification. If the indemnification
provided for in Section 7.8 hereof is unavailable to a party that would have
been an indemnified party under any such Section in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each party that would have been an indemnifying party thereunder
shall, in lieu of indemnifying such indemnified party, contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and such indemnified party on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Holder of Registrable Securities agree that it would not be just and
equitable if contribution pursuant to this Section 7.9 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7.9. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this Section 7.9 shall include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Each Holder's liability hereunder with respect to any
particular registration shall be limited to an amount equal to the net proceeds
received by such Holder from the Registrable Securities sold by such Holder in
such registration.
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7.10. Rule 144 Requirements; Form S-3. The Company will use its
reasonable efforts in good faith to take all steps necessary to ensure that the
Company will be eligible to register securities on Form S-3 (or any comparable
form adopted by the Commission) and to make publicly available and available to
the Holders of Registrable Securities, pursuant to Rule 144 of the Commission
under the Securities Act, such information as shall be necessary to enable the
Holders of Registrable Securities to make sales of Registrable Securities
pursuant to that Rule. The Company will furnish to any Holder of Registrable
Securities, upon request made by such Holder a written statement signed by the
Company, addressed to such Holder, describing briefly the action the Company has
taken or proposes to take to comply with the current public information
requirements of Rule 144. The Company will, at the request of any Holder of
Registrable Securities, upon receipt from such Holder of a certificate
certifying (i) that such Holder has held such Registrable Securities for a
period of not less than two (2) consecutive years, (ii) that such Holder has not
been an affiliate (as defined in Rule 144) of the Company for more than the
ninety (90) preceding days, and (iii) as to such other matters as may be
appropriate in accordance with such Rule, remove from the stock certificates
representing such Registrable Securities that portion of any restrictive legend
which relates to the registration provisions of the Securities Act.
7.11. Participation in Underwritten Registrations. No Person may
participate in any underwritten registration pursuant to this Section 7 unless
such Person (a) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Persons entitled, under the
provisions hereof, to approve such arrangements, and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required by the terms of such underwriting
arrangements. Any Holder of Registrable Securities to be included in any
underwritten registration shall be entitled at any time to withdraw such
Registrable Securities from such registration prior to its effective date in the
event that such Holder shall disapprove of any of the terms of the related
underwriting agreement.
7.12. Call Right.
(1) Company Right To Call. In the event that the Holders have
initiated a Demand Registration in accordance with Section 7.2(a) hereof or have
elected to exercise their Piggyback Registration rights in accordance with
Section 7.3 (a) hereof, then, at the election of Company, which shall be made in
writing and delivered to each of the Holders making such registration election
within ten (10) days of such Holders' registration election, the Company shall
purchase each such Holder's Registrable Securities (or to the extent that such
Holder has not yet exercised their Warrant to acquire all of the Registrable
Securities desired to be included in the registration, then the Company shall
purchase such Holder's unexercised portion of their Warrant which could be used
to acquire the remaining Registrable Securities to be included in the
registration) up to the number of Registrable Securities that such Holder
elected to include in the registration (the "CALL RIGHT").
(2) Consideration and Closing. The Registrable Securities which
are called by the Company pursuant to Section 7.12(a) shall be purchased by the
Company for cash at a purchase
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<PAGE> 19
price equal to their Fair Market Value determined as of the date that the Holder
elected by written notice to the Company to exercise their registration rights
in accordance with Section 7.2 or 7.3 hereof, as the case may be (or to the
extent that such Holder has not yet exercised its Warrant to acquire all of the
Registrable Securities desired to be included in the registration, then, for
such shares not yet acquired, the Holder shall receive the difference between:
(i) the Fair Market Value of such Registrable Securities determined as of the
date that the Holder elected to exercise its registration rights in accordance
with Section 7.2 or 7.3 hereof, as the case may be, less (ii) the aggregate
Exercise Price for such Registrable Securities). The closing of the Call Right
shall occur not later than fifteen (15) days following the Company's election to
exercise the Call Right. At the closing of the Call Right the Company shall pay
each Holder cash for the Registrable Shares (and/or cancellation of shares
issuable pursuant to Warrants) by certified check, bank check, or wire transfer
as directed by the Holder, and the Holder shall deliver the certificates
representing the Registrable Securities and any necessary stock powers, and to
the extent that such Holder has not yet exercised their Warrant, the Company and
such Holder shall execute such documents as are reasonably necessary to evidence
the reduction of the number of shares of Registrable Securities that may be
acquired pursuant to such Warrant
7.13. Miscellaneous.
(1) Inconsistent Agreements. The Company has not previously
entered into, and will not at any time after the date hereof enter into, any
agreement or contract (whether written or oral) with respect to any of its
securities which prevents the Company from complying in any respect with the
registration rights granted by the Company to Holders of Registrable Securities
hereunder.
(2) Amendments and Waivers. The provisions of this Section 7
including the provisions of this paragraph (b), may not be amended, modified or
supplemented, and any waiver or consent to or any departure from any of the
provisions of this Section 7 may not be given and shall not become or be
effective, unless and until (in each case) the Company shall have received the
prior written consent of the Holders of 51% or more of all Registrable
Securities for any such amendment, modification, supplement, waiver or consent.
(3) Registrable Securities Held by Company. Whenever the consent
or approval of Holders of Registrable Securities is required pursuant to this
Section 7, Registrable Securities held by the Company shall not be counted in
determining whether such consent or approval was duly and properly given by such
Holders.
8. REGISTRATION AND TRANSFER OF SECURITIES.
8.1. Registration, Transfer and Exchange of Warrants.
(1) The Company shall keep at its principal office a register in
which shall be entered the names and addresses of the holders of Warrants issued
by it and particulars of the respective Warrants held by them and of all
transfers of such Warrants. References to the "holder" or "holder of record" of
any Warrant shall mean the holder thereof unless the holder shall have
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<PAGE> 20
presented such Warrant to the Company for transfer and the transferee shall have
been entered in said register as a subsequent holder, in which case the terms
shall mean such subsequent holder. The ownership of any of the Warrants shall
be proven by such register and the Company may conclusively rely upon such
register.
(2) The holder of any of the Warrants may at any time and from time
to time prior to exercise, repurchase or redemption thereof surrender any
Warrant held by it for exchange or (subject to compliance with Section 10
hereof) transfer at said office of the Company. On surrender for exchange of
the Warrants, properly endorsed, to the Company, the Company at its expense will
issue and deliver to or on the order of the holder thereof a new warrant or
warrants of like tenor, in the name of such holder or, upon payment by such
holder of any applicable transfer taxes, as such holder may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Warrant
Stock called for on the face or faces of the Warrants so surrendered. The
Company will pay shipping and insurance charges, from and to each holder's
principal office, involved in the exchange or transfer of any Warrant.
(3) Each Warrant issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of, any Warrant shall be
registered on the date of execution thereof by the Company. The registered
holder of record shall be deemed to be the owner of the Warrant for all purposes
of this Agreement. All notices given hereunder to the holder of record shall be
deemed validly given if given in the manner specified in Section 12 hereof.
8.2. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of any Security held by an institutional holder, an unsecured
indemnity agreement from such holder reasonably satisfactory to the Company) or,
in the case of any such mutilation, upon the surrender of such Security for
cancellation to the Company at its principal office, the Company, at its own
expense, will execute and deliver, in lieu thereof, a new Security of like
tenor. Any Security in lieu of which any such new Security has been so executed
and delivered by the Company shall not be deemed to be outstanding for any
purpose of this Agreement.
9. REGULATORY RESTRICTIONS
9.1. Holding Company. No Person which is a bank holding company or a
subsidiary of a bank holding company (a "BANK AFFILIATE") as defined in the Bank
Holding Company Act of 1956, as amended, or other applicable banking laws of the
United States of America and the rules and regulations promulgated thereunder
(the "BANK HOLDING COMPANY ACT") shall acquire Common Stock pursuant to the
Warrant, if, after giving effect to such acquisition, the Bank Affiliate,
together with its Affiliates, would own more than five percent (5%) of the
outstanding voting securities of the Company. Notwithstanding the foregoing,
shares of Common Stock may otherwise be acquired or held by the Bank or any
other Bank Affiliate which is a Small Business Investment Company consistent
with and subject to the limitations contained in the Small Business Act and, to
the extent
-20-
<PAGE> 21
not inconsistent with the Bank Holding Company Act, shares of Common Stock may
be acquired in the event that:
(1) the Company shall vote to merge or consolidate with or into any
other Person and after giving effect to such merger or consolidation the Bank
Affiliate would not own more than five percent (5%) of the outstanding voting
securities of the surviving corporation; or
(2) said holder exercises its registration rights pursuant to
Section 7 hereof and the registration statement resulting therefrom is
effective.
9.2. Statement of Compliance. For purposes of this Agreement, a written
statement of the Participant or any of its Affiliates acquiring Common Stock,
delivered to the Company upon acquisition of any shares of Common Stock to the
effect that the Participant or its Affiliate, as the case may be, is legally
entitled to exercise its rights to purchase securities of the Company and that
such exercise will not violate or contravene any law or regulation or any
judgment, decree or order of any governmental authority then applicable to the
Participant or such Affiliate, as the case may be, shall be conclusive and
binding upon the Company and shall absolutely obligate and bind the Company to
deliver, in accordance with the other terms and provisions hereof, certificates
or other appropriate instruments representing the securities so purchased.
10. RESTRICTIONS ON TRANSFER.
10.1. General Restriction. The Securities shall be transferable only upon
the satisfaction of the conditions set forth below in this Section 10 and
applicable provisions of the Securities holder Agreement.
10.2. Notice of Transfer. Prior to any transfer of any Securities, the
holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "TRANSFER NOTICE"), accompanied
by (a) an opinion of Riemer & Braunstein addressed to the Company, or other
counsel reasonably acceptable to the Company, that such transfer may be effected
without registration of such Securities under the Securities Act, and (b) the
written agreement of the proposed transferee to be bound by all of the
provisions hereof applicable to holders of such Securities hereunder; provided,
however, the opinion required pursuant to the preceding clause (a) shall not be
required in connection with a transfer by a Participant to an Affiliate of the
Participant or to another Participant (or Affiliate of another Participant).
10.3. Restrictive Legends. Except as otherwise permitted by this Section
10, each Security shall bear the legend specified for such Security in Schedule
10.3 hereto.
10.4. Termination of Restrictions. The restrictions imposed by this
Section 10 upon the transferability of Securities shall terminate as to any
particular Securities when such Securities shall have been effectively
registered under the Securities Act or sold pursuant to a Public Sale. Whenever
any of such restrictions shall terminate as to any Securities, the holder
thereof shall be
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<PAGE> 22
entitled to receive from the Company, at the Company's expense, new Securities
without such legends.
11. EXPENSES; INDEMNITY.
(1) The Company hereby agrees to pay on demand all reasonable
out-of-pocket expenses incurred by the Participants or any holder of any
Security issued hereunder in connection with the enforcement of any rights
hereunder, or with respect to any Security, including without limitation
reasonable attorneys' fees and costs, whether or not such attorneys are the
Participant's employees, and reasonable consulting, accounting, appraisal,
investment banking and similar professional fees and charges incurred by the
Participants in connection with the exercise, enforcement or preservation of
rights under this Agreement against the Company or the administration thereof
(including engineering, appraiser, environmental consulting and investment
banking charges).
(2) The Company hereby further agrees to indemnify, exonerate and
hold free and harmless the Participants and the Participants' stockholders,
officers, directors, employees and agents from and against any and all actions,
causes of action, suits, losses, liabilities, damages and expenses (including,
without limitation, reasonable attorneys' fees and disbursements), incurred in
any capacity by any of the indemnitees as a result of or relating to the
execution, delivery, performance or enforcement of this Agreement (including,
without limitation, any failure by the Company to comply with any of its
covenants hereunder), or any instrument contemplated hereby or thereby, except,
in each such case, for any such liabilities arising from any indemnitee's breach
of this Agreement, gross negligence or willful misconduct.
(3) The Company hereby indemnifies the Participants against and
agrees that it will hold the Participants harmless from any claim, demand or
liability for any broker's, finder's or placement fees or lender's incentive
fees alleged to have been incurred by it in connection with the transactions
contemplated by this Agreement.
(4) Except to the extent otherwise expressly provided herein, the
Company shall pay on demand interest at a rate per annum equal to the lesser of
the maximum rate of interest permitted by law or 18% (in each case, compounded
monthly) on all overdue amounts payable under this Agreement until such amounts
shall be paid in full.
(5) The obligations of the Company under this Section 11 shall
survive payment or transfer of the Securities and the termination of this
Agreement.
12. NOTICES.
Any notice or other communication in connection with this Agreement, any
other Financing Agreement or the Securities shall be deemed to be delivered if
in writing (or in the form of a telecopy) addressed as provided below (a) when
actually delivered or telecopied to said address or
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<PAGE> 23
(b) in the case of a letter, three business days shall have elapsed after the
same shall have been deposited in the United States mails, postage prepaid and
registered or certified:
If to the Company, then to its address set forth on page 1 hereof,
to the attention of the President or at such other address as such person
shall have specified by notice actually received by the addressor, with a
copy to Neil Aizenstein, Esquire, Sonnenschein, Nath & Rosenthal, 8000
Sears Tower, Chicago, Illinois 60606, facsimile number (312) 876-7934.
If to a Participant, then to its address set forth on the Schedule
of Participants, or at such other address as the Participant shall have
specified by notice actually received by the addressor, with a copy to
Richard B. Jacobs, Esquire, Riemer & Braunstein, Three Center Plaza,
Boston, Massachusetts 02108, facsimile number (617) 723-6831.
If to any other holder of record of any Security, to it at its
address set forth in the applicable register referred to in Section 8
hereof.
13. SURVIVAL AND TERMINATION OF COVENANTS.
All covenants, agreements, representations and warranties made herein or
in any other document referred to herein or delivered to the Participants
pursuant hereto shall be deemed to have been relied on by the Participants,
notwithstanding any investigation made by the Participants or on the
Participant's behalf, and shall survive the execution and delivery to the
Participants hereof and of the Securities.
14. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively) only with the written consent of the
Company and a majority of the Holders of the Warrants and Warrant Stock,
respectively, with respect to any provision of this Agreement which by its
terms operates for the benefit of such respective holders. Notwithstanding the
foregoing, (a) without the prior written consent of each holder of Warrants and
Warrant Stock with respect to whom such amendment or waiver is made, no such
amendment or waiver shall extend the scheduled date of any required repurchase
of such respective Securities held by such holder or reduce the repurchase
price payable thereon, or (b) without the written consent of the aforesaid
percentage of Securities increase or reduce the aforesaid percentage of
Securities the holders of which are required to consent to any such amendment
or waiver. Any amendment or waiver effected in accordance with this Section 14
shall be binding upon each holder of any Security sold pursuant to this
Agreement and the Company.
15. CONSENT TO JURISDICTION.
THE COMPANY HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS
IN AND OF THE COMMONWEALTH OF MASSACHUSETTS, AND
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<PAGE> 24
CONSENTS THAT SERVICE OF PROCESS WITH RESPECT TO ALL COURTS IN AND OF THE
COMMONWEALTH OF MASSACHUSETTS MAY BE MADE BY REGISTERED MAIL TO IT AT THE
COMPANY'S ADDRESS SET FORTH ON PAGE 1 HEREOF.
16. RIGHT TO PUBLICIZE.
The Company hereby acknowledges that the Participants will have the right
to publicize their respective investment in the Company as contemplated hereby
by means of a tombstone advertisement or other customary advertisement in
newspapers and other periodicals.
17. WAIVER JURY TRIAL.
THE COMPANY HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A JURY TRIAL
IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT,
THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS.
18. MISCELLANEOUS.
This Agreement sets forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby and supersede any prior
written or oral understandings with respect thereto. The invalidity or
unenforceability of any term or provision hereof shall not affect the validity
or enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter or
otherwise affect the meaning hereof. THIS AGREEMENT IS INTENDED TO TAKE EFFECT
AS A SEALED INSTRUMENT AND MAY BE EXECUTED IN ANY NUMBER OF COUNTERPARTS WHICH
TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND SHALL BE GOVERNED BY AND CONSTRUED
ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION
OR RULE THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC SUBSTANTIVE LAWS OF
ANY OTHER STATE, AND SHALL BIND AND INURE TO THE BENEFIT OF THE PARTIES HERETO
AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
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<PAGE> 25
If the foregoing corresponds with the Participants' understanding of our
agreement, kindly sign this letter and the accompanying copies thereof in the
appropriate space below and return one counterpart of the same to the Company,
at the address first listed above.
Very truly yours,
FACTORY CARD OUTLET CORP.
By:_________________________________
Title:______________________________
Accepted and agreed to:
BACK BAY CAPITAL, LLC
By:_________________________________
Title:______________________________
MLQ INVESTORS, L.P.
By:_________________________________
Title:______________________________
FINOVA CAPITAL CORPORATION
By:_________________________________
Title:______________________________
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<PAGE> 26
List of Exhibits
Exhibit A Warrant
<PAGE> 27
List of Schedules
Schedule of Participants
Schedule 3.5(a) Authorized Capital Stock
Schedule 3.5(b) Issued and Outstanding Securities; Options, Etc.
Schedule 10.3 Restrictive Legend
<PAGE> 28
Schedule of Participants
Participant
Name and Address Number of Warrant Shares
---------------- ------------------------
19. Back Bay Capital, LLC
40 Broad Street
Boston, Massachusetts
Attention:
(a Delaware limited liability company) 71,666.68
20. MLQ Investors, L.P.
(a Delaware limited parnetship)
(or its assignee or designee Goldman, Sachs & Co.,
a New York limited partnership)
85 Broad Street
New York, New York 10004
Attention: Thomas Hudson 71,666.66
21. FINOVA Capital Corporation
______________________________
______________________________
______________________________
(a Delaware corporation) 71,666.66
----------
215,000.00
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<PAGE> 29
Schedule 10.3
Restrictive Legends
Warrants
"This Warrant and any shares acquired upon the exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended, and may
not be sold or transferred in the absence of such registration or an exemption
therefrom under such Act or any applicable state securities laws. Furthermore,
this Warrant and any shares acquired upon the exercise of this Warrant may be
sold or otherwise transferred only in compliance with the conditions specified
in Section 10 of the Warrant Purchase Agreement referred to hereinafter,
complete and correct copies of which are available for inspection at the
principal office Factory Card Outlet Corp. and will be furnished without charge
to the holder of this Warrant upon written request."
Warrant Stock
"The shares evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended. No transfer, sale or other disposition
of these shares may be made unless a Registration Statement with respect to
these shares has become effective under said Act, or Factory Card Outlet Corp.
(the "Company") has been furnished with an opinion of counsel satisfactory to
the Company that such registration is not required.
These shares may be sold or otherwise transferred only in compliance with
the conditions specified in Section 10 of a certain Warrant Purchase Agreement,
dated as of July 17, 1998, between the Company, Back Bay Capital, LLC, MLQ
Investors, L.P., and FINOVA Capital Corporation, complete and correct copies of
which are available for inspection at the principal office of the Company and
will be furnished without charge to the holder of these shares upon written
request."
<PAGE> 1
EXHIBIT 10.4
FACTORY CARD OUTLET CORP.
Right to Purchase 71,666.68 Shares of Common Stock
of Factory Card Outlet Corp.
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
FURTHERMORE, THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN SECTION 10 OF THE WARRANT PURCHASE AGREEMENT REFERRED
TO HEREINAFTER, COMPLETE AND CORRECT COPIES OF WHICH ARE AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF FACTORY CARD OUTLET CORP., AND WILL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
This Warrant is issued pursuant to the Warrant Purchase Agreement and if
any provision of this Warrant is found to conflict with the Warrant Purchase
Agreement, the provisions of the Warrant Purchase Agreement shall prevail.
No. 1
Factory Card Outlet Corp.
Common Stock Purchase Warrant
Factory Card Outlet Corp., a Delaware corporation (together with any
corporation which shall succeed to or assume the obligations of Factory Card
Outlet Corp. hereunder, the "COMPANY"), hereby certifies that, for value
received, Back Bay Capital, LLC, a Delaware limited liability company, or its
assigns, is entitled, subject to the terms set forth below, to purchase from
the Company at any time or from time to time after the date hereof, until the
expiration hereof pursuant to Section 2.4 hereof, up to 71,666.68 fully paid
and non-assessable shares of Common Stock (as defined in Section 12 hereof), at
an initial purchase price per share of $7.50 (such price per share as adjusted
from time to time as provided herein is referred to herein as the "EXERCISE
PRICE"). The number and character of such shares of Common Stock and the
Exercise Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Warrant Purchase Agreement (as
amended and in effect from time to time, the "SECURITIES PURCHASE AGREEMENT"),
dated as of July 17, 1998, between the Company and the Participants (as
defined in the Securities Purchase Agreement), a copy of
<PAGE> 2
which is on file at the principal office of the Company. The holder of this
Warrant shall be entitled to all of the benefits and shall be subject to all of
the obligations of the Securities Purchase Agreement
1. DEFINITION. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 12 hereof.
2. EXERCISE OF WARRANT.
2.1 Exercise. This Warrant may be exercised prior to its expiration
pursuant to Section 2.4 hereof by the holder hereof at any time or from time to
time, by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, by certified or official bank check payable to the
order of the Company or by wire transfer to its account, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then being exercised by the Exercise Price then in effect. In the event the
Warrant is not exercised in full, the Company, at its expense, will forthwith
issue and deliver to or upon the order of the holder hereof a new Warrant or
Warrants of like tenor, in the name of the holder hereof or as such holder
(upon payment by such holder of any applicable transfer taxes) may request,
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant minus the number
of such shares (without giving effect to any adjustment therein) for which this
Warrant shall have been exercised. Upon any exercise of this Warrant, in whole
or in part, the holder hereof may pay the aggregate Exercise Price with respect
to the shares of Common Stock for which this Warrant is then being exercised
(collectively, the "EXERCISE SHARES") by (a) in the event the holder of this
Warrant is also the holder of a promissory note of the Company, decreasing the
outstanding principal and/or interest amount of such note by such amount or (b)
surrendering its rights to a number of Exercise Shares having a Fair Market
Value (as defined herein) equal to or greater than the required aggregate
Exercise Price, in which case the holder hereof would receive the number of
Exercise Shares to which it would otherwise be entitled upon such exercise,
less the surrendered shares. For purposes of this Section 2.1, the fair market
value of one share of Common Stock (the "FAIR MARKET VALUE") shall be equal to,
at any date, the last reported sale price per share on the NASDAQ National
Market System (as defined herein) trading day preceding that date. The "last
reported sale price" for any day shall be (i) the last reported sale price of
the Common Stock on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System (the "NASDAQ NATIONAL
MARKET SYSTEM"), or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, or (ii) if not quoted as
described in clause (i), the last bid quotation for the Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted bid quotations for the Common Stock, or (iii)
if the Common Stock is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if no sale
occurred, of the Common Stock on the principal securities exchange on which the
Common Stock is listed. If none of the conditions set forth above is met, the
Fair Market Value of the Common Stock on any day shall be the fair market value
of the Common
-2-
<PAGE> 3
Stock as determined by an investment firm selected by the Company
and which is acceptable to the holder of this Warrant. All expenses of the
determination of the Fair Market Value shall be borne by the Company. In no
event shall any "minority discount" or other discount (based on voting control
or lack thereof or otherwise based on the percentage of issued securities of
the Company that the securities being valued represent) be used, factored in,
or otherwise considered or applied in determining Fair Market Value.
2.2 Conflict Any other provisions hereof to the contrary notwithstanding,
no Bank Affiliate or small business investment company, as defined in the Small
Business Act, shall be entitled to exercise the right under this Warrant to
purchase any share or shares of Common Stock if, under any law or under any
regulation, rule or other requirement of any governmental authority at any time
applicable to such Bank Affiliate or small business investment company, (a) as
a result of such purchase, such Bank Affiliate or small business investment
company would own, control or have power to vote a greater quantity of
securities of any kind than the Bank Affiliate or small business investment
company shall be permitted to own, control or have power to vote, or (b) such
purchase would not be permitted. For purposes of this Section 2.2, a written
statement of the Bank Affiliate or small business investment company exercising
this Warrant, delivered upon surrender of the Warrant pursuant to the
Securities Purchase Agreement, to the effect that the Bank Affiliate or small
business investment company is legally entitled to exercise its right under
this Warrant to purchase securities and that such purchase will not violate the
prohibitions set forth in the preceding sentence, shall be conclusive and
binding upon the Company and shall obligate the Company to deliver certificates
representing the shares of Common Stock so purchased in accordance with the
other provisions hereof and shall relieve the Company of any liability under
this Section 2.2.
2.3 Warrant Agent In the event that a bank or trust company shall have been
appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 13 hereof and shall accept, in its
own name for the account of the Company or such successor entity as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.4 Termination. This Warrant shall terminate upon the earliest to occur of
(i) exercise of this Warrant in full, (ii) July 31, 2001 in the event that all
loan obligations pursuant to the Tranche B Loan Agreement (unless waived
thereunder) have been paid in full prior to January 31, 1999, or (iii) July 31,
2003.
3. REGISTRATION RIGHTS AND CALL RIGHT. The holder of this Warrant has the
right to cause the Company to register shares of Warrant Stock, and any shares
issued upon exercise hereof, under the Securities Act and any blue sky or
securities laws of any jurisdictions within the United States at the time and
in the manner specified in Section 7 of the Securities Purchase Agreement;
provided, however, that such right is subject to a call right granted to the
Company pursuant to Section 7.13 of the Securities Purchase Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
-3-
<PAGE> 4
4.1 Delivery. As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) days thereafter, the Company,
at its expense (including the payment by it of any applicable issue taxes),
will cause to be issued in the name of and delivered to the holder hereof, or
as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock (or Other Securities) to which such
holder shall be entitled on such exercise, together with any other stock or
other securities and property (including cash, where applicable) to which such
holder is entitled upon such exercise.
4.2 Fractional Shares. In the event that the exercise of this Warrant, in
full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant (but only at such holder's
option) shall be entitled to cash equal to the fair market value of such
fractional share determined in the same manner as for one share of Common Stock
pursuant to Section 2.1 hereof.
5. ADJUSTMENTS FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In case
at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive,
without payment therefor:
(1) other or additional stock or other securities or property (other
than cash) by way of dividend; or
(2) other or additional (or less) stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
restructuring;
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and all such other or additional stock and other securities and property
(including cash in the case referred to in subsection (b) of this Section 5)
receivable by such holder as aforesaid during such period, giving effect to all
further adjustments called for during such period by Sections 6 and 7 hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1 Certain Adjustments. In case at any time or from time to time, the
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge
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<PAGE> 5
into any other person, or (iii) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then in each such case, the
holder of this Warrant, on the exercise whereof as provided in Section 2 hereof
at any time after the consummation of such reorganization, recapitalization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or effective date, the
stock and other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant
immediately prior thereto, all subject to further adjustment thereafter as
provided in Sections 5 and 7 hereof.
6.2 Appointment of Trustee for Warrant Holders Upon Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the holder or holders of the
Warrant.
6.3 Continuation of Terms. Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any transfer) referred to in this
Section 6, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 8 hereof.
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON
STOCK.
7.1 General. If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the Company's Common
Stock ("STOCK EVENT"), then the number of shares of Common Stock to be received
by the holder of this Warrant shall be appropriately adjusted such that the
proportion of the number of shares issuable hereunder to the total number of
shares of the Company (on a fully diluted basis) prior to such Stock Event is
equal to the proportion of the number of shares issuable hereunder after such
Stock Event to the total number of shares of the Company (on a fully diluted
basis) after such Stock Event. The Exercise Price shall be proportionately
decreased or increased upon the occurrence of any stock split, stock dividend,
reverse stock split or other subdivision of the Common Stock.
7.2 Other Issuances of Common Stock.
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<PAGE> 6
(1) General. If the Company shall, at any time or from time to time
after the date hereof, other than pursuant to any employee stock option
plan approved by the Board of Directors of the Company or pursuant to
warrants, options or other rights granted prior to the date of this
Warrant, issue any shares (or the right to acquire any shares) of its
Common Stock without consideration or for a consideration per share of
Common Stock (the "ISSUANCE PRICE") which is less than the Fair Market
Value (after deducting any customary discount in a firm underwritten
public offering or a secondary offering or in connection with an
acquisition from a third party) on such issuance date (a "DILUTIVE
ISSUANCE"), then in such case, the Exercise Price shall be lowered to
equal such Exercise Price multiplied by a fraction of which (i) the
numerator is the sum of (X) the number of shares of Common Stock
outstanding immediately prior to such issue (on a fully diluted basis),
multiplied by the Fair Market Value in effect immediately prior to such
Dilutive Issuance, plus (Y) the number of shares of Common Stock that
could have been acquired at such Fair Market Value using the aggregate
Issuance Price payable (or which would be payable) in such Dilutive
Issuance (as if exercised or converted upon issuance) in connection with
the Dilutive Issuance multiplied by the Issuance Price, by (ii) the
denominator of which is the number of shares of Common Stock outstanding
immediately after such Dilutive Issuance (on a fully diluted basis)
multiplied by the Fair Market Value in effect immediately prior to such
Dilutive Issuance. The number of shares of Common Stock for which the
Warrant is exercisable shall be adjusted to equal the number of shares of
Common Stock which would otherwise (but for the provisions of this
subsection 7.2(a)) would have been issuable upon such exercise by the
fraction of which (i) the numerator is the Exercise Price in effect
immediately prior to the most recent Dilutive Issuance and (ii) the
denominator is the Exercise Price in effect immediately after such
Dilutive Issuance.
(2) Issuance of Warrants, Other Rights and Convertible Securities.
For purposes of this Section 7.2:
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<PAGE> 7
The issuance of any warrants, options, or other subscription or
purchase rights with respect to shares of Common Stock and the issuance
of any securities convertible into or exchangeable for shares of Common
Stock (or the issuance of any warrants, options, or any rights with
respect to such convertible or exchangeable securities) shall be deemed a
Dilutive Issuance at the time of such issuance if the Net Consideration
Per Share to be received by the Company for such Common Stock (as
hereinafter determined) shall be less than the Fair Market Value at the
time of such issuance and, except as hereinafter provided, an adjustment
in the Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be made upon each such issuance in
the manner provided in subsection 7.2(a). Any obligation, agreement or
undertaking to issue warrants, options, or other subscription or purchase
rights at any time in the future shall be deemed to be an issuance at the
time such obligation, agreement, or undertaking is made or arises. No
adjustment of the Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be made under subsection
7.2(a) upon the issuance of any shares of Common Stock that are issued
pursuant to the exercise of any warrants, options, or other subscription
or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible securities if any adjustment shall
previously have been made upon the issuance of any such warrants,
options, or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options, or any rights
therefor) as above provided. Any adjustment of the Exercise Price and
the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to this subsection 7.2(b) that relates to warrants,
options, or other subscription or purchase rights with respect to shares
of Common Stock shall be disregarded if, as, when, and to the extent that
such warrants, options, or other subscription or purchase rights expire
or are canceled without being exercised, so that the Exercise Price in
effect at the time of the issuance of the expired or canceled warrants,
options, or other subscriptions or purchase rights, with such additional
adjustments as would have been made to that Exercise Price had the
expired or canceled warrants, options, or other subscriptions or purchase
rights not been issued. For purposes of this subsection 7.2(b), the "Net
Consideration Per Share" to be received by the Company shall be
determined as follows:
(1) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received
by the Company for the issuance of such warrants, options,
subscriptions, or other purchase rights or convertible or
exchangeable securities, plus the minimum amount of
consideration, if any, payable to the Company upon exercise
or conversion thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such
warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised,
exchanged, or converted, in any case whether or not the
rights to exercise, exchange or convert are immediately
exercisable.
(2) The "Net Consideration Per Share" to be received by the
Company shall be determined in each instance as of the date
of issuance of
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<PAGE> 8
warrants, options, subscriptions, or other purchase rights,
or convertible or exchangeable securities without giving
effect to any possible future price adjustments or rate
adjustments that may be applicable with respect to such
warrants, options, subscriptions, or other purchase rights or
convertible securities, in any case whether or not the rights
to exercise, exchange or convert are immediately exercisable.
For purposes of this Section 7.2, if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 7.2
consists of property other than cash, such consideration shall be deemed to
have the same value as shall be determined in good faith by the Board of
Directors of the Company.
7.3 Other Securities. In case any Other Securities shall have been issued,
or shall then be subject to issue, upon the conversion or exchange of any stock
(or Other Securities) of the Company (or any other issuer of Other Securities
or any other entity referred to in Section 6 hereof) or to subscription,
purchase or other acquisition pursuant to any rights or options granted by the
Company (or such other issuer or entity), the holder hereof shall be entitled
to receive upon exercise hereof such amount of Other Securities (in lieu of or
in addition to Common Stock) as is determined in accordance with the terms
hereof, treating all references to Common Stock herein as references to Other
Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 7 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the
amount of Other Securities from time to time receivable on the exercise of the
Warrant, so as to provide the holder of the Warrant with the benefits intended
by this Section 7 and the other provisions of this Warrant.
8. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrant against
dilution. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise,
(ii) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
of stock on the exercise of the Warrant from time to time outstanding, and
(iii) will not transfer all or substantially all of its properties and assets
to any other entity (corporate or otherwise), or consolidate with or merge into
any other entity or permit any such entity to consolidate with or merge into
the Company (if the Company is not the surviving entity), unless such other
entity shall expressly assume in writing and will be bound by all the terms of
this Warrant and the Securities Purchase Agreement.
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<PAGE> 9
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event
that may require any adjustment or readjustment in the shares of Common Stock
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment,
or stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's
Common Stock then outstanding on a fully diluted basis, and (ii) the number of
shares of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted on account thereof. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant, and will, on the written request
at any time of any holder of a Warrant, furnish to such holder a like
certificate setting forth the calculations used to determine such adjustment or
readjustment. At its option, the holders of a Warrant may confirm the
adjustment noted on the certificate by causing such adjustment to be computed
by the Company's independent accounting firm or another independent certified
public accountant at the expense of the Company.
10. NOTICES OF RECORD DATE. In the event of:
(1) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(2) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any
consolidation or merger of the Company with or into any other Person; or
(3) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company; or
(4) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or
any other securities (other than the issue of Common Stock on the
exercise of this Warrant or pursuant to any employee stock option plan or
employee stock purchase plan),
then, and in each such event, the Company will mail or cause to be mailed to
the holder of this Warrant a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or Other Securities) shall
be entitled to exchange their shares of Common Stock (or Other Securities) for
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<PAGE> 10
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least thirty (30) days prior
to the date specified in such notice on which any such action is to be taken.
11. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend
its Charter to provide sufficient reserves of shares of Common Stock issuable
upon exercise of this Warrant.
12. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
12.1 The term COMMON STOCK includes (i) the Company's Common Stock, $0.01 par
value, (ii) any other capital stock of any class or classes (however
designated) of the Company, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
12.2 The term OTHER SECURITIES refers to any stock (other than Common Stock)
and other securities of the Company or any other entity (corporate or
otherwise) (i) which the holder of this Warrant at any time shall be entitled
to receive, or shall have received, on the exercise of this Warrant, in lieu of
or in addition to Common Stock, or (ii) which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities, in each case pursuant to Section 5 or 6 hereof.
13. INTENTIONALLY OMITTED.
14. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier at such address as may have
been furnished to the Company in writing by such
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<PAGE> 11
holder or, until any such holder furnishes to the Company an address, then to,
and at the address of, the last holder of this Warrant who has so furnished an
address to the Company.
16. TRANSFER. Subject to the provisions of Section 10 of the Securities
Purchase Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the registered
holder thereof in person or by a duly authorized attorney, upon surrender of
this Warrant together with an assignment hereof properly endorsed. Until
transfer hereof on the registration books of the Company, the Company may treat
the registered holder hereof as the owner hereof for all purposes. Any
transferee of this Warrant and any rights hereunder, by acceptance thereof,
agrees to assume all of the obligations of a holder thereunder and to be bound
by all of the applicable terms and provisions of the Securities Purchase
Agreement.
17. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the State of Delaware. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant shall take effect as an
instrument under seal.
[SIGNATURES APPEAR ON NEXT PAGE]
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of July 17, 1998
FACTORY CARD OUTLET CORP.
(Corporate Seal) By:_________________________________
Title:_______________________________
Attest:
____________________________________
Secretary
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<PAGE> 13
NOTICE OF EXERCISE OR CONVERSION
Date:____________, 19__
Factory Card Outlet Corp.
2727 Diehl Road
Naperville, Illinois 60563
Gentlemen:
The undersigned hereby elects to exercise or convert the enclosed Warrant
issued to it by Factory Card Outlet Corp. (the "Company") and dated as of July
__, 1998.
The undersigned elects to:
[ ] Exercise the Warrant and to purchase thereunder________________
shares of the Common Stock of the Company (the "Shares") at an
exercise price of ____________ per Share for an aggregate purchase
price of __________ Dollars ($ ) (the "Purchase Price").
Pursuant to the terms of the Warrant, the undersigned has delivered
the Purchase Price herewith in full.
[ ] Convert _____ % of the value of the Warrant at the current
Exercise Price (as defined in the Warrant) of $___________ per
Share.
Very truly yours,
______________________________
Receipt Acknowledged:
Factory Card Outlet Corp.
By _______________________
on ________________, 19__
<PAGE> 14
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto________________________ of __________________________________
the right represented by the within Common Stock Purchase Warrant to purchase
_____ shares of Common Stock of Factory Card Outlet Corp., an Ohio corporation,
to which the within Common Stock Purchase Warrant relates, and appoints _______
________________ Attorney to transfer such right on the books of Factory Card
Outlet Corp., with full power of substitution in the premises.
Dated: ______________________________ ____________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
____________________________________
(Address)
Signed in the presence of:
____________________________________
<PAGE> 1
EXHIBIT 10.5
FACTORY CARD OUTLET CORP.
Right to Purchase 71,666.66 Shares of Common Stock
of Factory Card Outlet Corp.
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS. FURTHERMORE,
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT MAY BE
SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED
IN SECTION 10 OF THE WARRANT PURCHASE AGREEMENT REFERRED TO HEREINAFTER,
COMPLETE AND CORRECT COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF FACTORY CARD OUTLET CORP., AND WILL BE FURNISHED WITHOUT
CHARGE TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
This Warrant is issued pursuant to the Warrant Purchase Agreement and if
any provision of this Warrant is found to conflict with the Warrant Purchase
Agreement, the provisions of the Warrant Purchase Agreement shall prevail.
No. 2
Factory Card Outlet Corp.
Common Stock Purchase Warrant
Factory Card Outlet Corp., a Delaware corporation (together with any
corporation which shall succeed to or assume the obligations of Factory Card
Outlet Corp. hereunder, the "COMPANY"), hereby certifies that, for value
received, Goldman Sachs & Co., a New York limited partnership, or its assigns,
is entitled, subject to the terms set forth below, to purchase from the Company
at any time or from time to time after the date hereof, until the expiration
hereof pursuant to Section 2.4 hereof, up to 71,666.66 fully paid and
non-assessable shares of Common Stock (as defined in Section 12 hereof), at an
initial purchase price per share of $7.50 (such price per share as adjusted
from time to time as provided herein is referred to herein as the "EXERCISE
PRICE"). The number and character of such shares of Common Stock and the
Exercise Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Warrant Purchase Agreement (as
amended and in effect from time to time, the "SECURITIES PURCHASE AGREEMENT"),
dated as of July 17, 1998, between the Company and the Participants (as defined
in the Securities Purchase Agreement), a copy of
<PAGE> 2
which is on file at the principal office of the Company. The holder of this
Warrant shall be entitled to all of the benefits and shall be subject to all of
the obligations of the Securities Purchase Agreement
1. DEFINITION. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 12 hereof.
2. EXERCISE OF WARRANT.
2.1. Exercise. This Warrant may be exercised prior to its expiration
pursuant to Section 2.4 hereof by the holder hereof at any time or from time to
time, by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, by certified or official bank check payable to the order
of the Company or by wire transfer to its account, in the amount obtained by
multiplying the number of shares of Common Stock for which this Warrant is then
being exercised by the Exercise Price then in effect. In the event the Warrant
is not exercised in full, the Company, at its expense, will forthwith issue and
deliver to or upon the order of the holder hereof a new Warrant or Warrants of
like tenor, in the name of the holder hereof or as such holder (upon payment by
such holder of any applicable transfer taxes) may request, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
equal (without giving effect to any adjustment therein) to the number of such
shares called for on the face of this Warrant minus the number of such shares
(without giving effect to any adjustment therein) for which this Warrant shall
have been exercised. Upon any exercise of this Warrant, in whole or in part,
the holder hereof may pay the aggregate Exercise Price with respect to the
shares of Common Stock for which this Warrant is then being exercised
(collectively, the "EXERCISE SHARES") by (a) in the event the holder of this
Warrant is also the holder of a promissory note of the Company, decreasing the
outstanding principal and/or interest amount of such note by such amount or (b)
surrendering its rights to a number of Exercise Shares having a Fair Market
Value (as defined herein) equal to or greater than the required aggregate
Exercise Price, in which case the holder hereof would receive the number of
Exercise Shares to which it would otherwise be entitled upon such exercise, less
the surrendered shares. For purposes of this Section 2.1, the fair market value
of one share of Common Stock (the "FAIR MARKET VALUE") shall be equal to, at any
date, the last reported sale price per share on the NASDAQ National Market
System (as defined herein) trading day preceding that date. The "last reported
sale price" for any day shall be (i) the last reported sale price of the Common
Stock on the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System (the "NASDAQ NATIONAL MARKET SYSTEM"),
or any similar system of automated dissemination of quotations of securities
prices then in common use, if so quoted, or (ii) if not quoted as described in
clause (i), the last bid quotation for the Common Stock as reported by the
National Quotation Bureau Incorporated if at least two securities dealers have
inserted bid quotations for the Common Stock, or (iii) if the Common Stock is
listed or admitted for trading on any national securities exchange, the last
sale price, or the closing bid price if no sale occurred, of the Common Stock on
the principal securities exchange on which the Common Stock is listed. If none
of the conditions set forth above is met, the Fair Market Value of the Common
Stock on any day shall be the fair market value of the Common
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<PAGE> 3
Stock as determined by an investment firm selected by the Company and which is
acceptable to the holder of this Warrant. All expenses of the determination of
the Fair Market Value shall be borne by the Company. In no event shall any
"minority discount" or other discount (based on voting control or lack thereof
or otherwise based on the percentage of issued securities of the Company that
the securities being valued represent) be used, factored in, or otherwise
considered or applied in determining Fair Market Value.
2.2. Conflict Any other provisions hereof to the contrary
notwithstanding, no Bank Affiliate or small business investment company, as
defined in the Small Business Act, shall be entitled to exercise the right under
this Warrant to purchase any share or shares of Common Stock if, under any law
or under any regulation, rule or other requirement of any governmental authority
at any time applicable to such Bank Affiliate or small business investment
company, (a) as a result of such purchase, such Bank Affiliate or small business
investment company would own, control or have power to vote a greater quantity
of securities of any kind than the Bank Affiliate or small business investment
company shall be permitted to own, control or have power to vote, or (b) such
purchase would not be permitted. For purposes of this Section 2.2, a written
statement of the Bank Affiliate or small business investment company exercising
this Warrant, delivered upon surrender of the Warrant pursuant to the Securities
Purchase Agreement, to the effect that the Bank Affiliate or small business
investment company is legally entitled to exercise its right under this Warrant
to purchase securities and that such purchase will not violate the prohibitions
set forth in the preceding sentence, shall be conclusive and binding upon the
Company and shall obligate the Company to deliver certificates representing the
shares of Common Stock so purchased in accordance with the other provisions
hereof and shall relieve the Company of any liability under this Section 2.2.
2.3. Warrant Agent In the event that a bank or trust company shall have
been appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 13 hereof and shall accept, in its
own name for the account of the Company or such successor entity as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.4. Termination. This Warrant shall terminate upon the earliest to occur
of (i) exercise of this Warrant in full, (ii) July 31, 2001 in the event that
all loan obligations pursuant to the Tranche B Loan Agreement (unless waived
thereunder) have been paid in full prior to January 31, 1999, or (iii) July 31,
2003.
3. REGISTRATION RIGHTS AND CALL RIGHT. The holder of this Warrant has the
right to cause the Company to register shares of Warrant Stock, and any shares
issued upon exercise hereof, under the Securities Act and any blue sky or
securities laws of any jurisdictions within the United States at the time and
in the manner specified in Section 7 of the Securities Purchase Agreement;
provided, however, that such right is subject to a call right granted to the
Company pursuant to Section 7.13 of the Securities Purchase Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
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<PAGE> 4
4.1. Delivery. As soon as practicable after the exercise of this Warrant
in full or in part, and in any event within ten (10) days thereafter, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the holder
hereof, or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock (or Other Securities) to
which such holder shall be entitled on such exercise, together with any other
stock or other securities and property (including cash, where applicable) to
which such holder is entitled upon such exercise.
4.2. Fractional Shares. In the event that the exercise of this Warrant,
in full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant (but only at such holder's
option) shall be entitled to cash equal to the fair market value of such
fractional share determined in the same manner as for one share of Common Stock
pursuant to Section 2.1 hereof.
5. ADJUSTMENTS FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In case
at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive,
without payment therefor:
(1) other or additional stock or other securities or property (other
than cash) by way of dividend; or
(2) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate restructuring;
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and all such other or additional stock and other securities and property
(including cash in the case referred to in subsection (b) of this Section 5)
receivable by such holder as aforesaid during such period, giving effect to all
further adjustments called for during such period by Sections 6 and 7 hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1. Certain Adjustments. In case at any time or from time to time, the
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge
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<PAGE> 5
into any other person, or (iii) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then in each such case, the holder
of this Warrant, on the exercise hereof as provided in Section 2 hereof at any
time after the consummation of such reorganization, recapitalization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or effective date, the
stock and other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant
immediately prior thereto, all subject to further adjustment thereafter as
provided in Sections 5 and 7 hereof.
6.2. Appointment of Trustee for Warrant Holders Upon Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the holder or holders of the
Warrant.
6.3. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 6, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 8 hereof.
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON
STOCK.
7.1. General. If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the Company's Common Stock
("STOCK EVENT"), then the number of shares of Common Stock to be received by the
holder of this Warrant shall be appropriately adjusted such that the proportion
of the number of shares issuable hereunder to the total number of shares of the
Company (on a fully diluted basis) prior to such Stock Event is equal to the
proportion of the number of shares issuable hereunder after such Stock Event to
the total number of shares of the Company (on a fully diluted basis) after such
Stock Event. The Exercise Price shall be proportionately decreased or increased
upon the occurrence of any stock split, stock dividend, reverse stock split or
other subdivision of the Common Stock.
7.2. Other Issuances of Common Stock.
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<PAGE> 6
(1) General. If the Company shall, at any time or from time to time
after the date hereof, other than pursuant to any employee stock option
plan approved by the Board of Directors of the Company or pursuant to
warrants, options or other rights granted prior to the date of this
Warrant, issue any shares (or the right to acquire any shares) of its
Common Stock without consideration or for a consideration per share of
Common Stock (the "ISSUANCE PRICE") which is less than the Fair Market
Value (after deducting any customary discount in a firm underwritten public
offering or a secondary offering or in connection with an acquisition from
a third party) on such issuance date (a "DILUTIVE ISSUANCE"), then in such
case, the Exercise Price shall be lowered to equal such Exercise Price
multiplied by a fraction of which (i) the numerator is the sum of (X) the
number of shares of Common Stock outstanding immediately prior to such
issue (on a fully diluted basis), multiplied by the Fair Market Value in
effect immediately prior to such Dilutive Issuance, plus (Y) the number of
shares of Common Stock that could have been acquired at such Fair Market
Value using the aggregate Issuance Price payable (or which would be
payable) in such Dilutive Issuance (as if exercised or converted upon
issuance) in connection with the Dilutive Issuance multiplied by the
Issuance Price, by (ii) the denominator of which is the number of shares of
Common Stock outstanding immediately after such Dilutive Issuance (on a
fully diluted basis) multiplied by the Fair Market Value in effect
immediately prior to such Dilutive Issuance. The number of shares of
Common Stock for which the Warrant is exercisable shall be adjusted to
equal the number of shares of Common Stock which would otherwise (but for
the provisions of this subsection 7.2(a)) would have been issuable upon
such exercise by the fraction of which (i) the numerator is the Exercise
Price in effect immediately prior to the most recent Dilutive Issuance and
(ii) the denominator is the Exercise Price in effect immediately after such
Dilutive Issuance.
(2) Issuance of Warrants, Other Rights and Convertible Securities.
For purposes of this Section 7.2:
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<PAGE> 7
The issuance of any warrants, options, or other subscription or
purchase rights with respect to shares of Common Stock and the issuance of
any securities convertible into or exchangeable for shares of Common Stock
(or the issuance of any warrants, options, or any rights with respect to
such convertible or exchangeable securities) shall be deemed a Dilutive
Issuance at the time of such issuance if the Net Consideration Per Share to
be received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Fair Market Value at the time of such
issuance and, except as hereinafter provided, an adjustment in the Exercise
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made upon each such issuance in the manner provided
in subsection 7.2(a). Any obligation, agreement or undertaking to issue
warrants, options, or other subscription or purchase rights at any time in
the future shall be deemed to be an issuance at the time such obligation,
agreement, or undertaking is made or arises. No adjustment of the Exercise
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made under subsection 7.2(a) upon the issuance of any
shares of Common Stock that are issued pursuant to the exercise of any
warrants, options, or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the
issuance of any such warrants, options, or other rights or upon the
issuance of any convertible securities (or upon the issuance of any
warrants, options, or any rights therefor) as above provided. Any
adjustment of the Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to this subsection
7.2(b) that relates to warrants, options, or other subscription or purchase
rights with respect to shares of Common Stock shall be disregarded if, as,
when, and to the extent that such warrants, options, or other subscription
or purchase rights expire or are canceled without being exercised, so that
the Exercise Price in effect at the time of the issuance of the expired or
canceled warrants, options, or other subscriptions or purchase rights, with
such additional adjustments as would have been made to that Exercise Price
had the expired or canceled warrants, options, or other subscriptions or
purchase rights not been issued. For purposes of this subsection 7.2(b),
the "Net Consideration Per Share" to be received by the Company shall be
determined as follows:
(1) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions, or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Company upon
exercise or conversion thereof, divided by the aggregate
number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase
rights or convertible or exchangeable securities were
exercised, exchanged, or converted, in any case whether or not
the rights to exercise, exchange or convert are immediately
exercisable.
(2) The "Net Consideration Per Share" to be received by
the Company shall be determined in each instance as of the
date of issuance of
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<PAGE> 8
warrants, options, subscriptions, or other purchase rights, or
convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments
that may be applicable with respect to such warrants, options,
subscriptions, or other purchase rights or convertible
securities, in any case whether or not the rights to exercise,
exchange or convert are immediately exercisable.
For purposes of this Section 7.2, if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 7.2
consists of property other than cash, such consideration shall be deemed to
have the same value as shall be determined in good faith by the Board of
Directors of the Company.
7.3. Other Securities. In case any Other Securities shall have been
issued, or shall then be subject to issue, upon the conversion or exchange of
any stock (or Other Securities) of the Company (or any other issuer of Other
Securities or any other entity referred to in Section 6 hereof) or to
subscription, purchase or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or entity), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to Common Stock) as is determined in accordance with the
terms hereof, treating all references to Common Stock herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 7 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the holder of the Warrant with the benefits intended by this
Section 7 and the other provisions of this Warrant.
8. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrant against
dilution. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise,
(ii) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
of stock on the exercise of the Warrant from time to time outstanding, and
(iii) will not transfer all or substantially all of its properties and assets
to any other entity (corporate or otherwise), or consolidate with or merge into
any other entity or permit any such entity to consolidate with or merge into
the Company (if the Company is not the surviving entity), unless such other
entity shall expressly assume in writing and will be bound by all the terms of
this Warrant and the Securities Purchase Agreement.
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<PAGE> 9
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event
that may require any adjustment or readjustment in the shares of Common Stock
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment,
or stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's
Common Stock then outstanding on a fully diluted basis, and (ii) the number of
shares of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted on account thereof. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant, and will, on the written request
at any time of any holder of a Warrant, furnish to such holder a like
certificate setting forth the calculations used to determine such adjustment or
readjustment. At its option, the holders of a Warrant may confirm the
adjustment noted on the certificate by causing such adjustment to be computed
by the Company's independent accounting firm or another independent certified
public accountant at the expense of the Company.
10. NOTICES OF RECORD DATE. In the event of:
(1) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(2) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(4) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities (other than the issue of Common Stock on the exercise of
this Warrant or pursuant to any employee stock option plan or employee
stock purchase plan),
then, and in each such event, the Company will mail or cause to be mailed to
the holder of this Warrant a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is anticipated to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock (or Other Securities) shall
be entitled to exchange their shares of Common Stock (or Other Securities) for
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<PAGE> 10
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least thirty (30) days prior to
the date specified in such notice on which any such action is to be taken.
11. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend
its Charter to provide sufficient reserves of shares of Common Stock issuable
upon exercise of this Warrant.
12. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
12.1. The term COMMON STOCK includes (i) the Company's Common Stock, $0.01
par value, (ii) any other capital stock of any class or classes (however
designated) of the Company, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
12.2. The term OTHER SECURITIES refers to any stock (other than Common
Stock) and other securities of the Company or any other entity (corporate or
otherwise) (i) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or (ii) which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities, in each case pursuant to Section 5 or 6 hereof.
13. INTENTIONALLY OMITTED.
14. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier at such address as may have
been furnished to the Company in writing by such
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<PAGE> 11
holder or, until any such holder furnishes to the Company an address, then to,
and at the address of, the last holder of this Warrant who has so furnished an
address to the Company.
16. TRANSFER. Subject to the provisions of Section 10 of the Securities
Purchase Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the registered
holder thereof in person or by a duly authorized attorney, upon surrender of
this Warrant together with an assignment hereof properly endorsed. Until
transfer hereof on the registration books of the Company, the Company may treat
the registered holder hereof as the owner hereof for all purposes. Any
transferee of this Warrant and any rights hereunder, by acceptance thereof,
agrees to assume all of the obligations of a holder thereunder and to be bound
by all of the applicable terms and provisions of the Securities Purchase
Agreement.
17. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the State of Delaware. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant shall take effect as an
instrument under seal.
[SIGNATURES APPEAR ON NEXT PAGE]
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of July 17, 1998
FACTORY CARD OUTLET CORP.
(Corporate Seal) By:_________________________________
Title:______________________________
Attest:
___________________________________
Secretary
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<PAGE> 13
NOTICE OF EXERCISE OR CONVERSION
Date:____________________, 19__
Factory Card Outlet Corp.
2727 Diehl Road
Naperville, Illinois 60563
Gentlemen:
The undersigned hereby elects to exercise or convert the enclosed Warrant
issued to it by Factory Card Outlet Corp. (the "Company") and dated as of July
__, 1998.
The undersigned elects to:
[ ] Exercise the Warrant and to purchase thereunder_____________ shares
of the Common Stock of the Company (the "Shares") at an exercise
price of _________ per Share for an aggregate purchase price of
_____________ Dollars ($_______) (the "Purchase Price"). Pursuant
to the terms of the Warrant, the undersigned has delivered the
Purchase Price herewith in full.
[ ] Convert __% of the value of the Warrant at the current Exercise
Price (as defined in the Warrant) of $_______ per Share.
Very truly yours,
_____________________________
Receipt Acknowledged:
Factory Card Outlet Corp.
By __________________________
on ___________________ , 19__
<PAGE> 14
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _____________________________ of ____________________________ the right
represented by the within Common Stock Purchase Warrant to purchase _____ shares
of Common Stock of Factory Card Outlet Corp., an Ohio corporation, to which the
within Common Stock Purchase Warrant relates, and appoints ___________________
Attorney to transfer such right on the books of Factory Card Outlet Corp., with
full power of substitution in the premises.
Dated: _________________________________________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
_______________________________________
(Address)
Signed in the presence of:
____________________________________
<PAGE> 1
EXHIBIT 10.6
FACTORY CARD OUTLET CORP.
Right to Purchase 71,666.66 Shares of Common Stock
of Factory Card Outlet Corp.
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
FURTHERMORE, THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN SECTION 10 OF THE WARRANT PURCHASE AGREEMENT REFERRED
TO HEREINAFTER, COMPLETE AND CORRECT COPIES OF WHICH ARE AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF FACTORY CARD OUTLET CORP., AND WILL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER OF THIS WARRANT UPON WRITTEN REQUEST.
This Warrant is issued pursuant to the Warrant Purchase Agreement and if
any provision of this Warrant is found to conflict with the Warrant Purchase
Agreement, the provisions of the Warrant Purchase Agreement shall prevail.
No. 3
Factory Card Outlet Corp.
Common Stock Purchase Warrant
Factory Card Outlet Corp., a Delaware corporation (together with any
corporation which shall succeed to or assume the obligations of Factory Card
Outlet Corp. hereunder, the "COMPANY"), hereby certifies that, for value
received, FINOVA Capital Corporation, a ___________________, or its assigns, is
entitled, subject to the terms set forth below, to purchase from the Company at
any time or from time to time after the date hereof, until the expiration
hereof pursuant to Section 2.4 hereof, up to 71,666.66 fully paid and
non-assessable shares of Common Stock (as defined in Section 12 hereof), at an
initial purchase price per share of $7.50 (such price per share as adjusted
from time to time as provided herein is referred to herein as the "EXERCISE
PRICE"). The number and character of such shares of Common Stock and the
Exercise Price are subject to adjustment as provided herein.
This Warrant is issued pursuant to the Warrant Purchase Agreement (as
amended and in effect from time to time, the "SECURITIES PURCHASE AGREEMENT"),
dated as of July 17, 1998, between the Company and the Participants (as
defined in the Securities Purchase Agreement), a copy of
<PAGE> 2
which is on file at the principal office of the Company. The holder of this
Warrant shall be entitled to all of the benefits and shall be subject to all of
the obligations of the Securities Purchase Agreement
1. DEFINITION. Terms defined in the Securities Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined. Certain
terms are used in this Warrant as specifically defined in Section 12 hereof.
2. EXERCISE OF WARRANT.
2.1 Exercise. This Warrant may be exercised prior to its expiration
pursuant to Section 2.4 hereof by the holder hereof at any time or from time to
time, by surrender of this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, by certified or official bank check payable to the
order of the Company or by wire transfer to its account, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant is
then being exercised by the Exercise Price then in effect. In the event the
Warrant is not exercised in full, the Company, at its expense, will forthwith
issue and deliver to or upon the order of the holder hereof a new Warrant or
Warrants of like tenor, in the name of the holder hereof or as such holder
(upon payment by such holder of any applicable transfer taxes) may request,
calling in the aggregate on the face or faces thereof for the number of shares
of Common Stock equal (without giving effect to any adjustment therein) to the
number of such shares called for on the face of this Warrant minus the number
of such shares (without giving effect to any adjustment therein) for which this
Warrant shall have been exercised. Upon any exercise of this Warrant, in whole
or in part, the holder hereof may pay the aggregate Exercise Price with respect
to the shares of Common Stock for which this Warrant is then being exercised
(collectively, the "EXERCISE SHARES") by (a) in the event the holder of this
Warrant is also the holder of a promissory note of the Company, decreasing the
outstanding principal and/or interest amount of such note by such amount or (b)
surrendering its rights to a number of Exercise Shares having a Fair Market
Value (as defined herein) equal to or greater than the required aggregate
Exercise Price, in which case the holder hereof would receive the number of
Exercise Shares to which it would otherwise be entitled upon such exercise,
less the surrendered shares. For purposes of this Section 2.1, the fair market
value of one share of Common Stock (the "FAIR MARKET VALUE") shall be equal to,
at any date, the last reported sale price per share on the NASDAQ National
Market System (as defined herein) trading day preceding that date. The "last
reported sale price" for any day shall be (i) the last reported sale price of
the Common Stock on the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotation System (the "NASDAQ NATIONAL
MARKET SYSTEM"), or any similar system of automated dissemination of quotations
of securities prices then in common use, if so quoted, or (ii) if not quoted as
described in clause (i), the last bid quotation for the Common Stock as
reported by the National Quotation Bureau Incorporated if at least two
securities dealers have inserted bid quotations for the Common Stock, or (iii)
if the Common Stock is listed or admitted for trading on any national
securities exchange, the last sale price, or the closing bid price if no sale
occurred, of the Common Stock on the principal securities exchange on which the
Common Stock is listed. If none of the conditions set forth above is met, the
Fair Market Value of the Common Stock on any day shall be the fair market value
of the Common
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<PAGE> 3
Stock as determined by an investment firm selected by the Company and which is
acceptable to the holder of this Warrant. All expenses of the determination of
the Fair Market Value shall be borne by the Company. In no event shall any
"minority discount" or other discount (based on voting control or lack thereof
or otherwise based on the percentage of issued securities of the Company that
the securities being valued represent) be used, factored in, or otherwise
considered or applied in determining Fair Market Value.
2.2 Conflict Any other provisions hereof to the contrary notwithstanding,
no Bank Affiliate or small business investment company, as defined in the Small
Business Act, shall be entitled to exercise the right under this Warrant to
purchase any share or shares of Common Stock if, under any law or under any
regulation, rule or other requirement of any governmental authority at any time
applicable to such Bank Affiliate or small business investment company, (a) as
a result of such purchase, such Bank Affiliate or small business investment
company would own, control or have power to vote a greater quantity of
securities of any kind than the Bank Affiliate or small business investment
company shall be permitted to own, control or have power to vote, or (b) such
purchase would not be permitted. For purposes of this Section 2.2, a written
statement of the Bank Affiliate or small business investment company exercising
this Warrant, delivered upon surrender of the Warrant pursuant to the
Securities Purchase Agreement, to the effect that the Bank Affiliate or small
business investment company is legally entitled to exercise its right under
this Warrant to purchase securities and that such purchase will not violate the
prohibitions set forth in the preceding sentence, shall be conclusive and
binding upon the Company and shall obligate the Company to deliver certificates
representing the shares of Common Stock so purchased in accordance with the
other provisions hereof and shall relieve the Company of any liability under
this Section 2.2.
2.3 Warrant Agent In the event that a bank or trust company shall have been
appointed as trustee for the holder of the Warrant pursuant to Section 6.2
hereof, such bank or trust company shall have all the powers and duties of a
warrant agent appointed pursuant to Section 13 hereof and shall accept, in its
own name for the account of the Company or such successor entity as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 2.
2.4 Termination. This Warrant shall terminate upon the earliest to occur of
(i) exercise of this Warrant in full, (ii) July 31, 2001 in the event that all
loan obligations pursuant to the Tranche B Loan Agreement (unless waived
thereunder) have been paid in full prior to January 31, 1999, or (iii) July 31,
2003.
3. REGISTRATION RIGHTS AND CALL RIGHT. The holder of this Warrant has the
right to cause the Company to register shares of Warrant Stock, and any shares
issued upon exercise hereof, under the Securities Act and any blue sky or
securities laws of any jurisdictions within the United States at the time and
in the manner specified in Section 7 of the Securities Purchase Agreement;
provided, however, that such right is subject to a call right granted to the
Company pursuant to Section 7.13 of the Securities Purchase Agreement.
4. DELIVERY OF STOCK CERTIFICATES ON EXERCISE.
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4.1 Delivery. As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within ten (10) days thereafter, the Company,
at its expense (including the payment by it of any applicable issue taxes),
will cause to be issued in the name of and delivered to the holder hereof, or
as such holder (upon payment by such holder of any applicable transfer taxes)
may direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock (or Other Securities) to which such
holder shall be entitled on such exercise, together with any other stock or
other securities and property (including cash, where applicable) to which such
holder is entitled upon such exercise.
4.2 Fractional Shares. In the event that the exercise of this Warrant, in
full or in part, results in the issuance of any fractional share of Common
Stock, then in such event the holder of this Warrant (but only at such holder's
option) shall be entitled to cash equal to the fair market value of such
fractional share determined in the same manner as for one share of Common Stock
pursuant to Section 2.1 hereof.
5. ADJUSTMENTS FOR DIVIDENDS, DISTRIBUTIONS AND RECLASSIFICATIONS. In case
at any time or from time to time, the holders of Common Stock shall have
received, or (on or after the record date fixed for the determination of
shareholders eligible to receive) shall have become entitled to receive,
without payment therefor:
(1) other or additional stock or other securities or property (other
than cash) by way of dividend; or
(2) other or additional (or less) stock or other securities or
property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate
restructuring;
other than additional shares of Common Stock issued as a stock dividend or in a
stock-split (adjustments in respect of which are provided for in Section 7
hereof), then and in each such case the holder of this Warrant, on the exercise
hereof as provided in Section 2 hereof, shall be entitled to receive the amount
of stock and other securities and property (including cash in the case referred
to in subsection (b) of this Section 5) which such holder would have received
prior to or would have held on the date of such exercise if on the date hereof
it had been the holder of record of the number of shares of Common Stock called
for on the face of this Warrant and had thereafter, during the period from the
date hereof to and including the date of such exercise, retained such shares
and all such other or additional stock and other securities and property
(including cash in the case referred to in subsection (b) of this Section 5)
receivable by such holder as aforesaid during such period, giving effect to all
further adjustments called for during such period by Sections 6 and 7 hereof.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1 Certain Adjustments. In case at any time or from time to time, the
Company shall (i) effect a capital reorganization, reclassification or
recapitalization, (ii) consolidate with or merge
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<PAGE> 5
into any other person, or (iii) transfer all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then in each such case, the
holder of this Warrant, on the exercise hereof as provided in Section 2 hereof
at any time after the consummation of such reorganization, recapitalization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or effective date, the
stock and other securities and property (including cash) to which such holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such holder had so exercised this Warrant
immediately prior thereto, all subject to further adjustment thereafter as
provided in Sections 5 and 7 hereof.
6.2 Appointment of Trustee for Warrant Holders Upon Dissolution. In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall, at its expense, deliver or cause to be delivered the stock
and other securities and property (including cash, where applicable) receivable
by the holders of the Warrant after the effective date of such dissolution
pursuant to this Section 6 to a bank or trust company having its principal
office in Boston, Massachusetts, as trustee for the holder or holders of the
Warrant.
6.3 Continuation of Terms. Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any transfer) referred to in this
Section 6, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 8 hereof.
7. ADJUSTMENTS FOR ISSUANCE OF COMMON STOCK AND AMOUNT OF OUTSTANDING COMMON
STOCK.
7.1 General. If at any time there shall occur any stock split, stock
dividend, reverse stock split or other subdivision of the Company's Common
Stock ("STOCK EVENT"), then the number of shares of Common Stock to be received
by the holder of this Warrant shall be appropriately adjusted such that the
proportion of the number of shares issuable hereunder to the total number of
shares of the Company (on a fully diluted basis) prior to such Stock Event is
equal to the proportion of the number of shares issuable hereunder after such
Stock Event to the total number of shares of the Company (on a fully diluted
basis) after such Stock Event. The Exercise Price shall be proportionately
decreased or increased upon the occurrence of any stock split, stock dividend,
reverse stock split or other subdivision of the Common Stock.
7.2 Other Issuances of Common Stock.
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<PAGE> 6
(1) General. If the Company shall, at any time or from time to time
after the date hereof, other than pursuant to any employee stock option
plan approved by the Board of Directors of the Company or pursuant to
warrants, options or other rights granted prior to the date of this
Warrant, issue any shares (or the right to acquire any shares) of its
Common Stock without consideration or for a consideration per share of
Common Stock (the "ISSUANCE PRICE") which is less than the Fair Market
Value (after deducting any customary discount in a firm underwritten
public offering or a secondary offering or in connection with an
acquisition from a third party) on such issuance date (a "DILUTIVE
ISSUANCE"), then in such case, the Exercise Price shall be lowered to
equal such Exercise Price multiplied by a fraction of which (i) the
numerator is the sum of (X) the number of shares of Common Stock
outstanding immediately prior to such issue (on a fully diluted basis),
multiplied by the Fair Market Value in effect immediately prior to such
Dilutive Issuance, plus (Y) the number of shares of Common Stock that
could have been acquired at such Fair Market Value using the aggregate
Issuance Price payable (or which would be payable) in such Dilutive
Issuance (as if exercised or converted upon issuance) in connection with
the Dilutive Issuance multiplied by the Issuance Price, by (ii) the
denominator of which is the number of shares of Common Stock outstanding
immediately after such Dilutive Issuance (on a fully diluted basis)
multiplied by the Fair Market Value in effect immediately prior to such
Dilutive Issuance. The number of shares of Common Stock for which the
Warrant is exercisable shall be adjusted to equal the number of shares of
Common Stock which would otherwise (but for the provisions of this
subsection 7.2(a)) would have been issuable upon such exercise by the
fraction of which (i) the numerator is the Exercise Price in effect
immediately prior to the most recent Dilutive Issuance and (ii) the
denominator is the Exercise Price in effect immediately after such
Dilutive Issuance.
(2) Issuance of Warrants, Other Rights and Convertible Securities.
For purposes of this Section 7.2:
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<PAGE> 7
The issuance of any warrants, options, or other subscription or
purchase rights with respect to shares of Common Stock and the issuance of
any securities convertible into or exchangeable for shares of Common Stock
(or the issuance of any warrants, options, or any rights with respect to
such convertible or exchangeable securities) shall be deemed a Dilutive
Issuance at the time of such issuance if the Net Consideration Per Share to
be received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Fair Market Value at the time of such
issuance and, except as hereinafter provided, an adjustment in the Exercise
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made upon each such issuance in the manner provided
in subsection 7.2(a). Any obligation, agreement or undertaking to issue
warrants, options, or other subscription or purchase rights at any time in
the future shall be deemed to be an issuance at the time such obligation,
agreement, or undertaking is made or arises. No adjustment of the Exercise
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made under subsection 7.2(a) upon the issuance of any
shares of Common Stock that are issued pursuant to the exercise of any
warrants, options, or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the
issuance of any such warrants, options, or other rights or upon the
issuance of any convertible securities (or upon the issuance of any
warrants, options, or any rights therefor) as above provided. Any
adjustment of the Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to this subsection
7.2(b) that relates to warrants, options, or other subscription or purchase
rights with respect to shares of Common Stock shall be disregarded if, as,
when, and to the extent that such warrants, options, or other subscription
or purchase rights expire or are canceled without being exercised, so that
the Exercise Price in effect at the time of the issuance of the expired or
canceled warrants, options, or other subscriptions or purchase rights, with
such additional adjustments as would have been made to that Exercise Price
had the expired or canceled warrants, options, or other subscriptions or
purchase rights not been issued. For purposes of this subsection 7.2(b),
the "Net Consideration Per Share" to be received by the Company shall be
determined as follows:
(1) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any,
received by the Company for the issuance of such warrants,
options, subscriptions, or other purchase rights or
convertible or exchangeable securities, plus the minimum
amount of consideration, if any, payable to the Company upon
exercise or conversion thereof, divided by the aggregate
number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase
rights or convertible or exchangeable securities were
exercised, exchanged, or converted, in any case whether or not
the rights to exercise, exchange or convert are immediately
exercisable.
(2) The "Net Consideration Per Share" to be received by
the Company shall be determined in each instance as of the
date of issuance of
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<PAGE> 8
warrants, options, subscriptions, or other purchase rights, or
convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments
that may be applicable with respect to such warrants, options,
subscriptions, or other purchase rights or convertible
securities, in any case whether or not the rights to exercise,
exchange or convert are immediately exercisable.
For purposes of this Section 7.2, if a part or all of the consideration
received by the Company in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this Section 7.2
consists of property other than cash, such consideration shall be deemed to
have the same value as shall be determined in good faith by the Board of
Directors of the Company.
7.3. Other Securities. In case any Other Securities shall have been
issued, or shall then be subject to issue, upon the conversion or exchange of
any stock (or Other Securities) of the Company (or any other issuer of Other
Securities or any other entity referred to in Section 6 hereof) or to
subscription, purchase or other acquisition pursuant to any rights or options
granted by the Company (or such other issuer or entity), the holder hereof shall
be entitled to receive upon exercise hereof such amount of Other Securities (in
lieu of or in addition to Common Stock) as is determined in accordance with the
terms hereof, treating all references to Common Stock herein as references to
Other Securities to the extent applicable, and the computations, adjustments and
readjustments provided for in this Section 7 with respect to the number of
shares of Common Stock issuable upon exercise of this Warrant shall be made as
nearly as possible in the manner so provided and applied to determine the amount
of Other Securities from time to time receivable on the exercise of the Warrant,
so as to provide the holder of the Warrant with the benefits intended by this
Section 7 and the other provisions of this Warrant.
8. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Warrant against
dilution. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of stock receivable on the
exercise of the Warrant above the amount payable therefor on such exercise,
(ii) will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable shares
of stock on the exercise of the Warrant from time to time outstanding, and
(iii) will not transfer all or substantially all of its properties and assets
to any other entity (corporate or otherwise), or consolidate with or merge into
any other entity or permit any such entity to consolidate with or merge into
the Company (if the Company is not the surviving entity), unless such other
entity shall expressly assume in writing and will be bound by all the terms of
this Warrant and the Securities Purchase Agreement.
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<PAGE> 9
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any event
that may require any adjustment or readjustment in the shares of Common Stock
issuable on the exercise of this Warrant, the Company at its expense will
promptly prepare a certificate setting forth such adjustment or readjustment,
or stating the reasons why no adjustment or readjustment is being made, and
showing, in detail, the facts upon which any such adjustment or readjustment is
based, including a statement of (i) the number of shares of the Company's
Common Stock then outstanding on a fully diluted basis, and (ii) the number of
shares of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted and
readjusted on account thereof. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant, and will, on the written request
at any time of any holder of a Warrant, furnish to such holder a like
certificate setting forth the calculations used to determine such adjustment or
readjustment. At its option, the holders of a Warrant may confirm the
adjustment noted on the certificate by causing such adjustment to be computed
by the Company's independent accounting firm or another independent certified
public accountant at the expense of the Company.
10. NOTICES OF RECORD DATE. In the event of:
(1) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right;
or
(2) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to or any consolidation
or merger of the Company with or into any other Person; or
(3) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(4) any proposed issue or grant by the Company of any shares of stock
of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities (other than the issue of Common Stock on the exercise of
this Warrant or pursuant to any employee stock option plan or employee
stock purchase plan),
then, and in each such event, the Company will mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
anticipated to take place, and the time, if any is to be fixed, as of which the
holders of record of Common Stock (or Other Securities) shall be entitled to
exchange their shares of Common Stock (or Other Securities) for
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<PAGE> 10
securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least thirty (30) days prior to
the date specified in such notice on which any such action is to be taken.
11. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of this Warrant, a number of shares of Common Stock equal to the total
number of shares of Common Stock from time to time issuable upon exercise of
this Warrant, and, from time to time, will take all steps necessary to amend
its Charter to provide sufficient reserves of shares of Common Stock issuable
upon exercise of this Warrant.
12. DEFINITIONS. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
12.1. The term COMMON STOCK includes (i) the Company's Common Stock, $0.01
par value, (ii) any other capital stock of any class or classes (however
designated) of the Company, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and (iii) any other
securities into which or for which any of the securities described in clauses
(i) or (ii) above have been converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
12.2. The term OTHER SECURITIES refers to any stock (other than Common
Stock) and other securities of the Company or any other entity (corporate or
otherwise) (i) which the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or (ii) which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock or
Other Securities, in each case pursuant to Section 5 or 6 hereof.
13. INTENTIONALLY OMITTED.
14. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. NOTICES. All notices and other communications from the Company to the
holder of this Warrant shall be mailed by first class registered or certified
mail, postage prepaid, or sent by overnight courier at such address as may have
been furnished to the Company in writing by such
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<PAGE> 11
holder or, until any such holder furnishes to the Company an address, then to,
and at the address of, the last holder of this Warrant who has so furnished an
address to the Company.
16. TRANSFER. Subject to the provisions of Section 10 of the Securities
Purchase Agreement, this Warrant and all rights hereunder are transferable, in
whole or in part, at the office or agency of the Company by the registered
holder thereof in person or by a duly authorized attorney, upon surrender of
this Warrant together with an assignment hereof properly endorsed. Until
transfer hereof on the registration books of the Company, the Company may treat
the registered holder hereof as the owner hereof for all purposes. Any
transferee of this Warrant and any rights hereunder, by acceptance thereof,
agrees to assume all of the obligations of a holder thereunder and to be bound
by all of the applicable terms and provisions of the Securities Purchase
Agreement.
17. MISCELLANEOUS. In case any provision of this Warrant shall be invalid,
illegal or unenforceable, or partially invalid, illegal or unenforceable, the
provision shall be enforced to the extent, if any, that it may legally be
enforced and the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. This Warrant
and any term hereof may be changed, waived, discharged or terminated only by a
statement in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant shall be
governed by and construed in accordance with the domestic substantive laws (and
not the conflict of law rules) of the State of Delaware. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant shall take effect as an
instrument under seal.
[SIGNATURES APPEAR ON NEXT PAGE]
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<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer and its corporate seal to be impressed hereon and
attested by its Secretary.
Dated as of July 17, 1998
FACTORY CARD OUTLET CORP.
(Corporate Seal) By:_________________________________
Title:______________________________
Attest:
____________________________________
Secretary
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NOTICE OF EXERCISE OR CONVERSION
Date:____________________, 19__
Factory Card Outlet Corp.
2727 Diehl Road
Naperville, Illinois 60563
Gentlemen:
The undersigned hereby elects to exercise or convert the enclosed Warrant
issued to it by Factory Card Outlet Corp. (the "Company") and dated as of July
__, 1998.
The undersigned elects to:
[ ] Exercise the Warrant and to purchase thereunder_____________ shares
of the Common Stock of the Company (the "Shares") at an exercise
price of _________ per Share for an aggregate purchase price of
_____________ Dollars ($_______) (the "Purchase Price"). Pursuant
to the terms of the Warrant, the undersigned has delivered the
Purchase Price herewith in full.
[ ] Convert __% of the value of the Warrant at the current Exercise
Price (as defined in the Warrant) of $_______ per Share.
Very truly yours,
_____________________________
Receipt Acknowledged:
Factory Card Outlet Corp.
By __________________________
on ___________________ , 19__
<PAGE> 14
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto _____________________________ of ____________________________ the right
represented by the within Common Stock Purchase Warrant to purchase _____ shares
of Common Stock of Factory Card Outlet Corp., an Ohio corporation, to which the
within Common Stock Purchase Warrant relates, and appoints ___________________
Attorney to transfer such right on the books of Factory Card Outlet Corp., with
full power of substitution in the premises.
Dated: _________________________________________________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant)
_______________________________________
(Address)
Signed in the presence of:
____________________________________
<PAGE> 1
Exhibit 99.1
[FACTORY CARD OUTLET LOGO]
FOR IMMEDIATE RELEASE
----------------------
FACTORY CARD OUTLET REVISES SECOND QUARTER EXPECTATIONS;
---------------------------------------------------------
ARRANGES ADDITIONAL $10 MILLION CREDIT FACILITY
-------------------------------------------------
NAPERVILLE, IL, JULY 21, 1998 --- Factory Card Outlet Corp. (NASDAQ:FCPY)
announced today that it expects to report a loss for the second quarter ending
August 1, 1998 of between $0.07 and $0.12 per share, before a non-recurring
charge of approximately $0.05 per share. Separately, the Company has also
entered into an agreement on an additional $10 million credit facility.
Stewart M. Kasen, the Company's Chairman, President and Chief Executive
Officer, said, "In late May we announced that system conversion issues related
to the start-up of our new distribution facility in Naperville would adversely
affect our second quarter results. Although the negative impact of the uneven
flow of merchandise to our stores earlier in the quarter was greater than we
initially expected, we believe we now have corrected these issues and our
comparable store sales have improved in the second half of this quarter."
"Since I became President and Chief Executive Officer on May 21st, our
management team has undertaken a through review of the Company's business and
operations and has taken several actions based on this review. As a result of
some of the actions, we will take a non-recurring charge of approximately $0.05
per share in the second quarter which is excluded from the revised earnings
range expectations. These charges are related to certain store design and
severance expenses. We believe this review and the action steps that have
followed will position the Company for a return to profitable, long-term
growth."
<PAGE> 2
FACTORY CARD OUTLET RELEASE OF JULY 20, 1998 CONTINUED/Page Two
"First, to improve our top line growth, we have introduced a store
readiness program, a basic in-stock program, and are implementing a more
aggressive value pricing program in our stores. These initiatives, together
with the improvement in inventory levels at our stores, have already improved
our comparable store sales from the earlier part of the second quarter. Since
mid June, comparable store sales have trended at a mid single-digit increase.
Second, since our focus will be on strengthening the core business, we
are slowing down new store openings. The Company expects to open 14 stores in
fiscal 1999, down from the 50 or more that had been previously planned.
Included in the 14 planned openings is the deferral of seven stores which were
previously scheduled to open this fiscal year. We've already opened 19 new
superstores this year and we now plan to open 14 additional superstores during
the remainder of this fiscal year.
Third, recognizing the change in our growth plans, we have reduced
general and administrative expenses accordingly. We have repositioned our
resources to focus on fundamental execution.
Finally, we have amended our existing credit facility and have entered
into an agreement for an additional $10 million credit facility with BackBay
Capital, a subsidiary of BankBoston. We believe that the funds available from
these facilities, together with internally generated funds, will be sufficient
to meet our operating needs for the remainder of this fiscal year while we
contiune to implement our initiatives to improve the Company's financial
results. We are exploring additional or new sources of financing to give us
more flexibility for growth in the future."
Factory Card Outlet is a rapidly growing chain of company-owned
superstores offering a vast assortment of party supplies, greeting cards, gift
wrap and other special occasion merchandise at everyday value prices. The
Company currently operates 199 stores in 22 states.
This press release regarding the quarterly results of Factory Card
Outlet Corp. includes forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements do not
constitute historical facts and involve risks and uncertainties, including, but
not limited to, the possibility that adverse economic or other factors may
cause actual results to be materially different than current estimates and
projections. Additional detailed information concering a number of factors
that could cause actual results to differ materially from the information
contained in this press release is readily available in the Company's
Transition Report on Form 10-K. Copies of the Transition Report are available
on request directed to the President of the Company.
