<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 1997
Commission file number 21859.
FACTORY CARD OUTLET CORP.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3652087
------------------ ----------------
(State or other jurisdiction of (I.R.S. employer )
incorporation or organization) identification no.
2727 Diehl Road
Naperville, IL 60563-2371
- -------------------------------------------------------------------------------
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (630) 579-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
------- -------
The number of shares of common stock outstanding at February 2, 1998 was
7,335,519.
<PAGE>
Factory Card Outlet Corp.
Form 10-Q
For the Quarter Ended December 27, 1997
Index
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of
December 27, 1997 and June 28, 1997.................................. 3
Consolidated Statements of Income for the
three fiscal months and six fiscal months
December 27, 1997 and December 28, 1996.............................. 4
Consolidated Statements of Cash Flows for the
six fiscal months ended December 27, 1997
and December 28, 1996................................................ 5
Notes to Consolidated Financial Statements........................... 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... *
Part II. Other Information................................................... 14
Signatures................................................................... 15
</TABLE>
* Not applicable
2
<PAGE>
PART I - FINANCIAL INFORMATION, ITEM 1, FINANCIAL STATEMENTS
FACTORY CARD OUTLET CORP.
AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 27, June 28,
1997 1997
------------ --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 211,084 $ 51,180
Receivables............................. 1,560,382 947,583
Inventories............................. 74,315,857 55,358,616
Prepaid expenses........................ 1,108,729 1,322,420
Deferred income taxes................... 592,167 207,333
------------ ------------
Total current assets.................. 77,788,219 57,887,132
Fixed assets, net......................... 34,816,236 26,063,766
Other assets.............................. 2,228,742 1,750,709
------------ ------------
Total assets.......................... $114,833,197 $ 85,701,607
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations........................... $ 1,802,026 $ 1,138,654
Accounts payable........................ 20,416,169 14,361,283
Due to related parties.................. 3,055,358 3,192,596
Income taxes payable.................... -- 503,544
Accrued expenses........................ 6,590,901 3,091,532
------------ ------------
Total current liabilities............. 31,864,454 22,287,609
Revolving credit note payable............. 22,500,000 3,775,400
Long-term debt............................ 7,697 20,602
Capital lease obligations................. 3,026,252 2,755,510
Deferred rent liabilities................. 4,694,003 4,411,584
Deferred income taxes..................... 177,467 177,467
------------ ------------
Total liabilities..................... 62,269,873 33,428,172
------------ ------------
Stockholders' equity:
Common stock - $.01 par value. Voting
class - authorized 50,000,000 shares;
7,335,519 shares issued and outstanding
at December 27, 1997 and 7,231,211
shares issued and outstanding at
June 28, 1997. Non-voting class -
authorized 205,000 shares, no shares
issued or outstanding................. 73,355 72,312
Additional paid-in capital.............. 51,161,675 50,950,900
Retained earnings....................... 1,328,294 1,327,532
Less: cost of common stock held in
treasury, 8,697 shares at June 28,
1997.................................. -- (77,309)
------------ ------------
Total stockholders' equity............ 52,563,324 52,273,435
------------ ------------
Total liabilities and stockholders'
equity.............................. $114,833,197 $ 85,701,607
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FACTORY CARD OUTLET CORP.
AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Fiscal Months Ended Six Fiscal Months Ended
----------------------------- -----------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------------- ------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales............................ $ 60,302,163 $ 37,692,845 $ 95,617,667 $ 62,724,693
Cost of sales and occupancy.......... 37,063,822 23,249,846 60,637,752 40,246,221
------------- ------------- ------------- -------------
Gross profit....................... 23,238,341 14,442,999 34,979,915 22,478,472
Selling, general and administrative
expenses........................... 19,057,934 12,505,973 34,004,887 22,170,814
------------- ------------- ------------- -------------
Income from operations............. 4,180,407 1,937,026 975,028 307,658
Interest expense..................... 592,888 571,682 973,754 1,168,980
------------- ------------- ------------- -------------
Income (loss) before taxes and
extraordinary item............... 3,587,519 1,365,344 1,274 (861,322)
Income tax (benefit)................. 1,434,392 574,013 512 (361,187)
------------- ------------- ------------- -------------
Income (loss) before extraordinary
item............................. 2,153,127 791,331 762 (500,135)
Extraordinary item - loss on early
retirement of debt, net of income
tax benefit of $226,572............ -- (312,886) -- (312,886)
------------- ------------- ------------- -------------
Net income (loss).................. $ 2,153,127 $ 478,445 $ 762 $ (813,021)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings (loss) per share - basic
Before extraordinary item.......... $ 0.30 $ 0.17 $ 0.00 $ (0.12)
Extraordinary item................. -- (0.07) -- (0.07)
------------- ------------- ------------- -------------
Net income (loss).................. $ 0.30 $ 0.10 $ 0.00 $ (0.19)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares
outstanding...................... 7,260,786 4,548,478 7,249,998 4,308,444
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings (loss) per share - diluted
Before extraordinary item.......... $ 0.27 $ 0.15 $ 0.00 $ (0.10)
Extraordinary item................. -- (0.06) -- (0.06)
------------- ------------- ------------- -------------
Net income (loss).................. $ 0.27 $ 0.09 $ 0.00 $ (0.16)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Adjusted weighted average shares
outstanding...................... 7,928,423 5,346,634 7,911,960 5,198,252
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FACTORY CARD OUTLET CORP.
AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Fiscal Months Ended
-----------------------------
December 27, December 28,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 762 $ (813,021)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization of fixed assets.............. 2,588,674 1,574,634
Amortization of deferred financial costs and debt discount. -- 877,077
Deferred income taxes...................................... -- (592,764)
Loss on the disposal of equipment and vehicles............. 16,894 1,382
Compensation expense related to stock options.............. 29,502 179,106
Change in assets and liabilities:
Decrease (increase) in assets:
Receivables............................................ (612,799) 285,631
Inventories............................................ (18,957,241) (9,782,298)
Prepaid expenses....................................... 213,691 (372,611)
Other assets........................................... (478,033) 1,441
Increase (decrease) in liabilities:
Accounts payable....................................... 5,917,648 2,594,511
Accrued expenses....................................... 3,538,231 2,014,830
Deferred rent liabilities.............................. 282,419 294,926
Income taxes payable................................... (888,378) (348,233)
------------ ------------
Net cash used in operating activities.......................... (8,348,630) (4,085,389)
------------ ------------
Net cash used in investing activities - purchase of fixed
assets, net.................................................. (9,322,592) (4,075,723)
------------ ------------
Cash flows from financing activities:
Borrowings under revolving credit note....................... 67,074,500 26,756,737
Repayment of borrowings under revolving credit note.......... (48,349,900) (39,883,892)
Payment of long-term debt and capital lease obligations...... (1,114,237) (1,472,985)
Proceeds from issuance of subordinated debentures............ -- 2,910,836
Proceeds from issuance of Series C convertible preferred
stock...................................................... -- 8,671,337
Proceeds from issuance of common stock....................... -- 20,098,326
Retirement of subordinated debentures........................ -- (8,000,000)
Proceeds from exercise of employee stock options............. 220,763 46,250
Purchase of treasury stock................................... -- (180,000)
------------ ------------
Net cash provided by financing activities...................... 17,831,126 8,946,609
------------ ------------
Net increase in cash........................................... 159,904 785,497
Cash at beginning of period.................................... 51,180 202,344
------------ ------------
Cash at end of period.......................................... $ 211,084 $ 987,841
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements included herein include the accounts of
Factory Card Outlet Corp. and its wholly owned subsidiary, Factory Card
Outlet of America, Ltd. (the Company). The Company is a 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 in 22
states. These financial statements have been prepared by management without
audit and should be read in conjunction with the consolidated financial
statements and notes thereto for the fiscal year ending June 28, 1997. Due to
the seasonality of the Company's business, the results for the interim periods
are not necessarily indicative of the results for the year. The accompanying
consolidated financial statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. In the opinion of management, all such adjustments are of a normal
and recurring nature.
(2) Management Estimates
The preparation of these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of expenses during the reporting period and related disclosures. Significant
estimates made as of and for the three and six month periods ended December
27, 1997 and December 28, 1996 include provisions for shrinkage, capitalized
overhead costs related to inventory and markdowns of merchandise inventories.
Actual results could differ from those estimates.
(3) Fiscal Year
In January 1998, the Company will change its fiscal year-end to the Saturday
closest to January 31 and will use January as its fiscal year-end in the
future.
(4) Earnings Per Share
Earnings per share--basic were computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Earnings per share--diluted include the effect of stock options and warrants.
Stock options issued during the twelve-month period prior to the Company's
initial public offering have been included in the calculation of earnings per
share--diluted as if they were outstanding for the periods presented, even if
antidilutive, using the treasury stock method. The reconciliation of earnings
per share--basic to earnings per share--diluted is as follows:
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
----------------------------------- ---------------------------------
Per Per
Income Shares Share Income Shares Share
------------ ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
For the three fiscal months ended:
Earnings per share--basic:
- -------------------------
Net income.......................................... $ 2,153,127 7,260,786 $ 0.30 $ 478,445 4,548,478 $ 0.10
Effect of dilutive securities:
Stock options....................................... 591,441 722,122
Warrants............................................ 76,196 76,034
Earnings per share--diluted:
- ---------------------------
Net income available to common stockholders and
assumed conversions................................. $ 2,153,127 7,928,423 $ 0.27 $ 478,445 5,346,634 $ 0.09
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
--------------------------------- -------------------------------
Per Per
Income Shares Share Income Shares Share
----------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
For the six fiscal months ended:
Earnings per share--basic:
- -------------------------
Net income............................................... $ 762 7,249,998 $ 0.00 $(813,021) 4,308,444 $ (0.19)
Effect of dilutive securities:
Stock options............................................ 585,766 813,774
Warrants................................................. 76,196 76,034
Earnings per share--diluted:
- ---------------------------
Net income available to
common stockholders and
assumed conversions...................................... $ 762 7,911,960 $ 0.00 $(813,021) 5,198,252 $ (0.16)
</TABLE>
Options to purchase common stock outstanding during the periods presented
above that were not included in the computation of diluted earnings per share
- --diluted because the option price was greater than the average market price
of the common shares were as follows:
<TABLE>
<CAPTION>
December 27, 1997 December 28, 1996
----------------- -----------------
<S> <C> <C>
For the three fiscal months ended.......................................... 78,660 16,000
For the six fiscal months ended............................................ 84,660 16,000
</TABLE>
(5) Debt
Loan and Security Agreement
On October 15, 1997, the Company entered into a Loan and Security Agreement
with its Bank increasing its existing line of credit facility from
$25,000,000 to the lessor of $35,000,000 or a predetermined advance rate (not
to exceed 50%) against net inventory as determined by an appraisal. Interest
is payable at an annual rate equal to the bank's prime rate or, at the
Company's option, a rate based on the London Interbank offered rate ("LIBOR")
plus additional basis points (ranging from 125 to 225 points) dependent on
the Company's effective debt ratio. In addition, a fee of 0.25% per year is
assessed quarterly on the unused portion of the facility. This agreement
contains restrictive covenants including, among others, the maintenance of
minimum ratios of fixed charges to earnings and maximum ratios of liabilities
to net worth and debt to earnings.
On January 30, 1998, the Company entered into a Loan and Security
Agreement ("Agreement") with BankBoston Retail Finance Inc. providing a
$40,000,000 revolving line of credit which can be increased at the Company's
discretion up to $60,000,000, in $5,000,000 increments. Advances under the
Agreement, which expires January 31, 2001, are limited based on inventory
levels subject to certain reserves as defined in the Agreement. Interest is
accrued at an annual rate equal to the BankBoston, N.A. prime rate or, at the
Company's option, LIBOR plus additional basis points (175 or 200 basis points)
dependent on the Company's trailing twelve-month net income. Interest is
payable monthly or upon the expiration of an advance issued under the
Company's LIBOR option. A fee of 0.25% per year is assessed monthly on the
unused portion of the line of credit. Borrowings under the Agreement are
secured by all of the Company's assets. This Agreement contains one
restrictive financial covenant requiring a minimum net worth of $42,700,000.
Lease Commitments
During the six months ended December 27, 1997, financing for additional
computer equipment was incorporated into an existing master lease agreement
in the amount of $1.9 million.
7
<PAGE>
(6) Stockholders' Equity
Common and Preferred Stock
Effective January 20, 1998, the authorized number of shares of Common Stock,
par value $.01 per share, decreased from 50,000,000 to 15,000,000 and the
authorized number of shares of Preferred Stock, par value $.01 per share,
decreased from 10,000,000 to 1,000,000. This change does not effect the
Company's outstanding Common Stock.
Outside Director Stock Option Plan
On November 14, 1997, the Company's shareholders approved the 1997 Outside
Director Stock Option Plan permitting stock option awards to directors who
are not employees of the Company. The 1997 Outside Director Stock Option Plan
is effective as of July 25, 1997 and expires on July 24, 2007. Under the plan,
options may be granted for the purchase of the Company's common stock at an
exercise price not less than 100% of the fair market value of a share of
Common Stock on the date of grant. The number of shares of Common Stock
reserved in connection with this plan is 250,000, subject to certain
adjustments. The Company granted 160,000 options on November 14, 1997 to
eligible directors which become exercisable at the rate of 33 1/3 on July 1,
1998, November 14, 1999 and November 14, 2000, respectively.
(7) Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three Fiscal Months Ended Six Fiscal Months Ended
-------------------------- --------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash paid during the period ended for:
Interest............................................. $ 608,723 $ 764,263 $ 938,820 $1,161,540
Income taxes......................................... -- 271 856,815 372,021
</TABLE>
Supplemental disclosure of non-cash financing activities:
Capital lease obligations incurred, primarily for point of sale computer
equipment, and notes payable on vehicle purchases were $1.9 million in the
three and six-month periods ended December 27, 1997 and $1.9 million and
$2.0 million in the three and six-months periods ended December 28, 1996,
respectively.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the following: ability to open and operate new stores;
weather and economic conditions; dependence on key personnel; competition;
ability to anticipate merchandise trends and consumer demand; ability to
maintain relationships with suppliers; successful implementation of
information systems; consolidation and relocation of distribution facilities;
inventory shrinkage; ability to meet future capital needs; governmental
regulations and other factors both referenced and not referenced in this
Quarterly Report on Form 10-Q. When used in this Quarterly Report on Form
10-Q, the words "estimate," "project," "expect," "intend," "believe," and
similar expressions are intended to identify forward-looking statements.
Due to the importance of the spring and fall selling seasons, the second
and fourth fiscal quarters have historically contributed, and the Company
expects they will continue to contribute, disproportionately to the Company's
profitability for the entire fiscal year. As a result, the Company's
quarterly results of operations may fluctuate. In addition, results of a
period shorter than a full year may not be indicative of results expected for
the entire year.
As of November 30, 1997, Party Express, the party goods division of
Hallmark Marketing Corporation, has refused to supply party goods, which
include many Disney and Warner Bros. licensed products, to the Company. The
Company believes that this decision will not have a material impact on its
earnings for the next 12 months, but could impact earnings beyond that time.
The Company is continuing to explore alternatives in an attempt to resolve
this situation or to allow the Company to acquire the licensed product
through other sources.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected statement
of operations data expressed as a percentage of net sales and the number of
stores open at the end of each such period:
<TABLE>
<CAPTION>
Three Fiscal Months Ended Six Fiscal Months Ended
------------------------- -----------------------
Dec. 27, Dec. 28, Dec. 27, Dec. 28,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy............. 61.5 61.7 63.4 64.2
-------- -------- -------- --------
Gross Profit.......................... 38.5 38.3 36.6 35.8
Selling, general and administrative
expenses.............................. 31.6 33.2 35.6 35.3
-------- -------- -------- --------
Income from operations................ 6.9 5.1 1.0 0.5
Interest expense........................ 1.0 1.5 1.0 1.9
-------- -------- -------- --------
Income (loss) before taxes and
extraordinary item.................. 5.9 3.6 0.0 (1.4)
Income tax (benefit).................... 2.3 1.5 -- (0.6)
-------- -------- -------- --------
Income (loss) before extraordinary
item................................ 3.6 2.1 0.0% (0.8)%
Extraordinary item - loss on early
retirement of debt, net of
income tax benefit.................... -- (0.8) -- (0.5)
-------- -------- -------- --------
Net income (loss)..................... 3.6% 1.3% 0.0% (1.3)%
-------- -------- -------- --------
-------- -------- -------- --------
Number of stores open at
end of period......................... 180 123 180 123
</TABLE>
9
<PAGE>
THREE FISCAL MONTHS ENDED DECEMBER 27,1997 AND DECEMBER 28, 1996
NET SALES. Net sales increased $22.6 million, or 60.0%, to $60.3 million
for the three-month period ended December 27, 1997 from $37.7 million for the
three-month period ended December 28, 1996. The increase resulted from (i)
net sales of $11.6 million from new stores opened during the six-month period
ended December 27, 1997, (ii) net sales increase of $6.5 million from stores
opened prior to July 1997 not included in the comparable store base, and
(iii) a comparable store sales increase of $4.5 million, or 12.6%. Comparable
store sales increases were driven by an expanded seasonal merchandise
selection, primarily during Halloween. The Company includes stores opened 13
or 14 months after their opening date in the calculation of comparable sales.
If the opening date of a store falls in the first 14 days of a period, the
store is included in the comparable store calculation on its 13th month of
operation; otherwise, a store is included in the comparable store calculation
in its 14th month of operation.
GROSS PROFIT. Cost of sales includes merchandise, store occupancy,
purchasing and distribution costs. Gross profit increased $8.8 million, or
61.1%, to $23.2 million for the three-month period ended December 27, 1997
from $14.4 million for the three-month period ended December 28, 1996. As a
percentage of net sales, gross profit was 38.5% for the three-month period
ended December 27, 1997 compared to 38.3% for the same period in the prior
year. Gross profit as a percentage of net sales increased as a result of
volume rebates from vendors and leveraging of distribution costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include labor, advertising, depreciation, other store
operating and corporate administrative expenses. Selling, general and
administrative expenses increased $6.6 million, or 52.8%, to $19.1 million
for the three-month period ended December 27, 1997 from $12.5 million for the
three-month period ended December 28, 1996. Approximately $6.0 million of
this increase resulted from the operation of 57 additional new superstores.
The remainder of the increase in selling, general and administrative expenses
resulted primarily from increased advertising expenditures. As a percentage
of net sales, selling, general and administrative expenses decreased to 31.6%
in the three-month period ending December 27, 1997 from 33.2% in the
three-month period ended December 28, 1996.
INTEREST EXPENSE. Interest expense was $592,900 in the three months
ended December 27, 1997 compared to $571,700 in the three months ended
December 28, 1996. This slight increase was due to additional borrowings to
support the opening of new superstores and increased inventory levels
partially offset by a reduction in debt from applying proceeds received from
the Company's initial public offering.
INCOME TAX. The income tax expense for the three-month period ended
December 27, 1997 was approximately $860,400 higher than the expense
recognized during the three-month period ended December 28, 1996 due to a
higher net income before extraordinary item for the period and a lower
estimated effective tax rate.
EXTRAORDINARY ITEM. During December 1996, substantially all debt,
including subordinated debt, was retired with proceeds from the Company's
initial public offering. Unamortized financing costs and the remaining debt
discount associated with the retired subordinated debt were expensed creating
an extraordinary item of $313,000, net of tax.
10
<PAGE>
SIX FISCAL MONTHS ENDED DECEMBER 27,1997 AND DECEMBER 28, 1996
NET SALES. Net sales increased $32.9 million, or 52.5%, to $95.6 million
for the six-month period ended December 27, 1997 from $62.7 million for the
six-month period ended December 28, 1996. The increase resulted from (i) net
sales of $14.3 million from new stores opened during the six-month period,
(ii) net sales increase of $13.3 million from stores opened prior to July
1997 not included in the comparable store base, and (iii) a comparable store
sales increase of $5.3 million, or 9.0%, driven primarily by an expanded
seasonal merchandise selection, particularly during Halloween.
GROSS PROFIT. Cost of sales includes merchandise, store occupancy,
purchasing and distribution costs. Gross profit increased $12.5 million, or
55.6%, to $35.0 million for the six-month period ended December 27, 1997 from
$22.5 million for the six-month period ended December 28, 1996. As a
percentage of net sales, gross profit was 36.6% for the six-month period
ended December 27, 1997 compared to 35.8% for the same period in the prior
year. Gross profit as a percentage of net sales increased as a result of
volume rebates from vendors and the leveraging of distribution costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $11.8 million, or 53.2%, to $34.0 million
for the six-month period ended December 27, 1997 from $22.2 million for the
six-month period ended December 28, 1996. Approximately $10.6 million of this
increase resulted from the operation of 57 additional new superstores. The
remainder of the increase in selling, general and administrative expenses
resulted primarily from increased advertising expenditures. As a percentage
of net sales, selling, general and administrative expenses increased to 35.6%
in the six-month period ending December 27, 1997 from 35.3% in the six-month
period ended December 28, 1996.
INTEREST EXPENSE. Interest expense was $974,000 in the six months ended
December 27, 1997 compared to $1.2 million in the six months ended December
28, 1996. This decrease resulted from a reduction in debt from applying
proceeds received from the Company's initial public offering partially offset
by the increased borrowing to support the opening of new superstores and
increased inventory levels.
INCOME TAX. Income tax expense of $500 was recognized for the six-month
period ended December 27, 1997 compared to an income tax benefit of $361,200
recognized during the six-month period ended December 28, 1996 as a result of
the net income before extraordinary item for the period compared to the net
loss in the prior year.
EXTRAORDINARY ITEM. During December 1996, substantially all debt,
including subordinated debt, was retired with proceeds from the Company's
initial public offering. Unamortized financing costs and the remaining debt
discount associated with the retired subordinated debt were expensed creating
an extraordinary item of $313,000, net of tax.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash needs are primarily for working capital to support its
opening of new superstores and for opening the new distribution center. In
recent years, the Company has financed its expanding operations primarily
through proceeds from its initial public offering effective on December 13,
1996, borrowings under the Business Loan Agreement between the Company and
Bank One, Chicago, NA (Bank One), proceeds from issuance of convertible
preferred stock and subordinated debentures and internally generated funds.
At December 28, 1997 and December 27, 1996, the Company's working capital
was $45.9 million and $35.6 million, respectively. Net cash used in
operations for the six months ended December 27, 1997 and December 28, 1996
was $8.3 million and $4.1 million, respectively. In these two periods, $19.0
million and $9.8 million, respectively, of cash from operations was used to
increase inventory levels to support both new and existing stores.
Net cash used in investing activities during the six months ended
December 27, 1997 and December 28, 1996 was $9.3 million and $4.1 million,
respectively. These investments were primarily a result of opening new
superstores, expanding existing stores and investing in equipment for the new
distribution center. During the six months ended December 27, 1997 and
December 28, 1996, the Company spent $8.2 million and $2.9 million,
respectively, for capital expenditures for new superstores.
Net cash provided by financing activities during the six months ended
December 27, 1997 and December 28, 1996 was $17.8 million and $8.9 million,
respectively. At December 28, 1997 and December 27, 1996, the outstanding
balance under the Company's Business Loan Agreement with Bank One was $22.5
million and $3.8 million, respectively.
On January 30, 1998, the Company entered into a Loan and Security
Agreement ("Agreement") with BankBoston Retail Finance Inc. providing a
$40,000,000 revolving line of credit which can be increased at the Company's
discretion up to $60,000,000, in $5,000,000 increments. Advances under the
Agreement, which expires January 31, 2001, are limited based on inventory
levels subject to certain reserves as defined in the Agreement. Interest is
accrued at an annual rate equal to the BankBoston, N.A. prime rate or, at the
Company's option, LIBOR plus additional basis points (175 or 200 basis
points) dependent on the Company's trailing twelve-month net income. Interest
is payable monthly or upon the expiration of an advance issued under the
Company's LIBOR option. A fee of 0.25% per year is assessed monthly on the
unused portion of the line of credit. Borrowings under the Agreement are
secured by all of the Company's assets. This Agreement contains one
restrictive financial covenant requiring a minimum net worth of $42,700,000.
On October 15, 1997, the Company entered into a Loan and Security
Agreement with Bank One increasing its existing line of credit facility from
$25.0 million to the lesser of $35.0 million or a predetermined advance rate
(not to exceed 50%) against net inventory as determined by an appraisal.
Interest is payable at an annual rate equal to Bank One's prime rate or, at
the Company's option, a rate based on LIBOR plus additional basis points
(ranging from 125 to 225 basis points) variable on the Company's effective
debt ratio. In addition, a fee of 0.25% per year is assessed quarterly on the
unused portion of the facility. This agreement contains restrictive covenants
including, among others, the maintenance of minimum ratios of fixed charges
to earnings and maximum ratios of liabilities to net worth and debt to
earnings.
In December 1996, the Company completed an initial public offering of
2,550,000 shares of its common stock. An additional 394,050 shares of common
stock were sold as a result of the exercise by the underwriters of an
over-allotment option in January 1997. The net proceeds of the offering,
which were $22.9 million after deducting associated expenses, were used to
retire all outstanding subordinated debentures, a term loan and the
outstanding borrowings under the revolving credit facility.
12
<PAGE>
In October 1996, the Company entered into two capital lease agreements
for point-of-sale (POS) computer equipment and related software having a
total cost of $2.1 million. During February 1997, financing for $2.4 million
of additional computer equipment was incorporated into one of the leases.
During July and August 1997, financing for $1.9 million of additional POS and
other computer equipment was also incorporated. These leases have terms of
four and five years.
The Company does not intend to pay cash dividends in the foreseeable
future and under the new Loan and Security Agreement is restricted from
paying dividends on its capital stock. The Company believes that its cash
generated from operations and its borrowing capacity under the new line of
credit facility will be adequate to fund its cash requirements for at least
the next 12 months.
13
<PAGE>
PART II--OTHER INFORMATION
ITEM 2. Changes in Securities.
On November 14, 1997, the Company granted 160,000 options to eligible
directors under the 1997 Outside Director Stock Option Plan. These
options were granted based on an exemption from registration under
Rule 701 of the Securities Act of 1933, as amended.
ITEM 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on
November 14, 1997. The matters voted upon at the Annual Meeting were:
<TABLE>
<CAPTION>
Broker
For Against Withheld Non-Votes Abstentions
--------- -------- --------- --------------- -----------
<S> <C> <C> <C> <C> <C>
1. Election of Directors
Stewart M. Kasen.............. 5,772,232 -- 12,257 -- --
Michael I. Barach............. 5,772,232 -- 12,257 -- --
Dr. Robert C. Blattberg....... 5,772,432 -- 12,057 -- --
Bart A. Brown, Jr............. 5,772,532 -- 11,957 -- --
Charles R. Cumello............ 5,772,232 -- 12,257 -- --
Richard A. Doppelt............ 5,772,432 -- 12,057 -- --
William E. Freeman............ 5,772,182 -- 12,307 -- --
J. Bayard Kelly............... 5,771,482 -- 13,007 -- --
James L. Nouss, Jr............ 5,272,932 -- 11,557 -- --
2. Approval of the Amendment
to the Amended and Restated
Certificate of Incorporation
of the Company................ 4,609,932 35,540 -- 1,129,007 10,010
3. Approval of the 1997 Outside
Director Stock Option Plan.... 5,135,139 616,620 -- 12,950 19,780
4. Ratification of KPMG Peat
Marwick LLP as the
Company's independent
auditors...................... 5,753,450 21,999 -- -- 9,040
</TABLE>
ITEM 6. Exhibits and Reports of Form 8-K
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.
10.11 Loan and Security Agreement dated January 30, 1998 among
Factory Card Outlet of America, Ltd. and BankBoston
Retail Finance Inc.
10.12 1997 Outside Director Stock Option Plan. (1)
27.1 FINANCIAL DATA SCHEDULE.
(b) No reports on Form 8-K were filed during the quarter ended
December 27, 1997.
_______________
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 Number 333-45461, dated February 3, 1998 and incorporated by
reference.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FACTORY CARD OUTLET CORP.
<TABLE>
<S> <C>
Dated: February 9, 1998 By: __________________________
Charles R. Cumello,
President and Chief Executive Officer
Dated: February 9, 1998 By: __________________________
Glen J. Franchi,
Executive Vice President and Treasurer
(Principal financial officer)
Dated: February 9, 1998 By: __________________________
Thomas W. Stoltz,
Vice President - Finance
(Principal accounting officer)
</TABLE>
15
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
FACTORY CARD OUTLET CORP.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
Factory Card Outlet Corp.
2. The restated certificate of incorporation of the corporation is
hereby amended by striking out Section 1 of Article Fourth and
Section 3 of Article Eleventh thereof and by substituting in lieu of
Section 1 of Article Fourth and Section 3 of Article Eleventh the
following new Sections:
"FOURTH:
Section 1. Authorized Shares.
The Corporation has authority to issue 15,000,000
shares of Common Stock, $.01 par value per share (the
"Common Stock"), and 1,000,000 shares of Preferred
Stock, $.01 par value per share (the "Preferred
Stock")."
"ELEVENTH:
Section 3. Stockholder Nominations and Other Proposals.
Stockholders of the Corporation may only propose
actions to be taken by the Corporation and nominate
members of the Board of Directors in the manner
provided in the Corporation's By-Laws."
3. The amendments of the restated certificate of incorporation
hereinafter certified have been duly adopted in accordance with
the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
Signed on January 19, 1998.
/s/ Charles R. Cumello
-----------------------
Charles R. Cumello, Chief Executive Officer
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
FACTORY CARD OUTLET CORP.
The undersigned, in order to form a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware (the
"Act"), hereby certifies:
Pursuant to Section 242 and Section 245 of the Act, Factory Card
Outlet Corp. has adopted this Restated Certificate of Incorporation,
restating, integrating and further amending its Certificate of
Incorporation (originally filed on June 16, 1989 as FCOA Acquisition
Corp.), which Restated Certificate of Incorporation has been duly proposed
by the directors and adopted by the stockholders of this corporation (by
written consent pursuant to Section 228 of the Act) in accordance with the
provisions of Section 242 and Section 245 of the Act.
FIRST: The name of the Corporation is Factory Card Outlet Corp.
SECOND: The address of the Corporation's registered agent in
Delaware is 1209 Orange Street, County of New Castle, Wilmington, Delaware
19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH:
Section 1. Authorized Shares.
The Corporation has authority to issue 50,000,000 shares of
Common Stock, par value $0.01 per share (the "Common Stock"), and
10,000,000 shares of Preferred Stock, par value $0.01 per share (the
"Preferred Stock").
Section 2. Preferred Stock.
a) The Board of Directors is authorized, subject to
limitations by law and the provisions of this Article FOURTH, to provide
for the issuance of the shares of Preferred Stock in series, and by filing
a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time out of the number of shares to be included in
each such series, and to fix the designation, powers, rights, preferences,
qualifications, limitations and restrictions of the shares of each such
series.
b) The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
<PAGE>
(2) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(3) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and if so, the terms of such
voting rights;
(4) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as
the Board of Directors shall determine;
(5) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(6) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and conditions of such sinking fund;
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(8) Any other powers, rights, preferences, qualifications,
limitations and restrictions of that series.
FIFTH: The name and mailing address of the incorporator is
Joseph H. Kott, 163 Madison Avenue, CN 1945, Morristown, N.J. 07960.
SIXTH: The powers of the incorporator shall terminate upon the
filing of the Certificate of Incorporation and the names and mailing
addresses of the persons who are to serve as directors until the first
annual meeting of stockholders or until their successors are elected and
qualified are:
William E. Freeman - 316 Beacon Light Rd.
Califon, N.J. 07630
George C. Betke, Jr. - P.O. Box 295
Essex Fells, N.J. 07021
SEVENTH: The Corporation may indemnify every corporation agent as
defined in, and to the full extent permitted by, Section 145 of the
General Corporation Law of Delaware, and to the full extent otherwise
permitted by law. The power to make, alter, or repeal by-laws is
conferred upon the directors. Meetings of stockholders may be held within
or without the State of Delaware as the law may provide. Subject to the
bylaws, the election of directors need not be by written ballot.
EIGHTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
<PAGE>
Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived any improper personal benefit.
If the Delaware General Corporation Law is amended after the filing of the
Certificate of Incorporation of which this article is a part to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of the director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification.
NINTH: The directors shall have the right to amend, alter, change
or repeal any provision in this Certificate of Incorporation or in the
Corporation's by-laws, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted
subject to such reservation.
TENTH: Pursuant to Section 103(d) of the General Corporation Law
of Delaware, this Certificate of Incorporation is to be effective upon its
filing date.
ELEVENTH:
Section 1. Special Meetings.
Notwithstanding anything to the contrary in the Corporation's
By-Laws, special meetings of the stockholders may only be called by
resolution of the Board of Directors or by the Chairman of the Board or
President or by the Chairman, President or Secretary upon the written
request (stating the purpose or purposes of the meeting) of a majority of
the members of the Board of Directors or a majority of the stockholders of
the Corporation.
Section 2. Actions by Stockholders.
Notwithstanding anything to the contrary in the Corporation's
By-Laws, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
except at a duly called meeting of the stockholders of the Corporation, or
upon the unanimous written consent of the stockholders entitled to vote
thereat.
Section 3. Stockholder Nominations and Other Proposals.
Notwithstanding anything to the contrary in the Corporation's
By-Laws, stockholders of the Corporation may only propose actions to be
taken by the Corporation and nominate members of the Board of Directors
upon ninety (90) days prior written notice to the Corporation.
<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator has executed this
Restated Certificate of Incorporation and has certified this as his act
and deed and the facts herein stated are true, this 12th day of December,
1996.
By: /s/ William E. Freeman
---------------------------
William E. Freeman
Chairman of the Board
<PAGE>
Exhibit 10.11
LOAN AND SECURITY AGREEMENT
-----------------
BANKBOSTON RETAIL FINANCE INC.
Agent for
The Lenders Referenced Herein
-----------------
FACTORY CARD OUTLET OF AMERICA, LTD.
As of January 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 - DEFINITIONS.
ARTICLE 2 - THE REVOLVING CREDIT
2-1. Establishment of Revolving Credit . . . . . . . . . . . . . . . . 22.
2-2. Initial Reserves. Changes to Reserves.. . . . . . . . . . . . . . 24.
2-3. Advances in Excess of Borrowing Base. . . . . . . . . . . . . . . 24.
2-4. Risks of Value of Collateral. . . . . . . . . . . . . . . . . . . 25.
2-5. Loan Requests . . . . . . . . . . . . . . . . . . . . . . . . . . 25.
2-6. Making of Loans Under Revolving Credit. . . . . . . . . . . . . . 27.
2-7. The Loan Account. . . . . . . . . . . . . . . . . . . . . . . . . 27.
2-8. The Revolving Credit Notes. . . . . . . . . . . . . . . . . . . . 28.
2-9. Payment of The Loan Account . . . . . . . . . . . . . . . . . . . 28.
2-10. Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . 30.
2-11. Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 30.
2-12. Agent's and Lenders' Discretion . . . . . . . . . . . . . . . . . 32.
2-13. Procedures Concerning L/C's . . . . . . . . . . . . . . . . . . . 33.
2-14. Fees For L/C's . . . . . . . . . . . . . . . . . . . . . . . . . 34.
2-15. Concerning L/C's . . . . . . . . . . . . . . . . . . . . . . . . 35.
2-16. Changed Circumstances . . . . . . . . . . . . . . . . . . . . . . 37.
2-17. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . 38.
2-18. Lenders' Commitments . . . . . . . . . . . . . . . . . . . . . . 38.
ARTICLE 3 - CONDITIONS PRECEDENT.
3-1. Corporate Due Diligence . . . . . . . . . . . . . . . . . . . . . 40.
3-2. Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.
3-3. Additional Documents . . . . . . . . . . . . . . . . . . . . . . 40.
3-4. Officers' Certificates . . . . . . . . . . . . . . . . . . . . . 40.
3-5. Representations and Warranties . . . . . . . . . . . . . . . . . 40.
3-6. Minimum Excess Availability . . . . . . . . . . . . . . . . . . . 41.
3-7. All Fees and Expenses Paid . . . . . . . . . . . . . . . . . . . 41.
3-8. No Suspension Event . . . . . . . . . . . . . . . . . . . . . . . 41.
3-9. No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 41.
ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
4-1. Payment and Performance of Liabilities. . . . . . . . . . . . . . 41.
4-2. Due Organization - Corporate Authorization - No Conflicts.. . . . 42.
4-3. Trade Names.. . . . . . . . . . . . . . . . . . . . . . . . . . . 42.
4-4. Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . 43.
4-5. Locations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.
4-6. Title to Assets.. . . . . . . . . . . . . . . . . . . . . . . . . 45.
4-7. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . 45.
4-8. Insurance Policies. . . . . . . . . . . . . . . . . . . . . . . . 46.
4-9. Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.
4-10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.
4-11. Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . 47.
4-12. Maintain Properties . . . . . . . . . . . . . . . . . . . . . . . 47.
4-13. Pay Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.
ii
<PAGE>
4-14. No Margin Stock . . . . . . . . . . . . . . . . . . . . . . . . . 49.
4-15. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.
4-16. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . 50.
4-17. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.
4-18. Dividends or Investments . . . . . . . . . . . . . . . . . . . . 51.
4-19. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.
4-20. Protection of Assets . . . . . . . . . . . . . . . . . . . . . . 51.
4-21. Line of Business . . . . . . . . . . . . . . . . . . . . . . . . 52.
4-22. Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . 52.
4-23. Additional Assurances . . . . . . . . . . . . . . . . . . . . . . 52.
4-24. Adequacy of Disclosure . . . . . . . . . . . . . . . . . . . . . 53.
4-25. Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 53.
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL COVENANTS
5-1. Maintain Records. . . . . . . . . . . . . . . . . . . . . . . . . 53.
5-2. Access to Records . . . . . . . . . . . . . . . . . . . . . . . . 54.
5-3. Immediate Notice to Agent . . . . . . . . . . . . . . . . . . . . 55.
5-4. Borrowing Base Certificate. . . . . . . . . . . . . . . . . . . . 56.
5-5. Weekly Reports. . . . . . . . . . . . . . . . . . . . . . . . . . 56.
5-6. Monthly Reports . . . . . . . . . . . . . . . . . . . . . . . . . 57.
5-7. Quarterly Reports . . . . . . . . . . . . . . . . . . . . . . . . 58.
5-8. Annual Reports. . . . . . . . . . . . . . . . . . . . . . . . . . 58.
5-9. Officers' Certificates. . . . . . . . . . . . . . . . . . . . . . 59.
5-10. Inventories, Appraisals, and Audits . . . . . . . . . . . . . . . 59.
5-11. Additional Financial Information . . . . . . . . . . . . . . . . 61.
5-12. Financial Performance Covenant . . . . . . . . . . . . . . . . . 61.
ARTICLE 6 - USE AND COLLECTION OF COLLATERAL.
6-1. Use of Inventory Collateral . . . . . . . . . . . . . . . . . . . 62.
6-2. Inventory Quality . . . . . . . . . . . . . . . . . . . . . . . . 62.
6-3. Adjustments and Allowances . . . . . . . . . . . . . . . . . . . . 62.
6-4. Validity of Accounts . . . . . . . . . . . . . . . . . . . . . . . 62.
6-5. Notification to Account Debtors . . . . . . . . . . . . . . . . . 62.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES.
7-1 Depository Accounts . . . . . . . . . . . . . . . . . . . . . . . 63.
7-2. Credit Card Receipts . . . . . . . . . . . . . . . . . . . . . . . 63.
7-3. The Concentration, Central, And Funding Accounts . . . . . . . . . 64.
7-4. Proceeds and Collection of Accounts . . . . . . . . . . . . . . . 65.
7-5. Payment of Liabilities . . . . . . . . . . . . . . . . . . . . . . 66.
7-6. The Funding Account . . . . . . . . . . . . . . . . . . . . . . . 66.
ARTICLE 8 - GRANT OF SECURITY INTEREST
8-1. Grant of Security Interest . . . . . . . . . . . . . . . . . . . 67.
8-2. Extent and Duration of Security Interest . . . . . . . . . . . . 67.
ARTICLE 9 - AGENT AS BORROWER'S ATTORNEY-IN-FACT.
9-1. Appointment as Attorney-In-Fact . . . . . . . . . . . . . . . . . 68.
9-2. No Obligation to Act . . . . . . . . . . . . . . . . . . . . . . . 69.
iii
<PAGE>
ARTICLE 10 - EVENTS OF DEFAULT.
10-1. Failure to Pay Revolving Credit. . . . . . . . . . . . . . . . . 69.
10-2. Failure To Make Other Payments . . . . . . . . . . . . . . . . . 69.
10-3. Failure to Perform Covenant or Liability (No Grace Period) . . . 69.
10-4. Failure to Perform Covenant or Liability (Grace Period). . . . . 70.
10-5. Misrepresentation. . . . . . . . . . . . . . . . . . . . . . . . 70.
10-6. Acceleration of Other Debt. Breach of Lease. . . . . . . . . . . 70.
10-7. Default Under Other Agreements . . . . . . . . . . . . . . . . . 70.
10-8. Casualty Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 70.
10-9. Judgment. Restraint of Business . . . . . . . . . . . . . . . . 71.
10-10. Business Failure . . . . . . . . . . . . . . . . . . . . . . . . 71.
10-11. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.
10-12. Indictment - Forfeiture. . . . . . . . . . . . . . . . . . . . . 71.
10-13. Default by Guarantor, Parent, or Related Entity. . . . . . . . . 72.
10-14. Termination of Guaranty. . . . . . . . . . . . . . . . . . . . . 72.
10-15. Challenge to Loan Documents. . . . . . . . . . . . . . . . . . . 72.
10-16. Change in Control. . . . . . . . . . . . . . . . . . . . . . . . 72.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT
11-1. Rights of Enforcement . . . . . . . . . . . . . . . . . . . . . 73.
11-2. Sale of Collateral . . . . . . . . . . . . . . . . . . . . . . . 73.
11-3. Occupation of Business Location . . . . . . . . . . . . . . . . 74.
11-4. Grant of Nonexclusive License . . . . . . . . . . . . . . . . . 74.
11-5. Assembly of Collateral . . . . . . . . . . . . . . . . . . . . . 74.
11-6. Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . 75.
ARTICLE 12 - NOTICES.
12-1. Notice Addresses . . . . . . . . . . . . . . . . . . . . . . . . 75.
12-2. Notice Given . . . . . . . . . . . . . . . . . . . . . . . . . . 76.
ARTICLE 13 - TERM
13-1. Termination of Revolving Credit. . . . . . . . . . . . . . . . . 77.
13-2. Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 77.
ARTICLE 14 - GENERAL
14-1. Protection of Collateral . . . . . . . . . . . . . . . . . . . . 77.
14-2. Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . 77.
14-3. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 78.
14-4. Amendments. Course of Dealing . . . . . . . . . . . . . . . . . 78.
14-5. Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . 78.
14-6. Application of Proceeds. . . . . . . . . . . . . . . . . . . . . 79.
14-7. Costs and Expenses of Agent and Of Lenders . . . . . . . . . . . 79.
14-8. Copies and Facsimiles. . . . . . . . . . . . . . . . . . . . . . 80.
14-9. Massachusetts Law. . . . . . . . . . . . . . . . . . . . . . . . 80.
14-10. Consent to Jurisdiction. . . . . . . . . . . . . . . . . . . . . 80.
14-11. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 81.
14-12. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . 81.
14-13. Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.
14-14. Right of Set-Off . . . . . . . . . . . . . . . . . . . . . . . . 82.
iv
<PAGE>
14-15. Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . . . 83.
14-16. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83.
v
<PAGE>
1-0(a) : Business Plan
1-0(b) : Excess Packaway Inventory
28 : Revolving Credit Note
42 : Related Entities
43 : Trade Names.
45 : Locations and Landlords.
46 : Encumbrances.
47 : Indebtedness.
48 : Insurance Policies.
413 : Taxes
410 : Leases.
417 : Litigation
54 : Borrowing Base Certificate
71 : DDA's.
72 : Credit Card Arrangements
vi
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT BankBoston Retail Finance Inc.
Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of January 30, 1998
THIS AGREEMENT is made 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 218, below,
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 - DEFINITIONS.
As herein used, the following terms have the following meanings or are
defined in the section of the within Agreement so indicated:
"Acceptable Inventory": Such of the Borrower's Inventory (without
duplication as to Acceptable L/C Inventory) at such locations, and of
such types, character, qualities and quantities, (net of Inventory
Reserves) as the Agent in its discretion from time to time determines
to be acceptable for borrowing, as to which Inventory, the Agent has a
perfected security interest which is prior and superior to all
security interests, and all Encumbrances other than Permitted
Encumbrances.
"Acceptable L/C Inventory": Such of the Borrower's Inventory (without
duplication as to Acceptable Inventory), the purchase of which is
supported by a documentary L/C
1
<PAGE>
then having of expiry of sixty (60) or less days, provided that
(a) Such Inventory is of such types, character, qualities and
quantities (net of Inventory Reserves) as the Agent in its discretion
from time to time determines to be acceptable for borrowing; and
(b) The documentary L/C supporting such purchase names the Agent
as consignee of the subject Inventory and the Agent has control over
the documents which evidence ownership of the subject Inventory.
"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.
"ACH": Automated clearing house.
"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 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 analogous
group or individual) of the other Person; or (c) not less than Twenty
Five Percent (25%) of their respective ownership is directly or
indirectly held by the same third Person.
"Agent": Is defined in the Preamble.
"Agent's Fee": The fee, so denominated, payable as provided in a certain
letter agreement of even date between the Borrower and the Agent.
"Agent's Rights and Remedies": Is defined in Section 116.
2
<PAGE>
"Applicable Advance Rate": Subject to the proviso included in this
Definition, the following percentage during the period indicated:
<TABLE>
<CAPTION>
FROM TO RATE
----------------------------------------------------------------------
<S> <C> <C>
----------------------------------------------------------------------
February 1 June 30 60%
----------------------------------------------------------------------
July 1 January 31 50%
----------------------------------------------------------------------
</TABLE>
Provided, however, the "Applicable Advance Rate" respectively for
each of the months of October and November, 1999 and 2000 shall be
55%, if each of the following conditions (determined separately for
each of said months) is satisfied on the date on which the Applicable
Advance Rate is to be set at 55%:
(x) Consolidated EBITDA, as reflected on the then most
recent Trailing Twelve Month Consolidated EBITDA Certificate
provided pursuant to Section 56(a)(ii)(F), is not less than 80%
of projected Consolidated EBITDA, for like period, as calculable
from the Business Plan.
(y) Per store actual Packaway Inventory, on the first day
of the month on which the Applicable Advance Rate may be so set
at 55% does not exceed the product of (a) the per store cost for
Packaway Inventory for the relevant month, as set forth on
EXHIBIT 1-0(b), annexed hereto, multiplied by (b) the number of
Stores in operation on the first day of the month for which the
Applicable Advance Rate may be so set at 55%.
(z) No Event of Default exists.
"Availability": Is defined in Section 21(b).
"Availability Reserves": Such reserves as the Agent from time to time
determines in the Agent's discretion as being appropriate to reflect
the impediments to the Agent's ability to realize upon the Collateral.
Without limiting the generality of the foregoing, Availability
Reserves may include (but are not limited to) reserves based on the
following:
(i) Actual past due rent (as to all locations other
than those in Virginia, Pennsylvania, Washington
(or such other states as to which the Agent, in
its discretion determines, as appropriate).
(ii) Up to three (3) months rent for locations in Virginia,
3
<PAGE>
Pennsylvania, Washington (or such other states as
to which the Agent, in its discretion determines,
as appropriate) other than those locations in said
states for which a Landlord's Waiver, acceptable
to the Agent, has been received by the Agent.
(iii) In store customer credits.
(iv) Payables (based upon payables which are more than
thirty days (30) beyond their respective due date
based upon the then effective trade terms accorded to
the Borrower by the subject vendor (other than
payables which are over thirty (30) day past due on
account of a bona fide good faith dispute with the
subject vendor).
(v) Gift Certificates.
(vi) Frequent Shopper Programs.
(vii) Layaways and Customer Deposits
(viii) Taxes and other governmental charges, including,
ad valorem, personal property, and other taxes
which might have priority over the security
interests of the Agent in the Collateral.
(ix) Excess Packaway Inventory.
"Bankruptcy Code": Title 11, U.S.C., as amended from time to time.
"Base": The Base Rate announced from time to time by BankBoston, N.A. (or
any successor in interest to BankBoston, N.A.). In the event that
said bank (or any such successor) ceases to announce such a rate,
"Base" shall refer to that rate or index announced or published from
time to time as the Agent, in good faith, designates as the functional
equivalent to said Base Rate. Any change in "Base" shall be
effective, for purposes of the calculation of interest due hereunder,
when such change is made effective generally by the bank on whose rate
or index "Base" is being set.
"Base Margin Loan": Each Revolving Credit Loan while bearing interest at
the Base Margin Rate.
4
<PAGE>
"Base Margin Rate": Base (determined on the basis of a 360 day year and
actual days elapsed).
"Borrower": Is defined in the Preamble.
"Borrowing Base": The lesser, on any day, of
(a) the amount determined in accordance with Section 21(b)(i); or
(b) the amount determined in accordance with Section 21(b)(ii)
hereof, in each instance ((a) or (b)) determined without deduction
from said amount of the unpaid principal balance of the Loan Account
on that day.
"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
Agent is not open to the general public to conduct business.
"Business Plan": The Borrower's business plan annexed hereto as
EXHIBIT 1-0(a).
"Capital Lease": Any lease which may be capitalized in accordance with GAAP.
"Central Accounts": Defined in Section 73.
"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 (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 1016) 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
5
<PAGE>
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.
"Collateral": Is defined in Section 81.
"Commitment": Subject to the Definition of "Loan Ceiling" (Page 17 of this
Agreement) and Section 218, as follows:
<TABLE>
<CAPTION>
Percentage
LENDER Dollar Commitment Commitment
---------------------------------------------------------------------------
<S> <C> <C>
BankBoston Retail Finance Inc. $ 40,000,000.00 66.67%
---------------------------------------------------------------------------
BankAmerica Business Credit, Inc. $ 20,000,000.00 33.33%
---------------------------------------------------------------------------
TOTAL $ 60,000,000.00 100.00%
---------------------------------------------------------------------------
</TABLE>
"Concentration Account": Is defined in Section 73.
"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 EBITDA": The Borrower's and Parent's Consolidated Net Income
from continuing operations, plus interest, taxes, depreciation, and
amortization, each as determined in accordance with GAAP, provided,
however, in the event of a Material Accounting Change, "Consolidated
EBITDA" shall be determined as if such Material Accounting Change had
not taken effect..
6
<PAGE>
"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.
"Consolidated Tangible Net Worth": The result, on the day on which
compliance with any financial performance covenant applicable to
Tangible Net Worth is being determined, of (a) the difference between
(i) the Parent's Consolidated assets and (ii) its Consolidated
liabilities, respectively as would be reflected on a balance sheet
prepared in accordance with the requirements of Section 51(b) hereof,
minus (b) the aggregate of those of the Parent's Consolidated assets
as may be deemed intangible in accordance with GAAP, provided,
however, in the event of a Material Accounting Change, "Consolidated
Tangible Net Worth" shall be determined as if such Material Accounting
Change had not taken effect.
"Cost": The lower of
(a) the calculated cost of purchases, as determined from
invoices received by the Borrower, the Borrower's purchase
journal or stock ledger, based upon the Borrower's accounting
practices, known to the Agent, which practices are in effect on
the date on which the within Agreement was executed; or
(b) the lowest ticketed or promoted price at which the
subject inventory is offered to the public, after all mark-downs
(whether or not such price is then reflected on the Borrower's
accounting system). "Cost" does not include inventory
capitalization costs or other non-purchase price charges
(such as freight) used in the Borrower's calculation of cost
of goods sold.
"Costs of Collection" includes, without limitation, all attorneys'
reasonable fees and reasonable out-of-pocket expenses incurred by the
Agent's attorneys, and all reasonable costs incurred by the Agent 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 Agent, which costs and
expenses are directly or indirectly related to or in respect of the
Agent's: administration and management of the Liabilities;
negotiation, documentation, and amendment of any Loan
7
<PAGE>
Document; or efforts to preserve, protect, collect, or enforce the
Collateral, the Liabilities, and/or the Agent's Rights and Remedies
and/or any of the Agent'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 Lender's attorneys
(including, for such purpose, the reasonably allocated cost of a
Lender's in-house counsel), and all reasonable costs incurred by each
Lender in connection with efforts to preserve, protect, collect, or
enforce the Collateral, the Liabilities, and/or the Agent's Rights and
Remedies. The Costs of Collection are Liabilities, and at the Agent's
option may bear interest at the highest post-default rate which the
Agent may charge the Borrower hereunder as if such had been lent,
advanced, and credited by the Agent to, or for the benefit of, the
Borrower.
"DDA": Any checking or other demand daily depository account maintained by
the Borrower.
"Deposit Account": Has the meaning given that term in the UCC.
"Documents": Has the meaning given that term in the UCC.
"Documents of Title": Has the meaning given that term in the UCC.
"Dollar Commitment": As provided in the Definition of "Commitment", above.
"Early Termination Fee": Is defined in Section 211(d).
"Employee Benefit Plan": As defined in ERISA.
"Encumbrance": Each of the following:
(a) 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
8
<PAGE>
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.
"End Date": The date upon which both (a) all Liabilities have been paid
in full and (b) all obligations of any Lender to make loans and
advances and to provide other financial accommodations to the Borrower
hereunder shall have been irrevocably terminated.
"Environmental Laws": (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; and
(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, 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 10. Each reference herein to an
"Event of Default"
9
<PAGE>
is to an Event of Default not then duly waived by the Agent in the
manner prescribed in Section 144(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 Lender prior to such waiver).
"Excess Availability": The difference, on any day, between Borrowing Base
and the then unpaid principal balance of the Loan Account.
"Excess Availability Floor": Four Million Dollars ($4,000,000.00).
"Excess Packaway Inventory": 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),
annexed hereto, multiplied by (b) the number of Stores in operation on
the first day of the relevant month, except that, with respect to any
month after January, 1999 for which Trailing Twelve Month Consolidated
EBITDA, as reflected on the then most recent Trailing Twelve Month
Consolidated EBITDA Certificate provided pursuant to
Section 56(a)(ii)(F), is less than 80% of projected Consolidated
EBITDA for the like period, as calculable from the Business Plan,
"Excess Packaway Inventory" shall be the greater of (x) Packaway
Inventory then having an aggregate Cost in excess of such product of
(a) multiplied by (b) for the relevant month or (y) Packaway
Inventory having an aggregate Cost on the first day of the relevant
month in excess of thirteen percent (13%) of the Cost of all Inventory
on the first day of the relevant month.
"Exchange Act": The Securities Exchange Act of 1934, as amended.
"Fixtures": Has the meaning given that term in the UCC.
"Funding Account": Is defined in Section 73.
"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 Agent, (a) the Borrower's compliance
10
<PAGE>
with the financial performance covenants imposed pursuant to Section
512 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 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
11
<PAGE>
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 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 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" of any Person shall also include:
(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 14-11.
12
<PAGE>
"Instruments": Has the meaning given that term in the UCC.
"Interest Payment Date": With reference to:
(a) Each Libor Loan: The last day of the Interest Period
relating thereto; the Termination Date; and the End Date.
(b) Each Base Margin Loan: the first day of each month; the
Termination Date; and the End Date.
"Interest Period": (a) With respect to each Libor Loan: Subject to
Subsection (c), below, the period commencing on the date of the making
or continuation of, or conversion to, such Libor Loan and ending one,
two, or three months thereafter, as the Borrower may elect by notice
(pursuant to Section 25(b)) to the Agent.
(b) With respect to each Base Margin Loan: Subject to
Subsection (c), below, the period commencing on the date of the making
or continuation of or conversion to such Base Margin Loan and ending
on that date (i) as of which the subject Base Margin Loan is converted
to a Libor Loan, as the Borrower may elect by notice (pursuant to
Section 25(b)) to the Agent, or (ii) on which the subject Base Margin
Loan is paid by the Borrower.
(c) The setting of Interest Periods is in all instances subject
to the following:
(i) Any Interest Period for a Base Margin Loan which would
otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day.
(ii) Any Interest Period for a Libor Loan which would
otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day, unless that
succeeding Business Day is in the next calendar month, in which
event such Interest Period shall end on the last Business Day of
the month during which the Interest Period ends.
(iii) Subject to Subsection (v), below, any Interest
Period applicable to a Libor Loan, which Interest Period begins
on a day for which there is no numerically corresponding day in
the calendar month during which such Interest Period ends, shall
end on the last Business Day of the month during which that
Interest Period ends.
(iv) Any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
13
<PAGE>
(v) The number of Interest Periods in effect at any one
time is subject to Section 210(d) hereof.
"Investment Property": 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.
Inventory Reserves": Such Reserves as may be established from time to time
by the Agent in the Agent's discretion with respect to the
determination of the saleability, at retail, of the Acceptable
Inventory or which reflect such other factors as affect the market
value of the Acceptable Inventory. Without limiting the generality of
the foregoing, Inventory Reserves may include (but are not limited to)
reserves based on the following:
(i) Obsolescence (determined based upon Inventory
on hand beyond a given number of days).
(ii) Seasonality.
(iii) Shrinkage.
(iv) Imbalance.
(v) Change in Inventory character.
(vi) Change in Inventory composition
(vii) Change in Inventory mix.
(viii) Markdowns (both permanent and point of sale)
(ix) Retail markons and markups inconsistent with
prior period practice and performance;
industry standards; current business plans;
or advertising calendar and planned
advertising events.
"Issuer": The issuer of any L/C.
14
<PAGE>
"L/C": Any letter of credit, the issuance of which is procured by the
Agent for the account of the Borrower and any acceptance made on
account of such letter of credit.
"L/C Fee": As defined in Section 214(a).
"L/C Landing Costs": To the extent not included in the Stated Amount of an
L/C, customs, duty, freight, and other out-of-pocket costs and
expenses which will be expended to "land" the Inventory, the purchase
of which is supported by such L/C.
"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.
"Lenders": Defined in the Preamble to the within Agreement
"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 Agent or any 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 Agent or any Lender under this Agreement or any of the
Loan Documents (including all future advances whether or not made
pursuant to a commitment by the Agent or any 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 Agent or any Lender may hold against the Borrower.
(c) All Revolving Credit Notes and all notes and other
obligations of the Borrower under the Loan Documents which are now or
hereafter assigned to or held by the Agent or any Lender, each of
every kind, nature, and description.
(d) All interest, fees, and charges and other amounts which may
be charged by the Agent or any Lender to the Borrower under this
Agreement or any of the Loan Documents, and/or which may be due from
the Borrower to the Agent or
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any Lender from time to time under this Agreement or any of the Loan
Documents.
(e) All costs and expenses incurred or paid by the Agent 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 147, is obligated to pay (including, without limitation,
Costs of Collection, attorneys' reasonable fees, and all court and
litigation costs and expenses).
(f) Any and all covenants of the Borrower to or with the Agent
or any 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.
"Libor Business Day": Any day which is both a Business Day and a day on
which the London interbank market in which BankBoston, N.A.
participates is open for dealings in United States Dollar deposits.
"Libor Loan": Any Revolving Credit Loan which bears interest at a Libor
Rate.
"Libor Margin": At the execution of this Agreement, 175 basis points.
Libor Margin shall be reset monthly, as of the fifth Business Day
after the Agent's receipt of the then most recent Trailing Twelve
Month Consolidated Net Income Certificate provided pursuant to Section
56(a)(ii)(G), as follows: If (a) Consolidated Net Income, for the
then applicable Trailing Twelve Months, as reflected on said
Certificate, is equal to or greater than One Million Five Hundred
Thousand Dollars ($1,500,000.00) and (b) no Event of Default has
occurred, "Libor Margin", as of such fifth Business Day shall be (or
shall be continued as) 175 basis points until the date when next
reset. If either of said conditions ((a) and (b)) Is not then
satisfied, "Libor Margin", as of such fifth Business Day, shall be (or
shall be continued as) 200 basis points.
"Libor Offer Rate": That rate of interest (rounded upwards, if necessary,
to the next 1/100 of 1%) determined by the Agent to be the highest
prevailing rate per annum at which deposits on U.S. Dollars are
offered to BankBoston, N.A., by first-class banks in the London
interbank market in which BankBoston, N.A. participates at 10:00AM
(Boston Time) Two (2) Libor Business Days before the first day of the
Interest Period for the subject Libor Loan, for a deposit
approximately in the amount of the subject
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loan for a period of time approximately equal to such Interest Period.
"Libor Rate": That per annum rate determined as the aggregate of the Libor
Offer Rate plus the Libor Margin except that, in the event that it is
determined by the Agent that any Lender may be subject to the Reserve
Percentage, the "Libor Rate" shall mean, with respect to any Libor
Loans then outstanding (from the date on which that Reserve Percentage
first became applicable to such loans), and with respect to all Libor
Loans thereafter made, an interest rate per annum equal the sum of (a)
plus (b), where:
(a) is the decimal equivalent of the following fraction:
Libor Offer Rate
---------------------------
1 minus Reserve Percentage
(b) is the applicable Libor Margin.
"Line Fee": Is defined in Section 211(b).
"Loan Account": Is defined in Section 27.
"Loan Ceiling": $40,000,000.00, subject to increase, on Seven (7) days
irrevocable notice by the Borrower to the Agent, in increments of
$5,000,000.00, to a maximum of $60,000,000.00, and subject to decrease
on Seven (7) days irrevocable notice by the Borrower to the Agent, in
increments of $5,000,000.00, provided however, in the event of any
such decrease of the Loan Ceiling, (a) the Borrower may not thereafter
increase or decrease the Loan Ceiling and (b) the Definition of
"Commitment" shall be deemed to reflect a total Dollar Commitment
equal to the Loan Ceiling following such decrease. Each of such
increases and any such decrease shall be allocated to the Lenders, pro
rata, based upon their respective Percentage Commitments included in
the Definition of "Commitment".
"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, as
each may be amended from time to time.
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"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 512 where such a breach would not have occurred
if such change had not taken place or visa versa.
"Maturity Date": January 31, 2001.
"Packaway Inventory": Unsold Inventory, principally of a seasonal nature
(such as Christmas cards), which is removed from Store sales space at
the close of such Inventory's customary selling season and stored at
the Borrower's warehouse until the opening of the then next customary
selling season for such Inventory.
"Parent": Factory Card Outlet Corp., a Delaware corporation. (The Parent is
a guarantor of the Liabilities).
"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 46(a) hereof.
"Permitted Investment": An investment which fulfills any of the following
numbered
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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 Agent)
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
Agent or (y) held by the Agent as pledgee of the Borrower:
(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.
(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.
"Proceeds": include, without limitation, "Proceeds" as defined in the UCC
(defined below), and each type of property described in Section 81
hereof.
"Public Offering": The sale of capital stock or of unsecured notes debt
instruments of the Borrower or the Parent to the public pursuant to
a then effective registration statement or pursuant to an exemption
from registration under the Securities Act, the net proceeds of which
to the Borrower or the Parent exceed $20,000,000.00.
"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, contract rights, 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
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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 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.
"Reserve Percentage": The decimal equivalent of that rate applicable to
a Lender under regulations issued from time to time by the Board of
Governors of the Federal Reserve System for determining the maximum
reserve requirement of that Lender with respect to "Eurocurrency
liabilities" as defined in such regulations. The Reserve Percentage
applicable to a particular Libor Loan shall be based upon that in
effect during the subject Interest Period, with changes in the Reserve
Percentage which take effect during such Interest Period to take
effect (and to consequently change any interest rate determined with
reference to the Reserve Percentage) if and when such change is
applicable to such loans.
"Reserves": All (if any) Availability Reserves and Inventory Reserves.
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"Revolving Credit": Is defined in Section 21.
"Revolving Credit Note": Is defined in Section 28.
"Revolving Credit Loan": A term of convenience which refers to so much of
the unpaid principal balance of the Loan Account as bears the same
rate of interest for the same Interest Period. (See Section 210(c)).
"SEC": The Securities and Exchange Commission.
"Stated Amount": The maximum amount for which an L/C may be honored.
"Store": A location at which the Borrower regularly offers Inventory for
sale to the public.
"Suspension Event": Any occurrence, circumstance, or state of facts which
(a) is an Event of Default; or (b) would become an Event of Default if
any requisite notice were given and/or any requisite period of time
were to run and such occurrence, circumstance, or state of facts were
not absolutely cured within any applicable grace period.
"Termination Date": The earliest of (a) the Maturity Date; or (b) the
occurrence of any event described in Section 1011, below; or (c) the
Agent's notice to the Borrower setting the Termination Date on account
of the occurrence of any Event of Default other than as described in
Section 1011, below; or (d) irrevocable written notice by the
Borrower to the Agent setting a Termination Date (which Termination
Date shall be set so as to accommodate the Lenders' right of last
refusal to provide a working capital facility, as described in Section
211(d)(ii)(D)).
"Trailing Twelve Month Consolidated EBITDA Certificate": Described in
Section 56(a)(ii)(F).
"Trailing Twelve Month Consolidated Net Income Certificate": Described
in Section 56(a)(ii)(G).
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"Trailing Twelve Months": The Twelve (12) month period ending with
the last day of a month.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106).
"UpFront Fee": The fee, so denominated, as provided in a certain
letter agreement of even date between the Borrower and the Agent.
"Year 2000 Issue": The risk that a computer application may not be
able to recognize certain dates or properly perform date
sensitive functions involving dates prior to and after December
31, 1999.
ARTICLE 2 - THE REVOLVING CREDIT
2-1. Establishment of Revolving Credit.
(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. 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.
(b) As used herein, the term "Availability" refers at any time
to the lesser of (i) or (ii), below, where:
(i) Is the result of:
(A) The Loan Ceiling at such time.
Minus
(B) The then unpaid principal balance of the Loan
Account.
Minus
(C) The then aggregate of such Availability Reserves
as may have been established by the Agent as
provided herein.
Minus
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(D) The then outstanding Stated Amount of all L/C's.
Minus
(E) L/C Landing Costs.
(ii) Is the result of:
(A) Up to the then Applicable Advance Rate of the Cost
of Acceptable Inventory.
Plus
(B) Up to the then Applicable Advance Rate of the Cost
of Acceptable L/C Inventory.
Minus
(C) The then unpaid principal balance of the Loan
Account.
Minus
(D) The then aggregate of such Availability Reserves
as may have been established by the Agent as
provided herein.
Minus
(E) The then outstanding Stated Amount of all L/C's.
Minus
(F) L/C Landing Costs.
(c) Availability shall be based upon Borrowing Base Certificates
furnished as provided in Section 5-4 hereof.
(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.
2-2. Initial Reserves. Changes to Reserves.
(a) At the execution of the within Agreement, the only Reserves
established by the Agent are Availability Reserves and are as follows:
(i) Rent: Up to three (3) months rent for each Store
located in Virginia, Pennsylvania, and Washington as to which the
Borrower has not provided the Agent with a Landlord's Waiver in form
reasonably satisfactory to the Agent.
(ii) Excess Packaway Inventory.
(iii) L/C Landing Costs consisting of custom broker's
fees to the extent not deducted for purposes of calculating
Availabilty pursuant to Section 21(b) above.
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(b) The Agent shall not establish any Reserve, other than the
Reserves referenced in Section 2-2(a), above, except in the exercise of the
Agent's discretion (as to which, see Section 2-12) and then only upon not less
than five (5) Business Days prior notice to the Borrower in each instance. A
change to a then existing Reserve, which change reflects changed circumstances,
may be made with prior notice to the Borrower, except that, without notice, the
Reserves for Excess Packaway Inventory may be reset monthly as provided in the
definitions of "Excess Packaway Inventory" and for L/C Landing Costs shall be
reset periodically based upon the Agent's good faith estimate of such L,/C
Landing Costs.
2-3. Advances in Excess of Borrowing Base. No Lender has any
obligation to make any loan or advance, or otherwise to provide any credit for
the benefit of the Borrower such that the balance of the Loan Account exceeds
Borrowing Base. The making of loans, advances, and credits and the providing of
financial accommodations in excess of Borrowing Base is for the benefit of the
Borrower and does not affect the obligations of the Borrower hereunder; such
loans, advances, credits, and financial accommodations constitute Liabilities.
The making of any such loans, advances, and credits and the providing of
financial accommodations, on any one occasion such that Borrowing Base is
exceeded shall not obligate any Lender to make any such loans, credits, or
advances or to provide any financial accommodation on any other occasion nor to
permit such loans, credits, or advances to remain outstanding.
2-4. Risks of Value of Collateral. The Agent's reference to a given
asset in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit and/or the
monitoring of compliance with the provisions hereof shall not be deemed a
determination by the Agent or any Lender relative to the actual value of the
asset in question. All risks concerning the saleability of the Borrower's
Inventory are and remain upon the Borrower. All Collateral secures the prompt,
punctual, and faithful performance of the Liabilities whether or not relied upon
by the Agent or by any Lender in connection with the making of loans, credits,
and advances and the providing of financial accommodations under the Revolving
Credit.
2-5. Loan Requests.
(a) Subject to the provisions of the within Agreement, a loan or
advance under the Revolving Credit duly and timely requested by the Borrower
shall be made pursuant hereto, provided that:
(i) Borrowing Base will not be exceeded; and
(ii) The Revolving Credit has not been suspended as provided
in Section
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2-5(h).
(b) Subject to the provisions of the within Agreement, the
Borrower may request a Revolving Credit Loan and elect an interest rate and
Interest Period to be applicable to that Revolving Credit Loan by giving the
Agent notice no later than the following:
(i) If such Loan is or is to be converted to a Base Margin
Loan: By 11:30AM on the Business Day on which the subject Revolving
Credit Loan is to be made or is to be so converted.
(ii) If such Loan is or is to be continued as a Libor Loan:
By 1:00PM Three (3) Libor Business Days (or such shorter period as the
Lenders from time to time may permit) before the end of the then
applicable Interest Period.
(iii) If such Loan is to be converted to a Libor Loan:
By 1:00PM Three (3) Libor Business Days (or such shorter period as the
Lenders from time to time may permit) before the day on which such
conversion is to take place.
(c) Libor Loans and conversions to Libor Loans shall each be not
less than $1,000,000.00 and $100,000.00 increments in excess of such minimum.
(d) Any request for a Revolving Credit Loan or for the
conversion of a Revolving Credit Loan which is made after the applicable
deadline therefor, as set forth above, shall be deemed to have been made at the
opening of business on the then next Business Day or Libor Business Day, as
applicable. Each request for a Revolving Credit Loan or for the conversion of a
Revolving Credit Loan shall be made in such manner as may from time to time be
acceptable to the Agent.
(e) The Borrower may request that the Agent cause the issuance
of L/C's for the account of the Borrower as provided in Section 2-13.
(f) The Agent may rely on any request for a loan or advance, or
other financial accommodation under the Revolving Credit which the Agent, in
good faith, believes to have been made by a person duly authorized to act on
behalf of the Borrower and may decline to make any such requested loan or
advance, or issuance, or to provide any such financial accommodation pending the
Agent's being furnished with such documentation concerning that person's
authority to act as may be satisfactory to the Agent.
(g) A request by the Borrower for loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by the Borrower that as of the date of such
request, each of the following is true and correct:
(i) There has been no material adverse change in the
Borrower's financial condition from the most recent financial
information furnished Agent or any Lender pursuant to this Agreement.
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(ii) The Borrower is in compliance with, and has not
breached any of, its covenants contained in this Agreement.
(iii) All or a portion of any loan or advance so
requested will be set aside by the Borrower to cover all of the
Borrower's obligations for sales tax on account of sales since the
then most recent borrowing pursuant to the Revolving Credit.
(iv) Each representation which is made herein or in any of
the Loan Documents (defined below) is then true and complete as of and
as if made on the date of such request.
(v) No Suspension Event is then extant.
(h) Upon the occurrence from time to time of any Suspension
Event:
(i) The Agent may suspend the Revolving Credit immediately.
(ii) Neither the Agent nor any Lender shall be obligated,
during such suspension, to make any loans or advance, or to provide
any financial accommodation hereunder or to seek the issuance of any
L/C.
(iii) Any Libor Loan which matures while a Suspension
Event is extant shall be converted to a Base Margin Loan
notwithstanding any notice from the Borrower that such Loan is to be
continued as a Libor Loan.
2-6. Making of Loans Under Revolving Credit.
(a) A loan or advance under the Revolving Credit shall be made
by the transfer of the proceeds of such loan or advance to the Funding Account
or as otherwise instructed by the Borrower.
(b) A loan or advance shall be deemed to have been made under
the Revolving Credit (and the Borrower shall be indebted to the Agent for the
amount thereof immediately) at the following:
(i) The Agent's initiation of the transfer of the proceeds
of such loan or advance in accordance with the Borrower's instructions
(if such loan or advance is of funds requested by the Borrower).
(ii) The charging of the amount of such loan to the Loan
Account (in all other circumstances).
(c) There shall not be any recourse to or liability of the Agent
or any Lender, on account of:
(i) Any delay in the making of any loan or advance
requested under the Revolving Credit.
(ii) Any delay in the proceeds of any such loan or advance
constituting
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collected funds.
(iii) Any delay in the receipt, and/or any loss, of
funds which constitute a loan or advance under the Revolving Credit,
the wire transfer of which was properly initiated by the Agent in
accordance with wire instructions provided to the Agent by the
Borrower.
2-7. The Loan Account.
(a) An account ("Loan Account") shall be opened on the books of
the Agent. A record may be kept in the Loan Account of all loans made under or
pursuant to this Agreement and of all payments thereon.
(b) The Agent may also keep a record (either in the Loan Account
or elsewhere, as the Agent may from time to time elect) of all interest, fees,
service charges, costs, expenses, and other debits owed the Lender on account of
the Liabilities and of all credits against such amounts so owed.
(c) All credits against the Liabilities shall be conditional
upon final payment to the Agent for the account of each Lender of the items
giving rise to such credits. The amount of any item credited against the
Liabilities which is charged back against Agent or any Lender for any reason or
is not so paid shall be a Liability and shall be added to the Loan Account,
whether or not the item so charged back or not so paid is returned.
(d) Except as otherwise provided herein, all fees, service
charges, costs, and expenses for which the Borrower is obligated hereunder are
payable on demand. In the determination of Availability, the Agent may deem
fees, service charges, accrued interest, and other payments as having been
advanced under the Revolving Credit.
(e) The Agent, with notice to, but without the request of, the
Borrower, may advance under the Revolving Credit any interest, fee, service
charge, or other payment to which the Agent or any Lender is entitled from the
Borrower pursuant hereto and may charge the same to the Loan Account
notwithstanding that such amount so advanced may result in the Borrowing Base
being exceeded. Such action on the part of the Agent shall not constitute a
waiver of the Borrower's obligations under Section 2-9(b), below. Any amount
which is added to the principal balance of the Loan Account as provided in this
Section 2-7(e) shall bear interest at the Base Margin Rate.
(f) Any statement rendered by the Agent or any Lender to the
Borrower concerning the Liabilities shall be considered correct and accepted by
the Borrower and shall be conclusively binding upon the Borrower unless the
Borrower provides the Agent with written objection thereto within thirty (30)
days from the mailing of such statement, which written
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<PAGE>
objection shall indicate, with particularity, the reason for such objection.
The Loan Account and the Agent's books and records concerning the loan
arrangement contemplated herein and the Liabilities shall be prima facie
evidence and proof of the items described therein.
2-8. The Revolving Credit Notes. The obligation to repay loans and
advances under the Revolving Credit, with interest as provided herein, shall be
evidenced by Notes (each, a "Revolving Credit Note") in the form of EXHIBIT 2-8,
annexed hereto, executed by the Borrower, one payable to each Lender. Neither
the original nor a copy of any Revolving Credit Note shall be required, however,
to establish or prove any Liability. In the event that any Revolving Credit
Note is ever lost, mutilated, or destroyed, the Borrower shall execute a
replacement thereof and deliver such replacement to the Agent.
2-9. Payment of The Loan Account.
(a) The Borrower may repay all or any portion of the principal
balance of the Loan Account from time to time until the Termination Date by
transferring funds to the Concentration Account (notice of which transfer shall
be given by the Borrower to the Agent). Such payments shall be applied first to
Base Margin Loans and only then to Libor Loans.
(b) The Borrower, without notice or demand from the Agent or any
Lender, shall pay the Agent that amount, from time to time, which is necessary
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. Any payments made pursuant to this Section 2-9(b) shall be applied
first to Base Margin Loans and only then to Libor Loans.
(c) The Borrower shall repay the then entire unpaid balance of
the Loan Account and all other Liabilities on the Termination Date.
(d) The Borrower shall indemnify each Lender and hold each
Lender harmless from and against any loss, cost or expense (including loss of
anticipated profits) which such Lender may sustain or incur (including, without
limitation, by virtue of acceleration after the occurrence of
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any Event of Default) as a consequence of
(i) default by the Borrower in payment of the principal
amount of or any interest on any Libor Loans as and when due and
payable, including any such loss or expense arising from interest or
fees payable by such Lender to lenders of funds obtained by it in
order to maintain its Libor Loans;
(ii) default by the Borrower in making a borrowing or
conversion after the Borrower has given (or is deemed to have given) a
request for a Revolving Credit Loan or a request to convert a
Revolving Credit Loan from one applicable interest rate to another; or
(iii) the making of any payment of a Libor Loan or the
making of any conversion of any such Loan to a Base Margin Loan on a
day that is not the last day of the applicable Interest Period with
respect thereto, including interest or fees payable by such Lender to
lenders of funds obtained by it in order to maintain any such Loans as
"breakage fees" (so-called).
2-10. Interest Rates.
(a) Each Revolving Credit Loan shall bear interest at the Base
Margin Rate unless timely notice is given (as provided in Section 2-5(b)) that
the subject Revolving Credit Loan (or a portion thereof) is, or is to be
converted to, a Libor Loan.
(b) Each Revolving Credit Loan which consists of a Libor Loan
shall bear interest at the applicable Libor Rate.
(c) Subject to the provisions hereof, the Borrower, by notice to
the Agent, may cause all or a part of the unpaid principal balance of the Loan
Account to bear interest at the Base Margin Rate or the Libor Rate as specified
from time to time by the Borrower. For ease of reference and administration,
each part of the Loan Account which bears interest at the same interest and for
the same Interest Period is referred to herein as if it were a separate
"Revolving Credit Loan".
(d) The Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that there are more than Six (6)
interest rates applicable to the Revolving Credit Loans at any one time.
(e) The Borrower shall pay accrued and unpaid interest on each
Revolving Credit Loan in arrears
(i) On the applicable Interest Payment Date for that
Revolving Credit Loan.
(ii) On the Termination Date and on the End Date.
(iii) Following the occurrence of any Event of Default,
with such
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frequency as may be determined by the Agent.
(f) Following the occurrence of any Event of Default (and
whether or not the Agent exercises the Agent's rights on account thereof), all
Revolving Credit Loans shall bear interest, at the option of the Agent at rate
which is the aggregate of the Base Margin Rate plus Two Percent (2%) per annum.
2-11. Certain Fees.
(a) As compensation for the Agent's services hereunder, the
Agent shall have earned the UpFront Fee, payable as part of the first advance
made under the Revolving Credit and shall have earned the Agent's Fee, payable
as provided in a certain letter agreement between the Borrower and the Agent.
(b) In addition to any other fee or expense paid by the Borrower
on account of the Revolving Credit, the Borrower shall pay the Agent a Line Fee
(so referred to herein) in arrears, on the first day of each month (and on the
Termination Date). The Line Fee shall be equal to 0.25% per annum of the
average difference, during the month then just ended (or relevant period with
respect to the payment being made on the Termination Date) between the Loan
Ceiling (or weighted average Loan Ceiling in the event that the Loan Ceiling has
been raised or lowered by the Borrower as described in the definition of "Loan
Ceiling") and the unpaid principal balance of the Loan Account.
(c) In addition to any other right to which the Agent is then
entitled on account thereof, the Agent may assess an additional fee payable by
the Borrower on account of the accommodation, from time to time, by the Agent to
the Borrower's request that the Agent depart or dispense with one or more of the
administrative provisions of the within Agreement and/or the Borrower's failure
to comply with any of such provisions. The inclusion of the foregoing right on
the part of the Agent to assess a fee does not constitute an obligation, on the
part of the Agent, to waive any provision of the within Agreement under any
circumstances. The assessment of any such fee in any particular circumstance
shall not constitute the Agent's waiver of any breach of the within Agreement on
account of which such fee was assessed nor a course of action on which the
Borrower may rely.
(d) In the event of the Termination Date occurs, for any reason,
prior to the Maturity Date:
(i) Except as provided in Section 2-11(d)(ii), the Borrower
shall pay the Agent, towards compensation for lost opportunities, an
Early Termination Fee (so referred to herein) determined as the
greater of following (A) dollar fee or (B) percentage of the highest
Loan Ceiling at any time during the one year period immediate prior to
the subject
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Termination Date:
<TABLE>
<CAPTION>
TERMINATION DATE ON OR PRIOR TO Dollar Fee Percentage
<S> <C> <C>
July 31, 1999 $400,000.00 1.0%
After July 31, 1999 200,000.00 0.5%
</TABLE>
(ii) The Early Termination Fee shall not be due and payable
if all of the following conditions are satisfied:
(A) The Termination Date is after July 31, 1999.
(B) The Termination Date occurs solely by reason of
the Borrower's irrevocable written notice to the Agent
setting a Termination Date.
(C) The Borrower or the Parent, prior to, or
contemporaneous with, the Termination Date, receives the
proceeds of a Public Offering.
(D) The Lenders, acting as a syndicate through the
Agent, which syndicate shall consist of up to all of the
Lenders or their affiliates, shall have been given the
opportunity of last refusal, to provide the Borrower with a
working capital facility on terms which are equal to or
better than the most favorable bona fide proposal for
working capital which the Borrower shall have obtained in
anticipation of the early termination of the Revolving
Credit, which right of last refusal may be exercised by the
Agent within thirty (30) Business Days following written
notice by the Borrower to the Agent, with reasonable detail,
of the terms of such bona fide proposal (which reasonable
detail may consist of a copy of the subject proposal).
(E) The working capital facility which replaces the
working capital facility provided herein, and which is
"closed" at such early termination, is either
(I) Provided by a syndicate, acting through the
Agent on account of their exercise of the right of last
refusal exercised pursuant to Section 2-11(d)(ii)(D);
or
(II) Provided by third parties to this Agreement,
on terms substantially identical to or better than
those outlined in the bona fide proposal, a copy of
which had been provided to the Agent pursuant to
Section 2-11(d)(ii)(D).
(iii) The Early Termination Fee shall be payable with
all other payments
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due from the Borrower on such Termination Date.
(e) The Borrower shall not be entitled to any credit, rebate or
repayment of any UpFront Fee, Line Fee, Early Termination Fee, or other fee
previously earned by the Agent or any Lender pursuant to this Section 2-11
notwithstanding any termination of the within Agreement or suspension or
termination of the Agent's and any Lender's respective obligation to make loans
and advances hereunder.
2-12. Agent's and Lenders' Discretion.
(a) Each reference in the Loan Documents to the exercise of
discretion or the like by the Agent or any 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
Agent or that 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 Agent's security
and collateral interests therein, or the amount which the Agent would
likely realize therefrom (taking into account delays which may
possibly be encountered in the Agent's realizing upon the Collateral
and likely Costs of Collection).
(ii) Indicates that any report or financial information
delivered to the Agent or any 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 a Suspension Event.
(b) In the exercise of such judgement, the Agent and each
Lender also may take into account any of the following factors:
(i) Those included in, or tested by, the definitions of
"Acceptable Inventory," "Retail," and "Cost".
(ii) The current financial and business climate of the
industry in which the Borrower competes (having regard for the
Borrower's position in that industry).
(iii) General macroeconomic conditions which have a
material effect on the Borrower's cost structure.
(iv) Material changes in or to the mix of the Borrower's
Inventory.
(v) Seasonality with respect to the Borrower's Inventory
and patterns of
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retail sales.
(vi) Such other factors as the Agent and each Lender
determines as having a material bearing on credit risks associated
with the providing of loans and financial accommodations to the
Borrower.
(c) The burden of establishing the failure of the Agent, or any
Lender to have acted in a reasonable manner in such Person's exercise of
discretion shall be the Borrower's.
2-13. Procedures Concerning L/C's.
(a) The Borrower may request that the Agent cause the issuance
of L/C's for the account of the Borrower. Each such request shall be in such
manner as may from time to time be acceptable to the Agent.
(b) The Agent will endeavor to cause the issuance of any L/C so
requested by the Borrower, provided that , at the time that the request is made,
the Revolving Credit has not been suspended as provided in Section 2-5(h) and if
so issued:
(i) The aggregate Stated Amount of all L/C's then
outstanding, does not exceed Five Million Dollars ($5,000,000.00).
(ii) The expiry of the L/C is not later than the earlier of
Thirty (30) days prior to the Maturity Date or the following:
(A) Standby's: One (1) year from initial issuance.
(B) Documentary's: Ninety (90) days from issuance.
(iii) Borrowing Base would not be exceeded.
(c) The Borrower shall execute such documentation to apply for
and support the issuance of an L/C as may be required by the Issuer.
(d) There shall not be any recourse to, nor liability of, the
Agent or any Lender on account of
(i) Any delay or refusal by an Issuer to issue an L/C;
(ii) Any action or inaction of an Issuer on account of or in
respect to, any L/C.
(e) Provided that no Suspension Event then exists and none will
result thereby, the Agent shall indorse (without recourse) and deliver to the
Borrower, or the Borrower's authorized agent, such documents on which the Agent
is named as consignee over which documents the Agent has control, such delivery
so as to permit the Borrower to take delivery of then landed Inventory, the
purchase of which is supported by a documentary L/C.
(f) Immediately upon the drawing under any L/C, the Borrower
shall reimburse the Issuer for the amount of such drawing. In the event of the
Borrower's failure to so reimburse
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the Issuer, the Agent, without the request of the Borrower, may advance under
the Revolving Credit any amount which the Borrower is so obligated to reimburse
the Issuer or for which the Borrower, the Issuer, or the Lenders become
obligated on account of, or in respect to, any L/C. Such advance shall be made
whether or not a Suspension Event then exists or such advance would result in
the Borrowing Base being exceeded. Such action shall not constitute a waiver of
the Agent's rights under Section 2-9(b) hereof.
2-14. Fees For L/C's.
(a) The Borrower shall pay the Agent, quarterly in arrears, on
the first Business Day of each quarter hereof, and on the End Date, an L/C Fee
based upon a per annum rate equal to the then effective Libor Margin on such
first Business Day (determined, with respect to each L/C based on the actual
number of days outstanding and a 360 day year) of the average aggregate Stated
Amount of all L/C's outstanding at any time during the then immediately prior
quarter or period.
(b) In addition to the fee to be paid as provided in Subsection
2-14(a), above, the Borrower shall pay to the Agent (or to the Issuer, if so
requested by Agent), on demand, the then standard issuance, processing,
negotiation, amendment, and administrative fees and other amounts charged by the
Issuer on account of, or in respect to, any L/C.
2-15. Concerning L/C's.
(a) None of the Issuer, the Issuer's correspondents, or any
advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:
(i) The performance by any beneficiary under any L/C of
that beneficiary's obligations to the Borrower.
(ii) The form, sufficiency, correctness, genuineness,
authority of any person signing; falsification; or the legal effect
of; any documents called for under any L/C if (with respect to the
foregoing) such documents on their face appear to be in order.
(b) The Issuer may honor, as complying with the terms of any L/C
and of any drawing thereunder, any drafts or other documents otherwise in order,
but signed or issued by an administrator, executor, conservator, trustee in
bankruptcy, debtor in possession, assignee for the benefit of creditors,
liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.
(c) Unless otherwise agreed to, in the particular instance, the
Borrower hereby authorizes any Issuer to:
(i) Select an advising bank, if any.
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(ii) Select a paying bank, if any.
(iii) Select a negotiating bank.
(d) All directions, correspondence, and funds transfers relating
to any L/C are at the risk of the Borrower. The Issuer shall have discharged
the Issuer's obligations under any L/C which, or the drawing under which,
includes payment instructions, by the initiation of the method of payment called
for in, and in accordance with, such instructions (or by any other commercially
reasonable and comparable method) unless the Issuer had acted in a grossly
negligent manner or in wilful misconduct. None of the Agent, any Lender, nor the
Issuer shall have any responsibility for any inaccuracy, interruption, error, or
delay in transmission or delivery by post, telegraph or cable, or for any
inaccuracy of translation.
(e) The Agent's, each Lender's, and the Issuer's rights, powers,
privileges and immunities specified in or arising under this Agreement are in
addition to any heretofore or at any time hereafter otherwise created or
arising, whether by statute or rule of law or contract.
(f) Except to the extent otherwise expressly provided hereunder
or agreed to in writing by the Issuer and the Borrower, the L/C will be governed
by the Uniform Customs and Practice for Documentary Credits, International
Chamber of Commerce, Publication No. 500, and any subsequent revisions thereof.
(g) If any change in any law, executive order or regulation, or
any directive of any administrative or governmental authority (whether or not
having the force of law), or in the interpretation thereof by any court or
administrative or governmental authority charged with the administration
thereof, shall either:
(i) impose, modify or deem applicable any reserve, special
deposit or similar requirements against letters of credit heretofore
or hereafter issued by any Issuer or with respect to which the Agent,
any Lender or any Issuer has an obligation to lend to fund drawings
under any L/C; or
(ii) impose on any Issuer any other condition or
requirements relating to any such letters of credit;
and the result of any event referred to in Section 2-15(g)(i) or 2-15(g)(ii),
above, shall be to increase the cost to any Issuer of issuing or maintaining any
L/C (which increase in cost shall be the result of such Issuer's reasonable
allocation among that Issuer's letter of credit customers of the aggregate of
such cost increases resulting from such events), then, upon demand by the Agent
and delivery by the Agent to the Borrower of a certificate of an officer of the
subject Issuer describing such change in law, executive order, regulation,
directive, or interpretation thereof, its effect on such Issuer, and the basis
for determining such increased costs and their allocation, the Borrower shall
immediately pay to the Agent, from time to time as specified by the Agent, such
amounts as
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<PAGE>
shall be sufficient to compensate such Issuer for such increased cost. Any
Issuer's determination of costs incurred under Section 2-15(g)(i) or
2-15(g)(ii), above, and the allocation, if any, of such costs among the
Borrower and other letter of credit customers of such Issuer, if done in good
faith on a reasonable basis and made on an equitable basis and in accordance
with such officer's certificate, shall be conclusive and binding on the
Borrower.
(h) The obligations of the Borrower under the within Agreement
with respect to L/C's are absolute, unconditional, and irrevocable and shall be
performed strictly in accordance with the terms hereof under all circumstances,
whatsoever including, without limitation, the following:
(i) Any lack of validity or enforceability or restriction,
restraint, or stay in the enforcement of the within Agreement, any
L/C, or any other agreement or instrument relating thereto.
(ii) Any amendment or waiver of, or consent to the departure
from, any L/C.
(iii) The existence of any claim, set-off, defense, or
other right which the Borrower may have at any time against the
beneficiary of any L/C.
(iv) Any honoring of a drawing under any L/C, which drawing
possibly could have been dishonored based upon a strict construction
of the terms of the L/C.
2-16. Changed Circumstances.
(a) The Agent may give the Borrower notice of the occurrence of
the following:
(i). The Agent shall have determined in good faith (which
determination shall be final and conclusive) on any day on which the
rate for a Libor Loan would otherwise be set, that adequate and fair
means do not exist for ascertaining such rate.
(ii). The Agent shall have determined in good faith
(which determination shall be final and conclusive) that:
(A) The continuation of or conversion of any Revolving
Credit Loan to a Libor Loan has been made impracticable or
unlawful by the occurrence of a contingency that materially and
adversely affects the applicable market or compliance by the
Agent or any Lender in good faith with any applicable law or
governmental regulation, guideline or order or interpretation or
change thereof by any governmental authority charged with the
interpretation or administration thereof or with any request or
directive of any such governmental authority (whether or not
having the force of law).
(B) The indices on which the interest rates for Libor
Loans are based shall no longer represent the effective cost to
the Agent or any Lender for
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<PAGE>
U.S. dollar deposits in the interbank market for deposits in
which it regularly participates.
(b) In the event that the Agent gives the Borrower notice of an
occurrence described in Section 2-16(a), then, until the Agent notifies the
Borrower that the circumstances giving rise to such notice no longer apply:
(i) The obligation of the Agent and of each Lender to make
Libor Loans of the type affected by such changed circumstances or to
permit the Borrower to select the affected interest rate as otherwise
applicable to any Revolving Credit Loans shall be suspended.
(ii) Any notice which the Borrower had given the Agent with
respect to any Libor Loan, the time for action with respect to which
has not occurred prior to the Agent's having given notice pursuant to
Section 2-16(a), shall be deemed at the option of the Agent to not
having been given.
2-17. Increased Costs. If, as a result of any requirement of
law, or of the interpretation or application thereof by any court or by any
governmental or other authority or entity charged with the administration
thereof, whether or not having the force of law, which:
(a) subjects any Lender to any taxes or changes the basis of
taxation, or increases any existing taxes, on payments of principal,
interest or other amounts payable by the Borrower to the Agent or any
Lender under this Agreement (except for taxes on the Agent or any
Lender's overall net income or capital imposed by the jurisdiction in
which the Agent or that Lender's principal or lending offices are
located);
(b) imposes, modifies or deems applicable any reserve, cash
margin, special deposit or similar requirements against assets held
by, or deposits in or for the account of or loans by or any other
acquisition of funds by the relevant funding office of any Lender;
(c). imposes on any Lender any other condition with respect to
any Loan Document; or
(d) imposes on any Lender a requirement to maintain or allocate
capital in relation to the Liabilities;
and the result of any of the foregoing, in such Lender's reasonable opinion, is
to increase the cost to that Lender of making or maintaining any loan, advance
or financial accommodation or to reduce the income receivable by that Lender in
respect of any loan, advance or financial accommodation by an amount which such
Lender deems to be material, then upon the Agent's giving written notice
thereof, from time to time, to the Borrower (such notice to set out in
reasonable detail the facts giving rise to and a summary calculation of such
increased cost or reduced income), the Borrower
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shall forthwith pay to the Agent, for the benefit of the subject Lender, upon
receipt of such notice, that amount which shall compensate the subject Lender
for such additional cost or reduction in income.
2-18 Lenders' Commitments.
(a) The obligations of each Lender are several and not joint.
No Lender shall have any obligation to make any loan or advance under the
Revolving Credit in excess of the lesser of
(i) that Lender's Commitment Percentage of the subject loan
or advance or of Availability; or
(ii) that Lender's Commitment.
(b) No Lender shall have any liability to the Borrower on
account of the failure of any other Lender to provide any loan or advance under
the Revolving Credit nor any obligation to make up any shortfall which may be
created by such failure.
(c) The Dollar Commitments, Commitment Percentages, and
identities of the Lenders (but not the overall Commitment) may be changed, from
time to time by the reallocation or assignment of Dollar Commitments and
Commitment Percentages amongst the Lenders or with other Persons who determine
to become "Lenders".
(d). Upon written notice given the Borrower from time to time
by the Agent, of any assignment or allocation referenced in Section 2-18(c):
(i) The Borrower shall execute one or more replacement
Revolving Credit Notes to reflect such changed Dollar Commitments,
Commitment Percentages, and identities and shall deliver such
replacement Revolving Credit Notes to the Agent (which promptly
thereafter shall deliver to the Borrower the Revolving Credit Notes so
replaced) provided however, in the event that a Revolving Credit Note
is to be exchanged following its acceleration or the entry of an order
for relief under the Bankruptcy Code with respect to the Borrower, the
Agent, in lieu of causing the Borrower to execute one or more new
Revolving Credit Notes, may issue the Agent's Certificate confirming
the resulting Commitments and Commitment Percentages.
(ii) Such change shall be effective from the effective date
specified in such written notice and any Person added as a Lender
shall have all rights and privileges of a Lender hereunder thereafter
as if such Person had been a signatory to the within Agreement and any
other Loan Document to which a Lender is a signatory and any person
removed as a Lender shall be relieved of any obligations or
responsibilities of a Lender hereunder thereafter.
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(e) The Borrower recognizes that the Agent's exercise of any
discretion accorded to the Agent herein and of its rights, remedies, powers,
privileges, and discretions with respect to the Borrower is subject to a certain
Agency Agreement amongst the Agent and the Lenders.
(f) In the event of the resignation of the Agent, the
appointment of a successor Agent is subject to (among other things) the consent
of the Borrower, but only if no Event of Default then exists. Such consent by
the Borrower will not be unreasonably withheld or delayed and shall be deemed
given if the Borrower does not give written notice of its objection to a
proposed appointment of a successor Agent within Ten (10) Business Days of the
Borrower's having been given notice of such proposed appointment.
ARTICLE 3 - CONDITIONS PRECEDENT.
As a condition to the effectiveness of this Agreement, the
establishment of the Revolving Credit, and the making of the first loan under
the Revolving Credit, each of the documents respectively described in Sections
3-1 through and including 3-4, (each in form and substance satisfactory to the
Agent) shall have been delivered to the Agent, and the conditions respectively
described in Sections 3-5 through and including 3-9, 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 Agent .
3-3. Additional Documents. Such additional instruments and
documents as the
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Agent or its counsel reasonably may require or request.
3-4. 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 Agent and the Lenders
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.
3-5. 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
any or on behalf of the Borrower shall be true and complete as of the date as of
which such representation or warranty was made.
3-6. Minimum Excess Availability. Availability, after giving effect
to the first loans and advances to be made under the Revolving Credit; all then
held checks (if any); accounts payable which are beyond credit terms then
accorded the Borrower; overdrafts; any charges to the Loan Account made in
connection with the establishment of the credit facility contemplated hereby;
and L/C's to be issued at, or immediately subsequent to, the establishment of
such credit facility, is not less than $6,500,000.00.
3-7. All Fees and Expenses Paid. The UpFront Fee, the Agent's Fee,
and all costs and expenses of the Agent in connection with the establishment of
the Revolving Credit for which the Borrower is responsible (including the fees
and expenses of counsel to the Agent) shall have been paid.
3-8. No Suspension Event. No Suspension Event shall then exist.
3-9. No Adverse Change. 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 June 28, 1997.
No document shall be deemed delivered to the Agent or any Lender until received
and accepted by the Agent at its head offices in Boston, Massachusetts. Under
no circumstances will the within Agreement take effect until executed and
accepted by the Agent at said head office.
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ARTICLE 4 - GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
To induce each Lender to establish the loan arrangement contemplated
herein and to make loans and advances and to provide financial accommodations
under the Revolving Credit (each of which loans shall be deemed to have been
made in reliance thereupon) the Borrower makes the representations, warranties,
and covenants included in the within Agreement in addition to all
representations, warranties, and covenants made by the Borrower in any other
Loan Document
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
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 Agent with prior written notice of any entity's becoming or ceasing to be a
Related Entity.
(c) 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.
(d) 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
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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.
(e) 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) Except (i) upon not less than twenty-one (21) days prior
written notice given the Agent , and (ii) in compliance with all other
provisions of the within Agreement, the Borrower will not undertake or commit to
undertake any action such that the results of that action, if undertaken prior
to the date of this Agreement, would have been reflected on EXHIBIT 4-3.
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) Based upon a diligent inquiry undertaken by the Borrower, it
appears that the computer applications which the Borrower presently employs do
not have a Year 2000 Issue. The Borrower will not employ any computer
application hereafter unless the Borrower shall have first made a diligent
inquiry to assure that no Year 2000 Issue will arise on account of the use of
such application.
(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,
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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) The Collateral, and the books, records, and papers of
Borrower pertaining thereto, are kept and maintained only at
(i) the Borrower's chief executive offices at 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 location,
the name and address of the landlord on the Lease which covers such
location and of all service bureaus with which any such records are
maintained.
(b) The Borrower shall not remove any Collateral from said chief
executive offices or those locations listed on EXHIBIT 4-5, or those Stores
opened as permitted by Section 4-5(e) except to
(i) accomplish sales of Inventory in the ordinary course of
business;
(ii) move Inventory from one such location to another such
location; or
(iii)utilize such of the Collateral as is removed from such
locations in the ordinary course of business (such as motor
vehicles),.
(c) 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.
(d) The Borrower will not:
(i) Alter, modify, or amend any Lease without prior written
notice to the Agent.
(ii) Commit to, or open or close any location at which the
Borrower maintains, offers for sales, or stores any of the Collateral,
other than as permitted by Section 4-5(e).
(e) The Borrower may commit to or become legally obligated to
open additional Stores, 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
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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 Agent) and
shall have executed such additional financing statements, on account
of the subject new location, as may then be required by the Agent.
(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 Agent, in its
discretion determines, as appropriate), the Borrower will use its best
efforts to provide the Agent with a Landlord's Waiver (in form
reasonably satisfactory to the Agent) duly executed by the landlord
for that new Store.
(v) No Suspension Event is extant and none will occur by
reason of the Borrower's so becoming obligated.
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 Agent.
(ii) Those Encumbrances (if any) listed on EXHIBIT 4-6,
annexed hereto.
(iii) Purchase money security interests in Equipment to
secure Indebtedness 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 Agent, which consent may be conditioned upon the Agent's
receipt of such agreement with the third party which has an interest in such
Equipment as is satisfactory to the Agent.
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4-7. Indebtedness. The Borrower does not and shall not hereafter have
any Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lenders .
(b) The Indebtedness (if any) listed on EXHIBIT 4-7, annexed
hereto.
(c) Indebtedness otherwise associated with the acquisition of
Equipment, provided, however, the maximum aggregate amount of such
Indebtedness permitted by this Section 4-7(c) to be outstanding at
any one time shall not exceed Fifteen Million Dollars ($15,000,000.00)
(Compliance with this Section 4-7(c) shall be based on Indebtedness,
incurred on or after the date of this Agreement, which is associated
with the acquisition of Equipment).
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 may be reasonably satisfactory to
the Agent . 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 Agent and all such insurance which
covers the Collateral shall include an endorsement in favor of the Agent, which
endorsement shall provide that the insurance, to the extent of the Agent'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 Agent, at
its option, may obtain such insurance, provided, however, the Agent'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 Agent certificates or other evidence satisfactory
to the Agent regarding compliance by the Borrower with the foregoing insurance
provisions.
(c) The Borrower shall advise the Agent 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
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Agent, at the Agent's option in each instance, to the exclusion of the
Borrower, to conduct the adjustment of each such claim (and of all claims
following the occurrence of any Suspension Event). The Borrower hereby appoints
the Agent as the Borrower's attorney in fact to obtain, adjust, settle, and
cancel any insurance described in this section and to endorse in favor of the
Agent 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 Agent . The Agent 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 Agent may apply any proceeds of such insurance
against the Liabilities, whether or not such have matured, in such order of
application as the Agent 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 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 Agent 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 Agent 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.
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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 January 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 Agent of all Receipts as
provided herein.
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 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
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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 Agent 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 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 Agent , in the Agent'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 Agent'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
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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 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.
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(c) The Borrower shall provide the Agent 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.
(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.
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4-20. Protection of Assets. The Agent, in the Agent'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 Agent may deem necessary or desirable to repair, insure, maintain,
preserve, collect, or realize upon any of the Collateral. The Agent 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 Agent has had an
opportunity to be heard), from which finding no further appeal is available,
that the Agent had acted in actual bad faith or in a grossly negligent manner.
The Borrower shall pay to the Agent, on demand, or the Agent, 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 Agent (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 Agent to
secure the Liabilities (subject only to Permitted Encumbrances).
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(c) The Borrower shall execute and deliver to the Agent such
instruments, documents, and papers, and shall do all such things from time to
time hereafter as the Agent may request to carry into effect the provisions and
intent of this Agreement; to protect and perfect the Agent'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 Agent with respect to the
recordation and/or perfection of the security interests created herein.
(d) The Borrower hereby designates the Agent 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 Agent'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 Agent and each
Lender by 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.
(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 Agent and
each Lender prior to the execution of the within Agreement.
(c) No document, instrument, agreement, or paper now or
hereafter given the Agent or any 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 Agent and each 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 Agent and each
Lender.
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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.
ARTICLE 5 - REPORTING REQUIREMENTS / FINANCIAL 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 Agent 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 Agent and instruct such
accountants to fully cooperate with, and be available to, the Agent and each
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 Agent or that Lender.
(e) Not change the Borrower's fiscal year, other than the change
of its fiscal year which took effect in January, 1998, to place the Borrower on
a January fiscal year.
(f) Not change the Borrower's taxpayer identification number.
5-2. Access to Records.
(a) The Borrower shall accord the Agent and the Agent's
representatives with access from time to time as the Agent and such
representatives reasonably may require to all properties owned by or over which
the Borrower has control. The Agent and the Agent's
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representatives shall have the right, and the Borrower will permit the Agent and
such representatives from time to time, on reasonable notice and during the
Borrower's normal business hours, as the Agent and such representatives may
reasonably 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 Agent.
(b) The Borrower hereby authorizes the Agent and the Agent's
representatives to:
(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 Agent and the Agent'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 Agent .
(a) The Borrower shall provide the Agent 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, directors, or
key employees.
(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
of its creditors prior to such amount's becoming more than thirty days
(30) 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).
(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.
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(vi) The occurrence of any Suspension Event.
(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 reasonably likely to have a material adverse effect
on the financial condition of the Borrower.
(b) The Borrower shall:
(i) Provide the Agent, when so distributed, with copies of
any materials distributed to the shareholders of the Borrower (qua
such shareholders).
(ii) Provide the Agent,
(A) when filed, copies of all filings by the Parent
with the SEC; and
(B) when received by the Parent, all correspondence
from the SEC.
(iii) Add the Agent as an addressee on all mailing lists
maintained by or for the Borrower.
(iv) At the request of the Agent, from time to time,
provide the Agent with copies of all advertising (including copies
of all print advertising and duplicate tapes of all video and radio
advertising).
(v) Provide the Agent, when received by the Borrower, with
a copy of any management letter or similar communications from any
accountant of the Borrower.
5-4. Borrowing Base Certificate. The Borrower shall provide the
Agent, with a Borrowing Base Certificate (in the form of EXHIBIT 5-4 annexed
hereto, as such form may be revised from time to time by the Agent) on Wednesday
of each week (as of the then immediately preceding Saturday) and whenever the
Borrower requests a Revolving Credit Loan, which Certificate in any event, shall
reflect an update of Collateral which is not more than ten (10) days prior to
the date of the subject Certificate (and shall reflect fresher updates from and
after the date that the Borrower has the capability to provide such fresher
updates on a routine basis). Such Certificate may be sent to the Agent by
facsimile transmission, provided that the original thereof is forwarded to the
Agent on the date of such transmission.
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5-5. Weekly Reports. Weekly, on Wednesday of each week (as of
the then immediately preceding Saturday), on which preceding Saturday the
provisions of Section 7-4(d) were in effect (which Section 7-4(d) provides
for the required transfer, on a daily basis, of the contents of the Central
Accounts to the Concentration Account under certain circumstances) , the
Borrower shall provide the Agent with a sales audit report and a flash
collateral report (each in such form as may be specified from time to time by
the Agent). Such report may be sent to the Agent by facsimile transmission,
provided that the original thereof is forwarded to the Agent on the date of
such transmission.
5-6. Monthly Reports.
(a) Monthly, the Borrower shall provide the Agent with original
counterparts of the following (each in such form as the Agent from time to time
may specify):
(i) Within Fifteen (15) days of the end of the previous
month:
(A) A "Stock Ledger Inventory Report".
(B) An Inventory Certificate (signed by the Borrower's
President or Chief Financial Officer).
(C) A Packaway Inventory report, by season.
(D) A seasonal merchandise buying plan.
(ii) Within Thirty (30) days of the end of the previous
month:
(A) Reconciliations of the above described Report and
Inventory Certificate (Sections 5-6(a)(i)(A) and 5-6(a)(i)(B)) to
Availability and to the general ledger as of the end of the
subject month.
(B) A Gross Margin Reconciliation.
(C) A schedule of purchases from the Borrower's ten
largest vendors (in terms of year to date purchases), which
schedule shall be in such form as may be satisfactory to the
Agent and shall include year to date cumulative purchases and an
aging of payables to each such vendor.
(D) An aging of the Borrower's accounts payable.
(E) A Store Activity Report.
(F) A Certificate, in form reasonably satisfactory to
the Agent (the "Trailing Twelve Month Consolidated EBITDA
Certificate"), executed by the Borrower's President or its Chief
Financial Officer, on which the Borrower's Consolidated EBITDA
for the Trailing Twelve Months ending with the last day of the
subject month is calculated and stated.
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(G) A Certificate, in form reasonably satisfactory to
the Agent (the "Trailing Twelve Month Consolidated Net Income
Certificate"), executed by the Borrower's President or its Chief
Financial Officer, on which the Borrower's Consolidated Net
Income for the Trailing Twelve Months ending with the last day of
the subject month is calculated and stated.
(H) An internally prepared Consolidated financial
statement of the Borrower's and Parent's financial condition at,
and the results of its operations for, the period ending with the
end of the subject month, which financial statement shall
include, at a minimum, a balance sheet, income statement (on a
store specific and on a "store consolidated" basis), cash flow
and comparison of same store sales for the corresponding month of
the then immediately previous year, as well as to the Business
Plan.
(b) For purposes of Section 5-6(a)(i), above, the first
"previous month" in respect of which the items required by that Section shall be
provided shall be January, 1998 and for purposes of Section 5-6(a)(ii), above,
the first "previous month" in respect of which the items required by that
Section shall be provided shall be January, 1998.
5-7. Quarterly Reports. Quarterly, when available, but not more than
Forty Five (45) days following the end of each of the Borrower's fiscal
quarters, the Borrower shall provide the Agent with either of the following:
(a) A copy of the Parent's 10-Q for such quarter, as filed with
the SEC; or
(b) An original counterpart of a management prepared
Consolidated financial statement for the period from the beginning of the
Borrower's then current fiscal year through the end of the subject quarter, with
comparative information for the same period of the previous fiscal year, which
statement shall include, at a minimum, a balance sheet, income statement (on a
store specific and on a "store consolidated" basis), statement of changes in
shareholders' equity, and cash flows and comparisons for the corresponding
quarter of the then immediately previous year, as well as to the Business Plan.
5-8. Annual Reports.
(a) Annually, within ninety (90) days following the end of the
Borrower's fiscal year, the Borrower shall furnish the Agent with an original
signed counterpart of the Parent's Consolidated annual financial statement,
which statement shall have been prepared by, and bearing the unqualified opinion
of, the Borrower's independent certified public accountants (i.e. said statement
shall be "certified" by such accountants). Such annual statement shall include,
at a
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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 Agent) that:
(i) Such annual financial statement will be delivered by
the Borrower to the Agent (for subsequent distribution to each
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 Agent (and
each 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 Suspension Event had
occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).
5-9. Officers' Certificates. The Borrower shall cause the Borrower's
President and Chief Financial Officer respectively to provide such Person's
Certificate with those monthly, quarterly, and annual statements to be furnished
pursuant to this Agreement, which Certificate shall:
(a) 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:
(i) usual year end adjustments (this exception shall not be
included in the Certificate which accompanies such annual statement).
(ii) 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 5-12.
(b) Indicate either that (i) no Suspension Event has occurred or
(ii) if such an event has occurred, its nature (in reasonable detail) and the
steps (if any) being taken or contemplated by the Borrower to be taken on
account thereof.
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(c) 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 5-12 hereof.
5-10. Inventories, Appraisals, and Audits.
(a) The Agent, 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 Agent.
(b) Following the occurrence of any Suspension Event, the
Borrower, upon the Agent's request, shall obtain, or shall permit the Agent 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 Agent and following such methodology as may be required by
the Agent.
(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 an aggregate of $27,500.00 of
the fees charged for such appraisals conducted during the period commencing with
the execution of this Agreement and ending on January 31, 1999, plus reasonable
out of pocket expenses nor more than the aggregate fee cap set by the Agent, in
good faith, for successive twelve (12) month periods (February 1 to January 31)
thereafter (which fee cap shall be set by the Agent after surveying the then
current fees routinely charged by appraisers satisfactory to the Agent plus
reasonable out of pocket expenses), written notice of which fee cap shall be
provided to the Borrower. 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.
(d) The Agent 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
Agent shall not exceed $7,000.00. In the event that a Suspension Event has
occurred and/or in the event that the Borrower has not made available
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appropriate financial information and personnel to facilitate the completion of
an audit in the ordinary course, the Borrower shall reimburse the Agent for the
fees and expenses of the subject audit or audits without regard to the forgoing
cap.
(e) The Agent 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 Agent 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 Agent 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 a Suspension Event has occurred, the
Borrower shall reimburse the Agent for the fees and expenses of all such visits
without regard to the forgoing cap.
5-11. 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 Agent (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 Agent may from time to
time request from the Borrower.
(b) The Borrower may provide the Agent, 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 Agent 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.
(d) Such updated and extended projections shall be prepared
pursuant to a methodology and shall include such assumptions as are reasonably
satisfactory to the Agent.
(e) The Borrower recognizes that all appraisals, inventories,
analysis, financial information, and other materials which the Agent or any
Lender may obtain, develop, or receive with respect to the Borrower is
confidential to the Agent and the Lenders 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.
5-12. Financial Performance Covenant. The Borrower shall not
suffer or permit its Consolidated Tangible Net Worth ever to be less than
$42,700,000.00. Compliance with said
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financial performance covenant shall be made as if no Material Accounting
Changes had been made (other than any Material Accounting Changes specifically
taken into account in the setting of said covenants). The Agent may determine
the Borrower's compliance with said covenant 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 6 - USE AND COLLECTION OF COLLATERAL.
6-1. 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 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 Agent.
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 Agent of any such fact immediately after Borrower
becomes aware of any such impairment.
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6-5. Notification to Account Debtors. The Agent 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 Agent and to collect
all amounts due on account of the Collateral.
ARTICLE 7 - CASH MANAGEMENT. PAYMENT OF LIABILITIES.
7-1. Depository Accounts.
(a) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present
DDA's, which Schedule includes, with respect to each depository (i) the name and
address of that depository; (ii) the account number(s) of the account(s)
maintained with such depository; and (iii) if available, a contact person at
such depository.
(b) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of the within Agreement:
(i) Notification, executed on behalf of the Borrower, to
each depository institution with which any DDA is maintained (other
than the Funding Account), in form satisfactory to the Agent, of the
Agent's interest in such DDA.
(ii) An agreement (generally referred to as a "Blocked
Account Agreement"), in form satisfactory to the Agent, with any
depository institution at which both any DDA (other than the Funding
Account) and the Funding Account is maintained.
(iii) An agreement (generally referred to as a "Blocked
Account Agreement"), in form satisfactory to the Agent, with any
depository institution at which the Central Accounts are maintained
(c) Except as provided in, and in compliance with, Section
73(d), the Borrower will not establish any DDA hereafter unless,
contemporaneous with such establishment, the Borrower delivers to the
depository at which such DDA is maintained notification substantially similar
to the notification to be provided pursuant to Section 71(b)(i).
7-2. Credit Card Receipts.
(a) Annexed hereto as EXHIBIT 7-2, is a Schedule which describes
all arrangements, as of the date of this Agreement, to which the Borrower is a
party with respect to the payment to the Borrower of the proceeds of all credit
card charges for sales by the Borrower.
(b) The Borrower shall deliver to the Agent, as a condition to
the effectiveness of the within Agreement, notification, executed on behalf of
the Borrower, to each of the
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Borrower's credit card clearinghouses and processors of notice (in form
satisfactory to the Agent), which notice provides that payment of all credit
card charges submitted by the Borrower to that clearinghouse or other
processor and any other amount payable to the Borrower by such clearinghouse
or other processor shall be directed to a Blocked Account or to such other
account as may be designated by the Agent in such notice. The Borrower shall
not change such direction or designation except upon and with the prior
written consent of the Agent.
7-3. The Concentration, Central, And Funding Accounts.
(a) The following checking accounts have been or will be
established (and are so referred to herein):
(i) The Concentration Account: Established by the Agent
with BankBoston, N.A.
(ii) The Funding Account: Established by the Borrower with
Northern Trust Company.
(iii) The Central Accounts: Established by the Borrower
with Northern Trust Company.
(b) The contents of each DDA (other than the Funding Account)
and of the Central Accounts constitute Collateral and Proceeds of Collateral.
The contents of the Concentration Account constitutes the Agent's property.
(c) Contemporaneous with the execution of the within Agreement,
the Borrower shall provide the Agent with such agreement (generally referred to
as a "Blocked Account Agreement") with the depository with which the Central
Accounts are maintained as may be satisfactory to the Agent.
(d) The Borrower may relocate the Central Accounts and the
Funding Account from Northern Trust, and may change one or more of the Central
Accounts and/or the Funding Account at Northern Trust to other accounts at that
bank, provided that
(i) If the Central Accounts (and the Funding Account, if
applicable) are being relocated:
(A) The Borrower furnishes the Agent with a Blocked
Account Agreement (satisfactory to the Agent) with the depository
to which the Central Accounts (and the Funding Account, if
applicable) are being so relocated; and
(B) Closes the account(s) which, until such
relocation, had been the Central Accounts or Funding Account.
(ii) If a Central Account or Funding Account at Northern
Trust is being changed, the Borrower amends the Blocked Account
Agreement (in a manner satisfactory
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to the Agent) so as to extend its coverage to the (new) Central
Account and/or Funding Account.
Upon satisfaction of each of the conditions included in this Section 7-3(d), the
subject account shall thereafter be the "Central Accounts" or "Funding Account",
as applicable.
(e) The Borrower shall pay all fees and charges of, and maintain
such impressed balances as may be required by the Lender or by any bank in which
any account is opened as required hereby (even if such account is opened by
and/or is the property of the Agent).
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 one of the Central Accounts.
(b) The Borrower shall cause the ACH or wire transfer to one of
the Central Accounts, 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 $750.00, as may be required to be maintained in the subject DDA
by the bank at which such DDA is maintained); and
(ii) the proceeds of all credit card charges not otherwise
provided for pursuant hereto.
Telephone advice (confirmed by written notice) shall be provided to the Agent on
each Business Day on which any such transfer is made.
(c) No funds shall be transferred out of any Central Account
other than to the Funding Account or as provided in Section 7-4(d).
(d) Under each of the following circumstances, the Borrower
shall cause the ACH or wire transfer to the Concentration Account, no less
frequently than daily, of the then entire ledger balance of all Central
Accounts, net of such minimum balance, not to exceed $1,000.00 per account, as
may be required to be maintained in such accounts by the bank at which the
Central Accounts are maintained (and the Agent may give such notices as the
Agent determines as appropriate to cause such transfer to be effected):
(i) At any time that Excess Availability is less than the
then effective Excess Availability Floor, provided, however, the
requirement included in this Section 7-4(d)(i) that the then
entire net ledger balance of the Central Accounts are to be
forwarded on a daily basis to the Concentration Account shall be
terminated if
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Excess Availability thereafter exceeds the Excess Availability
Floor by more than One Million Dollars ($1,000,000.00) for thirty
(30) consecutive days.
(ii) At any time a Suspension Event has occurred.
(e) In the event that, notwithstanding the provisions of Section
74(d), 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.
7-5. Payment of Liabilities.
(a) On each Business Day on which funds are on deposit in the
Concentration Account, the Agent shall apply, towards the Liabilities, the then
collected balance of the Concentration Account (net of fees charged, and of such
impressed balances as may be required by the bank at which the Concentration
Account is maintained).
(b) The following rules shall apply to deposits and payments
under and pursuant to this Agreement:
(i) Funds shall be deemed to have been deposited to the
Concentration Account on the Business Day on which deposited,
provided that notice of such deposit is available to the Agent by
2:00PM on that Business Day.
(ii) Funds paid to the Agent, other than by deposit to the
Concentration Account, shall be deemed to have been received on
the Business Day when they are good and collected funds, provided
that notice of such payment is available to the Agent by 2:00PM
on that Business Day.
(iii) If notice of a deposit to the Concentration
Account (Section 7-5(b)(i)) or payment (Section 7-5(b)(ii)) is
not available to the Agent until after 2:00PM on a Business Day,
such deposit or payment shall be deemed to have been made at
9:00AM on the then next Business Day.
(iv) All deposits to the Concentration Account and other
payments to the Agent are subject to clearance and collection.
(c) The Agent shall transfer to the Funding Account any surplus
in the Concentration Account remaining after the application towards the
Liabilities referred to in Section 7-5(a), above (less those amount which are to
be netted out, as provided therein) provided, however, in the event that both
(i) a Suspension Event has occurred and (ii) one or more L/C's are then
outstanding, the Agent may establish a funded reserve of up to 110% of the
aggregate Stated
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Amounts of such L/C's.
7-6. The Funding Account. Except as otherwise specifically provided
in, or permitted by, the within Agreement, all checks shall be drawn by the
Borrower upon, and other disbursements made by the Borrower solely from, the
Funding Account.
ARTICLE 8 - GRANT OF SECURITY INTEREST
8-1. Grant of Security Interest. To secure the Borrower's prompt,
punctual, and faithful performance of all and each of the Borrower's
Liabilities, the Borrower hereby grants to the Agent, for the ratable benefit of
the Lenders, a continuing security interest in and to, and assigns to the Agent,
for the ratable benefit of the Lenders, 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.
(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.(8-1(a)
through 8-1(i)) or otherwise.
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(k) All liens, guaranties, rights, remedies, and privileges
pertaining to any of the foregoing (8-1(a) through 8-1(i)),
including the right of stoppage in transit.
(l) All Leasehold Interests.
8-2. 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 Agent 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 Agent .
ARTICLE 9 - AGENT AS BORROWER'S ATTORNEY-IN-FACT.
9-1. Appointment as Attorney-In-Fact. The Borrower hereby
irrevocably constitutes and appoints the Agent, effective upon the occurrence of
an 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 Agent and the Lenders.
The rights and powers granted the Agent 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.
(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 Agent 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 Agent 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 Agent 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
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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.
9-2. No Obligation to Act. The Agent shall not be obligated to do
any of the acts or to exercise any of the powers authorized by Section 9-1
herein, but if the Agent 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 Agent 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 10 - EVENTS OF DEFAULT.
The occurrence of any event described in this Article 10
respectively shall constitute an "Event of Default" herein. Upon the
occurrence of any Event of Default described in Section 10-11, any and all
Liabilities shall become due and payable without any further act on the part
of the Agent or any 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 Agent 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 Agent or any Lender and the Borrower
and instruments and papers given the Agent or any Lender by the Borrower,
whether such agreements, instruments, or papers now exist or hereafter arise.
10-1. Failure to Pay Revolving Credit. The failure by the
Borrower to pay any amount when due under the Revolving Credit.
10-2. 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 Revolving
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Credit.
10-3. 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 10-1 or Section 10-2 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
Article 7 Cash Management
10-4. Failure to Perform Covenant or Liability (Grace Period).
The failure by the Borrower, upon fifteen (15) Business Days written notice
by the Agent, 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 10-1, 10-2, or 10-3 hereof.
10-5. Misrepresentation. The determination by the Agent that any
representation or warranty at any time made by the Borrower to the Agent or any
Lender, was not true or complete in all material respects when given.
10-6. 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 Agent 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.
10-7. Default Under Other Agreements. The occurrence of any
breach or default under any agreement between the Agent or any Lender and the
Borrower or instrument or paper given the Agent or any Lender by the Borrower,
whether such agreement, instrument, or paper now
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exists or hereafter arises (notwithstanding that the Agent or the subject
Lender may not have exercised its rights upon default under any such other
agreement, instrument or paper).
10-8. 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).
10-9. Judgment. Restraint of Business.
(a) The service of process upon the Agent or any 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 Agent or any 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.
10-10. 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 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.
10-11. 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,
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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.
10-12. 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.
10-13. 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 Agent, including, without
limitation, the Security Agreement of even date between the Parent and the
Agent, each as amended from time to time.
10-14. Termination of Guaranty. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.
10-15. Challenge to Loan Documents.
(a) Any challenge by or on behalf of the Borrower or any
guarantor of the Liabilities to 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.
10-16. Change in Control.
(a) The Parent's not being the beneficial holder of all of the
issued and outstanding capital stock of the Borrower.
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(b) Any Change in Control.
ARTICLE 11 - RIGHTS AND REMEDIES UPON DEFAULT.
In addition to all of the rights, remedies, powers, privileges, and
discretions which the Agent is provided prior to the occurrence of an Event of
Default, the Agent 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 Agent's exercise of any of such rights and remedies.
11-1. Rights of Enforcement. The Agent shall have all of the
rights and remedies of a secured party upon default under the UCC, in addition
to which the Agent 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 Agent 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.
(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.
11-2. 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 Agent deems
advisable, having due regard to compliance with any statute or regulation which
might affect, limit, or apply to the Agent's disposition of the Collateral.
(b) The Agent, in the exercise of the Agent's rights and
remedies upon default, may conduct one or more going out of business sales, in
the Agent's own right or by one or more
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agents and contractors. Such sale(s) may be conducted upon any premises owned,
leased, or occupied by the Borrower. The Agent 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
Agent 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 Agent 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 Agent shall provide the Borrower with such notice as may be
practicable under the circumstances), the Agent 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
Agent's rights and remedies upon default.
(d) The Agent and any Lender may purchase the Collateral, or any
portion of it at any sale held under this Article.
(e) The Agent shall apply the proceeds of any exercise of the
Agent's Rights and Remedies under this Article 11 towards the Liabilities in
such manner, and with such frequency, as the Agent determines.
11-3. Occupation of Business Location. In connection with the
Agent's exercise of the Agent's rights under this Article 11, the Agent 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 have been
so entered upon, occupied, or used by the Agent. The Agent shall not be required
to remove any of the Collateral from any such premises upon the Agent's taking
possession thereof, and may render any Collateral unusable to the Borrower. In
no event shall the Agent be liable to the Borrower for use or occupancy by the
Agent of any premises pursuant to this Article 11, nor for any charge (such as
wages for the Borrower's employees and utilities) incurred in connection with
the Agent's exercise of the Agent's Rights and Remedies.
11-4. Grant of Nonexclusive License. The Borrower hereby
grants to the Agent 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
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to the Agent'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.
11-5. Assembly of Collateral. The Agent may require the Borrower
to assemble the Collateral and make it available to the Agent at the Borrower's
sole risk and expense at a place or places which are reasonably convenient to
both the Agent and Borrower.
11-6. Rights and Remedies. The rights, remedies, powers,
privileges, and discretions of the Agent hereunder (herein, the " Agent'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 Agent in exercising
or enforcing any of the Agent's Rights and Remedies shall operate as, or
constitute, a waiver thereof. No waiver by the Agent 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 Agent's Rights or Remedies, and no express or implied agreement or
transaction of whatever nature entered into between the Agent and any person, at
any time, shall preclude the other or further exercise of the Agent's Rights and
Remedies. No waiver by the Agent of any of the Agent'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 Agent's Rights and Remedies and
all of the Agent'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 Agent at such time or times and in such
order of preference as the Agent in its sole discretion may determine. The
Agent's Rights and Remedies may be exercised without resort or regard to any
other source of satisfaction of the Liabilities.
ARTICLE 12 - NOTICES.
12-1. 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 Revolving Credit)
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:
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If to the Agent:
BankBoston Retail Finance Inc.
40 Broad Street
Boston, Massachusetts 02109
Attention : Ms. Elizabeth Ratto
Vice President
Fax : 617 434-4339
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
Fax : 312 876-7934
12-2. 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 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
indicated the party sending such transmission): 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.
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(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 13 - TERM.
13-1. Termination of Revolving Credit. The Revolving Credit
shall remain in effect (subject to suspension as provided in Section 2-5(h)
hereof) until the Termination Date.
13-2. Effect of Termination. Upon the termination of the
Revolving Credit, the Borrower shall pay the Agent (whether or not then due), in
immediately available funds, all then Liabilities including, without limitation:
the entire balance of the Loan Account; the Early Termination Fee; any accrued
and unpaid Line Fee; and all unreimbursed costs and expenses of the Agent and of
each Lender for which the Borrower is responsible, and shall make such
arrangements concerning any L/C's then outstanding are reasonably satisfactory
to the Agent. Until such payment, all provisions of this Agreement, other than
those contained in Article 2 which place an obligation on the Agent and any
Lender to make any loans or advances or to provide financial accommodations
under the Revolving Credit or otherwise, shall remain in full force and effect
until all Liabilities shall have been paid in full. The release by the Agent of
the security and other collateral interests granted the Agent by the Borrower
hereunder may be upon such conditions and indemnifications as the Agent
reasonably may require.
ARTICLE 14 - GENERAL.
14-1. Protection of Collateral. The Agent 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 Agent and shall have no
duty as to the preservation of rights against prior parties or any other rights
pertaining thereto. The Agent 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
Agent.
14-2. Successors and Assigns. This Agreement shall be binding
upon the Borrower and the Borrower's representatives, successors, and assigns
and shall enure to the benefit of the
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Agent and each Lender and the respective successors and assigns of each
provided, however, no trustee or other fiduciary appointed with respect to the
Borrower shall have any rights hereunder. In the event that the Agent or any
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 such assignor hereunder and such assignor shall thereupon be
discharged and relieved from its duties and obligations hereunder.
14-3. 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, legality, or
enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.
14-4. Amendments. Course of Dealing.
(a) This Agreement and the other Loan Documents incorporate all
discussions and negotiations between the Borrower and the Agent and each 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 Agent or any 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
Agent in the manner by which Availability is determined shall obligate the Agent
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 Agent. 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 Agent, then by a
duly authorized officer thereof). Any modification, amendment, or waiver
provided by the Agent shall be in reliance upon all representations and
warranties theretofore made to the Agent 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.
14-5. Power of Attorney. In connection with all powers of
attorney included in this
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Agreement, the Borrower hereby grants unto the Agent 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 Agent 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 Agent.
14-6. 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 Agent determines in its sole discretion. The Borrower shall remain liable
for any deficiency remaining following such application.
14-7. Costs and Expenses of Agent and Of Lenders.
(a) The Borrower shall pay on demand all Costs of Collection and
all reasonable expenses of the Agent 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 Agent 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
Agent 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 each
Lender 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 specifically authorizes the Agent to pay all
such fees and expenses payment and reimbursement of which is provided for in
this Section 14-7 and in the Agent's discretion, to add such fees and expenses
to the Loan Account.
(d) The undertaking in this Section 14-7, on the part of the
Borrower, shall survive payment of the Liabilities and/or any termination,
release, or discharge executed by the Agent in favor of the Borrower, other than
a termination, release, or discharge which makes
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specific reference to this Section 147.
14-8. Copies and Facsimiles. This Agreement and all documents
which relate thereto, which have been or may be hereinafter furnished the Agent
or any Lender may be reproduced by that Person or by the Agent by any
photographic, microfilm, xerographic, digital imaging, or other process, and
that Person 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 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.
14-9. 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.
14-10. 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 Agent may elect in the Agent'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 Agent to bring
legal actions or proceedings in any other competent jurisdiction.
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(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.
14-11. Indemnification. The Borrower shall indemnify, defend,
and hold the Agent and each Lender and any employee, officer, or agent of any of
the foregoing (each, an "Indemnified Person") harmless of and from any claim
brought or threatened against any Indemnified Person by the 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 with the Agent or any Lender (each of claims which may be defended,
compromised, settled, or pursued by the Indemnified Person with counsel of 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 Agent 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 Agent in favor of the
Borrower, other than a termination, release, or discharge which makes specific
reference to this Section 14-11.
14-12. 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) Headings (indicated by being underlined) and the Table of
Contents are solely for convenience of reference and 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) Text which is underlined, shown in italics, shown in bold,
shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing, shall be
deemed to be conspicuous.
(f) The words "may not" are prohibitive and not permissive.
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(g) The word "or" is not exclusive.
(h) Terms which are defined in one section of an instrument are
used with such definition throughout the instrument in which so defined.
(i) The symbol "$" refers to United States Dollars.
(j) References to "herein", "hereof", and "within" are to this
entire Loan Agreement and not merely to the provision in which such reference is
included.
(k) References to "this Agreement" or to any other Loan
Agreement is to the subject instrument as amended to the date in respect of
which the effect of such reference is being made.
(l) Except as otherwise specifically provided, all references to
time are to Boston time.
(m) In the determination of any notice, grace, or other period
of time prescribed or allowed hereunder, unless otherwise provided (A) 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 (B) the period so
computed shall end at 5:00 PM on the relevant Business Day.
(n) The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section 14-13
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.
14-13. 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 Agent.
(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 Agent in
connection with such Person's relationship(s) with the Borrower shall be borne
by the Borrower.
14-14. Right of Set-Off. Any and all deposits or other sums at
any time credited by or due to the Borrower from the Agent or from any Lender
and any cash, securities, instruments or other property of the undersigned in
the possession of the Agent or any Lender, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all
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times constitute security for all Liabilities and for any and all obligations of
the Borrower to the Agent and each Lender, 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).
14-15. Maximum Interest Rate. Regardless of any provision of any
Loan Document, none of the Agent or any Lender shall 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."
14-16. Waivers.
(a) The Borrower (and all guarantors, endorsers, and sureties of
the Liabilities) make each of the waivers included in Section 14-16(b), below,
knowingly, voluntarily, and intentionally, and understands that the Agent and
each 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 Agent's exercising of the
Agent's rights upon default.
(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR
CONTROVERSY IN WHICH THE AGENT OR ANY LENDER IS OR BECOMES A PARTY
(WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT
OR ANY LENDER OR IN WHICH THE AGENT OR ANY 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 AGENT OR ANY LENDER (AND THE AGENT AND EACH 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.
82
<PAGE>
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:________________________________
83
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> DEC-27-1997
<CASH> 211,084
<SECURITIES> 0
<RECEIVABLES> 1,560,382
<ALLOWANCES> 0
<INVENTORY> 74,315,857
<CURRENT-ASSETS> 77,788,219
<PP&E> 46,301,411
<DEPRECIATION> 11,485,175
<TOTAL-ASSETS> 114,833,197
<CURRENT-LIABILITIES> 31,864,454
<BONDS> 3,033,949
0
0
<COMMON> 73,355
<OTHER-SE> 52,489,969
<TOTAL-LIABILITY-AND-EQUITY> 114,833,197
<SALES> 95,617,667
<TOTAL-REVENUES> 95,617,667
<CGS> 60,637,752
<TOTAL-COSTS> 34,004,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 973,754
<INCOME-PRETAX> 1,274
<INCOME-TAX> 512
<INCOME-CONTINUING> 762
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 762
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
