<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No:000-22679
WORLD OF SCIENCE, INC.
(Exact name of registrant as specified in its charter)
NEW YORK 16-0963838
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
900 Jefferson Road, Building 4, Rochester, New York 14623
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (716)475-0100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock. par value $0.01 per share The Nasdaq SmallCap Market
Indicate by check mark whether the registrant:(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to be the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the closing bid and ask
prices of the registrant's Common Stock as reported on NASDAQ on March 31, 2000
was $6,808,000. The number of shares of Common Stock, with $.01 par value,
outstanding on March 31, 2000 was 4,736,105 shares.
DOCUMENTS INCORPORATED BY REFERENCE
A portion of Item 10 and Items 11, 12 and 13 of Part III are incorporated by
reference from the Company's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders, to be held June 8, 2000. Registrant's definitive Proxy
Statement will be filed with the Securities and Exchange Commission on or before
May 5, 2000.
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
General
World of Science, Inc. is a leading specialty retailer of a variety of
traditional and distinctive science and nature products. In April 1999, the
Company formed a wholly-owned subsidiary named WOSI on the Web, Inc., which is a
New York corporation. The terms "Company" and "World of Science" refer to World
of Science Inc. and WOSI on the WEB, Inc. on a consolidated basis. The Company's
merchandising strategy emphasizes both the educational and entertainment values
of its products, which are offered at competitive prices in a stimulating retail
environment. World of Science has developed a broad customer base, as its
products appeal to customers of all ages for gift-giving, educational use and
entertainment. The Company operates both a permanent and seasonal store format.
At January 29, 2000, the Company operated 84 permanent stores and 24 seasonal
stores in 25 states, primarily in enclosed malls. The Company's fiscal year is
the 52-week period ending on January 29, 2000. The terms "fiscal" and "fiscal
year" refer to the calendar year in which the Company's fiscal year commences.
Permanent World of Science stores are open year-round under long-term leases,
contain an average of 2,000 square feet of selling space and maintain
approximately 2,600 stock-keeping units ("SKUs") of inventory. Permanent stores
are also generally characterized by an upscale store facade and interior fixture
package. Seasonal stores are open during the holiday selling season, or for an
extended period beyond that season, under leases with shorter terms. Seasonal
stores contain an average of 1,500 square feet of selling space, maintain
approximately 1,950 SKUs of inventory, occupy available in-line mall space,
require minimal store build-out and employ reusable fixtures.
The Company was founded in Rochester, New York and incorporated in 1969,
primarily to develop and manufacture science kits for school systems. In 1973,
the Company began selling science and nature products through a mail order
catalog and, in 1984, opened its first retail store in the Rochester Museum and
Science Center. Based upon the success of its science and nature retail concept
locally, the Company decided in the late 1980's to focus exclusively on the
retail store segment of its business and discontinued its manufacturing
operations. Its catalog operations were phased out commencing in fiscal 1991.
The Company launched its commerce-enabled web site, www.worldofscience.com, in
----------------------
late April 1999. The new home page is in the format of the periodic table of
the elements. The web site currently offers approximately 1,200 SKUs along with
added features to inform and entertain online shoppers. The Company expects to
expand its online product offerings to over 1,500 SKUs by the end of fiscal
2000. Product offerings on the site range from $10 to over $1,000 per item.
WOSI on the WEB, Inc. focuses on the operation of the web site.
Business Strategy
. Distinctive and Traditional Merchandise. World of Science stores offer a
variety of educationally and entertainment-oriented, distinctive science and
nature products, together with a broad assortment of more traditional science
and nature products. Many of the products offered in World of Science stores
are not widely available from other retailers within the malls occupied by the
Company's stores. The Company continually seeks new and distinctive products
and, accordingly, updates approximately one-third of its SKUs annually.
. Educational and Entertaining Shopping Experience. The Company's products are
displayed to encourage customers to browse, experiment with, and examine the
features and quality of the products as the store layout guides them through
up to 25 different product areas. This educational and entertaining shopping
experience places the customer in an environment where experimentation and
play are integral components of the buying experience.
. Superior Customer Service. The Company employs enthusiastic and friendly sales
personnel who are trained to highlight the benefits of the products offered
and encourage customers to browse at their leisure.
. Use of Seasonal Stores. The seasonal store program enables the Company to
reach a broader customer base during the holiday selling season, as well as to
test prospective locations for permanent stores before making the required
capital investment. The Company opportunistically seeks out available in-line
space in quality shopping malls which it can lease for several months around
the holiday selling season and, in some instances, for an extended period
thereafter. The cost of opening seasonal stores is substantially lower and the
lead time is substantially shorter than those associated with permanent
stores. In fiscal 1999, 30.4% of the Company's total net sales were generated
by seasonal stores, as compared to 36.0% in fiscal 1998. The Company's
flexible store formats, combined with its distinctive merchandise, make World
of Science stores attractive to mall operators.
2
<PAGE>
. Price Integrity. The Company's pricing strategy is to offer quality products
at fair prices. World of Science stores sell merchandise generally ranging in
price from less than $1.00 to $1,000. Prior to 1999 the Company did not engage
in frequent storewide sales or price mark-downs. During late 1999 the Company
initiated regular sales promotions based on product themes to offer special
values to its customers and to provide an incentive to purchase its products.
Expansion Strategy
The Company has grown by opening new permanent stores, by operating seasonal
stores to capture sales during the holiday selling season, and by increasing
sales volume from its existing permanent stores. Although management does not
believe there are geographical constraints on the location of future stores, the
Company's expansion strategy will focus primarily on opening stores in new and
existing markets in the eastern half of the United States before expanding
elsewhere. The Company believes that this strategy will allow it to increase the
recognition of the "World of Science" name, enhance operating efficiencies and
manage growth. The principal elements of the Company's expansion strategy are as
follows:
. New Permanent Store Openings. The Company currently operates 84 permanent
World of Science stores, including 13 new permanent stores which have opened
since the beginning of fiscal 1999. The Company expects to open one permanent
store in fiscal 2000 and approximately 10 permanent stores in fiscal 2001 in
both new and existing markets. In many cases, permanent stores will replace
seasonal stores and, in appropriate circumstances, the Company may acquire or
assume pre-existing leases of other retail stores. Although the Company may
also evaluate opening stores in non-mall locations, such as airports and
museums, the Company has no commitments for new permanent stores in non-mall
locations.
. Active Seasonal Store Program. The Company operated 75 World of Science
seasonal stores during the fiscal 1999 holiday selling season and currently
operates 19 seasonal stores. During the past three fiscal years, the Company
has opened 29 permanent stores in pre-existing malls which were preceded by a
seasonal store in the same mall. The Company plans to operate approximately 65
seasonal stores during the holiday selling season in fiscal 2000 and fiscal
2001.
. Internet Presence. The Company launched its first commerce-enabled web site,
www.worldofscience.com, in the spring of 1999. Since then the Company has
----------------------
developed a number of partnerships with other web sites, including but not
limited to the following:
Amazon.com - The Company's products are available in Amazon's zShops.
Britannica.com - A list of products which include telescopes, microscopes,
science kits, weather stations and more are available on Britannica .com.
Yahoo! - World of Science products are available through Yahoo! Shopping. The
Company is designated as a "Top Service" supplier, which means that the
Company is a participating retailer in Yahoo!'s Customer Rating Program, and
that customers who have ordered World of Science products have given it the
highest ratings.
Celestron - Celestron is a leading telescope supplier. Its web site refers
customers to World of Science's retail locations and web site.
World of Science Affiliate Program - The Company currently has over 500 active
members in its Affiliate Program. World of Science pays a 10% sales commission
to partner sites that refer online shoppers. Approximately 18% of December
1999 Internet sales were derived from Affiliate Program web sites.
During December 1999, the Company's web site generated approximately $220,000
in sales and over 90,000 user sessions. This sales volume represented 3,275
orders with an average ticket of $64.77. On average, shoppers spend
approximately 18 minutes on the site each time they visit.
The Company also owns the rights to the following domain names: www.b-two-
b.com and www.ischoolathome.com. The online content for these web sites is
currently under development and the web sites are scheduled to launch in 2000.
b-two-b.com is intended to support the Company's larger initiative to create a
substantial wholesale distribution business serving independent garden, toy
and gift stores.
. Commitment to Strong Infrastructure. The Company's expansion strategy
includes a commitment to make appropriate infrastructure investments. Over the
past three years, the Company has made significant investments in its
management information systems and distribution facilities, which have
contributed to efficiencies in inventory management and product distribution.
In the second quarter of fiscal 1997, the Company relocated its distribution
facility to a larger facility. The Company successfully installed new point-
of-sale software during the second and third quarter of fiscal 1998. In the
first quarter of fiscal 1999, the Company upgraded its main computer which
handles its financial and inventory management systems. The Company
periodically evaluates its store formats to maintain high standards of
attractiveness and an appropriate showcase for its science and nature
products.
3
<PAGE>
Merchandising
The Company's merchandising strategy emphasizes both the educational and
entertainment values of its products, which are offered at competitive prices in
a stimulating retail environment. The Company has a broad customer base and its
products appeal to customers of all ages for gift giving, educational use and
entertainment. Many of the products offered in World of Science stores are not
widely available from other retailers within the malls occupied by the Company's
stores. Each permanent store carries approximately 2,600 SKUs displayed in
separate product areas. The Company generally does not carry licensed products
or mass-market television advertised products. In most product categories, the
Company offers a variety of traditional science and nature products that
customers would expect to encounter in a science and nature store. These more
traditional products are displayed together with the Company's distinctive
items. The Company is continually seeking new, distinctive products consistent
with its merchandising strategy. Historically, the Company has updated
approximately one-third of the items in its merchandise assortment annually.
The Company's merchandising team uses a variety of means to create or identify
potential new products, and the Company evaluates all new products prior to
offering them for sale in its stores. In addition, the Company seeks input and
suggestions from its store personnel and customers, and product selections are
sometimes made based upon such recommendations. The Company occasionally
designs its own products, which are manufactured by third party sources. The
Company also employs a staff geologist, who is responsible for evaluating
mineral and fossil specimens for sale in World of Science stores.
A typical permanent World of Science store has approximately 25 different
product categories and seasonal stores generally feature 20 different product
categories, focused upon specific merchandising themes. The Company's stores
adhere to a planned layout, which encourages customers to visit every category
within the store. Although not all of the available merchandise categories are
included in each World of Science store, the following is a list of the
principal categories, together with a description of the typical products they
contain:
. Activity Kits arts and crafts, behavioral science, archeology
and paleontology
. American Craftsman limited production kaleidoscopes, glass and metal
sculptures, jewelry, pottery bowls, vases and
decorative pieces with natural images
. Anatomy anatomical models, charts and books
. Animal Replicas mammals, marine life, reptiles, amphibians and
insects represented in self-assembled, molded or
plush replicas
. Apparel distinctive t-shirts, hats and kits for ties and
scarves
. Astronomy telescopes, star finder charts, instructional
models, solar system charts and mobiles
. Biology microscopes, related labware, books for reference
and science projects, petri dishes, microscope
sets and slide sets
. Bird Watching binoculars, feeders, houses, field identification
guides, bird calls and books
. Botany & Garden fountains, seed kits, figurines, plant growing
kits, garden Accessories sculpture, wind chimes
and bells
. Chemistry experiment kits, science project resources,
technical labware and reference books
. Dinosaurs molded replicas, models, puzzles, games, books
and kit
. Flight model rocketry, kites, boomerangs and flight
discs
. Food Making kits for making chewing gum, chocolate, soda,
beer and wine
. Geography compasses, hiking staffs, educational puzzles,
games and maps
. Geology quality mineral and fossil collectibles for the
beginner to serious collector
. Glow in the Dark astronomical and animal designs
. Impulse fascinating pick-up items, including spinning
tops, keychains, magnets and travel puzzles
. Magnetism magnets, building kits, floating tops and science
project kits
. Nostalgia old-fashioned toys and games
. Optics magnifiers, a wide range of kaleidoscopes and
teleidoscopes
. Physics traditional construction sets and robotic models
. Plush stuffed animals (including Beanie Babies)
. Puzzles and Games jigsaw puzzles, brainteasers, travel games and
other board games
. Recorded Music music with enhancements of nature sounds, music
for relaxation and Celtic music
. Relaxation massage tools, reflexology, and stress management
. Weather weather instruments, solar kits, umbrellas and
reference books
4
<PAGE>
Plush products (including Beanie Babies) represented approximately 7.2%, or
$4.4 million, of the Company's sales in fiscal 1999. Due to decreased available
supply from the manufacturer, plush sales declined from $8.3 million in fiscal
1998 to $4.4 million in fiscal 1999. Management projects that fiscal 2000 sales
of plush will decrease even further to approximately $2.5 million. Accordingly,
plush products will represent a much lower percentage of the Company's sales in
fiscal 2000.
The price range of products carried by World of Science stores generally vary
from less than $1.00 to over $1,000 per item. The average customer transaction
in fiscal 1999 was $24.00 for the five-weeks ending December 25, 1999 and was
$19.58 for the entire fiscal year, as compared to $23.77 for the five-weeks
ending December 26, 1998 and $18.46 for all of fiscal 1998.
Purchasing and Distribution
The Company purchases its products from over 450 sources and is continually in
search of additional suppliers. The Company's merchandising team includes the
Company's President, Vice President of Operations and Merchandising Manager.
This team and other representatives of the Company utilize various means to
identify potential new product sources. The Company's top 20 product suppliers
accounted for 52.7% of total purchases in fiscal 1999, and 51.3% of total
purchases in fiscal 1998. There is currently just one supplier, telescope
manufacturer Celestron, that furnished product that represented over 7.0% of
revenues in fiscal 1999.
Inventory levels for each store, both on a SKU and dollar level, are monitored
weekly, with automatic replenishment orders made through the Company's
management information systems. This is accomplished based on a pre-determined,
maximum/minimum SKU stocking control system. Maximum/minimum SKU inventory
levels are reviewed and, if warranted, adjusted on a seasonal basis, most
notably in preparation for the year-end holiday selling season, and are closely
monitored for Company-wide stock reordering and initial holiday orders. The
Company typically ships products by ground freight for new store inventory
stocking or existing store replenishment orders. Replenishment orders are
typically filled within three days.
The Company leases a 110,000 square foot distribution center in Rochester, New
York, less than one mile from the Company's corporate offices, from which it
conducts all of its inventory management, receiving and shipping. The current
geographic concentration of its stores enables the Company to make deliveries to
stores on a weekly basis and enables it to restock its stores' inventories
promptly and efficiently from its distribution center. Deliveries are generally
made through common carriers. The distribution center uses a personal computer
based inventory location system which utilizes radio frequency ("RF") technology
to enable distribution center personnel to receive, store, pick and check
incoming and outgoing orders by SKU in a paperless process. Because this system
tracks inventory by location, order pickers are directed by hand-held RF
terminals to bar-coded SKU locations in the sequence in which product is stored
in the warehouse. The order pickers are prompted to pick the proper quantity to
fill orders to replenish the stores, thus allowing orders to be efficiently
picked.
Store Operations
Store personnel encourage customers to browse, experiment with, and examine
the features and quality of the products as the store layout guides them through
up to 25 different product areas. World of Science stores offer customers an
educational and entertaining shopping environment where experimentation and play
are integral components of the buying experience. Management believes that
providing well-trained, knowledgeable and friendly store personnel is a key
aspect of its business strategy and contributes to the shopping experience. The
Company's products lend themselves to explanations and demonstrations, and store
personnel with product knowledge can assist customers with purchasing decisions.
All store personnel are trained in customer service, product features and the
store's point-of-sale system.
The Company's store operations are managed by its Vice President of
Operations, who oversees a staff consisting of two regional managers, eleven
district managers and four area managers. The regional managers oversee the
Company's district managers, who, in turn, may supervise one or more area
managers. District managers also oversee specific stores that are not managed
by area managers. District and area managers are responsible for all aspects of
the operations of stores in defined market areas. World of Science stores are
generally staffed with one store manager, and permanent stores typically also
have an assistant store manager. Store managers are responsible for most
aspects of store operations, including store staffing and development, visual
presentation and shrinkage control. However, merchandise replenishment is
controlled centrally, to ensure inventory levels appropriate for the rate of
sales at each store. All store management personnel are paid on a salary basis
and, as an incentive to increase sales, are eligible to receive bonuses based on
the store's sales performance during each fiscal year. World of Science stores
have a sales staff of approximately eight hourly employees in permanent stores
and approximately five hourly employees in seasonal stores. The number of
hourly employees increases to about 20 in permanent stores and 10 in seasonal
stores during the holiday selling season.
Permanent stores contain on average 2,300 square feet of selling space and
offer approximately 2,600 SKUs. The Company's permanent stores have an upscale
design which generally includes mahogany and brass fixturing, river-rock and
wood store facades and open product displays that encourage customers to
experiment and play with the merchandise. The Company periodically evaluates
its permanent store format to assure an upscale, modern appearance with eye-
catching window displays. Starting in 1997,
5
<PAGE>
the Company began updating its store format to include more open storefronts and
brighter interior spaces. Although the Company generally ensures that all of its
permanent stores employ the Company's upscale decorative style, the Company may
use less expensive facades and fixtures to adapt to particular malls and
markets.
Seasonal stores are typically opened in sites requiring minimal build-out and
are fixtured with wall systems and merchandise displays that can be disassembled
and re-used in other seasonal store locations. Seasonal stores also carry lower
inventory levels than permanent stores. A typical seasonal store carries about
75% of the SKUs featured in the Company's permanent stores and averages
approximately 1,500 square feet of selling space. Seasonal stores operate on
month-to-month or short-term leases of up to three years. The lead-time in
opening a seasonal store is substantially shorter than the lead-time for
permanent stores, enabling the Company to react quickly to market opportunities.
World of Science stores are open seven days a week and the typical hours of
operation are from 10:00 a.m. to 9:00 p.m. Monday through Saturday and 11:00
a.m. to 6:00 p.m. on Sunday, with extended hours during the holiday selling
season. The Company's stores are generally open during the same business hours
as the enclosed malls in which they operate. Except with respect to advertising
required under certain of its mall leases, the Company does not utilize mass
media advertising to generate sales. World of Science relies upon mall traffic,
word of mouth, its Internet site and occasional promotions to attract customers.
Management Information Systems
The Company uses an IBM AS/400 (model 620) for its management information
systems, which handles all major informational requirements of the Company's
business, including sales, warehousing and distribution, purchasing, inventory
control, merchandise planning and replenishment as well as various accounting
functions. At the store level, the Company uses a point-of-sale computer system
with the capability to provide sales data and to maintain perpetual inventory
data on a per-SKU basis. All software applications which run on the AS/400 are
licensed by World of Science and have been customized according to Company
specifications.
The Company tracks its inventory by electronic data interchange between the
AS/400 and the Company warehouse and its stores. All inventory is bar-coded
where practical. The system polls each of its stores each evening to upload
sales data, to update inventory status and to determine replenishment
requirements. Weekly sales information is retained for each store, allowing the
Company to analyze sales performance by store, market and SKU.
Competition
Competition for consumer spending is highly intense among specialty retailers,
traditional department stores and mass merchants in regional shopping malls and
other high traffic retail locations. The Company competes against other
retailers for suitable real estate locations and qualified personnel. The
Company believes that its distinctive and traditional merchandise, educational
and entertaining shopping experience, superior customer service, use of seasonal
stores and price integrity distinguishes it from other specialty retailers. The
specialty retail business has few barriers to entry. In addition, as the Company
expands into new markets, its success may depend in part on its ability to gain
market share from established competitors. Many of the Company's competitors
have substantially greater financial, marketing and other resources than the
Company. There can therefore be no assurance that the Company will be able to
compete successfully with them in the future.
Seasonality and Quarterly Fluctuations
The Company's business is subject to substantial seasonal variations in
demand. Historically, a significant portion of the Company's sales and all of
its net income have been realized during the months of November and December,
and levels of sales and net income have generally been substantially lower from
January through October, resulting in losses in the first three fiscal quarters.
In preparation for its holiday selling season, the Company significantly
increases inventories and related indebtedness, hires an increased number of
temporary employees in its stores and distribution center, and incurs costs in
setting up seasonal store locations. If, for any reason, the Company's sales
were to be substantially below seasonal norms during the months of November and
December, or if the Company could not hire a sufficient number of qualified
employees during the peak periods, the Company's business, financial condition
and results of operations would be adversely affected. Quarterly results are
affected by the timing of new store openings and the amount of revenue
contributed by permanent and seasonal stores.
Employees
As of January 29, 2000 the Company employed approximately 975 active
employees. The Company regularly supplements its work force with a significant
number of part-time employees during the holiday selling season. Substantially
all of the Company's part-time employees work at the store level. None of the
Company's employees are represented by labor unions and the Company believes its
employee relations are very good.
6
<PAGE>
Executive Officers
The executive officers of the Company and their ages as of January 29, 2000
are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Fred H. Klaucke.................................................... 63 Chairman of the Board of Directors, President and
Chief Executive Officer
Charles A. Callahan................................................ 50 Vice President of Finance, Chief Financial Officer and
Assistant Secretary
Christine M. Luchi................................................. 47 Vice President of Operations
</TABLE>
Fred H. Klaucke is the founder of the Company and has served as Chief
Executive Officer and Chairman of the Board of Directors of the Company since
its incorporation in 1969 and as President since 1996.
Charles A. Callahan has served as Vice President of Finance and Chief
Financial Officer of the Company since 1994, and as Assistant Secretary since
1992. Mr. Callahan joined the Company as Controller in 1992. He has over 25
years of experience in accounting and financial management including five years
with KPMG LLP.
Christine M. Luchi has served as Vice President of Operations of the Company
since 1996. Ms. Luchi joined the Company in 1990 as a Regional Manager. From
1992 until 1996, Ms. Luchi served as Director of Operations. Prior to joining
the Company, Ms. Luchi held retail positions with General Host Corporation,
where she served as training manager and district sales manager, and Tenneco
Corporation, where she held the positions of district and division manager and
franchise consultant. Ms. Luchi has additional consulting experience in the
areas of operations and sales training.
Future Results
This report contains forward looking statements regarding, among other
matters, the Company's future strategy, store opening plans, merchandising
strategy and growth. The forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Act of 1995.
Forward looking statements address matters which are subject to a number of
risks and uncertainties. In addition to the general risks associated with the
operation of specialty retail stores in a highly competitive environment, the
success of the Company will depend on a variety of factors, such as consumer
spending which is dependent on economic conditions affecting disposable consumer
income such as employment, business conditions, interest rates, and taxation.
The Company's continued growth also depends upon the demand for its products,
which in turn is dependent upon various factors, such as the introduction and
acceptance of new products and the continued popularity of existing products, as
well as the timely supply of all merchandise. Reference is made to the
Company's other filings with the Securities and Exchange Commission for further
discussion of risks and uncertainties regarding the Company's business.
ITEM 2. PROPERTY
The Company's corporate headquarters are located in a 35,000 square foot
facility which is comprised of 15,000 square feet of office space and 20,000
square feet of warehouse space. The facility is leased from the State of New
York at an annual rent of approximately $88,000. The term of this lease,
inclusive of two five-year renewal options, expires in 2013, and the lease
provides for rental increases for each renewal term based on increases in the
consumer price index, not to exceed 20% of the then current rent.
The Company entered into a sublease for a new distribution center in fiscal
1997. The facility, which is located within one mile of the Company's office,
contains approximately 110,000 square feet of warehouse space. The sublease is
triple net and is for a term, inclusive of two one-year renewal options,
expiring in 2002. The base monthly rental for this facility is approximately
$31,500.
Management believes that the capacity of the corporate headquarters and
distribution center will be sufficient for the next 24 months.
At January 29, 2000, the Company operated 84 permanent stores and 24 seasonal
stores in 25 states. The permanent stores occupied 195,753 gross square feet of
leased space, with the stores ranging in size from 1,000 to 3,200 square feet.
The Company's permanent stores typically have lease terms ranging from seven to
ten years, and the lease terms for existing permanent stores expire between 2000
and 2010. Seasonal stores have lease terms ranging from month-to-month to three
years. The Company's store leases generally provide for percentage rent based
upon sales.
World of Science stores are generally located in high traffic areas of
regional, enclosed shopping malls. The Company believes that the number of
desirable store sites likely to be available in the future will be adequate to
permit the Company to implement its
7
<PAGE>
expansion strategy. In selecting new store locations, the Company evaluates the
market areas, mall locations, anchor stores, mall traffic patterns, mall sales
per square foot, performance of other specialty retail tenants, competition and
occupancy, construction and other costs associated with opening a store.
ITEM 3. LEGAL PROCEEDINGS
In November 1999, a lawsuit was filed against the Company by Native America
Arts, Inc. in the Federal District Court for the Northern District of Illinois.
The lawsuit, entitled Native American Arts, Inc. v World of Science, Inc.,
alleges that the Company sold products which were falsely represented to be made
by Native American Indians in violation of The Indian Arts and Crafts Act of
1990. The lawsuit seeks compensatory and punitive damages. The Company
disputes the allegations of wrongdoing in the complaint and believes there are
substantial defenses to the lawsuit.
From time to time, the Company is subject to other legal proceedings and
claims in the ordinary course of business. The Company currently is not aware
of any such other legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on its business,
financial condition and operating results. The Company maintains general
liability insurance coverage in amounts deemed adequate by management.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS
World of Science, Inc. Common Stock, $.01 par value, is traded on The Nasdaq
SmallCap Market(sm) under the symbol WOSI. The following quotations are
furnished by Nasdaq for the periods indicated. These quotations reflect inter-
dealer quotations that do not include retail markups, markdowns or commissions
and may not represent actual transactions.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 4 13/16 2 1/8 3 5/16 2 2 5/16 3/4 2 5/32 1/2
1998 3 3/4 2 1/16 3 1/2 2 7/16 2 3/4 1 7/8 3 7/8 2 1/16
</TABLE>
_______________________________
(1) Market prices reflected are for the period of July 8, 1997 (date Company's
initial public offering commenced) through August 2, 1997 (date second
quarter of fiscal 1997 ended).
As of April 14, 1999, there were approximately 123 holders of record of the
Company's Common Stock and approximately 1,620 beneficial holders.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" in Item 7 of this Annual Report, and Note 6 to
our financial statements contained in Item 8 of this Annual Report, for a
description of certain restrictions on our ability to pay dividends. Subject to
such limitations, any future dividends will be at the discretion of our Board of
Directors and will depend upon, among other factors, our earnings, financial
condition and other requirements.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
January 29, January 30, January 31, February 1, January 28,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share and store operating data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales..................................... $ 61,135 $ 60,709 $ 54,259 $ 44,563 $ 37,265
Cost of sales and occupancy expenses.......... 44,968 40,473 35,922 28,630 23,957
----------- ----------- ----------- ----------- -----------
Gross profit.................................. 16,167 20,236 18,337 15,933 13,308
Selling, general and administrative
Expenses.................................... 19,781 17,452 15,158 12,593 10,680
----------- ----------- ----------- ----------- -----------
Operating income (loss)....................... (3,614) 2,784 3,179 3,340 2,628
Interest expense, net......................... 556 265 237 394 418
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes............. (4,170) 2,519 2,942 2,946 2,210
Income tax expense (benefit).................. ( 1,668) 999 1,182 1,210 906
----------- ----------- ----------- ----------- -----------
Net income (loss)............................. ($2,502) $ 1,520 $ 1,760 $ 1,736 $ 1,304
=========== =========== =========== =========== ===========
Net income (loss) per share:
Basic....................................... ( $0.53) $0.31 $0.40 $0.50 $0.37
=========== =========== =========== =========== ===========
Diluted (2)................................. ( $0.53) $0.31 $0.40 $0.49 $0.35
=========== =========== =========== =========== ===========
Store Operating Data:
Selected Permanent Store Data:
Number of stores at beginning of period..... 74 56 44 37 33
Number of stores at end of period........... 84 74 56 44 37
Total net sales............................. $42,139,000 $38,830,000 $30,055,000 $23,998,000 $20,241,000
Percentage increase (decrease) in
comparable store net sales(3)(4)............ (9.4%) 4.4% 1.5% 3.5% 3.1%
Total square footage at end of period(5).... 195,753 170,321 123,678 94,348 75,182
Average net sales per square foot(3)(5)..... $ 221 $ 260 $ 262 $ 275 $ 272
Average net sales per store (3)(5).......... $ 512,000 $ 580,000 $ 572,000 $ 575,000 $ 544,000
Selected Seasonal Store Data:
Number of stores at beginning of period..... 71 60 62 37 40
Peak number of stores during period(6)...... 75 101 101 85 71
Total net sales............................. $18,602,000 $21,871,000 $24,204,000 $20,565,000 $17,019,000
Selected Internet Site Data
Total net sales............................. $ 394,000 $ 8,000 N/A N/A N/A
Average order............................... $ 69 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
January 29, January 30, January 31, February 1, January 28,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 1,572 $ 3,543 $ 6,742 $ 2,014 $ 1,620
Working capital............................... 8,647 12,266 14,819 5,818 4,972
Total assets.................................. 27,761 26,164 25,432 15,274 12,855
Total debt, including capital lease
Obligations................................. 4,874 176 410 370 437
Stockholders' equity.......................... 19,278 21,823 20,952 10,480 8,745
</TABLE>
(1) The fiscal year ended February 1, 1997 consisted of 53 weeks as compared
with 52 weeks in all other years presented.
(2) Computed based on the weighted average number of shares of common stock and
common stock equivalents, calculated using the treasury stock method. For
fiscal 1995, the weighted average number of shares includes 654,550 shares
owned by the Company's Chairman which were subject to an option granted by
him to the Company's former President, which option terminated unexercised
on January 17, 1996. The 654,550 shares were considered in the diluted net
income per share calculation as common stock equivalents issued by the
Company for that fiscal year.
(3) Percentage increase in comparable store net sales, average net sales per
square foot and average net sales per store are adjusted to reflect a 52-
week year for all years presented.
(4) A comparable store is defined as a permanent store which was open as a
permanent store for at least one full fiscal year as of the beginning of
the fiscal year.
(5) Average net sales per square foot and average net sales per store include
only stores open for the entire fiscal period. Total square footage at end
of period reflects the gross leased space of permanent stores open at the
end of the period.
(6) Reflects the greatest number of seasonal stores open at any one time during
the period, which is historically during the fourth quarter of a fiscal
year.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company is a leading specialty retailer of a variety of traditional and
distinctive science and nature products. The Company's sales have grown from
$37.3 million in fiscal 1995 to $61.1 million in fiscal 1999, primarily due to
the Company's store expansion program and, to a lesser extent, increases in
comparable store net sales. The Company's retail establishments consist of
permanent and seasonal stores. Permanent World of Science stores are open year-
round under long-term leases, contain an average of 2,000 square feet of selling
space, maintain approximately 2,600 SKUs in inventory, and are characterized by
an upscale store facade and interior package. Seasonal stores are open during
the holiday selling season, or for an extended period beyond the holiday selling
season, under shorter term leases with terms ranging from month-to-month to
three years. Seasonal stores contain an average of 1,500 square feet of selling
space, maintain approximately 1,950 SKUs in inventory and are typically located
in available in-line mall space. The cost of opening seasonal stores is
substantially lower and the lead time is substantially shorter than those
associated with permanent stores.
Since the Company's opening of its first World of Science store in 1984,
the Company has expanded to 84 permanent stores as of January 29, 2000. Since
opening its first seasonal store in fiscal 1992, the Company has increased the
use of this store format, operating 75 seasonal stores during the fiscal 1999
holiday selling season. The Company strives to maintain an appropriate balance
between permanent stores and seasonal stores, taking into account such factors
as management time demands, return on investment and site availability.
Although the Company will continue its active program of seasonal store
operations, it is placing greater emphasis on the opening of new permanent
stores. The Company opened 13 new permanent stores and closed three permanent
stores in fiscal 1999, opened 20 new permanent stores and closed two permanent
stores in fiscal 1998 and opened 12 new permanent stores in fiscal 1997. The
Company presently anticipates opening only one new permanent store in fiscal
2000. The Company operated 75 seasonal stores during the fiscal 1999 holiday
selling season and anticipates operating approximately 65 seasonal stores during
the fiscal 2000 holiday selling season.
The Company's business is subject to substantial seasonal variations.
Historically, a significant portion of the Company's sales and all of its net
income have been realized during the months of November and December, and net
sales have generally been significantly lower from January through October,
resulting in losses in the first three quarters. The Company expects that,
given its dependence on the holiday selling season, it will continue to
experience losses in the first three fiscal quarters. In addition, as a result
of the Company's expansion, management believes that the Company may experience
greater losses in the first three quarters of fiscal 2000 than it has
experienced over the past two years.
Sales consist almost entirely of merchandise purchased by customers in the
Company's stores. The Company's cost of sales and occupancy expenses include
the cost of operating the distribution center and other expenses associated with
acquiring inventory. Selling, general, and administrative expenses include non-
occupancy store expenses and administrative overhead expenses. The Company
recognizes all expense associated with the opening of new permanent and seasonal
stores as they are incurred, with the exception of leasehold improvements and
fixtures, which are capitalized. The cost of closing stores is expensed in the
period in which the decision to close the store is made.
A comparable store is a permanent store which has been open as a permanent
store for at least one full fiscal year as of the beginning of the fiscal year.
Comparable store net sales increases (decreases) for fiscal 1999, 1998, and
1997, were (9.4%), 4.4% and 1.5%, respectively. The number of comparable stores
in fiscal 1999, 1998, 1997, was 54, 43 and 37 respectively. Average net sales
per square foot declined in fiscal 1999 due to lower sales per square foot in
new permanent stores opened in fiscal 1998, reduced plush sales, liquidation by
a competitor and an overall sales decline in our industry. Average sales per
store decreased in fiscal 1999 due to a $3.9 million sales drop in plush sales
and lower comparable store sales.
The seasonal store program, which began in 1992, allows the Company to
expand its presence in the marketplace and take advantage of available in-line
mall retail space with minimal capital investment. Over the years the program
has made significant contributions to both sales and earnings while providing a
good testing ground for new permanent store locations. In fiscal 1998 and 1999
the Company experienced a decline in the quality of available space in its
seasonal store program due to a lack of space available in the better malls, and
increased competition from other retailers vying for available mall locations
during the holiday selling season. As a result of the recent trends associated
with its seasonal store program, the Company has placed greater emphasis in its
permanent store base in order to become less dependent on the availability of
seasonal store locations from year to year to achieve significant sales growth.
The Company's sales were negatively impacted in fiscal 1999 due to
decreased available supply of particular plush products. For fiscal 1999 plush
sales accounted for 7.2% of total sales as compared to 13.7% in fiscal 1998. The
impact on fiscal 1998 was greater due in part to a special one-time purchase of
fast selling plush items which had a positive effect on both sales and operating
results during the third quarter of fiscal 1998. Plush sales are expected to
decline further in fiscal 2000.
10
<PAGE>
Results of Operations
The following table sets forth, for the fiscal years indicated, certain
financial data as a percentage of sales. Results for any one or more periods
are not necessarily indicative of future results.
<TABLE>
<CAPTION>
Percentage of Net Sales
for Fiscal Year Ended
---------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales and occupancy expenses................................ 73.6 66.7 66.2
----- ----- -----
Gross profit........................................................ 26.4 33.3 33.8
Selling, general and administrative expenses........................ 32.4 28.7 27.9
----- ----- -----
Operating income (loss)............................................. (5.9) 4.6 5.9
Interest expense, net............................................... 0.9 0.4 0.5
----- ----- -----
Income (loss) before income taxes................................... (6.8) 4.2 5.4
Income tax expense (benefit)........................................ (2.7) 1.7 2.2
----- ----- -----
Net income (loss)................................................... (4.1%) 2.5% 3.2%
===== ===== =====
</TABLE>
Comparison of Fiscal 1999 to Fiscal 1998
Sales. Sales increased to $61.1 million from $60.7 million, an increase of
$400,000, or 0.7%. Of this increase in sales: $13.6 million was attributable to
thirteen new permanent stores opened during fiscal 1999 and twenty permanent
stores in operation for less than one year as of the beginning of fiscal 1998;
$386,000 was attributable to increased internet sales. These increases were
partially offset by comparable store sales declining $3.0 million due primarily
to decreased available supply of particular plush items, and seasonal store
sales declining $2.5 million due to lower average seasonal stores sales and the
operation of fewer seasonal stores. Comparable store sales for the Company's
permanent stores decreased 9.4% in fiscal 1999.
Cost of Sales and Occupancy Expenses. Cost of sales and occupancy expenses
increased to $45.0 million from $40.5 million, an increase of 11.1%. As a
percentage of sales, it increased to 73.6% from 66.7%. The dollar increase was
due to increased store occupancy costs from more permanent stores in operation
in fiscal 1999 and increased costs of sales due to higher sales. The percentage
of sales increase was due to increased store occupancy costs being spread over a
lower than expected sales base caused by a decline in seasonal store sales in
1999. Margins for products sold decreased 2.5% due to discounting of product in
the third and fourth quarters of fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $19.8 million from $17.5 million, an
increase of 13.3%. As a percentage of sales, it increased to 32.4% from 28.7%.
The dollar increase was due to supporting higher sales levels and an increased
number of permanent stores in fiscal 1999. The percentage of sales increase was
due to increased selling, general and administrative expenses being spread over
a lower than expected sales base caused by a decline in average store sales in
1999.
Interest Expense, Net. Net interest expense increased to $556,000 in fiscal
1999 from $265,000 in fiscal 1998, primarily as a result of higher average
borrowings during fiscal 1999.
Comparison of Fiscal 1998 to Fiscal 1997
Sales. Sales increased to $60.7 million from $54.3 million, an increase of $6.4
million, or 11.9%. Of this increase in sales: $7.6 million was attributable to
twenty new permanent stores opened during fiscal 1998 and twelve permanent
stores in operation for less than one year as of the beginning of fiscal 1997;
$1.1 million was attributable to increased comparable store sales. These
increases were partially offset by seasonal store sales declining $2.3 million
due to lower average seasonal store sales and the operation of fewer seasonal
stores. Comparable store sales for the Company's permanent stores increased
4.4% in fiscal 1998.
Cost of Sales and Occupancy Expenses. Cost of sales and occupancy expenses
increased to $40.5 million from $35.9 million, an increase of 12.7%. As a
percentage of sales, it increased to 66.7% from 66.2%. The dollar increase was
due to increased store occupancy costs from more stores in operation in fiscal
1998 and increased costs of sales due to higher sales. The percentage of sales
increase was due to increased store occupancy costs being spread over a lower
than expected sales base caused by a decline in average seasonal store sales in
1998. Margins for products sold increased .7% due to favorable purchasing,
particularly of overseas products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $17.5 million from $15.2 million, an
increase of 15.1%. As a percentage of sales, it increased to 28.7% from 27.9%.
The dollar increase was due to supporting higher sales levels and an increased
number of stores in fiscal 1998. The percentage of sales increase was due to
increased selling,
11
<PAGE>
general and administrative expenses being spread over a lower than expected
sales base caused by a decline in average seasonal store sales in 1998.
Interest Expense, Net. Net interest expense increased to $265,000 in fiscal
1998 from $237,000 in fiscal 1997, primarily as a result of higher average
borrowings during fiscal 1998.
Inflation and Seasonality
The Company does not believe that inflation has had a material impact on its
operations during any of the periods presented above. There can be no
assurance; however, that its business will not be affected by inflation in the
future.
The Company's business is subject to substantial seasonal variations in
demand. Historically, a significant portion of the Company's sales and all of
its net income have been realized during the months of November and December,
and levels of sales and net income have generally been substantially lower from
January through October, resulting in losses in the first three fiscal quarters.
In preparation for its holiday selling season, the Company significantly
increases inventories and related indebtedness, hires an increased number of
temporary employees in its stores and distribution center, and incurs costs in
setting up seasonal store locations. If, for any reason, the Company's sales
were to be substantially below seasonal norms during the months of November and
December, or if the Company could not hire a sufficient number of qualified
employees during the peak periods, the Company's business, financial condition
and results of operations would be adversely affected. Quarterly results are
also affected by the timing of new store openings and the amount of revenue
contributed by permanent and seasonal stores.
Liquidity and Capital Resources
The primary sources of the Company's cash for working capital and capital
expenditures have been net cash flows from operating activities, capital lease
financings and bank borrowings. Seasonal working capital needs have been met
through short-term borrowings under a revolving line of credit.
The Company's primary capital requirements and working capital needs are
related to capital expenditures for new stores, purchase and upgrade of
management information systems and the purchase of inventory to meet seasonal
needs, particularly inventory for the holiday selling season. Cash flow used in
operations amounted to $4.1 million in fiscal 1999 as compared to cash flow
provided by operations of $2.6 million in fiscal 1998. This was due to the net
loss from operations combined with increased levels of inventories and other
working capital items.
During fiscal 1999 the Company had a revolving line of credit for inventory
financing, secured by the Company's inventory ("old revolving line of credit").
Under this line, the Company could borrow up to the lesser of $24.0 million, or
40% to 75% of the Company's inventory book value depending on the time of year.
The line bore interest at the bank's prime rate or LIBOR plus 150 basis points.
The credit agreement for this line of credit prohibited the payment of cash
dividends or purchase or redemption of the Company's capital stock in excess of
$650,000 in the aggregate in any fiscal year. As of January 29, 2000, there was
$4.7 million outstanding under this line of credit. Primarily as a result of
the holiday selling season, the Company experiences significant seasonal
fluctuations in its financing needs.
On March 21, 2000 the Company entered into a new credit facility agreement
with a lender specializing in retail finance. Proceeds from this new line of
credit were used to discharge in full the Company's indebtedness under its
revolving line of credit. The credit facility provides the lesser of $20.0
million, or 53% to 80% of the Company's eligible inventory depending on the time
of the year. Any borrowings in excess of a pre-defined inventory advance rate
will pay interest at the lender's over-advanced rate. The credit facility will
be used for inventory financing and other working capital needs. The facility
also includes a sublimit of $2,000,000 for letters of credit and expires on
March 31, 2003. The line of credit under the inventory advance rate bears
interest at the lender's base commercial lending rate (8.5% at January 29,
2000), and borrowings under the over-advanced facility bears interest at the
lender's base commercial lending rate plus 2% per annum (10.5% at January 29,
2000). All borrowings under the facility will be secured by a perfected
security interest in all assets of the Company. The Company is also required to
pay interest on the unused portion of the line of credit at a rate of 1/4 of 1%
per year. The lines of credit contain certain covenants and conditions relating
to cash management, weekly, monthly, quarterly and annual reports, mutually
satisfactory financial performance requirements, limitations on dividends and
distributions as well as common stock repurchases during any twelve month
period. If the facility is terminated prior to March 31, 2003, the Company will
pay any early termination fee between 0-2% of the maximum borrowing under the
line of credit depending on the reason for termination.
Maximum borrowings under the Company's old revolving line of credit peaked at
$16.2 million, $13.6 million, and $8.7 million during fiscal 1999, fiscal 1998,
and fiscal 1997, respectively, and averaged $7.2 million, $3.9 million, and $2.7
million, respectively, for those fiscal years.
12
<PAGE>
As of January 29, 2000, outstanding capital lease obligations and total debt
amounted to $197,000, all of which represented capital lease obligations. The
capital lease obligations have terms expiring in fiscal 2002.
The capital expenditures associated with the opening of new permanent stores
range from $200,000 to $370,000 per store, before landlord build-out allowances,
if any, which vary from site to site. In addition, the Company initially stocks
each new permanent store with approximately $90,000 to $100,000 of inventory,
with peak inventory levels during the holiday selling season reaching
approximately $150,000 per store. The capital expenditures associated with
opening a seasonal store are nominal as these stores require minimal build-out
and utilize reusable fixtures. Each seasonal store is initially stocked with
approximately $50,000 of inventory, with peak inventory levels during the
holiday selling season reaching approximately $80,000 per store. It typically
takes 4 to 6 months from the time a lease is executed to the opening of a
permanent store for business. The lead time for a seasonal store is
substantially shorter. Pre-opening expenses for both permanent and seasonal
stores are minimal, and are expensed as incurred.
Capital expenditures in fiscal 1999, net of landlord build-out allowances,
were $2.4 million, as compared to $4.9 million in fiscal 1998. The Company
anticipates capital expenditures of approximately $500,000 in fiscal 2000. In
addition to the cost of new store construction, the Company expects to make
upgrades to its network and internet systems.
In April 1998, the Company's Board of Directors authorized a stock repurchase
program of up to $650,000 of the Company's common stock. The shares may be
repurchased, from time to time for a period of up to 24 months, through open
market purchases and privately negotiated transactions, subject to the
availability of shares and other market and financial conditions. In
conjunction with the stock repurchase program, the Company received approval
under its old credit agreement to acquire up to $650,000 of the Company's common
stock. The Company repurchased 318,800 shares in the third quarter of fiscal
1998 for $649,000. In December 1998, the Company's Board of Directors
authorized and received bank approval for a second repurchase program of up to
$650,000 of the Company's common stock under terms similar to the previous stock
repurchase program. The Company repurchased 25,050 in the second and third
quarter of fiscal 1999 for $43,000. The new credit agreement limits future
common stock repurchases during any twelve month period.
In response to softness in fiscal 1999 sales activity within our product
segment, management developed a cash flow model projecting cash proceeds against
working capital needs through fiscal 2000. At April 28, 2000 the Company
appears to be on plan with its cash flow estimates, however, management
continues to actively explore additional sources of financing opportunities for
potential working capital needs for the balance of the fiscal year and into
fiscal 2001. There are no assurances that such financings will be available.
Year 2000 Matters
The Company's fiscal 1998 form 10-K and fiscal 1999 10-Q's detailed the nature
and extent of the Company's efforts to prepare for the year 2000 (Y2K) date
changeover. By any measure, the efforts were a success. There were no major
Y2K incidents that affected the Company. The Company will continue to monitor
its internal and external resources for possible disruptions related to Y2K, but
anticipates none.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Independent Auditors' Report............................................................................................ 15
Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999................................................. 16
Consolidated Statements of Operations for the years ended January 29, 2000, January 30, 1999 and January 31, 1998....... 17
Consolidated Statements of Stockholders' Equity for the years ended January 29, 2000, January 30, 1999 and January 31,
1998................................................................................................................... 18
Consolidated Statements of Cash Flows for the years ended January 29, 2000, January 30, 1999 and January 31, 1998...... 19
Notes to Consolidated Financial Statements including supplementary data entitled
"Selected Quarterly Financial Data (Unaudited)"......................................................................... 20-28
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
World of Science, Inc.:
We have audited the accompanying consolidated balance sheets of World of
Science, Inc. and subsidiary (Company) as of January 29, 2000 and January 30,
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
January 29, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of World of
Science, Inc. and subsidiary as of January 29, 2000 and January 30, 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended January 29, 2000, in conformity with generally
accepted accounting principles.
KPMG, LLP
March 24, 2000
Rochester, New York
15
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
January 29, January 30,
2000 1999
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.......................................................... $ 1,571,856 $ 3,543,028
Accounts receivable................................................................ 216,983 442,883
Inventories........................................................................ 11,804,385 10,224,528
Prepaid expenses and other current assets.......................................... 612,008 739,326
Income taxes receivable............................................................ 1,265,946 --
Deferred income taxes.............................................................. 747,300 664,000
----------- -----------
Total current assets............................................................ 16,218,478 15,613,765
Property, equipment and leasehold improvements, net.................................. 10,280,529 9,678,485
Deferred income taxes................................................................ 1,261,500 872,000
----------- -----------
Total assets.................................................................... $27,760,507 $26,164,250
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Line of credit..................................................................... $ 4,677,862 $ --
Current installments of obligations under capital leases........................... 122,371 93,606
Accounts payable................................................................... 1,904,029 1,362,163
Accrued expenses................................................................... 718,559 496,606
Accrued sales taxes................................................................ 148,475 150,499
Income taxes payable............................................................... -- 1,245,178
----------- -----------
Total current liabilities....................................................... 7,571,296 3,348,052
Obligations under capital leases, excluding current installments..................... 74,196 82,148
Accrued occupancy expense............................................................ 837,014 911,049
----------- -----------
Total liabilities............................................................... 8,482,506 4,341,249
----------- -----------
Commitments and contingencies (notes 4, 6 and 10)
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
no shares issued and outstanding................................................. -- --
Common stock, $.01 par value. Authorized 10,000,000 shares;
issued 5,079,955 shares.......................................................... 50,800 50,800
Additional paid-in capital......................................................... 11,398,143 11,398,143
Retained earnings.................................................................. 8,521,546 11,023,483
Treasury stock, 343,850 and 318,800 shares, at cost................................ (692,488) (649,425)
----------- -----------
Total stockholders' equity...................................................... 19,278,001 21,823,001
----------- -----------
Total liabilities and stockholders' equity...................................... $27,760,507 $26,164,250
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................................................ $61,134,924 $60,709,470 $54,259,279
Cost of sales and occupancy expenses..................................... 44,968,377 40,472,690 35,922,111
----------- ----------- -----------
Gross profit........................................................... 16,166,547 20,236,780 18,337,168
Selling, general and administrative expenses............................. 19,780,936 17,452,990 15,157,933
----------- ----------- -----------
Operating (loss) income................................................ (3,614,389) 2,783,790 3,179,235
Interest expense, net.................................................... 555,548 264,561 237,106
----------- ----------- -----------
(Loss) income before income taxes...................................... (4,169,937) 2,519,229 2,942,129
Income tax (benefit) expense............................................. (1,668,000) 999,000 1,182,000
----------- ----------- -----------
Net (loss) income...................................................... $(2,501,937) $ 1,520,229 $ 1,760,129
=========== =========== ===========
Net (loss) income per share - basic.................................... $ (0.53) $ 0.31 $ 0.40
=========== =========== ===========
Net (loss) income per share - diluted.................................. $ (0.53) $ 0.31 $ 0.40
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Treasury Total
Common Stock Paid-In Retained Stock Stockholders'
------------------
Shares Amount Capital Earnings at Cost Equity
------ ------ ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1998..................... 5,079,955 $ 50,800 $ 11,398,143 $ 9,503,254 $ -- $ 20,952,197
Repurchase of common stock...................... -- -- -- -- (649,425) (649,425)
Net income...................................... -- -- -- 1,520,229 -- 1,520,229
--------- -------- ------------ ----------- ---------- ------------
Balance at January 30, 1999..................... 5,079,955 50,800 11,398,143 11,023,483 (649,425) 21,823,001
Repurchase of common stock...................... -- -- -- -- (43,063) (43,063)
Net loss........................................ -- -- -- (2,501,937) -- (2,501,937)
--------- -------- ------------ ----------- ---------- ------------
Balance at January 29, 2000..................... 5,079,955 $ 50,800 $ 11,398,143 $ 8,521,546 $ (692,488) $ 19,278,001
========= ======== ============ =========== ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
----------------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.................................................... $(2,501,937) $ 1,520,229 $ 1,760,129
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization....................................... 1,944,447 1,654,838 1,349,662
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable.............................................. 225,900 (329,395) (59,149)
Inventories...................................................... (1,579,857) 179,505 (3,476,996)
Prepaid expenses and other current assets........................ 127,318 (206,695) (146,450)
Income taxes receivable.......................................... (1,265,946) -- --
Deferred income taxes............................................ (472,800) (327,000) (301,000)
(Decrease) increase in:
Accounts payable................................................. 541,866 42,629 (249,692)
Accrued expenses................................................. 221,953 87,768 (227,466)
Accrued sales taxes.............................................. (2,024) (10,833) 69,662
Income taxes payable............................................. (1,245,178) (155,173) (63,076)
Accrued occupancy expense........................................ (74,035) 131,598 116,561
----------- ----------- -----------
Net cash provided by (used in) operating activities............ (4,080,293) 2,587,471 (1,227,815)
----------- ----------- -----------
Cash flows from investing activities -- capital
expenditures, net of minor disposals................................. (2,389,990) (4,902,649) (2,584,079)
----------- ----------- -----------
Cash flows from financing activities:
Repurchase of common stock........................................... (43,063) (649,425) --
Net proceeds from issuance of common stock........................... -- -- 8,711,693
Net proceeds from line of credit..................................... 4,677,862 -- --
Principal payments on long-term debt................................. -- (68,695) (68,922)
Principal payments on capital leases................................. (135,688) (165,735) (103,069)
----------- ----------- -----------
Net cash provided by (used in) financing activities................... 4,499,111 (883,855) 8,539,702
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.................. (1,971,172) (3,199,033) 4,727,808
Cash and cash equivalents at beginning of year........................ 3,543,028 6,742,061 2,014,253
----------- ----------- -----------
Cash and cash equivalents at end of year.............................. $ 1,571,856 $ 3,543,028 $ 6,742,061
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest............................................................ $ 560,512 $ 353,429 $ 281,136
Income taxes........................................................ $ 1,315,924 $ 1,481,173 $ 1,559,077
=========== =========== ===========
Noncash financing activity:
Acquisition of equipment under a capital lease....................... $ 156,501 $ -- $ 212,539
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three-Year Period Ended January 29, 2000
(1) Nature of Business and Summary of Significant Accounting Policies
Nature of Business
World of Science, Inc. and subsidiary (the Company), a Rochester, New York
based corporation, markets and distributes a large variety of science and nature
related products through its World of Science(R) retail stores, generally
located in regional shopping malls in the eastern half of the United States, and
its Internet store located at www.worldofscience.com.
The Company currently operates 84 permanent World of Science stores,
including 13 new permanent stores in fiscal 1999. Permanent stores typically
operate under 7 to 10 year leases in mall locations.
The Company also operated 75 World of Science seasonal stores during the
fiscal 1999 holiday season of which 24 were still open at the end of fiscal
1999. Seasonal stores operate under shorter-term lease agreements ranging from
month to month to three years. Although seasonal store leases do not include a
long-term commitment with mall owners, management fully expects to renew or
replace these leases for the fiscal 2000 holiday season.
In April 1999, the Company formed a wholly-owned subsidiary named WOSI on
the WEB, Inc., which focuses on the operation of the web site. The site is
designed to facilitate business to customer sales transactions over the
Internet. Certain administrative costs of the subsidiary are supported through
World of Science, Inc. headquarters operations.
Fiscal Year
Reference to a fiscal year refers to the calendar year in which such fiscal
year commences. Accordingly, fiscal 1999 ended on January 29, 2000, fiscal 1998
ended on January 30, 1999 and fiscal 1997 ended on January 31, 1998.
The Company's fiscal year ends on the Saturday closest to January 31. There
were 52 weeks in fiscal year 1999, 1998 and 1997.
Cash Equivalents
Cash equivalents consist of amounts on deposit with banks and money market
funds.
Inventories
Inventories, which consist of goods ready for retail sale are stated at the
lower of weighted average cost or market.
Treasury Stock
Treasury stock is reported using the cost method.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation is computed for book and tax purposes using straight-line and
accelerated methods over the following periods:
<TABLE>
<S> <C>
Furniture, equipment and temporary store fixtures....... 4-9 years
Leasehold improvements.................................. 4-10 years (or lease term, if shorter)
Truck................................................... 4 years
</TABLE>
Construction allowances received from shopping mall operators, consisting
of cash payments and/or free rent periods, are deducted from the cost of
leasehold improvements.
20
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Occupancy Expense
Occupancy expense is recorded on the straight-line basis over the term of the
lease, including certain leases under which lease payments escalate over the
term of the lease. Accrued occupancy expense is recorded for the excess of
expense determined on a straight-line basis over cash payments during the
escalation period.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period which includes the
enactment date.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Store Openings and Closings
The Company expenses all costs associated with the opening of a store in the
current period, with the exception of leasehold improvements and fixtures which
are capitalized. The Company accrues the anticipated cost of closing a store,
including remaining lease obligations, if any, and the undepreciated cost of
leasehold improvements in the period in which the decision to close the store is
made.
Stock Option Plans
The Company accounts for its stock option plans in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue to
apply the provisions of APB Opinion No. 25, which recognizes compensation on the
date of grant only if the current market price of the underlying stock is in
excess if the exercise price of the stock option. By electing to continue to
apply the provisions of APB Opinion No. 25 a company must also provide pro forma
net income and pro forma earnings (loss) per share disclosures for employee
stock option grants made as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company continues to apply the provisions of APB
Opinion No. 25 and provides the pro forma disclosure provisions of SFAS No. 123
in note 9.
Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
21
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Share and Per Share Amounts
Basic net income (loss) per share for fiscal 1999, 1998 and 1997 was
computed by dividing net income (loss) by the total of weighted average number
of common shares outstanding during the period. Diluted net income (loss) per
share reflects the effects of common stock issuable upon exercise of dilutive
stock options and warrants.
Accounting Standards Pronouncements
During 1998, the Company adopted the provisions of SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. The adoption of SFAS No. 130
does not impact the Company's financial statements.
During 1998, the Company adopted SFAS No. 131, Disclosure about Segments of
an Enterprise and Related Information. SFAS No. 131 requires public companies to
report certain financial and other information about key revenue-producing
segments for which such information is available and utilized by the chief
operating decision maker.
Specific information to be reported for individual segments include profit
and loss, certain revenue and expense items, and total assets. As a specialty
retailer the Company's operations involve the marketing and distribution of
science and nature related products through its retail stores. Management makes
operating decisions and assesses performance based upon an ongoing review of
each retail store performance, which constitute the Company's only operating
segments for financial reporting purposes. Therefore, the adoption of SFAS No.
131 does not impact the Company's financial statements.
Principals of Consolidation
The accompanying consolidated financial statements include activity from
the Company's wholly owned subsidiary WOSI on the Web, Inc. All significant
intercompany accounts and transactions are eliminated in consolidation.
(2) Treasury Stock
During fiscal 1998 the Company's Board of Directors authorized two common
stock repurchase programs of up to $650,000 each of the Company's common stock.
In fiscal 1998, the Company repurchased 318,800 shares of common stock for
$649,425 and in fiscal 1999 the Company repurchased 25,050 shares of common
stock for $43,063.
(3) Property, Equipment and Leasehold Improvements
A summary of property, equipment and leasehold improvements follows:
<TABLE>
January 29, January 30,
2000 1999
---- ----
<S> <C> <C>
Leasehold improvements--open stores.......................................... $12,751,179 $10,706,098
Furniture, equipment and temporary store fixtures............................ 5,278,676 4,689,580
Construction in progress - stores under construction......................... 384,674 611,112
----------- -----------
18,414,529 16,006,790
Less accumulated depreciation and amortization............................... 8,134,000 6,328,305
----------- -----------
$10,280,529 $ 9,678,485
=========== ===========
</TABLE>
Construction allowances received from shopping mall developers totaling
$725,013 and $1,332,248 in fiscal 1999 and 1998, respectively, have been
recorded as reductions of leasehold improvements.
Construction in progress at January 29, 2000 consists of leasehold
improvements and fixtures for stores which will be opening in fiscal 2000 or
future years. All stores with construction in progress at January 30, 1999 were
opened during the year ended January 29, 2000.
22
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Lease Agreements
The Company leases retail space for stores, warehouse space, and vans. The
Company is granted concessions for certain leases related to retail space to
offset the cost of leasehold improvements. The Company records the concessions
as a reduction in the cost of leasehold improvements and charges gross rent
expense on a straight-line basis over the initial term of the lease.
The future minimum lease payments under noncancelable operating leases
executed as of March 24, 2000 and the present value of future minimum capital
lease payments as of January 29, 2000 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
<S> <C> <C>
Fiscal year:
2000............................................................................ $127,584 $ 7,461,178
2001............................................................................ 66,701 6,350,778
2002............................................................................ 8,916 5,923,290
2003............................................................................ -- 5,284,159
2004............................................................................ -- 4,950,670
After 2004...................................................................... -- 15,910,818
-------- -----------
Total minimum lease payments.................................................... 203,201 $45,880,893
===========
Less amount representing interest.................................................. 6,634
--------
Present value of net minimum capital lease payments................................ 196,567
Less current installments of obligations under capital leases...................... 122,371
--------
Obligations under capital leases, excluding current installments................... $ 74,196
========
</TABLE>
Certain lease agreements for retail space provide for contingent rental
payments in excess of the minimum required payments if the specific store
exceeds certain sales levels. Rent expense in excess of the minimum required
amounts for the stores was $83,888, $176,261, and $257,739, for fiscal years
1999, 1998, and 1997, respectively.
Total rent expense under all leases amounted to $13,194,445, $11,163,190,
$9,596,122 for fiscal years 1999, 1998, and 1997, respectively.
(5) Income Taxes
Income tax expense (benefit) for fiscal years 1999, 1998, and 1997,
consists of the following:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1999
Current...................................................... $(1,153,600) $ (41,600) $(1,195,200)
Deferred..................................................... (99,300) (373,500) (472,800)
----------- --------- -----------
$(1,252,900) $(415,100) $(1,668,000)
=========== ========= ===========
1998
Current...................................................... $ 1,051,000 $ 275,000 $ 1,326,000
Deferred..................................................... (263,000) (64,000) (327,000)
----------- --------- -----------
$ 788,000 $ 211,000 $ 999,000
=========== ========= ===========
1997
Current...................................................... $ 1,151,000 $ 332,000 $ 1,483,000
Deferred..................................................... (250,000) (51,000) (301,000)
----------- --------- -----------
$ 901,000 $ 281,000 $ 1,182,000
=========== ========= ===========
</TABLE>
23
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the expected tax expense, computed by applying the
statutory income tax rate of 34% to income before income taxes, to the actual
income tax expense follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed expected tax expense.................................. $(1,417,800) $852,000 $1,000,000
State taxes, net of federal benefit............................ (274,000) 139,000 185,000
Other, net..................................................... 23,800 8,000 (3,000)
----------- -------- ----------
$(1,668,000) $999,000 $1,182,000
=========== ======== ==========
Effective tax rate.......................................... 40.0% 39.7% 40.2%
=========== ======== ==========
</TABLE>
The significant components of deferred tax assets are presented below:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Inventory.................................................................... $ 697,000 $ 619,000
Accrued occupancy expense.................................................... 382,000 364,000
Depreciation................................................................. 741,000 535,000
Net operating loss carryover................................................. 138,300 --
Other........................................................................ 50,500 18,000
---------- ----------
Total gross deferred tax assets........................................... 2,008,800 1,536,000
Less valuation allowance..................................................... -- --
---------- ----------
Net deferred tax assets................................................... $2,008,800 $1,536,000
========== ==========
</TABLE>
In assessing the realizability of deferred tax assets, management evaluates
whether it is more likely than not that some or all of the deferred tax assets
will be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the projected
future taxable income and tax planning strategies in making this assessment.
Based on the level of historical taxable income and estimates of future taxable
income over the periods which the deferred tax assets are deductible, management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences. Accordingly, a valuation allowance against
total gross deferred tax assets is not considered necessary.
(6) Lines of Credit
During fiscal 1999 the Company had an available revolving line of credit
totaling $24,000,000 with interest at the equivalent of the prime rate or Libor
+ 1.5%. Total amounts outstanding under this facility were limited to a maximum
of the book value of inventory ranging from 40% to 75% depending on the time of
year. There was $4,677,862 and $-0- outstanding under this arrangement as of
January 29, 2000 and January 30, 1999, respectively.
During fiscal 1999 the Company paid a commitment fee on the unused portion
of the revolving line of credit which was calculated at a rate of 1/4 of 1.0%.
The line was collateralized by warehouse and store inventory.
At January 29, 2000 and January 30, 1999 no banker acceptances were
outstanding, and the Company was contingently liable under outstanding letters
of credit of $156,767 and $15,040, respectively.
The maximum outstanding balance under this line of credit during fiscal
years 1999 and 1998 was $16,153,000 and $13,600,000, respectively. The average
balance outstanding was $7,207,000 and $3,886,000 for fiscal 1999 and 1998,
respectively.
On March 21, 2000 the Company entered into a new credit facility agreement
with a lender specializing in retail finance. The credit facility provides the
lesser of $20 million, or 53% to 80% of the Company's eligible inventory
depending on the time of the year. Any borrowings in excess of a pre-defined
inventory advance rate will pay interest at the lender's over advanced rate. The
credit facility will be used for inventory financing and other working capital
needs. The facility also includes a sublimit of $2,000,000 for letters of credit
and expires on March 31, 2003. The line of credit under the inventory advance
rate bears interest at the lender's base commercial lending rate (8.5% at
January 29, 2000), and borrowings under the overadvanced facility bears interest
at the lender's base commercial lending rate plus 2% per annum (10.5% at January
29, 2000). All borrowings under the facility will be secured by a perfected
security interest in all assets of the Company. The Company is also required to
pay interest on the unused portion of the line of credit at a rate of 1/4 of
1.0% per year.
24
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The lines of credit contain certain covenants and conditions relating to
cash management, weekly, monthly, quarterly and annual reports, mutually
satisfactory financial performance requirements, limitations on dividends and
distributions as well as common stock repurchases during any twelve month
period. If the facility is terminated prior to March 31, 2003, the Company will
pay an early termination fee between 0-2% of the maximum borrowing under the
line of credit depending on the reason for termination.
(7) Benefit Plans
The Company does not currently offer and has not offered in the past,
postemployment or postretirement benefits to its current or former employees,
and accordingly, does not have a recorded liability for such benefits.
The Company sponsors a 401(k) plan for all employees who have met certain
eligibility requirements. The Company matches 50% of employee contributions to
the plan up to a maximum match of 2.5% of employee compensation. For fiscal
1999, 1998 and 1997, total expenses under the plan were $71,103, $60,250, and
$71,027, respectively.
(8) Net Income (Loss) Per Share
Basic and diluted earnings (loss) per share for the years ended January 29,
2000, January 30, 1999, and January 31, 1998 are as follows:
<TABLE>
<CAPTION>
Weighted
Net (loss) Average Earnings (loss)
Income Shares per Share
------ ------ ---------
<S> <C> <C> <C>
For the Year Ended January 29, 2000
- -----------------------------------
Basic EPS............................................ $(2,501,937) 4,749,285 $(0.53)
======
Dilutive effect of Outstanding Stock Options......... --
Diluted EPS.......................................... $(2,501,937) 4,749,285 $(0.53)
=========== ========= ======
For the Year Ended January 30, 1999
- -----------------------------------
Basic EPS............................................ $ 1,520,229 4,947,246 $ 0.31
======
Dilutive effect of Outstanding Stock Options......... 16,646
---------
Diluted EPS.......................................... $ 1,520,229 4,963,892 $ 0.31
=========== ========= ======
For the Year Ended January 31, 1998
- -----------------------------------
Basic EPS............................................ $ 1,760,129 4,361,823 $ 0.40
======
Dilutive effect of Outstanding Stock Options......... 83,246
---------
Diluted EPS.......................................... $ 1,760,129 4,445,069 $ 0.40
=========== ========= ======
</TABLE>
25
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) Stock Options and Warrants
The Company has two Stock Option Plans (the Plans) for employees and
directors. The Plans authorize the issuance of options to purchase up to 640,000
shares of the Company's common stock. The Plans provide for options which may
be issued as qualified incentive stock options under Section 422A of the
Internal Revenue Code of 1986, as amended, as well as nonqualified stock
options.
Options under the Plans are granted at the discretion of the Board of
Directors. The exercise price of qualified incentive stock options under the
Plans will not be less than the fair market value of the Company's stock at the
date of grant, except in the case of an optionee owning more than 10% of the
total combined voting power of all classes of stock of the Company, the price at
which shares of stock may be purchased shall not be less than 110% of the fair
market value. Options to the extent vested can be exercised immediately. The
options expire five years from the date of grant for options granted to a person
then owning more than 10% of the voting power of all common stock and ten years
from the date of grant for all other non-employee directors, officers and
employees. Stock appreciation rights may be granted in connection with stock
options. Such rights are exercisable by the optionee at any time a related
option could be exercised, and are payable in cash, common stock or any
combination. The exercise of a stock appreciation right results in cancellation
of the related option. No stock appreciation rights have been granted under the
Plans.
Options granted to employees vest 20% upon grant date with the remaining
80% vesting ratably over a four year period. Options granted to employees prior
to fiscal 1996 and options granted to directors vested 100% upon grant date.
At January 29, 2000, there were 302,500 shares available for grant under
the Plans, 128,500 shares were granted during fiscal 1999. The per share
weighted-average fair value of stock options granted during fiscal 1999 was
$2.31. No shares were granted in fiscal 1998. The fair value of options at the
date of grant was estimated using the Black Scholes option-pricing model with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (years).......................... 5.0 -- 5.0
Dividend yield................................. -- -- --
Risk-free interest rate........................ 6.00% -- 6.00%
Expected volatility............................ 134.83% -- 73.31%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net income (loss):
As reported................................................................. $(2,501,937) $1,520,229
Pro forma................................................................... (2,563,351) 1,464,362
Net income (loss) per share -basic:
As reported................................................................. $ (0.53) $ 0.31
Pro forma................................................................... $ (0.54) $ 0.30
Net income (loss) per share -diluted:
As reported................................................................. $ (0.53) $ 0.31
Pro forma................................................................... $ (0.54) $ 0.30
</TABLE>
Proforma net income reflects only options granted subsequent to January 28,
1996. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of five years and compensation cost for options granted prior to fiscal
1996 is not considered. Proforma amounts for compensation cost may not be
indicative of the effects on earnings for future years.
26
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of the change in options outstanding for fiscal
1999, 1998 and 1997:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
------- --------------
<S> <C> <C>
Outstanding at February 1, 1997................................................ 165,000 $2.50
Granted..................................................................... 28,000 4.75
Exercised................................................................... (17,000) 2.10
Terminated.................................................................. (8,000) 3.00
-------
Outstanding at January 31, 1998................................................ 168,000 2.89
Granted..................................................................... -- --
Exercised................................................................... -- --
Terminated.................................................................. -- --
-------
Outstanding at January 30, 1999................................................ 168,000 2.89
Granted..................................................................... 128,500 2.31
Exercised................................................................... -- --
Terminated.................................................................. (51,000) 2.64
-------
Outstanding at January 29, 2000................................................ 245,500 2.64
=======
</TABLE>
At January 29, 2000, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------
Weighted Average
Range of Exercise Remaining Weighted Average Number Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.80 - 2.50 90,000 5 years $2.26 80,000 $2.23
$3.00 - 4.75 56,000 7 years 3.81 41,200 3.73
$1.06 - 2.75 99,500 9 years 2.31 24,700 2.31
------- ------- ----- ------- -----
245,500 7 years $2.64 145,900 $2.66
======= ======= ===== ======= =====
</TABLE>
27
<PAGE>
WORLD OF SCIENCE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Legal Matters
In November 1999, a lawsuit was filed against the Company by Native America
Arts, Inc. in the Federal District Court for the Northern District of Illinois.
The lawsuit, entitled Native American Arts, Inc. v. World of Science, Inc.,
alleges that the Company sold products which were falsely represented to be made
by Native American Indians in violation of The Indian Arts and Crafts Act of
1990. The lawsuit seeks compensatory and punitive damages. The Company disputes
the allegations of wrongdoing in the complaint and believes there are
substantial defenses to the lawsuit.
From time to time, the Company is subject to other legal proceedings and
claims in the ordinary course of business. The Company currently is not aware of
any such other legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on its business,
financial condition and operating results. The Company maintains general
liability insurance coverage in amounts deemed adequate by management.
(11) Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data for fiscal 1999 and 1998 follows (in
thousands except per share data):
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year
-------------- --------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Fiscal 1999
- -----------
Net sales........................ $ 8,839 $ 9,074 $10,571 $32,651 $61,135
Gross profit..................... 1,364 1,070 1,302 12,431 16,167
Operating income (loss).......... (2,616) (3,156) (3,630) 5,788 (3,614)
Net income (loss)................ (1,573) (1,965) (2,326) 3,362 (2,502)
Net income (loss) per share:
Basic.......................... (0.33) (0.41) (0.49) 0.71 (0.53)
Diluted........................ (0.33) (0.41) (0.49) 0.71 (0.53)
Fiscal 1998
- -----------
Net sales........................ $ 7,863 $ 8,593 $10,594 $33,659 $60,709
Gross profit..................... 1,526 1,513 2,313 14,884 20,236
Operating income (loss).......... (1,847) (1,934) (2,127) 8,691 2,783
Net income (loss)................ (1,079) (1,177) (1,384) 5,160 1,520
Net income (loss) per share:
Basic.......................... (0.21) (0.23) (0.28) 1.08 0.31
Diluted........................ (0.21) (0.23) (0.28) 1.08 0.31
</TABLE>
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Directors is incorporated by reference from the
section entitled "Election of Directors" in the World of Science definitive
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with the Annual Meeting of Stockholders to be held on June 8, 2000
(the "Proxy Statement"). Information regarding Executive Officers is set forth
in Item 1 of Part I of this Report under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
The information required is incorporated by reference from the definitive
Proxy Statement for the Company's 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated by reference from the definitive
Proxy Statement for the Company's 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated by reference from the definitive
Proxy Statement for the Company's 2000 Annual Meeting of Stockholders.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a). FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, AND EXHIBITS.
1. FINANCIAL STATEMENTS
The following consolidated financial statements and supplementary data
of the registrant and independent auditors' report on such financial
statements are filed under Part II, Item 8.
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Independent Auditors' Report............................................................................................. 15
Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999.................................................. 16
Consolidated Statements of Operations for the years ended January 29, 2000, January 30, 1999 and January 31, 1998........ 17
Consolidated Statements of Stockholders' Equity for the years ended January 29, 2000, January 30, 1999 and January 31,
1998..................................................................................................................... 18
Consolidated Statements of Cash Flows for the years ended January 29, 2000, January 30, 1999 and January 31, 1998........ 19
Notes to Consolidated Financial Statements including supplementary data entitled
"Selected Quarterly Financial Data (Unaudited)".......................................................................... 20-28
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because they are not
applicable or are not required.
3. EXHIBITS
A list of Exhibits required to be filed as part of this report is
incorporated by reference on page 32 of this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the fourth quarter of fiscal 1999.
30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
Date: April 28, 2000 WORLD OF SCIENCE, INC.
(Registrant)
By: /s/ CHARLES A. CALLAHAN
----------------------------------------------
Charles A. Callahan
VICE PRESIDENT, FINANCE
CHIEF FINANCIAL OFFICER AND ASSISTANT SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------- ----------------------------------------------------------
<S> <C>
/s/ FRED H. KLAUCKE
- ----------------------------------------- Chairman of the Board, President
(Fred H. Klaucke) and Chief Executive Officer
/s/ CHARLES A. CALLAHAN Vice President, Finance,
- ----------------------------------------- Chief Financial Officer, and Assistant
(Charles A. Callahan) Secretary (Principal Accounting
and Financial Officer)
/s/ RICHARD B. CALLEN
- ----------------------------------------- Director
(Richard B. Callen)
/s/ PATRICK J. FULFORD
- ----------------------------------------- Director
(Patrick J. Fulford)
/s/ THOMAS A. JAMES
- ----------------------------------------- Director
(Thomas A. James)
</TABLE>
Date: April 28, 2000
31
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Filed
No. Description By Reference To Herewith
----------- --------------- --------
<S> <C> <C> <C>
3.1 Form of Restated Certificate of Incorporation of the Company. Exhibit 3.1 to World of
Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
3.2 Form of Bylaws of the Company, as amended. Exhibit 3.2 to World of
Science, Inc's Fiscal
1997 Form 10-K Report
4 Specimen Certificate of Common Stock of the Company. Exhibit 4 to World of
Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.1* Employment Agreement dated February 1, 1996 by and between the Exhibit 10.1 to World
Company and Fred H. Klaucke. of Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.2* Covenant Not-to-Compete and Non-Disclosure Agreement dated June, 1989 of Exhibit 10.2 to World
Fred H. Klaucke. of Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.3* 1993 Employee Stock Option Plan of the Company. Exhibit 10.3 to World
of Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.4* 1989 Incentive Stock Option Plan of the Company. Exhibit 10.4 to World
of Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.5 Lease Agreement dated as of September 11, 1968 between the Company and Exhibit 10.5 to World
Genesee Valley Regional Market Authority, together with all amendments of Science, Inc's
thereto. Registration Statement
on Form S-1 (No.
333-25031)
10.6 Lease Agreement dated as of March 29, 1994 between the Company and BF Exhibit 10.6 to World
Realty Investors Rochester II Limited Partnership. of Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.7 Sublease dated as of March 31, 1997 between the Company and Tertrac Exhibit 10.7 to World
Associates. of Science, Inc's
Registration Statement
on Form S-1 (No.
333-25031)
10.8 Revolving Credit Agreement dated March 21, 2000 X
11.1 Computation of Earnings Per Share. X
21.1 Subsidiaries of the Company X
23.1 Consent of KPMG LLP. X
27.1 Financial Data Schedule. X
</TABLE>
* Plan or agreement pursuant to which the Company's officers or directors have
received compensation.
32
<PAGE>
COMPANY: WORLD OF SCIENCE, INC.
TICKER: WOSI
EXCHANGE: NMS
FORM-TYPE: 10-K
Exhibit 10.8 Loan Agreement
FILING-DATE: April 28, 2000
Exhibit 10.8
================================================================================
LOAN AGREEMENT
Between
IBJ WHITEHALL RETAIL FINANCE
Agent for the Revolving Credit Lenders
And
WORLD OF SCIENCE, INC.
Lead Borrower For
World of Science, Inc.
WOSI on the Web, Inc.
As of March 21, 2000
================================================================================
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Introduction: 1
1. Definitions: 1
2. The Revolving Credit: 19
(a) Establishment of Revolving Credit. 19
(b) Advances in Excess of Borrowing Base (Overloans). 19
(c) Valuation of Collateral 20
(d) Revolving Credit Lenders' Commitment. 20
(e) Revolving Credit Loan Requests 20
(f) Making of Revolving Credit Loans 22
(g) SwingLine Loans 22
(h) The Loan Account 23
(i) The Revolving Credit Notes 24
(j) Payment of the Loan Account 24
(k) Interest on Revolving Credit Loans. 25
(l) Revolving Credit Commitment Fee 26
(m) OverAdvance Facility Fee 26
(n) Agent's Fee 26
(o) Unused Line Fee. 26
(p) Early Termination Fee. 26
(q) Concerning Fees. 28
(r) Agent's and Revolving Credit Lenders' Discretion 28
(s) Procedures For Issuance of L/C's 29
(t) Fees For L/C's 29
(u) Changed Circumstances 30
(v) Designation of Lead Borrower as Borrowers' Agent. 31
(w) Lenders' Commitments 32
3. Conditions Precedent: 33
(a) Corporate Due Diligence. 33
(b) Opinion. 33
(c) Additional Documents. 33
(d) Officers' Certificates. 34
(e) Representations and Warranties. 34
(f) Minimum Day One Availability. 34
(g) All Fees and Expenses Paid. 34
(h) No Borrower InDefault. 34
(i) No Adverse Change. 34
4. General Representations, Covenants and Warranties: 35
(a) Payment and Performance of Liabilities. 35
(b) Due Organization. Corporate Authorization. No Conflicts. 35
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(c) Trade Names. 36
(d) Infrastructure. 36
(e) Indebtedness 37
(f) Licenses 37
(g) Leases. 37
(h) Requirements of Law 38
(i) Labor Relations 38
(j) Taxes. 38
(k) The Tax Refunds. 39
(l) No Margin Stock. 40
(m) ERISA 41
(n) Hazardous Materials 41
(o) Litigation 41
(p) Dividends. Investments. Corporate Action 41
(q) Loans 42
(r) Line of Business 42
(s) Affiliate Transactions 42
(t) Adequacy of Disclosure 42
(u) No Restrictions on Liabilities 43
(v) Other Covenants 43
5. Financial Reporting and Performance Covenants: 43
(a) Maintain Records 43
(b) Access to Records 44
(c) Immediate Notice to Agent 45
(d) Borrowing Base Certificate 46
(e) Weekly Reports 46
(f) Monthly Reports 46
(g) Quarterly Reports 47
(h) Annual Reports 47
(i) Officers' Certificates 48
(j) Inventories, Appraisals, and Audits 49
(k) Additional Financial Information 50
(l) Financial Performance Covenants 50
6. Cash Management. Payment of Liabilities: 51
(a) Depository Accounts 51
(b) Credit Card Receipts 51
(c) The Concentration, Blocked, and Operating Accounts 51
(d) Proceeds and Collections 52
(e) Payment of Liabilities 53
(f) The Operating Account 53
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7. Events of Default: 54
(a) Failure to Pay the Revolving Credit. 54
(b) Failure To Make Other Payments 54
(c) Failure to Perform Covenant or Liability (No Grace Period) 54
(d) Failure to Perform Covenant or Liability (Grace Period) 54
(e) Misrepresentation 55
(f) Acceleration of Other Debt. Breach of Lease 55
(g) Default Under Other Agreements 55
(h) Uninsured Casualty Loss 55
(i) Attachment. Judgment. Restraint of Business 55
(j) Business Failure 55
(k) Bankruptcy 56
(l) Default by Guarantor 56
(m) Indictment - Forfeiture 56
(n) Termination of Guaranty 56
(o) Challenge to Loan Documents 56
(p) Key Management. 57
(q) Change in Control. 57
8. Rights and Remedies Upon Default: 57
(a) Acceleration 57
(b) Rights and Remedies 57
9. Revolving Credit Fundings and Distributions: 58
(a) Revolving Credit Funding Procedures. 58
(b) SwingLine Loans. 58
(c) Agent's Covering of Fundings: 59
(d) Ordinary Course Distributions. 61
10. Acceleration and Liquidation: 62
(a) Acceleration Notices. 62
(b) Acceleration. 62
(c) Initiation of Liquidation. 62
(d) Actions At and Following Initiation of Liquidation 62
(e) Agent's Conduct of Liquidation. 62
(f) Distribution of Liquidation Proceeds: 63
(g) Relative Priorities To Proceeds of Liquidation. 63
11. The Agent: 64
(a) Appointment of the Agent. 64
(b) Responsibilities of Agent. 64
(c) Concerning Distributions By the Agent. 65
(d) Dispute Resolution. 66
(e) Distributions of Notices and of Documents. 66
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(f) Confidential Information. 67
(g) Reliance by Agent. 67
(h) Non-Reliance. 67
(i) Indemnification. 68
(j) Resignation of Agent. 68
12. Action By Agents - Consents - Amendments - Waivers: 69
(a) Administration of Credit Facilities. 69
(b) Actions Requiring Majority Lenders. 70
(c) Actions Requiring SuperMajority Lenders. 70
(d) Action Requiring Certain Consent. 70
(e) Actions Requiring Unanimous Consent. 71
(f) Actions Requiring SwingLine Lender Consent. 72
(g) Actions Requiring Agent's Consent. 72
(h) Miscellaneous Actions. 72
(i) Actions Requiring Lead Borrower's Consent. 73
(j) NonConsenting Revolving Credit Lender. 73
13. Assignments By Revolving Credit Lenders: 74
(a) Assignments and Assumptions. 74
(b) Assignment Procedures. 75
(c) Effect of Assignment. 76
14. Notices: 76
(a) Notice Addresses 76
(b) Notice Given 77
15. Term: 78
(a) Termination of Revolving Credit 78
(b) Actions On Termination 78
16. General: 79
(a) Publicity. 79
(b) Successors and Assigns. 79
(c) Severability 79
(d) Amendments. Course of Dealing 79
(e) Power of Attorney 80
(f) Application of Proceeds 80
(g) Increased Costs 80
(h) Costs and Expenses of the Agent 81
(i) Copies and Facsimiles 81
(j) Massachusetts Law 82
(k) Consent to Jurisdiction 82
(l) Indemnification 83
(m) Rules of Construction. 83
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(n) Intent 84
(o) Participations. 85
(p) Right of Set-Off 85
(q) Pledges To Federal Reserve Banks: 85
(r) Maximum Interest Rate. 85
(s) Waivers. 86
</TABLE>
<PAGE>
IBJ WHITEHALL RETAIL FINANCE
As of March 21, 2000
World of Science, Inc., As Lead Borrower
900 Jefferson Road, Building 4
Rochester, New York 14623
Attention: Mr. Charles A. Callahan
Vice President and Chief Financial Officer
Re: Loan Agreement
Dear Sir/Madam:
Introduction: This letter sets forth the basis under which the Revolving
Credit Lenders, acting through IBJ Whitehall Retail Finance, a division of IBJ
Whitehall Business Credit Corporation (in such capacity, the "Agent"), will make
loans and advances to World of Science, Inc., a New York corporation, (the "Lead
Borrower") and WOSI on the Web, Inc., a New York corporation (collectively, the
"Borrowers" and each a "Borrower")
If accepted by you, this letter, as amended from time to time hereafter,
shall be referred to as the "Loan Agreement".
I. . Definitions:
As herein used, the following terms have the following meanings or are
defined in the section of this Loan Agreement so indicated and terms used herein
which are defined in the Security Agreement are used as so defined therein:
"Acceleration": The making of demand or declaration that any
indebtedness, not otherwise due and payable, is due and payable. Derivations of
the word "Acceleration" (such as "Accelerate") are used with like meaning in
this Loan Agreement.
"Acceleration Notice": Written notice as follows:
(a) From the Agent to the Revolving Credit Lenders, as provided
in Section.
(b) From the SuperMajority Lenders, as provided in Section.
"ACH": Automated clearing house.
"Advance Rate Grid": Annexed hereto as EXHIBIT (a).
"Affiliate": (a) With respect to any two Persons other than any
natural person, a relationship in which (i) one holds, directly or indirectly,
not less
<PAGE>
than Twenty Five Percent (25%) of the capital stock, beneficial interests,
partnership interests, or other equity
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 3
interests of the other; or (ii) one has, directly or indirectly, the right,
under ordinary circumstances, to vote for the election of a majority of the
directors (or other body or Person who has those powers customarily vested in a
board of directors of a corporation); or (iii) not less than Twenty Five Percent
(25%) of their respective ownership is directly or indirectly held by the same
third Person.
(b) Any Person, other than a natural person, which: is a parent,
brother-sister, subsidiary, or affiliate, of a Borrower; could have
such enterprise's tax returns or financial statements consolidated
with that 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 any Borrower is a member; controls or is controlled by any
Borrower.
"Agent": Is defined in the Introduction.
"Agent's Cover": Defined in Section.
"Agent's Fee": Is defined in Section.
"Agent's Rights and Remedies": Is defined in Section.
"Applicable Law": As to any Person (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, and any
interpretation thereof by any court or administrative or governmental authority
charged with the administration of any statute, rule, regulation, order, or
other requirement having the force of law.
"Appraised Inventory Liquidation Value": The product of (a) the
Cost of Eligible Inventory (net of Inventory Reserves) multiplied by (b) that
percentage, determined from the then most recent appraisal of the Borrowers'
Inventory undertaken at the request of the Agent, to reflect the appraiser's
estimate of the net realization on the Liquidation of the Borrowers' Inventory.
"Appraised Inventory Percentage": As set forth on the Advance
Rate Grid.
"Assigning Revolving Credit Lender": Defined in Section.
"Assignment and Acceptance": Defined in Section.
"Availability": The lesser of (a) or (b), where
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 4
(a) is the result of
(i) The Revolving Credit Ceiling
Minus
(ii) The aggregate unpaid balance of the Loan Account
Minus
(iii) The aggregate undrawn Stated Amount of all then
outstanding L/C's.
Minus
(iv) The aggregate of the Availability Reserves.
(b) is the result of
(i) The Borrowing Base
Minus
(ii) The aggregate unpaid balance of the Loan Account
Minus
(iv) The aggregate undrawn Stated Amount of all then
outstanding L/C's.
Minus
(v) The aggregate of the Availability Reserves.
"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.
"Bankruptcy Code": Title 11, U.S.C., as amended from time to
time.
"Base": The base commercial lending rate of IBJ Whitehall Bank
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by IBJ
Whitehall Bank as a means of pricing some loans to its customers and is neither
tied to any external rate of interest or index nor necessarily reflective of
the lowest rate of interest actually charged by IBJ Whitehall Bank to any
particular class or category of customers of IBJ Whitehall Bank or the Agent.
"Base Margin Loan": Each Revolving Credit Loan while bearing
interest at the Base Margin Rate.
"Base Margin Rate": Base.
"Blocked Account": Any DDA into which the contents of any other
DDA is transferred.
"Blocked Account Agreement": An Agreement, in form satisfactory
to the Agent, which Agreement recognizes the Agent's Collateral Interest in
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 5
the contents of the DDA which is the subject of such Agreement and agrees that
such contents shall be transferred only to the Concentration Account or as
otherwise instructed by the Agent.
"Borrower" and "Borrowers": Defined in the Introduction.
"Borrowing Base": The lesser of (a)(i) the product of the Cost
of Eligible Inventory (net of Inventory Reserves) multiplied by the Inventory
Advance Rate plus (ii) the OverAdvance Facility plus (iii) until July 31, 2000,
the product of the Tax Refund Advance Rate multiplied by the Tax Refunds plus
(iv) Seventy percent (70%) of the face amount of Eligible Credit Card
Receivables of the Borrowers or (b) the product of the Appraised Inventory
Percentage multiplied by the Appraised Inventory Liquidation Value.
"Borrowing Base Certificate": Is defined in Section.
"Business Day": Any day other than (a) a Saturday or Sunday; (b)
any day on which banks in Boston, Massachusetts or in Rochester, New York,
generally are not open to the general public for the purpose of conducting
commercial banking business; or (c) a day on which the principal office of the
Agent is not open to the general public to conduct business.
"Business Plan": Defined in Section.
"Capital Expenditures": The expenditure of funds or the
incurrence of liabilities which may be capitalized in accordance with GAAP.
"Capital Lease": Any lease which may be capitalized in
accordance with GAAP.
"Change in Control": The occurrence of any of the following:
(a) The acquisition, by any group of persons (within the meaning
of the Securities Exchange Act of 1934, as amended) or by any Person,
of beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission) of 20% or more of the issued and
outstanding capital stock of the Lead Borrower having the right, under
ordinary circumstances, to vote for the election of directors of the
Lead Borrower.
(b) More than half of the persons who were directors of the Lead
Borrower on the first day of any period consisting of Twelve (12)
consecutive calendar months (the first of which Twelve (12) month
periods commencing with the first day of the month during which this
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 6
Loan Agreement was executed), cease, for any reason other than death
or disability, to be directors of the Lead Borrower.
(c) Any failure of the Lead Borrower to own, beneficially and of
record, 100% of the capital stock of all other Borrowers.
"Collateral": Any asset or interest therein in which the Agent
is granted a Collateral Interest to secure the Liabilities.
"Collateral Interest": Any interest in property to secure an
obligation, including, without limitation, a security interest, mortgage, and
deed of trust.
"Concentration Account": Is defined in Section.
"Consent": Actual consent given by the Revolving Credit Lender
from whom such consent is sought; or the passage of Seven (7) Business Days from
receipt of written notice to a Revolving Credit Lender from the Agent of a
proposed course of action to be followed by the Agent without such Revolving
Credit Lender's giving the Agent written notice of that Revolving Credit
Lender's objection to such course of action, provided that the Agent may rely on
such passage of time as consent by a Revolving Credit Lender only if such
written notice states that consent will be deemed effective if no objection is
received within such time period.
"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 applicable) based upon the consolidation, in
accordance with GAAP, of the financial condition or operating results of the
Borrowers.
"Cost": The lower of
(a) the calculated cost of purchases, based upon the
Borrowers' accounting practices known to the Agent, which
practices are in effect on the date on which this Loan Agreement
was executed as such calculated cost is determined from: invoices
received by the Borrowers; the Borrowers' purchase journal; or
the Borrowers' stock ledger; or
(b) the cost equivalent of 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 Borrowers' accounting system), which cost equivalent is
determined in accordance with the Borrowers' accounting practices
in effect on March 1, 2000.
"Cost" does not include inventory capitalization costs or other non-
purchase price charges (such as freight) used in the Borrowers'
calculation of cost of goods sold.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 7
"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 out-of-pocket 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, where such 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 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 rights and
remedies of the Agent 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). "Costs of Collection shall also include the
reasonable fees and expenses of Lenders' Special Counsel. The Costs of
Collection are Liabilities, and at the Agent's option may bear interest at the
then effective Base Margin Rate.
"DDA": Any checking or other demand daily depository account
maintained by any Borrower.
"Delinquent Revolving Credit Lender": Defined in Section.
"EBITDA": The Borrowers' Consolidated earnings before interest,
taxes, depreciation, and amortization, each as determined in accordance with
GAAP.
"Eligible Assignee": A bank, insurance company, or company
engaged in the business of making commercial loans having a combined capital and
surplus in excess of $200,000,000.00, or any Affiliate of any Revolving Credit
Lender, or any Person to whom a Revolving Credit Lender assigns its rights and
obligations under this Loan Agreement as part of a programmed assignment and
transfer of such Revolving Credit Lender's rights of a material portion of such
Revolving Credit Lender's portfolio of asset based credit facilities.
"Eligible Credit Card Receivables": Such of the Borrowers' under
four (4) Business Day Accounts due on a non-recourse basis from major credit
card processors (which, if due on account of a private label credit card
program, is deemed in the discretion of the Agent to be eligible).
"Eligible In-Transit Inventory": Inventory (without duplication
as to Eligible L/C Inventory and other Eligible Inventory), title to which has
passed to a Borrower and which is then being shipped from a foreign location for
receipt, within sixty (60) days, at a warehouse of the Borrower, provided that
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 8
(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
eligible for borrowing; and
(b) The documents which relate to such shipment names
the Agent as consignee of the subject Inventory and the
Agent has control over the documents which evidence
ownership of the subject Inventory pursuant to documentation
in form and substance satisfactory to the Agent (such as by
the providing to the Agent of a Customs Brokers Agreement in
form reasonably satisfactory to the Agent).
"Eligible Inventory": All of the following:
Such of the Borrowers' Inventory (not duplicative of Borrowers'
Eligible In-Transit Inventory or Eligible L/C Inventory), at such
locations, and of such types, character, qualities and
quantities, 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, claims, and all Encumbrances
other than Permitted Encumbrances.
Eligible In-Transit Inventory not to exceed $300,000.00 in the
aggregate at any time.
Eligible L/C Inventory.
In no event, however, does "Eligible Inventory" include: non-
merchandise Inventory (such as labels, bags, and packaging
materials); damaged goods; return to vendor merchandise;
packaways; consigned inventory; goods not conforming to the
representations and warranties contained in the Security
Agreement; and other similar categories of Goods.
"Eligible L/C Inventory": Such of the Borrowers' Inventory
(without duplication as to Eligible In-Transit Inventory and other
Eligible Inventory), the purchase of which is supported by a
documentary L/C, provided that
(a) Such Inventory is of such types, character,
qualities and quantities (net of Inventory
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 9
Reserves) as the Agent in its discretion from time to time
determines to be eligible for borrowing; and
(b) The documentary L/C supporting such purchase names
the Agent as consignee of the subject Inventory and/or the
Agent has control over the documents which evidence
ownership of the subject Inventory pursuant to documentation
in form and substance satisfactory to the Agent (such as by
the providing to the Agent of a Customs Brokers Agreement in
form reasonably satisfactory to the Agent); and
(c) The subject Inventory is due at the Borrowers'
distribution facility within sixty (60) days, as determined
by the Agent.
"Employee Benefit Plan": As defined in ERISA.
"End Date": The date upon which both (a) all Liabilities have
been indefeasibly paid in full and (b) all obligations of any Revolving Credit
Lender to make loans and advances and to provide other financial accommodations
to the Borrowers hereunder shall have been irrevocably terminated.
"Environmental Laws": All of the following:
(a) Any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees or
requirements which regulate or relate to, or impose any standard of
conduct or liability on account of or in respect to environmental
protection matters, including, without limitation, Hazardous
Materials, as are now or hereafter in effect.
(b) The common law relating to damage to Persons or
property from Hazardous Materials.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended from time to time and the regulations promulgated and rulings issued
thereunder.
"ERISA Affiliate": Any Person which is under common control with
a Borrower within the meaning of Section 4001 of ERISA or is part of a group
which includes any 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 . An "Event of
Default" shall be deemed to have occurred and to be continuing unless and until
that Event of Default has been duly waived by the requisite Revolving Credit
Lenders or by the Agent as applicable.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 10
"Exempt DDA": A depository account maintained by any Borrower,
the only contents of which may be transfers from the Operating Account and
actually used solely (i) for petty cash purposes; or (ii) for payroll.
"Fiscal": When followed by "month" or "quarter", the relevant
fiscal period based on the Borrower's fiscal year and accounting conventions.
When followed by reference to a specific year, the fiscal year which ends in
January of the following calendar year to the year to which reference is being
made (e.g. the Borrower's fiscal year ending in January 2001 is the Borrower's
"Fiscal 2000").
"Fee Letter": That letter dated on or about February 17, 2000
and styled "Fee Letter" between the Lead Borrower and the Agent, as such letter
may from time to time be amended.
"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 Borrowers' compliance with the financial performance covenants
imposed pursuant to Section shall be determined as if such Material Accounting
Change had not taken place and (b) the Lead Borrower shall include, with its
monthly, quarterly, and annual financial statements a schedule, certified by
the Lead Borrower's chief financial officer, on which the effect of such
Material Accounting Change to that statement shall be described.
"Goods": Has the meaning given that term in the UCC.
"Gross Margin": With respect to the subject accounting period
for which it is being calculated, the decimal equivalent of the following
(determined in accordance with the retail method of accounting):
Sales (Minus) Cost of Goods Sold
--------------------------------
Sales
"Hazardous Materials": Any (a) hazardous materials, hazardous
waste, hazardous or toxic substances or 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.
"IBJ Whitehall Bank": IBJ Whitehall Bank & Trust Company, a New
York banking corporation with offices at One State Street, New York, New York
10004.
"IWRF": IBJ Whitehall Retail Credit.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 11
"IWRF Qualified Refinancing": A refinancing provided by IWRF
following its exercise of its right of last refusal as described in Section .
"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 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.
(f) In connection with any sale and leaseback transaction.
"Indebtedness" also includes:
(x) Indebtedness of others secured by an Encumbrance on any
asset of such Person, whether or not such Indebtedness is assumed
by such Person.
(y) Any guaranty, endorsement, suretyship or other
undertaking pursuant to which that Person may be liable on
account of any obligation of any third party.
(z) The Indebtedness of a partnership or joint venture in
which such Person is a general partner or joint venturer.
"Indemnified Person": Is defined in Section.
"Interest Payment Date": With reference to:
Each Libor Loan: The last day of the Interest Period relating
thereto; the Termination Date; and the End Date.
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, the subject Libor Loan and ending one, two,
or three months thereafter, as the Lead Borrower may elect by notice (pursuant
to Section ) to the Agent.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 12
(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 Lead Borrower may elect by notice (pursuant to
Section ) to the Agent, or (ii) on which the subject Base Margin Loan
is paid by the Borrowers.
(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 (iv), 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.
(v) The number of Interest Periods in effect at any
one time is subject to Section hereof.
"InDefault": Any occurrence, circumstance, or state of facts
with respect to a Borrower 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 cured within any applicable grace period.
"Inventory Advance Rate": As set forth on the Advance Rate Grid.
"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, or other factors relating to
the market value of, the Eligible Inventory.
"Issuer": The issuer of any L/C.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 13
"L/C": Any letter of credit, the issuance of which is procured
by the Agent for the account of any Borrower and any acceptance made on account
of such letter of credit.
"Lease": Any lease or other agreement, no matter how styled or
structured, pursuant to which a Borrower is entitled to the use or occupancy of
any space.
"Lenders' Special Counsel": A single counsel, selected by the
Majority Lenders following the occurrence of an Event of Default, to represent
the interests of the Revolving Credit Lenders in connection with the
enforcement, attempted enforcement, or preservation of any rights and remedies
under this, or any other Loan Document, as well as in connection with any
"workout", forbearance, or restructuring of the credit facility contemplated
hereby.
"Liabilities": Includes, without limitation, the following:
(a) All and each of the following, whether now existing or hereafter
arising under this Loan Agreement or under any of the other Loan Documents:
(i) Any and all direct and indirect liabilities, debts, and
obligations of each Borrower to the Agent or any Revolving Credit Lender,
each of every kind, nature, and description.
(ii) Each obligation to repay any loan, advance, Indebtedness, note,
obligation, overdraft, or amount now or hereafter owing by any Borrower to
the Agent or any Revolving Credit Lender (including all future advances
whether or not made pursuant to a commitment by the Agent or any Revolving
Credit 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 Revolving Credit Lender may hold
against any Borrower.
(iii) All notes and other obligations of each Borrower now or
hereafter assigned to or held by the Agent or any Revolving Credit Lender,
each of every kind, nature, and description.
(iv) All interest, fees, and charges and other amounts which may be
charged by the Agent or any Revolving Credit Lender to any Borrower and/or
which may be due from any Borrower to the Agent or any Revolving Credit
Lender from time to time.
(v) All costs and expenses incurred or paid by the Agent or any
Revolving Credit Lender in respect of any agreement between any Borrower
and the Agent or any Revolving Credit Lender or instrument furnished by
any Borrower to the Agent or any Revolving Credit Lender (including,
without limitation, Costs of Collection, attorneys' reasonable fees, and
all court and litigation costs and expenses).
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 14
(vi) Any and all covenants of each Borrower to or with the Agent or
any Revolving Credit Lender and any and all obligations of each Borrower to
act or to refrain from acting in accordance with any agreement between that
Borrower and the Agent or any Revolving Credit Lender or instrument
furnished by that Borrower to the Agent or any Revolving Credit Lender.
(vii) Each of the foregoing as if each reference to the " the Agent
or any Revolving Credit Lender" were to each Affiliate of the Agent.
(b) Any and all direct or indirect liabilities, debts, and
obligations of each Borrower to the Agent or any Affiliate of the Agent, each of
every kind, nature, and description owing on account of any service or
accommodation provided to, or for the account of any Borrower pursuant to this
or any other Loan Document, including cash management services and the issuances
of L/C's.
"Libor": For any Libor Loan for the then current Interest Period
relating thereto, the rate per annum quoted by the Agent to the Borrowers two
(2) Libor Business Days prior to the first day of such Interest Period as the
rate available to IBJ Whitehall Bank in the interbank market for offshore Dollar
deposits in immediately available funds for a period equal to such Interest
Period and in an amount equal to the amount of such Libor Loan.
"Libor Business Day": Any day which is both a Business Day and a
day on which the principal interbank market for Libor deposits in London in
which IBJ Whitehall Bank participates is open for dealings in United States
Dollar deposits.
"Libor Loan": Any Revolving Credit Loan which bears interest at
a Libor Rate.
"Libor Offer Rate": For any Libor Loan for the then current
Interest Period relating thereto, the rate per annum (rounded upwards, if
necessary, to the next higher 1/100 of one (1%) percent ) equal to the
quotient of (a) Libor divided by (b) a number equal to 1.00 minus the aggregate
of the rates (expressed as a decimal) of reserve requirements current on the day
that is two (2) Libor Business Days prior to the beginning of the relevant
Interest Period under any regulation promulgated by the Board of Governors of
the Federal Reserve System (or any other governmental authority having
jurisdiction over IBJ Whitehall Bank) as in effect from time to time, dealing
with reserve requirements prescribed for Eurocurrency funding including any
reserve requirements with respect to "Eurocurrency liabilities" under Regulation
D of the Board of Governors of the Federal Reserve System.
"Libor Margin": 250 basis points, subject to a mutually agreed
to downward adjustment on the first day of the month following that month during
which the Lead Borrower provides the Agent with the Borrowers' Consolidated
certified
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 15
financial statement for a Fiscal Year commencing after the Borrowers' Fiscal
1999 for which the Borrowers' Consolidated EBITDA is equal to or greater than $3
Million.
"Libor Rate": That per annum rate which is the aggregate of the
Libor Offer Rate plus the Libor Margin.
"Liquidation": The exercise, by the Agent, of those rights
accorded to the Agent under the Loan Documents as a creditor of the Borrowers
following and on account of the occurrence of an Event of Default looking
towards the realization on the Collateral. Derivations of the word
"Liquidation" (such as "Liquidate") are used with like meaning in this Loan
Agreement.
"Loan Account": Is defined in Section.
"Loan Commitment": With respect to each Revolving Credit Lender,
that respective Revolving Credit Lender's Revolving Credit Dollar Commitment.
"Loan Documents": This Loan Agreement, each instrument and
document executed and/or delivered as contemplated by Article , below, and each
other instrument or document from time to time executed and/or delivered in
connection with the arrangements contemplated hereby or in connection with any
transaction with the Agent or any Affiliate of the Agent, including, without
limitation, any transaction which arises out of any cash management, depository,
investment, letter of credit, interest rate protection, or equipment leasing
services provided by the Agent or any Affiliate of the Agent, as each may be
amended from time to time.
"Majority Lenders": Revolving Credit Lenders (other than
Delinquent Revolving Credit Lenders) holding 51% or more of the Loan Commitments
(other than any Loan Commitments held by Delinquent Revolving Credit Lenders)
except that where (a) any single Revolving Credit Lender holds 51% or more of
the Loan Commitments and (b) there is at least one other Revolving Credit Lender
which is not then a Delinquent Revolving Credit Lender, the term "Majority
Lenders" shall refer to the Revolving Credit Lender which holds 51% or more of
the Loan Commitments and not less than one other Revolving Credit Lender (other
than a Delinquent Revolving Credit Lender or an Affiliate of the Agent).
"Material Accounting Change": Any change in GAAP applicable to
accounting periods subsequent to the Borrowers' Fiscal Year most recently
completed prior to the execution of this Loan Agreement, which change has a
material effect on the Borrowers' financial condition or operating results, as
reflected on financial statements and reports prepared by or for the Borrowers,
when compared with such condition or results as if such change had not taken
place or where preparation of the Borrowers' statements and reports in
compliance with such change results in the breach
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 16
of a financial performance covenant imposed pursuant to Section (if applicable)
where such a breach would not have occurred if such change had not taken place
or vice versa.
"Maturity Date": March 31, 2003.
"Nominee": A business entity (such as a corporation, limited
partnership or other Person) formed by the Agent to own or manage any Post
Foreclosure Asset.
"Operating Account": Is defined in Section.
"OverAdvance": A Revolving Credit Loan supported by the
OverAdvance Facility.
"OverAdvance Facility": That component of Borrowing Base,
available (if at all) only where "Availability" otherwise would be zero, and
consisting of the Cost of Eligible Inventory (net of Inventory Reserves and
exclusive of Eligible In-Transit Inventory and Eligible L/C Inventory)
multiplied by the OverAdvance Rate.
"OverAdvance Margin": The aggregate of Base plus two percent
(2%) per annum.
"OverAdvance Rate": As set forth on the Advance Rate Grid.
"Overloan": A loan, advance, or providing of credit support
(such as the issuance of any L/C) to the extent that, immediately after its
having been made, Availability is less than zero.
"Participant": Is defined in Section, hereof.
"Permanent Store": Any location at which the Lead Borrower
offers its Inventory for sale to the general public other than any Seasonal
Store.
"Permissible Redemption": Redemptions of the Lead Borrower's
common stock, not exceeding an aggregate out-of-pocket expenditure to the
Borrowers of the following and only if the Borrowers' Consolidated EBITDA for
their then immediately prior Fiscal year was not less than $5 Million:
Fiscal 2000: None
Fiscal 2001: $500 Thousand
Fiscal 2002: $500 Thousand
"Permissible Overloans": Revolving Credit Loans which are
Overloans, but as to which each of the following conditions is satisfied: (a)
the Revolving Credit Ceiling is not exceeded; and (b) when aggregated with all
other Permissible
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 17
Overloans, such Revolving Credit Loans do not exceed 10% of the Borrowing Base;
and (c) such Revolving Credit Loans are made or undertaken in the Agent's
discretion to protect and preserve the interests of the Revolving Credit
Lenders.
"Person": Any natural person, and any corporation, limited
liability company, trust, partnership, joint venture, or other enterprise or
entity.
"Post Foreclosure Asset": All or any part of the Collateral,
ownership of which is acquired by the Agent or a Nominee on account of the
"bidding in" at a disposition as part of a Liquidation or by reason of a "deed
in lieu" type of transaction.
"Qualified Refinancing": Is defined in Section.
"Receipts": All cash, cash equivalents, checks, and credit card
slips, receipts and other Proceeds from any sale of the Collateral.
"Register": Is defined in Section.
"Requirement of Law": As to any Person:
(a) Applicable Law.
(b) That Person's charter, certificate of incorporation,
articles of organization, and/or other organizational documents, as
applicable.
(c) That Person's by-laws and/or other instruments which deal
with corporate or similar governance, as applicable.
"Reserves": The following: Availability Reserves and Inventory
Reserves.
"Revolving Credit": Is defined in Section.
"Revolving Credit Ceiling": $20,000,000.00.
"Revolving Credit Commitment Fee": Is defined in Section.
"Revolving Credit Dollar Commitment": As set forth on EXHIBIT,
annexed hereto (as such amounts may change in accordance with the provisions of
this Loan Agreement).
"Revolving Credit Early Termination Fee": Is defined in Section.
"Revolving Credit Lenders": Those financial institutions
identified on the signature pages of this Loan Agreement and who in the future
are those
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 18
Persons (if any) who become "Revolving Credit Lenders" in accordance with the
provisions of Section, below,
"Revolving Credit Loans": Loans made under the Revolving Credit,
except that where the term "Revolving Credit Loan" is used with reference to
available interest rates applicable to the loans under the Revolving Credit, it
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).
"Revolving Credit Note": Is defined in Section.
"Revolving Credit Obligations": The aggregate of the Borrowers'
Liabilities of any character on account of or in respect to the Revolving
Credit.
"Revolving Credit Percentage Commitment": As set forth on
EXHIBIT , annexed hereto (as such amounts may change in accordance with the
provisions of this Loan Agreement).
"Seasonal Store": Any location at which the Lead Borrower offers
its Inventory for sale to the general public where both of the following
conditions ((a) and (b)) are met:
(a) The Lease for such location has a term (including any extensions
thereof) of 36 or fewer months and is terminable by either the Lead
Borrower or the lessor on not more than 30 days notice.
(b) No funds are expended for tenant build out.
"SEC": The Securities and Exchange Commission, or any successor
commission or agency.
"Security Agreement": The Security Agreement of even date
herewith between the Lead Borrower and the Borrowers, on the one hand, and the
Agent, on the other, as the same may be amended from time to time hereafter.
Terms used herein which are defined in the Security Agreement are used herein as
so defined therein. In the event that the Security Agreement is ever terminated
or any term defined therein and used herein is deleted from the Security
Agreement, then unless otherwise agreed in writing, any such term used herein
which had been defined in the Security Agreement shall continue to be used
herein as then most recently defined in the Security Agreement.
"Stated Amount": The maximum amount for which an L/C may be
honored.
"Store": Any location at which any Borrower offers its
Inventory for sale to the general public.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 19
"SuperMajority Lenders": Revolving Credit Lenders (other than
Delinquent Revolving Credit Lenders) holding 66-2/3% or more the Loan
Commitments (other than Loan Commitments held by a Delinquent Revolving Credit
Lender).
"SwingLine": The facility pursuant to which the SwingLine Lender
may advance Revolving Credit Loans aggregating up to the SwingLine Loan Ceiling.
"SwingLine Lender": IWRF.
"SwingLine Loan Ceiling": $5,000,000.00 (subject to increase as
provided in Section).
"SwingLine Loans": Defined in Section.
"SwingLine Note": Defined in Section.
"Tax Refund Advance Rate": 80%.
"Tax Refunds": Subject to Section below, collectively, the
income tax refunds claimed, or to be claimed by the Borrowers for their Fiscal
1999 from the United States federal government and various States, which claims
are described on EXHIBIT (b), annexed hereto.
"Termination Date": The earliest of (a) the Maturity Date; or
(b) the occurrence of any event described in Section, below; or (c) the Agent's
notice to the Lead Borrower setting the Termination Date on account of the
occurrence of any Event of Default other than as described in Section, below;
or (d) that date, set by the Lead Borrower, on not less than ninety (90) days
irrevocable written notice to the Agent.
"Transfer": Wire transfer pursuant to the wire transfer system
maintained by the Board of Governors of the Federal Reserve Board, or as
otherwise may be agreed to from time to time by the Agent making such Transfer
and the subject Revolving Credit Lender. Wire instructions may be changed in the
same manner that notice addresses may be changed (Section), except that no
change of the wire instructions for Transfers to any Revolving Credit Lender
shall be effective without the consent of the Agent.
"UCC": The Uniform Commercial Code as presently in effect in
Massachusetts (Mass. Gen. Laws, Ch. 106), as may be amended from time to time.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 20
"Unanimous Consent": Consent of Revolving Credit Lenders (other
than Delinquent Revolving Credit Lenders) holding 100% or more of the Loan
Commitments (other than Loan Commitments held by a Delinquent Revolving Credit
Lender).
"Unused Line Fee": Is defined in Section.
I. . The Revolving Credit:
A. Establishment of Revolving Credit.
1. The Revolving Credit Lenders hereby establish a revolving line of
credit (the "Revolving Credit") in the Borrowers' favor pursuant to which each
Revolving Credit Lender, subject to, and in accordance with, this Loan
Agreement, acting through the Agent, shall make loans and advances and otherwise
provide financial accommodations to and for the account of the Borrowers as
provided herein.
2. Loans, advances, and financial accommodations under the
Revolving Credit shall be made with reference to the Borrowing Base and shall be
subject to Availability. The Borrowing Base and Availability shall be
determined by the Agent by reference to Borrowing Base Certificates furnished as
provided in Section, below, and shall be subject to the following:
a) Such determination shall take into account those Reserves as
the Agent may determine as being applicable thereto.
b) The Cost of Eligible Inventory will be determined in a
manner consistent with current tracking practices, based on the Borrowers' stock
ledger inventory.
3. The commitment of each Revolving Credit Lender to provide such
loans, advances, and financial accommodations is subject to Section.
4. The proceeds of borrowings under the Revolving Credit shall be
used solely in accordance with the Business Plan for the Borrowers' working
capital and Capital Expenditures, all solely to the extent permitted by this
Loan Agreement. No proceeds of a borrowing under the Revolving Credit may be
used, nor shall any be requested, with a view towards the accumulation of any
general fund or funded reserve of the Borrowers other than in the ordinary
course of the Borrowers' business and consistent with the provisions of this
Loan Agreement.
A. Advances in Excess of Borrowing Base (Overloans).
1. Subject to Section below, no Revolving Credit Lender has any
obligation to make any loan or advance, or otherwise to provide any credit to or
for the benefit of the Borrowers where the result of such loan, advance, or
credit is an Overloan.
2. The Revolving Credit Lenders' obligations, among themselves, are
subject to Section (which relates to each Revolving Credit Lender's making
amounts available to the Agent) and to Section (which relates to Permissible
Overloans).
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 21
3. The Revolving Credit Lenders' providing of an Overloan on any one
occasion does not affect the obligations of each Borrower hereunder (including
each Borrower's obligation to immediately repay any amount which otherwise
constitutes an Overloan) nor obligate the Revolving Credit Lenders to do so on
any other occasion.
A. Valuation 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 Revolving Credit Lender relative to the actual value of the asset
in question. All risks concerning the value of the Collateral are and remain
upon the Borrowers. All Collateral secures the prompt, punctual, and faithful
performance of the Liabilities whether or not relied upon by the Agent in
connection with the making of loans, credits, and advances and the providing of
financial accommodations under the Revolving Credit.
A. Revolving Credit Lenders' Commitment. Subject to the provisions
of this Loan Agreement, the Revolving Credit Lenders shall make a loan or
advance under the Revolving Credit and the Agent shall endeavor to have an L/C
issued for the account of the Lead Borrower, in each instance if duly and timely
requested by the Lead Borrower as provided herein provided that:
1. The Borrowing Base will not be exceeded.
2. The amount of the loan or advance or L/C so requested does not
exceed Availability.
3. No Borrower is InDefault.
A. Revolving Credit Loan Requests.
1. Requests for loans and advances under the Revolving Credit or for
the continuance or conversion of an interest rate applicable to a Revolving
Credit Loan may be requested by the Lead Borrower in such manner as may from
time to time be acceptable to the Agent.
2. Subject to the provisions of this Loan Agreement, the Lead
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 notice
to the Agent by no later than the following:
a) If such Revolving Credit Loan is to be 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. Base Margin Loans
requested by the Lead Borrower, other than those resulting from the conversion
of a Libor Loan, shall not be less than $10,000.00.
b) If such Revolving Credit Loan is to be, or is to be
continued as, or converted to, a Libor Loan: By 1:00PM Three (3) Libor Business
Days before the commencement of any new Interest Period or the end of the then
applicable Interest Period (it being agreed that no Libor Loan may be requested
for any Interest Period which commences prior to August 15, 2000). Libor Loans
and conversions to
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 22
Libor Loans shall each be not less than $1,000,000.00 and in increments of
$250,000.00 in excess of such minimum.
c) Any Libor Loan which matures while any Borrower is In
Default shall be converted, at the option of the Agent, to a Base Margin Loan
notwithstanding any notice from the Lead Borrower that such Loan is to be
continued as a Libor Loan.
3. Any request for a Revolving Credit Loan or for the continuance or
conversion of an interest rate applicable to 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.
4. The Lead Borrower may request that the Agent cause the issuance
by the Issuer of L/C's for the account of the Borrowers as provided in Section.
5. 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 Lead 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.
6. A request by the Lead Borrower for a loan or advance, or other
financial accommodation under the Revolving Credit shall be irrevocable and
shall constitute certification by each Borrower that as of the date of such
request, each of the following is true and correct:
a) There has been no material adverse change in the Borrowers'
financial condition from the most recent financial information furnished Agent
or any Revolving Credit Lender pursuant to this Loan Agreement.
b) All or a portion of any loan or advance so requested will be
set aside by the Borrowers to cover the Borrowers' obligations for sales tax on
account of sales since the then most recent borrowing pursuant to the Revolving
Credit.
c) Each representation which is made herein or in any of the
Loan Documents is then true and complete in all material respects as of and as
if made on the date of such request.
d) No Borrower is In Default.
7. If, at any time or from time to time, any Borrower is In Default:
a) The Agent may suspend the Revolving Credit immediately.
b) Neither the Agent nor any Revolving Credit 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.
c) The Agent may suspend the right of the Lead Borrower to
request any Libor Loan or to convert any Base Margin Loan to a Libor Loan.
A. Making of Revolving Credit Loans.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 23
1. A loan or advance under the Revolving Credit shall be made by
the transfer of the proceeds of such loan or advance to the Operating Account or
as otherwise instructed by the Lead Borrower.
2. A loan or advance shall be deemed to have been made under the
Revolving Credit (and the Borrowers shall be indebted to the Agent and the
Revolving Credit Lenders for the amount thereof immediately) at the following:
a) The Agent's initiation of the transfer of the proceeds of
such loan or advance in accordance with the Lead Borrower's instructions (if
such loan or advance is of funds requested by the Lead Borrower).
b) The charging of the amount of such loan to the Loan Account
(in all other circumstances).
3. There shall not be any recourse to or liability of the Agent or
any Revolving Credit Lender, on account of:
a) Any delay in the making of any loan or advance requested
under the Revolving Credit.
b) Any delay by any bank or other depository institution in
treating the proceeds of any such loan or advance as collected funds.
c) 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 Lead Borrower.
A. SwingLine Loans.
1. For ease of administration, Base Margin Loans may be made by the
SwingLine Lender (in the aggregate, the "SwingLine Loans") in accordance with
the procedures set forth in this Loan Agreement for the making of loans and
advances under the Revolving Credit. The unpaid principal balance of the
SwingLine Loans shall not at any one time be in excess of the SwingLine Loan
Ceiling.
2. The aggregate unpaid principal balance of SwingLine Loans shall
bear interest at the rate applicable to Base Margin Loans and shall be repayable
as a loan under the Revolving Credit.
3. The Borrowers' obligation to repay SwingLine Loans shall be
evidenced by a note in the form of EXHIBIT, annexed hereto, executed by the
Borrowers, and payable to the SwingLine Lender. Neither the original nor a copy
of that Note shall be required, however, to establish or prove any Liability.
The Borrowers shall execute a replacement of any SwingLine Note which has been
lost, mutilated, or destroyed thereof and deliver such replacement to the
SwingLine Lender.
4. For all purposes of this Loan Agreement, the SwingLine Loans and
the Borrowers' obligations to the SwingLine Lender constitute Revolving Credit
Loans and are secured as "Liabilities".
5. SwingLine Loans may be subject to periodic settlement with the
Revolving Credit Lenders as provided in this Loan Agreement.
A. The Loan Account.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 24
1. An account ("Loan Account") shall be opened on the books of the
Agent in which a record shall be kept of all loans and advances made under the
Revolving Credit.
2. The Agent shall 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 to the Agent and each
Revolving Credit Lender on account of the Liabilities and of all credits against
such amounts so owed.
3. All credits against the Liabilities shall be conditional upon
final and indefeasible payment to the Agent for the account of each Revolving
Credit Lender of the items giving rise to such credits. The amount of any item
credited against the Liabilities which is charged back against the Agent or any
Revolving Credit 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.
4. Except as otherwise provided herein, all fees, service charges,
costs, and expenses for which any 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 which will be due and payable
between the date of such determination and the first day of the then next
succeeding month as having been advanced under the Revolving Credit whether or
not such amounts are then due and payable.
5. The Agent, without the request of the Lead Borrower, may advance
under the Revolving Credit any interest, fee, service charge, or other payment
to the Agent or any Revolving Credit Lender which is then due and payable from
any Borrower pursuant hereto and may charge the same to the Loan Account
notwithstanding that such amount so advanced may result in the Borrowing Base's
being exceeded. Such action on the part of the Agent shall not constitute a
waiver of the Agent's rights and each Borrower's obligations under Section. Any
amount which is added to the principal balance of the Loan Account as provided
in this Section shall bear interest at the interest rate then and thereafter
applicable to Base Margin Loans or OverAdvances, as applicable.
6. Any statement rendered by the Agent or any Revolving Credit
Lender to the Lead Borrower concerning the Liabilities shall be considered
correct and accepted by each Borrower and shall be conclusively binding upon
each Borrower unless the Lead Borrower provides the Agent with written objection
thereto within twenty (20) days from receipt of such statement, which written
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.
A. The Revolving Credit Notes. The Borrowers' 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, annexed hereto, executed by each Borrower, one payable to each
Revolving Credit 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
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 25
is ever lost, mutilated, or destroyed, each Borrower shall execute a replacement
thereof and deliver such replacement to the Agent.
A. Payment of the Loan Account.
1. Subject to Section below, the Borrowers may repay, without
premium or penalty, all or any portion of the principal balance of the Loan
Account from time to time until the Termination Date.
2. The Borrowers, without notice or demand from the Agent or any
Revolving Credit Lender, shall pay the Agent that amount, from time to time,
which is necessary so that there is no Overloan outstanding.
3. The Borrowers shall repay the then entire unpaid balance of the
Loan Account and all other Liabilities on the Termination Date.
4. The Borrowers shall indemnify the Agent and each Revolving Credit
Lender and hold the Agent and each Revolving Credit Lender harmless from and
against any and all losses or expenses which the Agent or any such Revolving
Credit Lender may sustain or incur as a consequence of any prepayment,
conversion of or any default by any Borrower in the payment of the principal of
or interest on any Libor Loan or failure by that Borrower to complete a
borrowing of, a prepayment of or conversion of or to, a Libor Loan after notice
thereof has been given, including, but not limited to, any interest payable by
the Agent or such Revolving Credit Lender to sources of funds obtained by it in
order to make or maintain its Libor Loans hereunder. In the absence of manifest
error, a certificate as to any such additional amounts payable pursuant to this
Section shall be conclusive.
A. Interest on Revolving Credit Loans.
1. Each Revolving Credit Loan shall bear interest at the Base Margin
Rate unless either:
a) Timely notice is given (as provided in Section ) that the
subject Revolving Credit Loan (or a portion thereof) is, or is to be converted
to, a Libor Loan (it being agreed that no Libor Loan may be requested for any
Interest Period which commences prior to August 15, 2000); or
b) The subject Revolving Credit Loan is an OverAdvance.
2. Each Revolving Credit Loan, to the extent that it consists of an
OverAdvance, shall bear interest at the OverAdvance Margin.
3. Each Revolving Credit Loan which consists of a Libor Loan shall
bear interest at the Libor Rate.
4. Subject to, and in accordance with, the provisions of this Loan
Agreement, the Lead Borrower 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 Lead Borrower.
5. The Lead Borrower shall not select, renew, or convert any
interest rate for a Revolving Credit Loan such that, in addition to interest at
the Base Margin Rate, there are any Libor Loans outstanding prior to August 15,
2000, nor thereafter more than four (4) Libor Rates applicable to the Revolving
Credit Loans at any one time.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 26
6. The Borrowers shall pay accrued and unpaid interest on each
Revolving Credit Loan in arrears as follows:
a) On the applicable Interest Payment Date for that Revolving
Credit Loan.
b) On the Termination Date and on the End Date.
c) Following the occurrence of any Event of Default, with such
frequency as may be determined by the Agent.
7. 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 or at the
instruction of the Super Majority Lenders at the following rates:
a) All Revolving Credit Loans, except to the extent that they
constitute OverAdvances: At the aggregate of the interest rate then applicable
from time to time to Base Margin Loans plus Two Percent (2%) per annum.
b) All Revolving Credit Loans, to the extent that they
constitute OverAdvances: At the aggregate of the interest rate applicable from
time to time to OverAdvances plus Two Percent (2%) per annum.
A. Revolving Credit Commitment Fee.
1. In consideration of the commitment to make loans and advances to
the Borrowers under the Revolving Credit, and to maintain sufficient funds
available for such purpose, there has been earned and the Borrowers shall pay
the "Revolving Credit Commitment Fee" (so referred to herein) in the amount and
payable as provided in the Fee Letter.
2. Upon the termination of the Revolving Credit and upon the
occurrence of any Event of Default described in Section and at the option of the
Agent upon the occurrence of any other Event of Default, any remaining
installments of the Revolving Credit Commitment Fee shall be immediately due and
payable.
A. OverAdvance Facility Fee. On the first day of each month
following any month during which any Revolving Credit Loan is made under, or is
outstanding under, the OverAdvance Facility, the Borrowers shall pay a fee of
$5,000.00.
A. Agent's Fee. In addition to any other fee or expense to be paid
by the Borrowers on account of the Revolving Credit, the Borrowers shall pay the
Agent the "Agent's Fee" at the times and in the amounts as set forth the Fee
Letter.
A. Unused Line Fee. In addition to any other fee to be paid by the
Borrowers on account of the Revolving Credit, the Borrowers shall pay the Agent
the "Unused Line Fee" (so referred to herein) of 0.25% per annum of the average
difference, during the quarter just ended (or relevant period with respect to
the payment being made on the Termination Date) between the Revolving Credit
Ceiling and the aggregate of the unpaid principal balance of the Loan Account
(including any SwingLine
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 27
Loans) and the undrawn Stated Amount of L/C's outstanding during the relevant
period. The Unused Line Fee shall be paid in arrears, on the first day of each
quarter after the execution of this Loan Agreement and on the Termination Date.
A. Early Termination Fee.
1. In the event that the Termination Date occurs, for any reason,
prior to the Maturity Date, the Borrowers shall pay to the Agent, for the
ratable benefit of the Revolving Credit Lenders, the "Revolving Credit Early
Termination Fee" (so referred to herein) consisting of the following percentage
of the Revolving Credit Ceiling:
Early Termination Fee as Percentage of Revolving Credit Ceiling
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Date Unless Early Unless Early Unless Early
Termination Is Termination Is Termination Is
Contemporaneous with Contemporaneous with Contemporaneous with
Qualified Refinancing Qualified Refinancing IWRF Refinancing
or IWRF Refinancing
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
On or Prior to March 2.0% 1.5% 0.0%
31, 2001
- ----------------------------------------------------------------------------------------------------
After March 31, 2001 1.5% 1.0% 0.0%
and on or prior to
March 31, 2002
- ----------------------------------------------------------------------------------------------------
After March 31, 2002 1.0% 1.0% 1.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
1. The Lead Borrower, in conjunction with its providing of ninety
(90) days irrevocable notice of the setting of the Termination Date, may (but
shall not be obligated to) give the Agent the opportunity of last refusal to
provide the Borrowers with a working capital facility to refinance the Revolving
Credit 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.
a) Such right of last refusal may be exercised by the Agent
within fifteen (15) days following receipt by the Agent of written notice from
the Lead Borrower, with reasonable detail, of the terms of such bona fide
proposal (which reasonable detail may consist of a copy of the subject
proposal).
b) In the event that
(1) the Agent fails to exercise its right of last refusal; and
(2) no Event of Default occurs earlier than the date set as the
Termination Date by the Lead Borrower's irrevocable written notice to the Agent;
and
(3) the Borrowers, on the date set as the Termination Date by the
Lead Borrower's irrevocable written notice to the Agent (or such earlier date to
which the Agent may agree)
actually refinances the Revolving Credit on terms which are identical
to or better than those outlined in the bona fide proposal, a copy of
which had
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 28
been provided to the Agent pursuant to Section, then such refinancing
shall constitute a "Qualified Refinancing.".
A. Concerning Fees. The Borrowers shall not be entitled to any
credit, rebate or repayment of any fee earned by the Agent or any Revolving
Credit Lender pursuant to this Loan Agreement or any Loan Document
notwithstanding any termination of this Loan Agreement or suspension or
termination of the Agent's and any Revolving Credit Lender's respective
obligation to make loans and advances hereunder.
A. Agent's and Revolving Credit Lenders' Discretion.
1. Each reference in the Loan Documents to the exercise of
discretion or the like by the Agent or any Revolving Credit Lender shall be to
such Person's exercise of its judgment, in good faith (which shall be presumed),
based upon such Person's consideration of any such factors as the Agent or that
Revolving Credit Lender, taking into account information of which that Person
then has actual knowledge, believes:
a) Will or reasonably could be expected to affect the value of
the Collateral, the enforceability of the Agent's 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).
b) Indicates that any report or financial information delivered
to the Agent or any Revolving Credit Lender by or on behalf of any Borrower is
incomplete, inaccurate, or misleading in any material manner or was not prepared
in accordance with the requirements of this Loan Agreement.
c) Suggests an increase in the likelihood that any Borrower
will become the subject of a bankruptcy or insolvency proceeding.
d) Suggests that any Borrower is In Default.
2. In the exercise of such judgement, the Agent and each Revolving
Credit Lender also may take into account any of the following factors:
a) Those included in, or tested by, the definitions of
"Eligible Inventory" and "Cost".
b) The current financial and business climate of the industry
in which each Borrower competes (having regard for that Borrower's position in
that industry).
c) General macroeconomic conditions which have a material
effect on the Borrowers' cost structure.
d) Material changes in or to the mix of the Borrowers'
Inventory.
e) Seasonality with respect to the Borrowers' Inventory and
patterns of retail sales.
f) Such other factors as the Agent and each Revolving Credit
Lender determines as having a material bearing on credit risks associated with
the providing of loans and financial accommodations to the Borrowers.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 29
3. The burden of establishing the failure of the Agent or any
Revolving Credit Lender to have acted in a reasonable manner in such Person's
exercise of such discretion shall be the Borrowers' and may be made only by
clear and convincing evidence.
A. Procedures For Issuance of L/C's.
1. The Lead Borrower may request that the Agent cause the issuance
by the Issuer of L/C's for the account of any Borrower. Each such request shall
be in such manner as may from time to time be acceptable to the Agent.
2. The Agent will endeavor to cause the issuance of any L/C so
requested by the Lead Borrower, provided that, at the time that the request is
made, the Revolving Credit has not been suspended as provided in Section and if
so issued:
a) The aggregate Stated Amount of all L/C's then outstanding,
does not exceed Two Million Dollars and No Cents ($2,000,000.00).
b) The expiry of the L/C is not later than the earlier of
Thirty (30) days prior to the Maturity Date or the following:
(1) Standby's: One (1) year from initial issuance.
(2) Documentary's: Sixty (60) days from issuance.
c) An Overloan will not result from the issuance of the subject
L/C.
3. Each Borrower shall execute such documentation to apply for and
support the issuance of an L/C as may be required by the Issuer.
4. There shall not be any recourse to, nor liability of, the Agent
or any Revolving Credit Lender on account of
a) Any delay or refusal by an Issuer to issue an L/C;
b) Any action or inaction of an Issuer on account of or in
respect to, any L/C.
5. The Borrowers shall reimburse the Issuer for the amount of any
honoring of a drawing under an L/C on the same day on which such honoring takes
place. The Agent, without the request of any Borrower, may advance under the
Revolving Credit (and charge to the Loan Account) the amount of any honoring of
any L/C and other amount for which any Borrower, the Issuer, or the Revolving
Credit Lenders become obligated on account of, or in respect to, any L/C. Such
advance shall be made whether or not any Borrower is InDefault or such advance
would result in an Overloan. Such action shall not constitute a waiver of the
Agent's rights under Section hereof.
A. Fees For L/C's.
1. The Borrowers shall pay to the Agent a fee, on account of L/C's,
the issuance of which had been procured by the Agent, monthly in arrears, and on
the Termination Date and on the End Date, equal to 2.25% per annum of the
weighted average Stated Amount of all L/C's outstanding during the period in
respect of which such fee is being paid except that, following the occurrence of
any Event of Default, such fee shall be increased by two percent (2%) per annum.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 30
2. In addition to the fee to be paid as provided in Subsection,
above, the Borrowers shall pay to the Agent (or to the Issuer, if so requested
by the Agent), on demand, all issuance, processing, negotiation, amendment, and
administrative fees and other amounts charged by the Issuer on account of, or in
respect to, any L/C.
3. If any change in Applicable Law shall either:
a) 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 any Revolving Credit
Lender or any Issuer has an obligation to lend to fund drawings under any L/C;
or
b) 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 or, above, shall be to
increase the cost to any Revolving Credit Lender or 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 Revolving Credit Lender's or 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 Lead
Borrower of a certificate of an officer of the subject Revolving Credit Lender
or the subject Issuer describing such change in law, executive order,
regulation, directive, or interpretation thereof, its effect on such Revolving
Credit Lender or such Issuer, and the basis for determining such increased costs
and their allocation, the Borrowers shall immediately pay to the Agent, from
time to time as specified by the Agent, such amounts as shall be sufficient to
compensate the subject Revolving Credit Lender or the subject Issuer for such
increased cost. Any Revolving Credit Lender's or any Issuer's determination of
costs incurred under Section or, above, and the allocation, if any, of such
costs among the Borrowers and other letter of credit customers of such Revolving
Credit Lender or such Issuer, if done in good faith and made on an equitable
basis and in accordance with such officer's certificate, shall be conclusive and
binding on the Borrowers.
A. Changed Circumstances.
1. The Agent may advise the Lead Borrower that the Agent has made
the good faith determination (which determination shall be final and conclusive)
of any of the following:
a) Adequate and fair means do not exist for ascertaining the
rate for Libor Loans.
b) 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
the compliance by the Agent or any Revolving Credit Lender with Applicable Law.
c) The indices on which the interest rates for Libor Loans are
based shall no longer represent the effective cost to IBJ Whitehall Bank for
U.S. dollar deposits in the interbank market for deposits in which it regularly
participates.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 31
2. In the event that the Agent advises the Lead Borrower of an
occurrence described in Section, then, until the Agent notifies the Lead
Borrower that the circumstances giving rise to such notice no longer apply:
a) All affected Revolving Credit Loans shall thereafter bear
interest at the Base Margin Rate.
b) The obligation of the Agent or each Revolving Credit Lender
to make loans of the type affected by such changed circumstances or to permit
the Lead Borrower to select the affected interest rate as otherwise applicable
to any Revolving Credit Loans shall be suspended.
c) Any notice which the Lead 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, shall be
deemed at the option of the Agent to not having been given.
A. Designation of Lead Borrower as Borrowers' Agent.
1. Each Borrower hereby designates the Lead Borrower as that
Borrower's agent to obtain loans and advances under the Revolving Credit, the
proceeds of which shall be available to each Borrower for those uses set forth
in Section. As the disclosed principal for its agent, each Borrower shall be
obligated to the Agent and each Revolving Credit Lender on account of loans and
advances so made under the Revolving Credit as if made directly by the Revolving
Credit Lenders to that Borrower, notwithstanding the manner by which such loans
and advances are recorded on the books and records of the Lead Borrower and of
any Borrower.
2. The Lead Borrower shall act as a conduit for each Borrower
(including itself, as a "Borrower") on whose behalf the Lead Borrower has
requested a Revolving Credit Loan.
3. The proceeds of each loan and advance provided under the
Revolving Credit which is requested by the Lead Borrower shall be deposited into
the Operating Account or as otherwise indicated by the Lead Borrower. The Lead
Borrower shall cause the transfer of the proceeds thereof to the (those)
Borrower(s) on whose behalf such loan and advance was obtained. Neither the
Agent nor any Revolving Credit Lender shall have any obligation to see to the
application of such proceeds.
4. Notwithstanding anything to the contrary in this Section , each
Borrower shall be jointly and severally liable for all Liabilities.
A. Lenders' Commitments.
1. Subject to Section (which Section provides for assignments and
assumptions of commitments), each Revolving Credit Lender's "Revolving Credit
Percentage Commitment" and "Revolving Credit Dollar Commitment" (respectively
so referred to herein) are set forth on EXHIBIT, annexed hereto.
2. The obligations of each Revolving Credit Lender are several and
not joint. No Revolving Credit Lender shall have any obligation to make any
loan or advance under the Revolving Credit in excess of the lesser of the
following:
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 32
a) That Revolving Credit Lender's Revolving Credit Commitment
Percentage of the subject loan or advance or of Availability.
b) that Revolving Credit Lender's Revolving Credit Dollar
Commitment.
3. No Revolving Credit Lender shall have any liability to the
Borrowers on account of the failure of any other Revolving Credit 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.
4. The Revolving Credit Dollar Commitments, Revolving Credit
Commitment Percentages, and identities of the Revolving Credit Lenders may be
changed, from time to time by the reallocation or assignment of Revolving Credit
Dollar Commitments and Revolving Credit Commitment Percentages amongst the
Revolving Credit Lenders or with other Persons who determine to become
"Revolving Credit Lenders", provided, however unless an Event of Default has
occurred (in which event, no consent of any Borrower is required) any assignment
to a Person not then a Revolving Credit Lender shall be subject to the prior
consent of the Lead Borrower (not to be unreasonably withheld), which consent
will be deemed given unless the Lead Borrower provides the Agent with written
objection, not more than Five (5) Business Days after the Agent shall have given
the Lead Borrower written notice of a proposed assignment).
5. Upon written notice given the Lead Borrower from time to time by
the Agent, of any assignment or allocation referenced in Section:
a) Each Borrower shall execute one or more replacement
Revolving Credit Notes to reflect such changed Revolving Credit Dollar
Commitments, Revolving Credit Commitment Percentages, and identities and shall
deliver such replacement Revolving Credit Notes to the Agent (which promptly
thereafter shall deliver to the Lead 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 any Borrower, the Agent, in lieu of causing
the Borrowers to execute one or more new Revolving Credit Notes, may issue the
Agent's certificate confirming the resulting Revolving Credit Dollar Commitments
and Revolving Credit Percentage Commitments.
b) Such change shall be effective from the effective date
specified in such written notice and any Person added as a Revolving Credit
Lender shall have all rights, privileges, and obligations of a Revolving
Credit Lender hereunder thereafter as if such Person had been a signatory to
this Loan Agreement and any other Loan Document to which a Revolving Credit
Lender is a signatory and any Person removed as a Revolving Credit Lender shall
be relieved of any obligations or responsibilities of a Revolving Credit Lender
hereunder thereafter.
I. . Conditions Precedent:
As a condition to the effectiveness of this Loan Agreement, the
establishment of the Revolving Credit, and the making of the first loan under
the Revolving Credit, each of
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 33
the documents respectively described in Sections through and including, (each
in form and substance satisfactory to the Agent) shall have been delivered to
the Agent, and the conditions respectively described in Sections through and
including, shall have been satisfied:
A. Corporate Due Diligence.
1. Certificates of corporate good standing for each Borrower,
respectively issued by the Secretary of State for the State in which that
Borrower is incorporated.
2. Certificates of due qualification, in good standing, issued by
the Secretary(ies) of State of each State in which the nature of the business of
each Borrower conducted or assets owned by each Borrower could require such
qualification.
3. Certificates of each 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.
A. Opinion. An opinion of counsel to the Borrowers in form and
substance satisfactory to the Agent.
A. Additional Documents. Such additional instruments and documents
as the Agent or its counsel reasonably may require or request including, without
limitation, the following:
1. Satisfactory background checks on the Lead Borrower's key
management personnel.
2. Satisfactory reconciliation of the Borrowers' year end physical
inventory to its general ledger and stock ledger balances.
3. Satisfactory evidence of the filing of the Borrowers' tax returns
on account of which the Tax Refunds are anticipated and of an opinion of the
Borrowers' accountants which reflects a high confidence of the validity of the
Borrowers' claims to the Tax Refunds.
A. Officers' Certificates. Certificates executed by the President
and the Chief Financial Officer of the Lead Borrower and stating that the
representations and warranties made by the Borrowers to the Agent and the
Revolving Credit Lenders in the Loan Documents are true and complete in all
material respects 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.
A. Representations and Warranties. Each of the representations
made by or on behalf of each Borrower in this Loan Agreement or in any of the
other Loan Documents or in any other report, statement, document, or paper
provided by or on
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 34
behalf of each Borrower shall be true and complete in all material respects as
of the date as of which such representation or warranty was made.
A. Minimum Day One Availability. After giving effect to the
first funding under the Revolving Credit; all checks (if any) written by any
Borrower and then being held in the possession of any Borrower (i.e. "held
checks"); accounts payable which are beyond credit terms then accorded the
Borrowers (other than those (if any) which, in the ordinary course of the
Borrower's business, have gone beyond normal credit terms on account of a bona
fide dispute or adjustment or on account of a delay in the issuance, by the
creditor, of an offsetting credit); overdrafts (excluding float, in the ordinary
course of business); 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, such establishment, Availability shall not be
less than $1,300,000.00.
A. All Fees and Expenses Paid. All fees due at or immediately
after the first funding under the Revolving Credit and all costs and expenses
incurred by the Agent in connection with the establishment of the credit
facility contemplated hereby (including the fees and expenses of counsel to the
Agent) shall have been paid in full.
A. No Borrower InDefault. No Borrower shall be InDefault.
A. No Adverse Change. No event shall have occurred or failed to
occur, which occurrence or failure is having or could have a materially adverse
effect upon any Borrower's financial condition when compared with such financial
condition at the close of the Borrowers' Fiscal 1999 on January 29, 2000.
A. Payoff Letter/Termination Statements. The Agent shall have
received a payoff letter from the Borrowers' existing lender, in form and
substance satisfactory to the Agent, concerning the amounts necessary to satisfy
all obligations to such lender, including, without limitation, an agreement by
said lender therein to provide all necessary UCC-3 Termination Statements and
other Collateral discharges as the Agent may request from time to time.
No document shall be deemed delivered to the Agent or any Revolving Credit
Lender until received and accepted by the Agent at its head offices in
Braintree, Massachusetts. Under no circumstances shall this Loan Agreement take
effect until executed and accepted by the Agent at said head office.
I. . General Representations, Covenants and Warranties:
To induce each Revolving Credit Lender to establish the credit facility
contemplated herein and to induce the Revolving Credit Lenders to provide loans
and
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 35
advances under the Revolving Credit (each of which loans shall be deemed to
have been made in reliance thereupon) the Borrowers, in addition to all other
representations, warranties, and covenants made by any Borrower in any other
Loan Document, make those representations, warranties, and covenants included in
this Article of the Loan Agreement.
A. Payment and Performance of Liabilities. The Borrowers shall pay
each payment Liability when due (or when demanded, if payable on demand) and
shall promptly, punctually, and faithfully perform each other Liability.
A. Due Organization. Corporate Authorization. No Conflicts.
1. Each Borrower presently is and hereafter shall remain in good
standing as a corporation under the laws of the State of its incorporation, as
set forth in the Introduction to this Loan Agreement 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 each Borrower's assets or operation of each
Borrower's business, such qualification may be necessary, except where the
failure to so qualify would have no more than a de minimis adverse effect on the
business or a assets of any Borrower.
2. Each Affiliate is listed on EXHIBIT, annexed hereto. The Lead
Borrower shall provide the Agent with prior written notice of any entity's
becoming or ceasing to be an Affiliate.
3. No Borrower shall not change its State of incorporation nor its
taxpayer identification number.
4. Each Borrower has all requisite corporate power and authority to
execute and deliver all Loan Documents to which that Borrower is a party and has
and will hereafter retain all requisite corporate power to perform all
Liabilities.
5. The execution and delivery by each Borrower of each Loan Document
to which it is a party; each Borrower's consummation of the transactions
contemplated by such Loan Documents (including, without limitation, the creation
of Collateral Interests by that Borrower to secure the Liabilities); each
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:
a) Have been duly authorized by all necessary corporate action.
b) Do not, and will not, contravene in any material respect any
provision of any Requirement of Law or obligation of that Borrower.
c) Will not result in the creation or imposition of, or the
obligation to create or impose, any Encumbrance upon any assets of that Borrower
pursuant to any Requirement of Law or obligation, except pursuant to the Loan
Documents.
6. The Loan Documents have been duly executed and delivered by each
Borrower and are the legal, valid and binding obligations of each Borrower,
enforceable against each Borrower in accordance with their respective terms.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 36
A. Trade Names.
1. EXHIBIT, annexed hereto, is a listing of:
a) All names under which any Borrower ever conducted its
business.
b) All Persons with whom any Borrower ever consolidated or
merged, or from whom any Borrower ever acquired in a single transaction or in a
series of related transactions substantially all of such Person's assets.
2. The Lead Borrower will provide the Agent with not less than
twenty-one (21) days prior written notice (with reasonable particularity) of any
change to any Borrower's name from that under which that Borrower is conducting
its business at the execution of this Loan Agreement and will not effect such
change unless each Borrower is then in compliance with all provisions of this
Loan Agreement.
A. Infrastructure.
1. Each 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.
2. Each 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 that
Borrower's conduct of that Borrower's business.
3. The conduct by each Borrower of that Borrower's business does not
presently infringe (nor will any Borrower conduct its business in the future so
as to infringe) the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person.
A. Indebtedness. No Borrower has, and none shall have any
Indebtedness with the exceptions of:
1. Any Indebtedness on account of the Revolving Credit.
2. The Indebtedness (if any) listed on EXHIBIT, annexed hereto.
A. Licenses. Each license, distributorship, franchise, and similar
agreement issued to, or to which any Borrower is a party is in full force and
effect. No party to any such license or agreement is in default or violation
thereof. No Borrower has received any notice or threat of cancellation of any
such license or agreement.
A. Leases.
1. EXHIBIT, annexed hereto, is a schedule of all presently effective
Leases and Capital Leases. Each of such Leases and Capital Leases is in full
force and effect. No party to any such Lease or Capital Lease is in default or
violation of any such
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 37
Lease or Capital Lease. No Borrower has received any notice or threat of
cancellation of any such Lease or Capital Lease.
2. No Borrower will amend any Lease except where such amendment or
termination is favorable to that Borrower
3. The Borrowers may open and close the following number of
Permanent Stores during their Fiscal 2000 and such number of Permanent Stores
for Fiscal years thereafter as the Agent may reasonably determine following its
review of the Borrower's Business Plan for the relevant Fiscal year provided
pursuant to Section:
a) Open: Up to 4 Permanent Stores.
b) Close: Up to 10 Permanent Stores.
4. The Borrowers may have up to the following number of Season
Stores open during the following periods in their Fiscal 2000 and such number of
Seasonal Stores for Fiscal years thereafter as the Agent may reasonably
determine following its review of the Borrower's Business Plan for the relevant
Fiscal year provided pursuant to Section:
a) February 1 to July 31: Up to 25 Seasonal Stores.
b) August 1 to January 31: Up to 70 Seasonal Stores.
A. Requirements of Law. Each Borrower is in compliance, in all
material respects with, and shall hereafter comply with and use its assets in
compliance in all material respects with, all Requirements of Law except where
the failure of such compliance would have not more than a de minimis adverse
effect on the Borrowers' business or assets. No Borrower has received any notice
of any violation of any Applicable Law (other than of a violation which has no
more than a de minimis adverse effect on the Borrowers' business or assets),
which violation has not been cured or otherwise remedied.
A. Labor Relations.
1. No Borrower has been, and none is presently a party to any
collective bargaining or other labor contract.
2. There is not presently pending and, to any Borrower's knowledge,
there is not threatened any of the following:
a) Any strike, slowdown, picketing, work stoppage, or employee
grievance process.
b) Any proceeding against or affecting any Borrower relating to
the alleged violation of any Applicable Law pertaining to labor relations or
employment practices.
c) Any lockout of any employees by any Borrower, (and no such
action is contemplated by any Borrower).
d) Any application for the certification of a collective
bargaining agent.
3. No event has occurred or circumstance exists which could provide
the basis for any work stoppage or other labor dispute.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 38
4. Each Borrower has complied in all material respects with all
Applicable Law pertaining to labor relations or employment practices.
A. Taxes. With respect to each Borrower's federal, state, and local
tax liabilities and obligations:
1. That Borrower, in compliance with Applicable Law, has properly
filed all returns due to be filed up to the date of this Loan Agreement.
2. Except as described on EXHIBIT,
a) at no time has any Borrower received from any taxing
authority any request to perform any examination of or with respect to that
Borrower nor written or verbal notice in any way relating to any claimed failure
by that Borrower to comply with Applicable Law concerning payment of any taxes
or other amounts in the nature of taxes.
b) No agreement is extant which waives or extends any statute
of limitations applicable to the right of any taxing authority to assert a
deficiency or make any other claim for or in respect any taxes or obligations in
the nature of taxes.
3. Each 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 that Borrower or the
Collateral by any person or entity whose claim could result in an Encumbrance
upon any asset of that Borrower or by any governmental authority; properly
exercise any trust responsibilities imposed upon that Borrower by reason of
withholding from employees' pay or by reason of that 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 that Borrower; and timely file all
tax and other returns and other reports with each governmental authority to whom
that Borrower is obligated to so file.
A. The Tax Refunds.
1. A Tax Refund shall not be included in the Borrowing Base unless
the Lead Borrower has provided the Agent either:
a) with a copy of and proof of the filing, with the
appropriate governmental authority, of all materials requisite to establish its
entitlement to that Tax Refund; or
b) written confirmation from the Lead Borrower's accountants
which confirms such accountants' high confidence in the Borrowers' entitlement
to the Tax Refund and the likelihood of its being paid, without any claim or
set-off, within a reasonable period of time after the filing for the relevant
Tax Refund.
2. The Lead Borrower shall diligently and expeditiously, in good
faith, and by appropriate procedures, prosecute its collection of the Tax
Refunds in compliance with all Applicable Laws.
3. The Lead Borrower shall:
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 39
a) provide the Agent, when received by the Lead Borrower or
when filed or submitted on behalf of the Lead Borrower, all papers,
correspondence, and communications with respect to the Tax Refunds; and
b) provide the Agent with written advice (with reasonable
particularity) of any material event or occurrence with respect to any Tax
Refund.
4. The Borrowers will not compromise or settle any Tax Refund
without the prior written consent of the Agent (which consent will not be
unreasonably withheld or delayed) where, as a result of such compromise or
settlement, the percentage of the subject Tax Refund which would be realized by
the Borrowers would be less than the Tax Refund Advance Rate.
5. The Borrowers, following the occurrence of any Event of Default,
a) will permit the Agent, at the Agent's option, to the
exclusion of the Borrowers, to negotiate, prosecute, settle or compromise each
Tax Refund claim and for such purpose hereby appoint the Agent as the Borrowers'
attorney in fact to negotiate, prosecute, settle, and compromise such Tax
Refund claim and to endorse in favor of the Agent any and all drafts and other
instruments with respect to such Tax Refund;
b) will execute such Powers of Attorney as the Internal Revenue
Service or any other taxing authority may require with respect to the Agent's
exercise of its rights set forth in Section, which appointment, being coupled
with an interest, is irrevocable until this Loan Agreement is terminated by a
written instrument executed by a duly authorized officer of the Agent.
6. A claim shall cease to be a "Tax Refund" at the earliest of the
following:
a) Failure to have filed for the subject Tax Refund within30
days of its having been included in the Borrowing Base.
b) Receipt of payment of all or any part of that Tax Refund.
c) Disallowance of the claim by the relevant tax authority.
d) Failure by the Lead Borrower diligently and expeditiously
to prosecute the relevant claim by appropriate procedures.
e) Abandonment of the claim by the Lead Borrower.
f) Failure of the Borrowers to file all required tax returns
(with respect to the federal government and those States for which a Tax Refund
has been sought) on or before April 15, 2000 and to provide the Agent (within
Three (3) Business Days after such filing) with true and correct copies of all
such tax returns.
g) July 31, 2000.
A. No Margin Stock. No Borrower is engaged in the business of
extending credit for the purpose of purchasing or carrying any margin stock
(within the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of any
borrowing hereunder will be used at any time to purchase or carry any such
margin stock or to extend credit to others for the purpose of purchasing or
carrying any such margin stock.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 40
A. ERISA.
1. Neither any Borrower nor any ERISA Affiliate has ever:
a) Violated or failed to be in full compliance with any
Borrower's Employee Benefit Plan.
b) Failed timely to file all reports and filings required by
ERISA to be filed by any Borrower.
c) Engaged in any nonexempt "prohibited transactions" or
"reportable events" (respectively as described in ERISA).
d) Engaged in, or commit, any act such that a tax or penalty
reasonably could be imposed upon any Borrower on account thereof pursuant to
ERISA.
e) Accumulated any material cumulative funding deficiency
within the meaning of ERISA.
f) Terminated any Employee Benefit Plan such that a lien could
be asserted against any assets of any Borrower on account thereof pursuant to
ERISA.
g) Been a member of, contributed to, or have any obligation
under any Employee Benefit Plan which is a multiemployer plan within the meaning
of Section 4001(a) of ERISA.
2. Neither any Borrower nor any ERISA Affiliate shall ever engage in
any action of the type described in Section.
A. Hazardous Materials.
1. No Borrower has ever been alleged to have been legally
responsible for any release or threat of release of any Hazardous Material.
2. Each Borrower shall dispose of any Hazardous Material only in
compliance with all Environmental Laws.
A. Litigation. Except as described in EXHIBIT, annexed hereto,
there is not presently pending or threatened by or against any Borrower any
suit, action, proceeding, or investigation which, if determined adversely to any
Borrower, would have more than a de minimis adverse effect upon a 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.
A. Dividends. Investments. Corporate Action. No Borrower shall:
1. Pay any cash dividend or make any other distribution in respect
of any class of that Borrower's capital stock.
2. Except for a Permissible Redemption, own, redeem, retire,
purchase, or acquire any of any Borrower's capital stock.
3. Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any Person.
4. Merge or consolidate or be merged or consolidated with or into
any other corporation or other entity.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 41
5. Consolidate any of that Borrower's operations with those of any
other Person other than of another Borrower.
6. Organize or create any Affiliate.
7. Subordinate any debts or obligations owed to that Borrower by any
third party to any other debts owed by such third party to any other Person.
8. Acquire any assets other than in the ordinary course and conduct
of that Borrower's business as conducted at the execution of this Loan Agreement
or as permitted by Section.
A. Loans. No Borrower shall make any loans or advances to, nor
acquire the Indebtedness of, any Person, provided, however, the foregoing does
not prohibit any of the following:
1. Advance payments made to that Borrower's suppliers in the
ordinary course.
2. Advances to that Borrower's officers, employees, and salespersons
with respect to reasonable expenses to be incurred by such officers, employees,
and salespersons for the benefit of that Borrower, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by
that Borrower.
A. Line of Business. No Borrower shall engage in any business other
than the business in which it is currently engaged or a business reasonably
related thereto (the conduct of which reasonably related business is reflected
in the Business Plan).
A. Affiliate Transactions. No Borrower shall make any payment, nor
give any value to any Affiliate except for goods and services actually purchased
by that Borrower from, or sold by that Borrower to, such Affiliate for a price
and on terms which shall
1. 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
2. be no less favorable to that Borrower than those which would have
been charged and imposed in an arms length transaction.
A. Adequacy of Disclosure.
1. All financial statements furnished to the Agent and to each
Revolving Credit Lender by each Borrower have been prepared in accordance with
GAAP consistently applied and present fairly the condition of the Borrowers at
the date(s) thereof and the results of operations and cash flows for the
period(s) covered (provided however, that unaudited financial statements are
subject to normal year end adjustments and to the absence of footnotes). There
has been no change in the Consolidated financial condition, results of
operations, or cash flows of the Borrowers since the date(s) of such financial
statements, other than changes in the ordinary course of
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 42
business, which changes have not been materially adverse, either singularly or
in the aggregate.
2. At the date of this Loan Agreement, no Borrower had any
contingent obligations or obligation under any Lease or Capital Lease not
disclosed on those of the above referenced financial statements on which, under
GAAP, such disclosure is required.
3. No document, instrument, agreement, or paper now or hereafter
given the Agent and to each Revolving Credit Lender by or on behalf of each
Borrower or any guarantor of the Liabilities in connection with the execution of
this Loan Agreement by the Agent and each Revolving Credit 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 any Borrower which has, or which, in the
foreseeable future could have, a material adverse effect on the financial
condition of any Borrower or any such guarantor which has not been disclosed in
writing to the Agent and to each Revolving Credit Lender.
A. No Restrictions on Liabilities. No Borrower shall enter into
or directly or indirectly become subject to any agreement which prohibits or
restricts, in any manner, any Borrower's:
1. Creation of, and granting of Collateral Interests in favor of the
Agent.
2. Incurrence of Liabilities.
A. Other Covenants. No Borrower shall indirectly do or cause
to be done any act which, if done directly by that Borrower, would breach any
covenant contained in this Loan Agreement.
I. . Financial Reporting and Performance Covenants:
A. Maintain Records. The Borrowers shall:
1. At all times, keep proper books of account, in which full, true,
and accurate entries shall be made of all of the Borrowers' financial
transactions, all in accordance with GAAP applied consistently with prior
periods to fairly reflect the Consolidated financial condition of the Borrowers
at the close of, and its results of operations for, the periods in question.
2. Timely provide the Agent with those financial reports,
statements, and schedules required by this Article 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 Consolidated financial condition of the Borrowers at the close of,
and the results of operations for, the period(s) covered therein.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 43
3. 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.
4. 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 to discuss the Borrowers'
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.
5. Not change any Borrower's Fiscal Year.
A. Access to Records.
1. Each Borrower shall accord the Agent with access from time to
time as the Agent may require to all properties owned by or over which any
Borrower has control. The Agent shall have the right, and each Borrower will
permit the Agent from time to time as Agent may request, to examine, inspect,
copy, and make extracts from any and all of the Borrowers' books, records,
electronically stored data, papers, and files. Each Borrower shall make all of
that Borrower's copying facilities available to the Agent.
2. Each Borrower hereby authorizes the Agent to:
a) 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 any 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 with respect thereto.
b) Verify at any time the Collateral or any portion thereof,
including verification with Account Debtors, and/or with each Borrower's
computer billing companies, collection agencies, and accountants and to sign the
name of each Borrower on any notice to each Borrower's Account Debtors or
verification of the Collateral.
3. The Agent from time to time may designate one or more
representatives to exercise the Agent's rights under this Section as fully as
if the Agent were doing so.
A. Immediate Notice to Agent.
1. The Lead Borrower shall provide the Agent with written notice
promptly 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:
a) Any change in any Borrower's President, chief executive
officer, chief operating officer, and chief financial officer (without regard to
the title(s) actually given to the Persons discharging the duties customarily
discharged by officers with those titles).
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 44
b) Any ceasing of any Borrower's making of payment, in the
ordinary course, to any of its creditors (other than its ceasing of making of
such payments on account of a de minimis dispute).
c) The occurrence of any default, and the expiry of any
applicable grace period, on any Lease of any Borrower.
d) Any material adverse change in the business, operations, or
financial affairs of any Borrower.
e) Any Borrower's becoming InDefault.
f) Any intention on the part of any Borrower to discharge that
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).
g) Any litigation which, if determined adversely to any
Borrower, might have a material adverse effect on the financial condition of
that Borrower.
2. The Lead Borrower shall:
a) Provide the Agent, when so distributed, with copies of any
materials distributed to the shareholders of the Lead Borrower (qua such
shareholders).
b) Provide the Agent:
(1) When filed, copies of all filings with the SEC.
(2) When received, copies of all correspondence from the SEC,
other than routine non-substantive general communications from the SEC.
c) Add the Agent as an addressee on all mailing lists
maintained by or for each Borrower.
d) 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).
e) Provide the Agent, when received by any Borrower, with a
copy of any management letter or similar communications from any accountant of
any Borrower.
A. Borrowing Base Certificate. The Lead Borrower shall provide the
Agent by 11:30a.m., daily, with a Borrowing Base Certificate in form designated
from time to time by the Agent. 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.
A. Weekly Reports. Weekly, on Tuesday of each week (as of the then
immediately preceding Saturday) the Lead 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.
A. Monthly Reports.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 45
1. Monthly, the Lead Borrower shall provide the Agent with original
counterparts of the following (each in such form as the Agent from time to time
may specify):
a) Within Fifteen (15) days of the end of the previous month:
(1) A "Stock Ledger Inventory Report" and a Certificate (signed
by the Lead Borrower's President, Chief Financial Officer, or Controller)
concerning the Borrowers' Inventory.
(2) A Balance to Purchase Report on which is shown whether
inventory levels are adequate to meet sales forecasts.
b) Within Thirty (30) days of the end of the previous month:
(1) Reconciliation of the above described Report and Inventory
Certificate (Section) to Availability and to the general ledger as of the end of
the subject month.
(2) A reconciliation between the Borrowers' stock ledger and
their general ledger.
(3) A schedule of purchases from the Borrowers' 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.
(4) An aging of the Borrowers' accounts payable.
(5) A Report of Store Openings and Closings.
(6) The officer's compliance certificate described in Section.
(7) An internally prepared financial statement of the Borrowers'
Consolidated financial condition 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
"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.
2. For purposes of Sections, above, and, above, the first
"previous month" in respect of which the items respectively required by those
Sections shall be the month prior to that which dates this Loan Agreement,
except that the first group of items required to be provided pursuant to Section
shall be included with those provided pursuant to Section; thereafter, those
items shall be provided in accordance with the requirements of Section.
A. Quarterly Reports. Quarterly, within Forty Five (45) days
following the end of each of the Borrowers' first three fiscal quarters, the
Lead Borrower shall provide the Agent with the following:
1. An original counterpart of a management prepared financial
statement of the Borrowers for the period from the beginning of the Borrowers'
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 "consolidated" basis), statement
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 46
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.
2. The officer's compliance certificate described in Section
A. Annual Reports.
1. Annually, within ninety (90) days following the end of the
Borrowers' Fiscal Year, the Lead Borrower shall furnish the Agent with the
following:
a) An original signed counterpart of the Borrowers' annual
financial statement, which statement shall have been prepared by, and bear the
unqualified opinion of, the Lead Borrower independent certified public
accountants (i.e. said statement shall be "certified" by such accountants) and
shall include, at a minimum (with comparative information for the then prior
Fiscal Year) a balance sheet, income statement, statement of changes in
shareholders' equity, cash flows, and schedules of consolidation.
b) The officer's compliance certificate described in Section.
2. No later than the earlier of Fifteen (15) days prior to the end
of each of the Borrowers' Fiscal Years or the date on which such accountants
commence their work on the preparation of the Borrowers' annual financial
statement, the Lead Borrower shall give written notice to such accountants (with
a copy of such notice, when sent, to the Agent) that:
a) Such annual financial statement will be delivered by the
Lead Borrower to the Agent (for subsequent distribution to each Revolving Credit
Lender).
b) It is the primary intention of the Borrowers, in its
engagement of such accountants, to satisfy the financial reporting requirements
set forth in this Article.
c) The Lead Borrower has been advised that the Agent and each
Revolving Credit Lender will rely thereon with respect to the administration of,
and transactions under, the credit facility contemplated by this Loan Agreement.
3. Each annual statement shall be accompanied by such accountant's
Certificate indicating that, in conducting the audit for such annual statement,
nothing came to the attention of such accountants to believe that any Borrower
is InDefault (or that if any Borrower is InDefault, the facts and circumstances
thereof).
A. Officers' Certificates. The Lead Borrower shall cause the Lead
Borrower's President, Chief Financial Officer, or Controller, respectively to
provide such Person's Certificate with those monthly statements required
pursuant to Section, quarterly, and annual statements to be furnished pursuant
to this Loan Agreement, which Certificate shall:
1. Indicate that the subject statement was prepared in accordance
with GAAP consistently applied and presents fairly the Consolidated financial
condition of the Borrowers at the close of, and the results of the Borrowers'
operations and cash flows for, the period(s) covered, subject, however to the
following:
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 47
a) Usual year end adjustments (this exception shall not be
included in the Certificate which accompanies such annual statement).
b) Material Accounting Changes (in which event, such
Certificate shall include a schedule (in reasonable detail) of the effect of
each such Material Accounting Change) not previously specifically taken into
account in the determination of the financial performance covenant imposed
pursuant to Section.
2. Indicate either that (i) no Borrower is InDefault, or (ii) if
such an event has occurred, its nature (in reasonable detail) and the steps (if
any) being taken or contemplated by the Borrowers to be taken on account
thereof.
3. Include calculations concerning the Borrowers' compliance (or
failure to comply) at the date of the subject statement with each of the
financial performance covenants included in Section hereof.
A. Inventories, Appraisals, and Audits.
1. The Borrowers, at their own expense, shall cause physical
inventories to be conducted in a manner consistent with the Borrowers' practices
and methodology employed during Fiscal 1999 and the results of such inventories
provided to the Agent, as follows:
a) Not less than the following number in each twelve (12) month
period during which this Loan Agreement is in effect:
(1) Warehouse: 2.
(2) Permanent Stores: 1.
(3) Seasonal Stores which are open for 6 or more consecutive months: 1.
(4) Seasonal Stores which are open for less than 6 consecutive months: 0.
The spacing of such inventories shall be subject to the Agent's
reasonable discretion, having due regard for the Borrowers' past
practices in that regard.
a) The Lead Borrower shall provide the Agent with a copy of the
preliminary results of each such inventory (as well as of any other physical
inventory undertaken by any Borrower) within twenty (20) days following the
completion of such inventory.
b) The Lead Borrower, within thirty-five (35) days following
the completion of such inventory, shall provide the Agent with a reconciliation
of the results of each such inventory (as well as of any other physical
inventory undertaken by any Borrower) and shall post such results to the
Borrowers' stock ledger and, as applicable to the Borrowers' other financial
books and records.
c) The Agent, in its discretion, if any Borrower is InDefault,
may cause such additional inventories to be taken as the Agent determines (each,
at the expense of the Borrowers).
2. The Agent may obtain not more than 3 appraisals of the
Collateral, from time to time (in all events, at the Borrowers' expense) in each
twelve (12) month period during which this Loan Agreement is in effect (of which
one shall be
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 48
of limited scope) conducted by such appraisers as are satisfactory to the Agent
and may obtain additional such appraisals (each, at the Borrowers' expense) if
any Borrower is InDefault.
3. The Agent may obtain not more than 3 commercial field
examinations of the Borrowers' books and records from time to time (in all
events, at the Borrowers' expense) in each twelve (12) month period during which
this Loan Agreement is in effect and may obtain additional such examinations
(each, at the Borrowers' expense) if any Borrower is InDefault.
4. The Agent from time to time (in all events, at the Borrowers'
expense) may undertake "mystery shopping" (so-called) visits to all or any of
the Borrowers' business premises.
A. Additional Financial Information.
1. In addition to all other information required to be provided
pursuant to this Article, the Lead Borrower promptly shall provide the Agent
(and any guarantor of the Liabilities), with such other and additional
information concerning the Borrowers, the Collateral, the operation of the
Borrowers' business, and the Borrowers' financial condition, including original
counterparts of financial reports and statements, as the Agent may from time to
time request from the Lead Borrower.
2. The Borrowers' Business Plan is annexed hereto as EXHIBIT, which
consists of the Borrowers' forecast of the Borrowers' anticipated performance
and operating results.
3. The Lead Borrower may provide the Agent, from time to time
hereafter, with an updated Business Plan.
4. In all events, the Lead Borrower, no earlier than Ninety (90) nor
later than Sixty (60) days prior to the end of each of the Borrowers' Fiscal
years, shall provide the Agent with an updated and extended Business Plan,
substantially in the same form and utilizing the same methodology as the
Business Plan annexed hereto as EXHIBIT, which updated and extended Business
Plan shall go out at least through the end of the then next Fiscal year and
shall include an income statement, balance sheet, and statement of cash flow, by
month, each Consolidated (with consolidating schedules) and each prepared in
conformity with GAAP and consistent with the Borrowers' then current practices.
A. Financial Performance Covenants.
1. The Borrowers shall observe and comply with those financial
performance covenants set forth on EXHIBIT for its Fiscal 2000.
2. The Borrowers shall observe and comply with those financial
performance covenants for subsequent years as reasonably may be set by the Agent
following the Agent's review of the Borrowers' Business Plan for that subsequent
year, as provided pursuant to Section, which covenants
a) shall be so set by the Agent utilizing the same methodology
as had been used by the Agent in its setting of the financial performance
covenants annexed hereto as EXHIBIT); and
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 49
b) are agreed to by the Lead Borrower.
Pending agreement by the Agent and the Lead Borrower on such financial
performance covenants for a subsequent year, the Borrowers shall not
suffer or permit Availability to be less than $750,000.00.
1. The Agent may determine the Borrowers' compliance with such
covenants based upon financial reports and statements provided by the Lead
Borrower to the Agent (whether or not such financial reports and statements are
required to be furnished pursuant to this Loan Agreement) as well as by
reference to interim financial information provided to, or developed by, the
Agent.
I. . Cash Management. Payment of Liabilities:
A. Depository Accounts.
1. The Lead Borrower shall deliver the following to the Agent, as a
condition to the effectiveness of this Loan Agreement:
a) Notification, executed on behalf of each Borrower, to each
depository institution with which any DDA is maintained (other than any Exempt
DDA and the Blocked Account), in form satisfactory to the Agent of the Agent's
interest in such DDA.
b) A Blocked Account Agreement with any depository institution
at which a Blocked Account is maintained.
2. No Borrower will establish any DDA hereafter (other than an
Exempt DDA) unless, contemporaneous with such establishment, the Lead Borrower
delivers to the Agent notification to the depository at which such DDA is
established if the same would have been required pursuant to Section if the
subject DDA were open at the execution of this Loan Agreement.
A. Credit Card Receipts. The Lead Borrower shall deliver to the
Agent, as a condition to the effectiveness of this Loan Agreement, notification,
executed on behalf of each Borrower, to each of each 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 that
Borrower to that clearinghouse or other processor and any other amount payable
to that Borrower by such clearinghouse or other processor shall be directed to
the Concentration Account or as otherwise designated from time to time by the
Agent. No Borrower shall change such direction or designation except upon and
with the prior written consent of the Agent.
A. The Concentration, Blocked, and Operating Accounts.
1. The following checking accounts have been or will be established
(and are so referred to herein):
a) The "Concentration Account" (so referred to herein):
Established by the Agent with IBJ Whitehall Bank.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 50
b) The "Blocked Account" (so referred to herein): Established
by the Lead Borrower with IBJ Whitehall Bank.
c) The "Operating Account" (so referred to herein):
Established by the Lead Borrower with IBJ Whitehall Bank.
2. The contents of each DDA (other than the Operating Account) and
of the Blocked Account constitutes Collateral and Proceeds of Collateral. The
contents of the Concentration Account constitutes the Agent's property held for
the ratable benefit of the Revolving Credit Lenders.
3. The Borrowers shall pay all fees and charges of, and maintain
such impressed balances as may be required by the depository in which any
account is opened as required hereby (even if such account is opened by and/or
is the property of the Agent).
A. Proceeds and Collections.
1. All Receipts and all cash proceeds of any sale or other
disposition of any of each Borrower's assets:
a) Constitute Collateral and Proceeds of Collateral.
b) Shall be held in trust by the Borrowers for the Agent.
c) Shall not be commingled with any of any Borrower's other
funds.
d) Shall be deposited and/or transferred only to the Blocked
Account or the Concentration Account.
2. The Lead Borrower shall cause the ACH or wire transfer to the
Blocked or the Concentration Account, no less frequently than twice each week
(daily if a Borrower is InDefault) (and whether or not there is then an
outstanding balance in the Loan Account) of the following:
a) The then contents of each DDA (other than any Exempt DDA),
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).
b) The proceeds of all credit card charges not otherwise
provided for pursuant hereto.
3. Whether or not any Liabilities are then outstanding, the Lead
Borrower shall cause the ACH or wire transfer to the Concentration Account, no
less frequently than twice each week (daily if a Borrower is InDefault), of then
entire ledger balance of the Blocked Account, net of such minimum balance, not
to exceed $1,000.00, as may be required to be maintained in the Blocked Account
by the depository which the Blocked Account is maintained.
4. In the event that, notwithstanding the provisions of this
Section, any Borrower receives or otherwise has dominion and control of any
Receipts, or any proceeds or collections of any Collateral, such Receipts,
proceeds, and collections shall be held in trust by that Borrower for the Agent
and shall not be commingled with any of that Borrower's other funds or deposited
in any account of any Borrower other than as instructed by the Agent.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 51
A. Payment of Liabilities.
1. On each Business Day, the Agent shall apply 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) First, towards the SwingLine Loans and Second, towards the unpaid
balance of the Loan Account and all other Liabilities, provided, however, for
purposes of the calculation of interest on the unpaid principal balance of the
Loan Account (but not for purposes of the calculation of Availability) such
payment shall be deemed to have been made Two (2) Business Days after such
transfer.
2. The following rules shall apply to deposits and payments under
and pursuant to this Loan Agreement:
a) 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.
b) 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.
c) If notice of a deposit to the Concentration Account
(Section) or payment (Section) 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.
d) All deposits to the Concentration Account and other payments
to the Agent are subject to clearance and collection.
3. The Agent shall transfer to the Operating Account any surplus in
the Concentration Account remaining after the application towards the
Liabilities referred to in Section, above (less those amount which are to be
netted out, as provided therein) provided, however, in the event that
a) any Borrower is InDefault; and
b) one or more L/C's are then outstanding,
then the Agent may establish a funded reserve of up to 110% of the aggregate
Stated Amounts of such L/C's. Such funded reserve shall either be (i) returned
to the Lead Borrower provided that no Borrower is InDefault or (ii) applied
towards the Liabilities following the occurrence of any Event of Default
described in Section or acceleration following the occurrence of any other Event
of Default.
A. The Operating Account. Except as otherwise specifically provided
in, or permitted by, this Loan Agreement, all checks shall be drawn by the Lead
Borrower upon, and other disbursements shall be made by the Lead Borrower solely
from, the Operating Account.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 52
I. . Events of Default:
The occurrence of any event described in this Article respectively shall
constitute an "Event of Default" herein. Upon the occurrence of any Event of
Default described in Section , any and all Liabilities shall become due and
payable without any further act on the part of the Agent. Upon the occurrence of
any other Event of Default, the Agent may, and on the instruction of the
SuperMajority Lenders as provided in Section shall, declare any and all
Liabilities shall become immediately due and payable. 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 Revolving Credit Lender and
any Borrower and instruments and papers heretofore, now, or hereafter given the
Agent or any Revolving Credit Lender by any Borrower.
A. Failure to Pay the Revolving Credit. The failure by any Borrower
to pay when due any principal of, interest on, or fees in respect of, the
Revolving Credit.
A. Failure To Make Other Payments. The failure by any Borrower to
pay when due (or upon demand, if payable on demand) any payment Liability other
than any payment Liability on account of the principal of or interest on, or
fees or charges in respect of, the Revolving Credit.
A. Failure to Perform Covenant or Liability. The failure by any
Borrower to promptly, (No Grace Period) punctually, faithfully and timely
perform, discharge, or comply with any covenant or Liability included in any of
the following provisions hereof:
Section Relates to:
-----------------------------
Name Change
Indebtedness
Pay taxes
Dividends.
Investments. Other Corporate Actions
Affiliate Transactions
Article Reporting Requirements and Financial Performance
Covenants
Article Cash Management
A. Failure to Perform Covenant or Liability. (Grace Period) The
failure by any, Borrower within fifteen (15) days following the earlier of any
Borrower's knowledge of a breach of any covenant or Liability not described in
any of Sections, or or of its receipt of written notice from the Agent of the
breach of any of such covenants or Liabilities.
A. Misrepresentation. The determination by the Agent that any
representation or warranty at any time made by any Borrower to the Agent or any
Revolving Credit Lender was not true or complete in all material respects when
given.
A. Acceleration of Other Debt. Breach of Lease. The occurrence of
any event such that any Indebtedness of any Borrower to any creditor other than
the Agent or any Revolving Credit Lender could be accelerated or, without the
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 53
consent of any Borrower, any Lease (other than of a Seasonal Store) could be
terminated (whether or not the subject creditor or lessor takes any action on
account of such occurrence).
A. Default Under Other Agreements. The occurrence of any breach or
default under any agreement (including any Loan Document) between the Agent or
any Revolving Credit Lender and any Borrower or instrument given by any Borrower
to the Agent or any Revolving Credit Lender and the expiry, without cure, of any
applicable grace period (notwithstanding that the subject Agent or Revolving
Credit Lender may not have exercised all or any of its rights on account of such
breach or default).
A. Uninsured Casualty Loss. The occurrence of any uninsured loss,
theft, damage, or destruction of or to any material portion of the Collateral.
A. Attachment. Judgment. Restraint of Business.
1. The service of process upon the Agent or any Revolving Credit
Lender or any Participant seeking to attach, by trustee, mesne, or other
process, any funds of any Borrower on deposit with, or assets of any Borrower in
the possession of, the Agent or that Revolving Credit or such Participant.
2. The entry of any judgment against any 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.
3. 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 any Borrower of its business in the ordinary course.
A. Business Failure. Any act by, against, or relating to any
Borrower, or its property or assets, which act constitutes the determination, by
any Borrower, to initiate a program of partial or total self-liquidation;
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 any Borrower's property; the granting of any trust mortgage or
execution of an assignment for the benefit of the creditors of any Borrower, or
the occurrence of any other voluntary or involuntary liquidation or extension of
debt agreement for any Borrower; the offering by or entering into by any
Borrower of any composition, extension, or any other arrangement seeking relief
from or extension of the debts of any Borrower; or the initiation of any
judicial or non-judicial proceeding or agreement by, against, or including any
Borrower which seeks or intends to accomplish a reorganization or arrangement
with creditors; and/or the initiation by or on behalf of any Borrower of the
liquidation or winding up of all or any part of any Borrower's business or
operations.
A. Bankruptcy. The failure by any Borrower to generally pay the
debts that Borrower as they mature; adjudication of bankruptcy or insolvency
relative to any Borrower; the entry of an order for relief or similar order with
respect to any
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 54
Borrower in any proceeding pursuant to the Bankruptcy Code or any other federal
bankruptcy law; the filing of any complaint, application, or petition by any
Borrower initiating any matter in which any Borrower is or may be granted any
relief from the debts of that Borrower pursuant to the Bankruptcy Code or any
other insolvency statute or procedure; the filing of any complaint, application,
or petition against any Borrower initiating any matter in which that Borrower is
or may be granted any relief from the debts of that Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure, which complaint,
application, or petition is not timely contested in good faith by that Borrower
by appropriate proceedings or, if so contested, is not dismissed within sixty
(60) days of when filed.
A. Default by Guarantor. The occurrence of any of the foregoing
Events of Default with respect to any guarantor or endorser of the Liabilities,
or the occurrence of any of the foregoing Events of Default with respect to any
parent, subsidiary, or Affiliate of any Borrower, as if such guarantor,
endorser, parent, or Affiliate were a "Borrower" described therein.
A. Indictment - Forfeiture. The indictment of, or institution of
any legal process or proceeding against, any Borrower, under any Applicable Law
where the relief, penalties, or remedies sought or available include the
forfeiture of any property of any 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 any Borrower of its business in the ordinary course.
A. Termination of Guaranty. The termination or attempted
termination of any guaranty by any guarantor of the Liabilities.
A. Challenge to Loan Documents.
1. Any challenge by or on behalf of any 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.
2. 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.
A. Key Management. The death, disability, or failure of Fred Klauke
or Charles Callahan at any time to exercise that authority and discharge those
management responsibilities with respect to the Lead Borrower as are exercised
and discharged by such Person at the execution of this Loan Agreement.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 55
A. Change in Control. Any Change in Control.
I. . Rights and Remedies Upon Default:
A. Acceleration. Upon the occurrence of any Event of Default
described in Section and, at the Agent's option (or on the instruction of the
SuperMajority Lenders) upon the occurrence of any other Event of Default, and at
all times thereafter, the Agent may declare all indebtedness of the Borrower to
the Agent to be immediately due and payable and exercise all of the Agents
Rights and Remedies as the Agent from time to time thereafter determines as
appropriate.
A. 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. The Agent's Rights and Remedies may be
exercised at such time or times and in such order of preference as the Agent may
determine. The Agent's Rights and Remedies may be exercised without resort or
regard to any other source of satisfaction of the Liabilities.
I. . Revolving Credit Fundings and Distributions:
A. Revolving Credit Funding Procedures. Subject to Section :
1. The Agent shall advise each Revolving Credit Lender, no later
than 2:00PM (Boston Time) on a date on which any Revolving Credit Loan (other
than a SwingLine Loan) is to be made on that date. Such advice, in each
instance, may be by telephone or facsimile transmission, provided that if such
advice is by telephone, it shall be confirmed in writing. Advice of a Revolving
Credit Loan shall include the amount of and interest rate applicable to the
subject Revolving Credit Loan.
2. Subject to that Revolving Credit Lender's Revolving Credit Dollar
Commitment, each Revolving Credit Lender, by no later than the end of business
on the day on which the subject Revolving Credit Loan is to be made, shall
Transfer that Revolving Credit Lender's Revolving Credit Percentage Commitment
of the subject Revolving Credit Loan to the Agent.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 56
A. SwingLine Loans.
1. In the event that, when a Revolving Credit Loan is requested, the
aggregate unpaid balance of the SwingLine Loan is less than the SwingLine Loan
Ceiling, then the SwingLine Lender may advise the Agent that the SwingLine
Lender has determined to include up to the amount of the requested Revolving
Credit Loan as part of the SwingLine Loan. In such event, the SwingLine Lender
shall Transfer the amount of the requested Revolving Credit Loan to the Agent.
2. The SwingLine Loan shall be converted to a Revolving Credit Loan
in which all Revolving Credit Lenders participate as follows:
a) At any time and from time to time, the SwingLine Lender may
advise the Agent that all, or any part of the SwingLine Loan is to be converted
to a Revolving Credit Loan in which all Revolving Credit Lenders participate.
b) At the initiation of a Liquidation, the then entire unpaid
principal balance of the SwingLine Loan shall be converted to a Revolving Credit
Loan in which all Revolving Credit Lenders participate.
In either such event, the Agent shall advise each Revolving Credit Lender of
such conversion as if, and with the same effect as if such conversion were the
making of a Revolving Credit Loan as provided in Section.
1. The SwingLine Lender, in separate capacities, may also be the
Agent and a Revolving Credit Lender.
2. The SwingLine Lender, in its capacity as SwingLine Lender, is not
a "Revolving Credit Lender" for any of the following purposes:
a) Except as otherwise specifically provided in the relevant
Section, any distribution pursuant to Section.
b) Determination of whether the requisite Loan Commitments have
Consented to action requiring such Consent.
A. Agent's Covering of Fundings:
1. Each Revolving Credit Lender shall make available to the Agent,
as provided herein, that Revolving Credit Lender's Revolving Credit Percentage
Commitment of the following:
a) Each Revolving Credit Loan, up to the maximum amount of that
Revolving Credit Lender's Revolving Credit Dollar Commitment of the Revolving
Credit Loans.
b) Up to the maximum amount of that Revolving Credit Lender's
Revolving Credit Dollar Commitment of each L/C Drawing (to the extent that such
L/C Drawing is not "covered" by a Revolving Credit Loan as provided herein).
2. In all circumstances, the Agent may:
a) Assume that each Revolving Credit Lender, subject to
Section, timely shall make available to the Agent that Revolving Credit Lender's
Revolving Credit Percentage Commitment of each Revolving Credit Loan, notice of
which is provided pursuant to Section.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 57
b) In reliance upon such assumption, make available the
corresponding amount to the Borrowers.
c) Assume that each Revolving Credit Lender timely shall pay,
and shall make available, to the Agent all other amounts which that Revolving
Credit Lender is obligated to so pay and/or make available hereunder or under
any of the Loan Documents.
3. In the event that, in reliance upon any of such assumptions, the
Agent makes available, a Revolving Credit Lender's Revolving Credit Percentage
Commitment of one or more Revolving Credit Loans, or any other amount to be made
available hereunder or under any of the Loan Documents, which amount a Revolving
Credit Lender (a "Delinquent Revolving Credit Lender") fails to provide to the
Agent within One (1) Business Day of written notice of such failure, then:
a) The amount which had been made available by the Agent is an
" Agent's Cover" (and is so referred to herein).
b) All interest paid by the Borrowers on account of the
Revolving Credit Loan or coverage of the subject L/C Drawing which consist of
the Agent's Cover shall be retained by the Agent until the Agent's Cover, with
interest, has been paid.
c) The Delinquent Revolving Credit Lender shall pay to the
Agent, on demand, interest at a rate equal to the prevailing federal funds rate
on any Agent's Cover in respect of that Delinquent Revolving Credit Lender
d) The Agent shall have succeeded to all rights to payment to
which the Delinquent Revolving Credit Lender otherwise would have been entitled
hereunder in respect of those amounts paid by or in respect of the Borrowers on
account of the Agent's Cover together with interest until it is repaid. Such
payments shall be deemed made first towards the amounts in respect of which the
Agent's Cover was provided and only then towards amounts in which the Delinquent
Revolving Credit Lender is then participating. For purposes of distributions to
be made pursuant to Section (which relates to ordinary course distributions) or
Section (which relates to distributions of proceeds of a Liquidation) below,
amounts shall be deemed distributable to a Delinquent Revolving Credit Lender
(and consequently, to the Agent to the extent to which the Agent is then
entitled) at the highest level of distribution (if applicable) at which the
Delinquent Revolving Credit Lender would otherwise have been entitled to a
distribution.
e) Subject to Subsection, the Delinquent Revolving Credit
Lender shall be entitled to receive any payments from the Borrowers to which the
Delinquent Revolving Credit Lender is then entitled, provided however there
shall be deducted from such amount and retained by the Agent any interest to
which the Agent is then entitled on account of Section, above.
4. A Delinquent Revolving Credit Lender shall not be relieved of any
obligation of such Delinquent Revolving Credit Lender hereunder (all and each of
which shall constitute continuing obligations on the part of any Delinquent
Revolving Credit Lender).
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 58
5. A Delinquent Revolving Credit Lender may cure its status as a
Delinquent Revolving Credit Lender by paying the Agent the aggregate of the
following:
a) The Agent's Cover (to the extent not previously repaid by
the Borrowers and retained by the Agent in accordance with Subsection, above)
with respect to that Delinquent Revolving Credit Lender.
Plus
a) The aggregate of the amount payable under Subsection, above
(which relates to interest to be paid by that Delinquent Revolving Credit
Lender).
Plus
a) All such costs and expenses as may be incurred by the Agent
in the enforcement of the Agent's rights against such Delinquent Revolving
Credit Lender.
A. Ordinary Course Distributions. This Section applies unless the
provisions of Section (which relates to distributions in the event of a
Liquidation) becomes operative.
1. Weekly, on such day as may be set from time to time by the Agent
(or more frequently at the Agent's option) the Agent and each Revolving Credit
Lender shall settle up on amounts advanced under the Revolving Credit and
collected funds received in the Concentration Account.
2. The Agent shall distribute to the SwingLine Lender and to each
Revolving Credit Lender, such Person's respective Pro-Rata share of interest
payments on the Revolving Credit Loans when actually received and collected by
the Agent (excluding the settlement delay provided for in Section , which shall
be for the account of the Agent only). For purposes of calculating interest due
to a Revolving Credit Lender, that Revolving Credit Lender shall be entitled to
receive interest on the actual amount contributed by that Revolving Credit
Lender towards the principal balance of the Revolving Credit Loans outstanding
during the applicable period covered by the interest payment made by the
Borrowers. Any net principal reductions to the Revolving Credit Loans received
by the Agent in accordance with the Loan Documents during such period shall not
reduce such actual amount so contributed, for purposes of calculation of
interest due to that Revolving Credit Lender, until the Agent has distributed to
that Revolving Credit Lender its pro-rata share thereof.
3. The Agent shall distribute fees paid on account of the Revolving
Credit, as provided in EXHIBIT, annexed hereto.
4. No Revolving Credit Lender shall have any interest in, or right
to receive any part of any interest which reflects "float" as described in the
proviso included in Section. Any such float shall be for the account of the
Agent only.
5. No Revolving Credit Lender shall have any interest in, or right
to receive any part of, the Agent's Fee to be paid by the Borrowers to the Agent
pursuant to the this Loan Agreement.
6. Any amount received by the Agent as reimbursement for any cost or
expense (including without limitation, attorneys' reasonable fees) shall be
distributed by the Agent to that Person which is entitled to such reimbursement
as provided in this
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 59
Loan Agreement (and if such Person(s) is (are) the Revolving Credit Lenders,
pro-rata based upon their respective Revolving Credit Commitment Percentages at
the date on which the expense, in respect of which such reimbursement is being
made, was incurred).
7. Each distribution pursuant to this Section is subject to
Section, above.
I. . Acceleration and Liquidation:
A. Acceleration Notices.
1. The Agent may give the Revolving Credit Lenders an Acceleration
Notice at any time following the occurrence of an Event of Default.
2. The SuperMajority Lenders may give the Agent an Acceleration
Notice at any time following the occurrence of an Event of Default. Such notice
may be by multiple counterparts, provided that counterparts executed by the
requisite Revolving Credit Lenders are received by the Agent within a period of
five (5) consecutive Business Days.
A. Acceleration. Unless stayed by judicial or statutory process,
the Agent shall Accelerate the Revolving Credit Obligations within a
commercially reasonable time following:
1. The Agent's giving of an Acceleration Notice to the Revolving
Credit Lenders as provided in Section.
2. The Agent's receipt of an Acceleration Notice from the
SuperMajority Lenders, in compliance with Section.
A. Initiation of Liquidation. Unless stayed by judicial or
statutory process, a Liquidation shall be initiated by the Agent within a
commercially reasonable time following Acceleration of the Liabilities.
A. Actions At and Following Initiation of Liquidation.
1. At the initiation of a Liquidation:
a) The unpaid principal balance of the SwingLine Loan (if any)
shall be converted, pursuant to Section, to a Revolving Credit Loan in which
all Revolving Credit Lenders participate.
b) The Agent and the Revolving Credit Lenders shall "net out"
each Revolving Credit Lender's respective contributions towards the Revolving
Credit Loans, so that each Revolving Credit Lender holds that Revolving Credit
Lender's Revolving Credit Percentage Commitment of the Revolving Credit Loans
and advances.
2. Following the initiation of a Liquidation, each Revolving Credit
Lender shall contribute, towards any L/C thereafter honored and not immediately
reimbursed by the Borrowers, that Revolving Credit Lender's Revolving Credit
Percentage Commitment of such honoring.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 60
A. Agent's Conduct of Liquidation.
1. Any Liquidation shall be conducted by the Agent, with the advice
and assistance of the Revolving Credit Lenders.
2. The Agent may establish one or more Nominees to "bid in" or
otherwise acquire ownership to any Post Foreclosure Asset.
3. The Agent shall manage the Nominee and manage and dispose of any
Post Foreclosure Assets with a view towards the realization of the economic
benefits of the ownership of the Post Foreclosure Assets and in such regard, the
Agent and/or the Nominee may operate, repair, manage, maintain, develop, and
dispose of any Post Foreclosure Asset in such manner as the Agent determines as
appropriate under the circumstances.
4. The Agent may decline to undertake or to continue taking a course
of action or to execute an action plan (whether proposed by the Agent or any
Revolving Credit Lender) unless indemnified to the Agent's satisfaction by the
Revolving Credit Lenders against any and all liability and expense which may be
incurred by the Agent by reason of taking or continuing to take that course of
action or action plan.
5. Each Revolving Credit Lender shall execute all such instruments
and documents not inconsistent with the provisions of this Loan Agreement as the
Agent and/or the Nominee reasonably may request with respect to the creation and
governance of any Nominee, the conduct of the Liquidation, and the management
and disposition of any Post Foreclosure Asset.
A. Distribution of Liquidation Proceeds:
1. The Agent may establish one or more reasonably funded reserve
accounts into which proceeds of the conduct of any Liquidation may be deposited
in anticipation of future expenses which may be incurred by the Agent in the
exercise of rights as a secured creditor of the Borrowers and prior claims which
the Agent anticipates may need to be paid.
2. The Agent shall distribute the net proceeds of Liquidation in
accordance with the relative priorities set forth in Section.
3. Each Revolving Credit Lender, on the written request of the Agent
and/or any Nominee, not more frequently than once each month, shall reimburse
the Agent and/or any Nominee, pro-rata, for any cost or expense reasonably
incurred by the Agent and/or the Nominee in the conduct of a Liquidation, which
amount is not covered out of current proceeds of the Liquidation, which
reimbursement shall be paid over to and distributed by the Agent.
A. Relative Priorities To Proceeds of Liquidation. The relative
priorities to the proceeds of a Liquidation are as follows:
1. To the Agent as reimbursement for all reasonable third party
costs and expenses incurred by the Agent and to Lenders' Special Counsel and to
any funded reserve established pursuant to Section; and then
2. To the SwingLine Lender, on account of any SwingLine loans not
converted to Revolving Credit Loans pursuant to Section; and then
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 61
3. To the Revolving Credit Lenders (other than any Delinquent
Revolving Credit Lender), pro-rata, to the unpaid principal balance of the
Revolving Credit; and then
4. To the Revolving Credit Lenders (other than any Delinquent
Revolving Credit Lender), pro-rata, to accrued interest on the Revolving Credit;
and then
5. To the Revolving Credit Lenders (other than any Delinquent
Revolving Credit Lender), pro-rata, to those fees distributable hereunder to the
Revolving Credit Lenders; and then
6. To any Delinquent Revolving Credit Lenders, pro-rata to amounts
to which such Revolving Credit Lenders otherwise would have been entitled
pursuant to Sections,, and; and then
7. To the Revolving Credit Lenders, pro-rata, to the extent of the
Revolving Credit Early Termination Fee; and then
8. To any other Liabilities.
I. . The Agent:
A. Appointment of the Agent.
1. Each Revolving Credit Lender appoints and designates IWRF as the
"Agent" hereunder and under the Loan Documents.
2. Each Revolving Credit Lender authorizes the Agent:
a) To execute those of the Loan Documents and all other
instruments relating thereto to which the Agent is a party.
b) To take such action on behalf of the Revolving Credit
Lenders and to exercise all such powers as are expressly delegated to the Agent
hereunder and in the Loan Documents and all related documents, together with
such other powers as are reasonably incident thereto.
A. Responsibilities of Agent.
1. The Agent shall not have any duties or responsibilities to, or
any fiduciary relationship with, any Revolving Credit Lender except for those
expressly set forth in this Loan Agreement.
2. Neither the Agent nor any of its Affiliates shall be responsible
to any Revolving Credit Lender for any of the following:
a) Any recitals, statements, representations or warranties made
by any Borrower or any other Person (other than the Agent).
b) Any appraisals or other assessments of the assets of any
Borrower or of any other Person responsible for or on account of the
Liabilities.
c) The value, validity, effectiveness, genuineness,
enforceability, or sufficiency of the Loan Agreement, the Loan Documents or any
other document referred to or provided for therein.
d) Any failure by any Borrower or any other Person (other than
the Agent) to perform its obligations under the Loan Documents.
3. The Agent may employ attorneys, accountants, and other
professionals and agents and attorneys-in-fact and shall not be responsible for
the
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 62
negligence or misconduct of any such attorneys, accountants, and other
professionals or agents or attorneys-in-fact selected by the Agent with
reasonable care. No such attorney, accountant, other professional, agent, or
attorney-in-fact shall be responsible for any action taken or omitted to be
taken by any other such Person.
4. Neither the Agent, nor any of its directors, officers, or
employees shall be responsible for any action taken or omitted to be taken or
omitted to be taken by any other of them in connection herewith in reliance upon
advice of its counsel nor, in any other event except for any action taken or
omitted to be taken as to which a final judicial determination has been or is
made (in a proceeding in which such Person has had an opportunity to be heard)
that such Person had acted in a grossly negligent manner, in actual bad faith,
or in willful misconduct.
5. The Agent shall not have any responsibility in any event for more
funds than the Agent actually receives and collects.
6. The Agent, in its separate capacity as a Revolving Credit Lender,
shall have the same rights and powers hereunder as any other Revolving Credit
Lender.
A. Concerning Distributions By the Agent.
1. The Agent in the Agent's reasonable discretion based upon the
Agent's determination of the likelihood that additional payments will be
received, expenses incurred, and/or claims made by third parties to all or a
portion of such proceeds, may delay the distribution of any payment received on
account of the Liabilities.
2. The Agent may disburse funds prior to determining that the sums
which the Agent expects to receive have been finally and unconditionally paid to
the Agent. If and to the extent that the Agent does disburse funds and it later
becomes apparent that the Agent did not then receive a payment in an amount
equal to the sum paid out, then any Revolving Credit Lender to whom the Agent
made the funds available, on demand from the Agent, shall refund to the Agent
the sum paid to that person.
3. If, in the opinion of the Agent, the distribution of any amount
received by the Agent might involve the Agent in liability, or might be
prohibited hereby, or might be questioned by any Person, then the Agent may
refrain from making distribution until the Agent's right to make distribution
has been adjudicated by a court of competent jurisdiction.
4. The proceeds of any Revolving Credit Lender's exercise of any
right of, or in the nature of, set-off shall be deemed, First, to the extent
that a Revolving Credit Lender is entitled to any distribution hereunder, to
constitute such distribution and Second, shall be shared with the other
Revolving Credit Lenders as if distributed pursuant to (and shall be deemed as
distributions under) Section.
5. Each Revolving Credit Lender recognizes that the crediting of the
Borrowers with the "proceeds" of any transaction in which a Post Foreclosure
Asset is acquired is a non-cash transaction and that, in consequence, no
distribution of such "proceeds" will be made by the Agent to any Revolving
Credit Lender.
6. In the event that (x) a court of competent jurisdiction shall
adjudge that any amount received and distributed by the Agent is to be repaid or
disgorged or (y)
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 63
the SuperMajority Lenders determine to effect such repayment or disgorgement,
then each Revolving Credit Lender to which any such distribution shall have been
made shall repay, to the Agent which had made such distribution, that Revolving
Credit Lender's pro-rata share of the amount so adjudged or determined to be
repaid or disgorged.
A. Dispute Resolution. Any dispute among the Revolving Credit
Lenders and/or the Agent concerning the interpretation, administration, or
enforcement of the financing arrangements contemplated by this or any other Loan
Document or the interpretation or administration of this or any other Loan
Document which cannot be resolved amicably shall be resolved in the United
States District Court for the District of Massachusetts, sitting in Boston or in
the Superior Court of Suffolk County, Massachusetts, to the jurisdiction of
which courts each Revolving Credit Lender hereto hereby submits.
A. Distributions of Notices and of Documents. The Agent will
forward to each Revolving Credit Lender, promptly after the Agent's receipt
thereof, a copy of each notice or other document furnished to the Agent pursuant
to this Loan Agreement, including monthly, quarterly, and annual financial
statements received from the Lead Borrower pursuant to Article of this Loan
Agreement, other than any of the following:
1. Routine communications associated with requests for Revolving
Credit Loans and/or the issuance of L/C's.
2. Routine or nonmaterial communications.
3. Any notice or document required by any of the Loan Documents to
be furnished to the Revolving Credit Lenders by the Lead Borrower.
4. Any notice or document of which the Agent has knowledge that such
notice or document had been forwarded to the Revolving Credit Lenders other than
by the Agent.
A. Confidential Information.
1. Each Revolving Credit Lender will maintain, as confidential, all
of the following:
a) Proprietary approaches, techniques, and methods of analysis
which are applied by the Agent in the administration of the credit facility
contemplated by this Loan Agreement.
b) Proprietary forms and formats utilized by the Agent in
providing reports to the Revolving Credit Lenders pursuant hereto, which forms
or formats are not of general currency.
2. Nothing included herein shall prohibit the disclosure of any such
information as may be required to be provided by judicial process or by
regulatory authorities having jurisdiction over any party to this Loan
Agreement.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 64
A. Reliance by Agent. The Agent shall be entitled to rely upon
any certificate, notice or other document (including any cable, telegram, telex,
or facsimile) reasonably believed by the Agent to be genuine and correct and to
have been signed or sent by or on behalf of the proper person or persons, and
upon advice and statements of attorneys, accountants and other experts selected
by the Agent with reasonable care. As to any matters not expressly provided for
in this Loan Agreement, any Loan Document, or in any other document referred to
therein, the Agent shall in all events be fully protected in acting, or in
refraining from acting, in accordance with the applicable Consent required by
this Loan Agreement. Instructions given with the requisite Consent shall be
binding on all Revolving Credit Lenders.
A. Non-Reliance.
1. Each Revolving Credit Lender represents to all other Revolving
Credit Lenders and to the Agent that such Revolving Credit Lender:
a) Independently and without reliance on any representation or
act by Agent or by any other Revolving Credit Lender, and based on such
documents and information as that Revolving Credit Lender has deemed
appropriate, has made such Revolving Credit Lender's own appraisal of the
financial condition and affairs of the Borrowers and decision to enter into this
Loan Agreement.
b) Has relied upon that Revolving Credit Lender's review of the
Loan Documents by that Revolving Credit Lender and by counsel to that Revolving
Credit Lender as that Revolving Credit Lender deemed appropriate under the
circumstances.
2. Each Revolving Credit Lender agrees that such Revolving Credit
Lender, independently and without reliance upon Agent or any other Revolving
Credit Lender, and based upon such documents and information as such Revolving
Credit Lender shall deem appropriate at the time, will continue to make such
Revolving Credit Lender's own appraisals of the financial condition and affairs
of the Borrowers when determining whether to take or not to take any
discretionary action under this Loan Agreement.
3. The Agent, in the discharge of that Agent's duties hereunder,
shall not be required to make inquiry of, or to inspect the properties or books
of, any Person.
4. Except for notices, reports, and other documents and information
expressly required to be furnished to the Revolving Credit Lenders by the Agent
hereunder (as to which, see Section), the Agent shall not have any affirmative
duty or responsibility to provide any Revolving Credit Lender with any credit or
other information concerning any Person, which information may come into the
possession of Agent or any Affiliate of the Agent.
5. Each Revolving Credit Lender, at such Revolving Credit Lender's
request, shall have reasonable access to all nonprivileged documents in the
possession of the Agent, which documents relate to the Agent's performance of
its duties hereunder.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 65
A. Indemnification. Without limiting the liabilities of the
Borrowers under any this or any of the other Loan Documents, each Revolving
Credit Lender shall indemnify the Agent, Pro-Rata, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever (including attorneys'
reasonable fees and expenses and other out-of-pocket expenditures) which may at
any time be imposed on, incurred by, or asserted against the Agent and in any
way relating to or arising out of this Loan Agreement or any other Loan Document
or any documents contemplated by or referred to therein or the transactions
contemplated thereby or the enforcement of any of terms hereof or thereof or of
any such other documents, provided, however, no Revolving Credit Lender shall be
liable for any of the foregoing to the extent that any of the foregoing arises
from any action taken or omitted to be taken by the Agent as to which a final
judicial determination has been or is made (in a proceeding in which the Agent
has had an opportunity to be heard) that the Agent had acted in a grossly
negligent manner, in actual bad faith, or in willful misconduct.
A. Resignation of Agent.
1. The Agent may resign at any time by giving 60 days prior written
notice thereof to the Revolving Credit Lenders. Upon receipt of any such notice
of resignation, the SuperMajority Lenders shall have the right to appoint a
successor to such Agent (and if no Event of Default has occurred, with the
consent of the Lead Borrower, not to be unreasonably withheld and, in any event,
deemed given by the Lead Borrower if no written objection is provided by the
Lead Borrower to the (resigning) Agent within seven (7) Business Days notice of
such proposed appointment). If a successor Agent shall have been so appointed
and shall have accepted such appointment within 30 days after the giving of
notice by the resigning Agent, then the resigning Agent may appoint a successor
Agent, which shall be a financial institution having a combined capital and
surplus in excess of $200 Million. The consent of the Lead Borrower otherwise
required by this Section shall not be required if an Event of Default has
occurred.
2. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor shall thereupon succeed to, and become vested
with, all the rights, powers, privileges, and duties of the (resigning) Agent so
replaced, and the (resigning) Agent shall be discharged from the (resigning)
Agent's duties and obligations hereunder, other than on account of any
responsibility for any action taken or omitted to be taken by the (resigning)
Agent as to which a final judicial determination has been or is made (in a
proceeding in which the (resigning) Person has had an opportunity to be heard)
that such Person had acted in a grossly negligent manner or in bad faith.
3. After any retiring Agent's resignation, the provisions of this
Loan Agreement and of all other Loan Documents shall continue in effect for the
retiring Person's benefit in respect of any actions taken or omitted to be taken
by it while it was acting as Agent.
I. . Action By Agents - Consents - Amendments - Waivers:
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 66
A. Administration of Credit Facilities.
1. Except as otherwise specifically provided in this Loan Agreement,
the Agent may take any action with respect to the credit facility contemplated
by the Loan Documents as the Agent determines to be appropriate , provided,
however, the Agent is not under any affirmative obligation to take any action
which it is not required by this Loan Agreement or the Loan Documents
specifically to so take.
2. Except as specifically provided in the following Sections of this
Loan Agreement, whenever a Loan Document or this Loan Agreement provides that
action may be taken or omitted to be taken in an Agent's discretion, the Agent
shall have the sole right to take, or refrain from taking, such action without,
and notwithstanding, any vote of the Revolving Credit Lender:
Actions Described in Section Type of Consent Required
----------------------------------------------------------
Majority Lenders
SuperMajority Lenders
Certain Consent
Unanimous Consent
Consent of SwingLine Lender
Consent of the Agent
1. The rights granted to the Revolving Credit Lenders in those
sections referenced in Section shall not otherwise limit or impair the Agent's
exercise of its discretion under the Loan Documents.
A. Actions Requiring Majority Lenders. Except as otherwise provided
in this Loan Agreement, the Consent or direction of the Majority Lenders is
required for any amendment, waiver, or modification of any Loan Document.
A. Actions Requiring SuperMajority Lenders. The Consent or
direction of the SuperMajority Lenders is required as follows:
1. The Revolving Credit Lenders agree that any loan or advance under
the Revolving Credit which results in a Permissible Overloan may be made by the
Agent in its discretion without the Consent of the Revolving Credit Lenders and
that each Revolving Credit Lender shall be bound thereby, provided, however, the
Consent or direction of the SuperMajority Lenders is required to permit a
Permissible Overloan to be outstanding for more than 45 consecutive Business
Days or more than twice in any twelve month period.
2. If any Borrower is then InDefault, the SuperMajority Lenders may
direct the Agent to suspend the Revolving Credit (including the making of any
Permissible Overloans), whereupon, as long as a Borrower is InDefault, the only
Revolving Credit Loans which may be made are either
a) Revolving Credit Loans made or undertaken in the Agent's
discretion to protect and preserve the interests of the Revolving Credit
Lenders; or
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 67
b) Revolving Credit Loans made with Consent of the
SuperMajority Lenders.
3. If an Event of Default has occurred and not been duly waived, the
SuperMajority Lenders may:
a) Give the Agent an Acceleration Notice in accordance with
Section.
b) Direct the Agent to increase the rate of interest to the
default rate of interest as provided in, and to the extent permitted by, this
Loan Agreement.
A. Action Requiring Certain Consent. The consent of the SwingLine
Lender and Revolving Credit Lenders (other than Delinquent Revolving Credit
Lenders) holding 51% or more of the Loan Commitments of the Revolving Credit
Lenders (other than any Loan Commitments held by Delinquent Revolving Credit
Lenders) shall be required to increase the SwingLine Loan Ceiling.
A. Actions Requiring Unanimous Consent. None of the following
may take place except with the Consent of each Revolving Credit Lender adversely
affected thereby or with Unanimous Consent:
1. Any increase in any Revolving Credit Lender's Revolving Credit
Dollar Commitment or Revolving Credit Percentage Commitment (other than by
reason of the application of Section (which deals with NonConsenting Revolving
Credit Lenders) or Section (which deals with assignments and participations)).
2. Any decrease in any interest rate or fee payable to the Revolving
Credit Lenders on account of the Revolving Credit Loans.
3. Any extension of the Maturity Date.
4. Any forgiveness of all or any portion of any payment Liability.
5. Any decrease in any interest rate or fee payable under any of the
Loan Documents (other than any Agent's Fee (for which the consent of the Agent
shall also be required)) and of any fee provided for by the Fee Letter (which
may be amended by written agreement between the Lead Borrower on the one hand,
and the Agent on the other).
6. Any release of a material portion of the Collateral not otherwise
required or provided for in the Loan Documents or to facilitate a Liquidation.
7. Any amendment of the definition of the terms "Borrowing Base" or
"Availability" or of any Definition of any component thereof, such that more
credit would be available to the Borrowers, based on the same assets, as would
have been available to the Borrowers immediately prior to such amendment, it
being understood, however, that:
a) The foregoing shall not limit the adjustment by the Agent of
any Reserve in the Agent's administration of the Revolving Credit as otherwise
permitted by this Loan Agreement.
b) The foregoing shall not prevent the Agent, in its
administration of the Revolving Credit, from restoring any component of
Borrowing Base
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 68
which had been lowered by the Agent back to the value of such component, as
stated in this Loan Agreement or to an intermediate value.
8. Any release of any Person obligated on account of the
Liabilities.
9. The making of any Revolving Credit Loan which, when made, exceeds
Availability and is not a Permissible Overloan, provided, however,
a) no Consent shall be required in connection with the making
of any Revolving Credit Loan to "cover" any honoring of a drawing under any L/C;
and
b) each Revolving Credit Lender recognizes that subsequent to
the making of a Revolving Credit Loan which does not constitute a Permissible
Overloan, the unpaid principal balance of the Loan Account may exceed the
Borrowing Base on account of changed circumstances beyond the control of the
Agent (such as a drop in collateral value).
10. The waiver of the obligation of the Borrowers to reduce the
unpaid principal balance of loans under the Revolving Credit to an amount which
does not exceed a Permissible Overloan or, subject to the time limits included
in Section (which places time and frequency limits on Permissible Overloans),
to eliminate an Overloan.
11. Any amendment of this Article.
12. Amendment of any of the following Definitions:
"Appraised Inventory Liquidation Value"
"Majority Lender"
"Permissible Overloan"
"SuperMajority Lenders
"Unanimous Consent"
A. Actions Requiring SwingLine Lender Consent. No action, amendment,
or waiver of compliance with, any provision of the Loan Documents or of this
Loan Agreement which affects the SwingLine Lender may be undertaken without the
Consent of the SwingLine Lender.
A. Actions Requiring Agent's Consent.
1. No action, amendment, or waiver of compliance with, any provision
of the Loan Documents or of this Loan Agreement which affects the Agent in its
capacity as Agent may be undertaken without the written consent of the Agent.
2. No action referenced herein which affects the rights, duties,
obligations, or liabilities of the Agent shall be effective without the written
consent of the Agent.
A. Miscellaneous Actions.
1. Notwithstanding any other provision of this Loan Agreement, no
single Revolving Credit Lender independently may exercise any right of action or
enforcement against or with respect to any Borrower.
2. The Agent shall be fully justified in failing or refusing to take
action under this Loan Agreement or any Loan Document on behalf of any Revolving
Credit Lender unless the Agent shall first
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 69
a) receive such clear, unambiguous, written instructions as the
Agent deems appropriate; and
b) be indemnified to the Agent's satisfaction by the Revolving
Credit Lenders against any and all liability and expense which may be incurred
by the Agent by reason of taking or continuing to take any such action, unless
such action had been grossly negligent, in willful misconduct, or in bad faith.
3. The Agent may establish reasonable procedures for the providing
of direction and instructions from the Revolving Credit Lenders to the Agent,
including its reliance on multiple counterparts, facsimile transmissions, and
time limits within which such direction and instructions must be received in
order to be included in a determination of whether the requisite Revolving
Credit Lenders have provided their direction, Consent, or instructions.
A. Actions Requiring Lead Borrower's Consent. The Lead Borrower's
consent is required for any amendment of this Loan Agreement, except that each
of the following Articles of this Loan Agreement may be amended without the
consent of the Lead Borrower:
Article Title of Article
---------------------------------
Revolving Credit Fundings and Distributions
Acceleration and Liquidation
The Agent
Action By Agents - Consents - Amendments - Waivers
Assignments and Participations
A. NonConsenting Revolving Credit Lender.
1. In the event that a Revolving Credit Lender (in this Section, a
"NonConsenting Revolving Credit Lender") does not provide its Consent to a
proposal by the Agent to take action which requires consent under this Section,
then one or more Revolving Credit Lenders who provided Consent to such action
may require the assignment, without recourse and in accordance with the
procedures outlined in Section, below, of the NonConsenting Revolving Credit
Lender's commitment hereunder on fifteen (15) days written notice to the Agent
and to the NonConsenting Revolving Credit Lender.
2. At the end of such fifteen (15) days, and provided that the
NonConsenting Revolving Credit Lender delivers the Revolving Credit Note held by
the NonConsenting Revolving Credit Lender to the Agent, the Revolving Credit
Lenders who have given such written notice shall Transfer the following to the
NonConsenting Revolving Credit Lender:
a) Such NonConsenting Revolving Credit Lender's Pro-Rata share
of the principal and interest of the Revolving Credit Loans to the date of such
assignment.
b) All fees distributable hereunder to the NonConsenting
Revolving Credit Lender to the date of such assignment.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 70
c) Any out-of-pocket costs and expenses for which the
NonConsenting Revolving Credit Lender is entitled to reimbursement from the
Borrowers.
3. In the event that the NonConsenting Revolving Credit Lender fails
to deliver to the Agent the Revolving Credit Note held by the NonConsenting
Revolving Credit Lender as provided in Section, then:
a) The amount otherwise to be Transferred to the NonConsenting
Revolving Credit Lender shall be Transferred to the Agent and held by the Agent,
without interest, to be turned over to the NonConsenting Revolving Credit Lender
upon delivery of the Revolving Credit Note held by that NonConsenting Revolving
Credit Lender.
b) The Revolving Credit Note held by the NonConsenting
Revolving Credit Lender shall have no force or effect whatsoever.
c) The NonConsenting Revolving Credit Lender shall cease to be
a "Revolving Credit Lender".
d) The Revolving Credit Lender(s) which have Transferred the
amount to the Agent as described above shall have succeeded to all rights and
become subject to all of the obligations of the NonConsenting Revolving Credit
Lender as "Revolving Credit Lender".
4. In the event that more than One (1) Revolving Credit Lender
wishes to require such assignment, the NonConsenting Revolving Credit Lender's
commitment hereunder shall be divided among such Revolving Credit Lenders, pro-
rata based upon their respective Revolving Credit Percentage Commitments, with
the Agent coordinating such transaction.
5. The Agent shall coordinate the retirement of the Revolving Credit
Note held by the NonConsenting Revolving Credit Lender and the issuance of
Revolving Credit Notes to those Revolving Credit Lenders which "take-out" such
NonConsenting Revolving Credit Lender, provided, however, no processing fee
otherwise to be paid as provided in Section shall be due under such
circumstances.
I. . Assignments By Revolving Credit Lenders:
A. Assignments and Assumptions.
1. Except as provided herein, each Revolving Credit Lender (in this
Section, an "Assigning Revolving Credit Lender") may assign to one or more
Eligible Assignees (in this Section, each an "Assignee Revolving Credit
Lender") all or a portion of that Revolving Credit Lender's interests, rights
and obligations under this Loan Agreement and the Loan Documents (including all
or a portion of its Commitment) and the same portion of the Revolving Credit
Loans at the time owing to it, and of the Revolving Credit Note held by the
Assigning Revolving Credit Lender, provided that:
a) The Agent shall have given its prior written consent to such
assignment, which consent shall not be unreasonably withheld, but need not be
given if the proposed assignment would result in any resulting Revolving Credit
Lender's having
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 71
a Dollar Commitment of less than the "minimum hold" amount specified in Section
or if there would be more than Six (6) Revolving Credit Lenders.
b) Each such assignment shall be of a constant, and not a
varying, percentage of all the Assigning Revolving Credit Lender's rights and
obligations under this Loan Agreement.
c) Following the effectiveness of such assignment, the
Assigning Revolving Credit Lender's Dollar Commitment (if not an assignment of
all of the Assigning Revolving Credit Lender's Commitment) shall not be less
than $3 Million.
A. Assignment Procedures. This Section describes the procedures to
be followed in connection with an assignment effected pursuant to this Article
and permitted by Section.
1. The parties to such an assignment shall execute and deliver to
the Agent, for recording in the Register, an Assignment and Acceptance
substantially in the form of EXHIBIT, annexed hereto.
2. The Assigning Revolving Credit Lender shall deliver to the Agent,
with such Assignment and Acceptance, the Revolving Credit Note held by the
subject Assigning Revolving Credit Lender and the Agent's processing fee of
$3,500.00, provided, however, no such processing fee shall be due where the
Assigning Revolving Credit Lender is one of the Revolving Credit Lenders at the
initial execution of this Loan Agreement.
3. The Agent shall maintain a copy of each Assignment and Acceptance
delivered to it and a register or similar list (the "Register") for the
recordation of the names and addresses of the Revolving Credit Lenders and of
the Revolving Credit Percentage Commitment and Revolving Credit Percentage
Commitment of each Revolving Credit Lender. The Register shall be available for
inspection by the Revolving Credit Lenders at any reasonable time and from time
to time upon reasonable prior notice. In the absence of manifest error, the
entries in the Register shall be conclusive and binding on all Revolving Credit
Lenders. The Agent and the Revolving Credit Lenders may treat each Person whose
name is recorded in the Register as a "Revolving Credit Lender" hereunder for
all purposes of this Loan Agreement.
4. The Assigning Revolving Credit Lender and Assignee Revolving
Credit Lender, directly between themselves, shall make all appropriate
adjustments in payments for periods prior to the effective date of an Assignment
and Assumption.
A. Effect of Assignment.
1. From and after the effective date specified in an Assignment and
Acceptance which has been executed, delivered, and recorded (which effective
date the Agent may delay by up to Five (5) Business Days after the delivery of
such Assignment and Acceptance):
a) The Assignee Revolving Credit Lender:
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 72
(1) Shall be a party to this Loan Agreement and the Loan
Documents (and to any amendments thereof) as fully as if the Assignee Revolving
Credit Lender had executed each.
(2) Shall have the rights of a Revolving Credit Lender hereunder
to the extent of the Revolving Credit Percentage Commitment and Revolving Credit
Percentage Commitment assigned by such Assignment and Acceptance.
b) The Assigning Revolving Credit Lender shall be released from
the Assigning Revolving Credit Lender's obligations under this Loan Agreement
and the Loan Documents to the extent of the Commitment assigned by such
Assignment and Acceptance.
c) The Agent shall undertake to obtain and distribute
replacement Revolving Credit Notes to the subject Assigning Revolving Credit
Lender and Assignee Revolving Credit Lender.
2. By executing and delivering an Assignment and Acceptance, the
parties thereto confirm to and agree with each other and with all parties to
this Loan Agreement as to those matters which are set forth in the subject
Assignment and Acceptance.
I. . Notices:
A. Notice Addresses. All notices, demands, and other
communications made in respect of any Loan Document (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:
If to the Agent: IBJ Whitehall Retail Finance, Inc.
45 Braintree Hill Office Park - Suite 303
Braintree, Massachusetts 02184
Attention : Francis O'Connor
Fax : 781 849 0140
With a copy to:
Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attention : Richard B. Jacobs, Esquire
Fax : 617 880 3456
If to the Lead Borrower
And All Borrowers:
World of Science, Inc.
900 Jefferson Road, Building 4
Rochester, New York 14623
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 73
Attention : Mr. Charles A. Callahan
Fax : 716 475 1370
With a copy to:
Harris, Beach & Wilcox LLP
130 East Main Street
Rochester, New York 14604
Attention : Attorney Catherine A. King
Fax: : 716 232 6925
A. Notice Given.
1. 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):
a) By mail: the sooner of when actually received or Three (3)
days following deposit in the United States mail, postage prepaid.
b) By recognized overnight express delivery: the Business Day
following the day when sent.
c) 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.
d) By Facsimile transmission (which must include a header on
which the party sending such transmission is indicated): If sent on a Business
Day after 9:00 AM and no later than Three (3) hours prior to the close of
customary business hours of the recipient, one (1) hour after being sent.
Otherwise, at the opening of the then next Business Day.
2. 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.
I. . Term:
A. Termination of Revolving Credit. The Revolving Credit shall
remain in effect (subject to suspension as provided in Section hereof) until the
Termination Date.
A. Actions On Termination.
1. On the Termination Date, the Borrowers shall pay the Agent
(whether or not then due), in immediately available funds, all then Liabilities
including, without limitation: the following:
a) The entire balance of the Loan Account (including the unpaid
principal balance of the Revolving Credit Loans, and the SwingLine Loan).
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 74
b) Any then remaining installments of the Revolving Credit
Commitment Fee.
c) Any then remaining installments of the Agent's Fee.
d) Any payments due on account of the indemnification
obligations included in Section.
e) Any accrued and unpaid Unused Line Fee.
f) All unreimbursed costs and expenses of the Agent and of
Lenders' Special Counsel for which each Borrower is responsible.
2. On the Termination Date, the Borrowers shall also shall make such
arrangements concerning any L/C's then outstanding as are reasonably
satisfactory to the Agent.
3. Until such payment (Section) and arrangements concerning L/C's
(Section), all provisions of this Loan Agreement, other than those included in
Section which place any obligation on the Agent or any Revolving Credit Lender
to make any loans or advances or to provide any financial accommodations to any
Borrower shall remain in full force and effect until all Liabilities shall have
been paid in full.
4. The release by the Agent of the Collateral Interests granted the
Agent by the Borrowers hereunder may be upon such conditions and
indemnifications as the Agent may require.
I. . General:
A. Publicity. The Agent may issue a mutually agreeable "tombstone"
notice of the establishment of the credit facility contemplated by this Loan
Agreement and may make reference to each Borrower (and may utilize any logo or
other distinctive symbol associated with each Borrower) in connection with any
mutually agreeable advertising, promotion, or marketing undertaken by the Agent.
A. Successors and Assigns. This Loan Agreement shall be binding
upon the Borrowers and their respective successors, and assigns and shall enure
to the benefit of the Agent and each Revolving Credit Lender and their
respective successors and assigns, provided, however, no trustee or other
fiduciary appointed with respect to any Borrower shall have any rights
hereunder. In the event that the Agent or any Revolving Credit Lender assigns
or transfers its rights under this Loan 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.
A. Severability. Any determination that any provision of this Loan
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
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 75
any other instance, or the validity, legality, or enforceability of any other
provision of this Loan Agreement.
A. Amendments. Course of Dealing.
1. This Loan Agreement and the other Loan Documents incorporate all
discussions and negotiations between each Borrower and the Agent and each
Revolving Credit 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 Revolving Credit Lender
to give notice to the Lead Borrower of any 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 to the manner by which the Borrowing
Base is determined shall obligate the Agent to continue to determine the
Borrowing Base in that manner.
2. Each 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, subject to the Consent
requirements of Article. Subject to Article, 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 Borrowers (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.
A. Power of Attorney. In connection with all powers of attorney
included in this Loan Agreement, each 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 that Borrower might or could
do, hereby ratifying all that said attorney shall do or cause to be done by
virtue of this Loan Agreement. No power of attorney set forth in this Loan
Agreement shall be affected by any disability or incapacity suffered by any
Borrower and each shall survive the same. All powers conferred upon the Agent by
this Loan Agreement, being coupled with an interest, shall be irrevocable until
this Loan Agreement is terminated by a written instrument executed by a duly
authorized officer of the Agent.
A. Application of Proceeds. The proceeds of any collection, sale,
or disposition of the Collateral, or any other payments received hereunder,
shall be applied towards the Liabilities in such order and manner as the Agent
determines in its sole discretion, consistent, however, with Sections and and
any other applicable
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 76
provisions of this Loan Agreement. The Borrowers shall remain liable for
deficiency remaining following such application.
A. 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:
1. subjects any Revolving Credit 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 any Borrower to the Agent or any Revolving
Credit Lender under this Loan Agreement (except for taxes on the Agent or any
Revolving Credit Lender based on net income or capital imposed by the
jurisdiction in which the principal or lending offices of the Agent or that
Revolving Credit Lender are located);
2. 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 Revolving Credit Lender;
3. imposes on any Revolving Credit Lender any other condition with
respect to any Loan Document; or
4. imposes on any Revolving Credit Lender a requirement to maintain
or allocate capital in relation to the Liabilities;
and the result of any of the foregoing, in such Revolving Credit Lender's
reasonable opinion, is to increase the cost to that Revolving Credit Lender of
making or maintaining any loan, advance or financial accommodation or to reduce
the income receivable by that Revolving Credit Lender in respect of any loan,
advance or financial accommodation by an amount which that Revolving Credit
Lender deems to be material, then upon written notice from the Agent, from time
to time, to the Lead 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 Borrowers shall forthwith pay to the Agent, for the benefit of the
subject Revolving Credit Lender, upon receipt of such notice, that amount which
shall compensate the subject Revolving Credit Lender for such additional cost or
reduction in income.
A. Costs and Expenses of the Agent.
1. The Borrowers shall pay from time to time on demand all Costs of
Collection and all reasonable costs, expenses, and disbursements (including
attorneys' reasonable fees and expenses) which are incurred by the Agent in
connection with the preparation, negotiation, execution, and delivery of this
Loan Agreement and of any other Loan Documents, and all other reasonable costs,
expenses, and disbursements which may be incurred connection with or in respect
to the credit facility contemplated hereby or which otherwise are incurred with
respect to the Liabilities.
2. The Borrowers shall pay from time to time on demand all
reasonable costs and expenses (including attorneys' reasonable fees and
expenses)
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 77
incurred, following the occurrence of any Event of Default, by the Revolving
Credit Lenders to Lenders' Special Counsel.
3. Each Borrower authorizes the Agent to pay all such fees and
expenses and in the Agent's discretion, to add such fees and expenses to the
Loan Account.
4. The undertaking on the part of each Borrower in this Section
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Agent in favor of any Borrower, other than a
termination, release, or discharge which makes specific reference to this
Section.
A. Copies and Facsimiles. Each Loan Document and all documents and
papers which relates thereto which have been or may be hereinafter furnished the
Agent or any Revolving Credit Lender may be reproduced by that Revolving Credit
Lender or by the Agent by any photographic, microfilm, xerographic, digital
imaging, or other process, and such Person making such reproduction 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.
A. Massachusetts Law. This Loan Agreement and all rights and
obligations hereunder, including matters of construction, validity, and
performance, shall be governed by the law of The Commonwealth of Massachusetts.
A. Consent to Jurisdiction.
1. Each Borrower agrees that any legal action, proceeding, case, or
controversy against any 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 Loan Agreement, each Borrower, for itself and in
respect of its property, accepts, submits, and consents generally and
unconditionally, to the jurisdiction of the aforesaid courts.
2. Each 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 Lead Borrower at the Lead
Borrower's address for notices as specified herein, such service to become
effective five (5) Business Days after such mailing.
3. Each Borrower WAIVES any objection based on forum non conveniens
and any objection to venue of any action or proceeding instituted under any of
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 78
the Loan Documents and consents to the granting of such legal or equitable
remedy as is deemed appropriate by the Court.
4. Nothing herein shall affect the right of the Agent to bring legal
actions or proceedings in any other competent jurisdiction.
5. Each Borrower agrees that any action commenced by any Borrower
asserting any claim arising under or in connection with this Loan 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.
A. Indemnification. Each Borrower shall indemnify, defend, and hold
the Agent and each Revolving Credit Lender and any Participant and any of their
respective employees, officers, or agents (each, an "Indemnified Person")
harmless of and from any claim brought or threatened against any Indemnified
Person by any Borrower, any guarantor or endorser of the Liabilities, or any
other Person (as well as from attorneys' reasonable fees, expenses, and
disbursements in connection therewith) on account of the relationship of the
Borrowers or of any other guarantor or endorser of the Liabilities (each of
claims which may be defended, compromised, settled, or pursued by the
Indemnified Person with counsel of the Revolving Credit Lender's selection, but
at the expense of the Borrowers) other than any claim 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 (x)
includes a specific finding that the Indemnified Person seeking indemnification
had acted in a grossly negligent manner or in actual bad faith or (y) is in
favor of a Borrower and against an Indemnified Person. This indemnification
shall survive payment of the Liabilities and/or any termination, release, or
discharge executed by the Agent in favor of the Borrowers, other than a
termination, release, or discharge duly executed on behalf of the Agent which
makes specific reference to this Section.
A. Rules of Construction. The following rules of construction shall
be applied in the interpretation, construction, and enforcement of this Loan
Agreement and of the other Loan Documents:
1. Unless otherwise specifically provided for herein, interest and
any fee or charge which is stated as a per annum percentage shall be calculated
based on a 360 day year and actual days elapsed.
2. Words in the singular include the plural and words in the plural
include the singular.
3. Titles, headings (indicated by being underlined or shown in Small
----------
Capitals or in bold) and any Table of Contents are solely for convenience of
reference; do not constitute a part of the instrument in which included; and do
not affect such instrument's meaning, construction, or effect.
4. The words "includes" and "including" are not limiting.
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 79
5. Text which follows the words "including, without limitation" (or
similar words) is illustrative and not limitational.
6. Except where the context otherwise requires or where the relevant
subsections are joined by "or", compliance with any Section or provision of any
Loan Document which constitutes a warranty or covenant requires compliance with
all subsections (if any) of that Section or provision. Except where the context
otherwise requires, compliance with any warranty or covenant of any Loan
Document which includes subsections which are joined by "or" may be accomplished
by compliance with any of such subsections.
7. Text which is shown in italics, shown in bold (other than
headings), shown IN ALL CAPITAL LETTERS, or in any combination of the foregoing,
shall be deemed to be conspicuous.
8. The words "may not" are prohibitive and not permissive.
9. The word "or" is not exclusive.
10. Any reference to a Person's "knowledge" (or words of similar
import) are to such Person's knowledge assuming that such Person has undertaken
reasonable and diligent investigation with respect to the subject of such
"knowledge" (whether or not such investigation has actually been undertaken).
11. Terms which are defined in one section of any Loan Document are
used with such definition throughout the instrument in which so defined.
12. The symbol "$" refers to United States Dollars.
13. Unless limited by reference to a particular Section or provision,
any reference to "herein", "hereof", or "within" is to the entire Loan Document
in which such reference is made.
14. References to "this Loan Agreement" or to any other Loan Document
is to the subject instrument as amended to the date on which application of such
reference is being made.
15. Except as otherwise specifically provided, all references to time
are to Boston time.
16. In the determination of any notice, grace, or other period of
time prescribed or allowed hereunder:
a) Unless otherwise provided (I) the day of the act, event, or
default from which the designated period of time begins to run shall not be
included and the last day of the period so computed shall be included unless
such last day is not a Business Day, in which event the last day of the relevant
period shall be the then next Business Day and (II) the period so computed shall
end at 5:00 PM on the relevant Business Day.
b) The word "from" means "from and including".
c) The words "to" and "until" each mean "to, but excluding".
d) The word "through" means "to and including".
17. The Loan Documents shall be construed and interpreted in a
harmonious manner and in keeping with the intentions set forth in Section
hereof, provided, however, in the event of any inconsistency between the
provisions of this Loan
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 80
Agreement and any other Loan Document, the provisions of this Loan Agreement
shall govern and control.
A. Intent. It is intended that:
1. This Loan Agreement take effect as a sealed instrument.
2. All reasonable costs, expenses, and disbursements incurred by the
Agent and, to the extent provide in Section each Revolving Credit Lender, in
connection with such Person's relationship(s) with any Borrower shall be borne
by the Borrowers.
3. Unless otherwise explicitly provided herein, the Agent's consent
to any action of any Borrower which is prohibited unless such consent is given
may be given or refused by the Agent in its sole discretion and without
reference to Section hereof.
A. Participations. Each Revolving Credit Lender may sell
participations to one or more financial institutions (each, a "Participant") in
that Revolving Credit Lender's interests herein provided that no such
participation shall include any provision which accords that Participant with
any rights, vis a vis the Agent, with respect to any requirement herein for
approval by a requisite number or proportion of the Revolving Credit Lenders. No
such sale of a participation shall relieve a Revolving Credit Lender from that
Revolving Credit Lender's obligations hereunder nor obligate the Agent to any
Person other than a Revolving Credit Lender.
A. Right of Set-Off. Any and all deposits or other sums at
any time credited by or due to any Borrower from the Agent or any Revolving
Credit Lender or any Participant or from any Affiliate of any of the foregoing,
and any cash, securities, instruments or other property of any Borrower in the
possession of any of the foregoing, whether for safekeeping or otherwise
(regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of each
Borrower to the Agent and such Revolving Credit Lender or any Participant or
such Affiliate and may be applied or set off against the Liabilities and against
such obligations at any time, whether or not such are then due and whether or
not other collateral is then available to the Agent or that Revolving Credit
Lender.
A. Pledges To Federal Reserve Banks: Nothing included in this
Loan Agreement shall prevent or limit any Revolving Credit Lender, to the extent
that such Revolving Credit Lender is subject to any of the twelve Federal
Reserve Banks organized under (S)4 of the Federal Reserve Act (12 U.S.C. (S)341)
from pledging all or any portion of that Revolving Credit Lender's interest and
rights under this Loan Agreement, provided, however, neither such pledge nor the
enforcement thereof shall release the pledging Revolving Credit Lender from any
of its obligations hereunder or under any of the Loan Documents.
A. Maximum Interest Rate. Regardless of any provision of any
Loan Document, neither the Agent nor any Revolving Credit Lender shall be
entitled to
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 81
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."
A. Waivers.
1. Each Borrower (and all guarantors, endorsers, and sureties of the
Liabilities) make each of the waivers included in Section, below, knowingly,
voluntarily, and intentionally, and understands that Agent and each Revolving
Credit Lender, in establishing the facilities contemplated hereby and in
providing loans and other financial accommodations to or for the account of the
Borrowers as provided herein, whether not or in the future, is relying on such
waivers.
2. EACH BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY
RESPECTIVELY WAIVES THE FOLLOWING:
a) 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.
b) 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.
c) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY
IN WHICH THE AGENT OR ANY REVOLVING CREDIT LENDER IS OR BECOMES A PARTY (WHETHER
SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE AGENT OR ANY REVOLVING
CREDIT LENDER OR IN WHICH THE AGENT OR ANY REVOLVING CREDIT LENDER IS JOINED AS
A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN RESPECT OF,
ANY RELATIONSHIP AMONGST OR BETWEEN ANY BORROWER OR ANY OTHER PERSON AND THE
AGENT AND EACH REVOLVING CREDIT LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN
ANY TRIAL OF ANY SUCH CASE OR CONTROVERSY).
d) Any defense, counterclaim, set-off, recoupment, or other
basis on which the amount of any Liability, as stated on the books and records
of the Agent, could be reduced or claimed to be paid otherwise than in
accordance with the tenor of and written terms of such Liability.
e) Any claim to consequential, special, or punitive damages.
[SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 82
WORLD OF SCIENCE, INC.
("Lead Borrower and a Borrower")
By ________________________________
Print Name:________________________________
Title:________________________________
WOSI ON THE WEB, INC.
(A "Borrower")
By ________________________________
Print Name:________________________________
Title:________________________________
IBJ WHITEHALL RETAIL FINANCE
(Division of IBJ Whitehall Credit Corporation)
("Agent" and a Revolving Credit Lender")
By ________________________________
Print Name:________________________________
Title:________________________________
Notice Address as a Revolving Credit Lender:
IBJ Whitehall Retail Finance, Inc.
45 Braintree Hill Office Park - Suite 303
Braintree, Massachusetts 02184
Attention: Francis O'Connor
Fax: 781 849 0140
ABA Number:........................
<PAGE>
World of Science IBJ Whitehall Retail Finance
Page 83
NATIONAL CITY COMMERCIAL FINANCE, INC.
(a Revolving Credit Lender")
By ________________________________
Print Name:________________________________
Title:________________________________
Notice Address:
........................
........................
...................
Fax:.......................
ABA Number:............................
EXHIBITS
(a) : Advance Rate Grid
(b) : State Tax Refunds
: Swingline Note
: Revolving Credit Note
: Revolving Credit Lenders' Commitments
: Affiliates
: Trade Names
: Indebtedness
: Leases
: Taxes
: Litigation
: Business Plan
: Financial Performance Covenants
: Fee Distribution
: Assignment/Assumption
<PAGE>
COMPANY: WORLD OF SCIENCE, INC.
TICKER: WOSI
EXCHANGE: NMS
FORM-TYPE: 10-K
Exhibit 11. Statement re Computation of Per Share Earnings (Loss)
FILING-DATE: April 28, 2000
Exhibit 11.1
WORLD OF SCIENCE, INC.
COMPUTATION OF PER SHARE NET INCOME (LOSS)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
-----------
January 29, 2000 January 30, 1999 January 31, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Net earnings (loss) $(2,502) $1,520 $1,760
------- ------ ------
Weighted average common shares outstanding 4,749 4,947 4,362
Basic earnings (loss) per share $ (0.53) $ 0.31 $ 0.40
======= ====== ======
Diluted Earnings (Loss) Per Share:
Net earnings (loss) $(2,502) $1,520 $1,760
------- ------ ------
Weighted average common shares outstanding 4,749 4,947 4,362
Dilutive effect of outstanding stock options 0 17 83
------- ------ ------
4,749 4,964 4,445
Diluted earnings (loss) per share $ (0.53) $ 0.31 $ 0.40
======= ====== ======
</TABLE>
<PAGE>
COMPANY: WORLD OF SCIENCE, INC.
TICKER: WOSI
EXCHANGE: NMS
FORM-TYPE: 10-K
Exhibit 21. Subsidiaries
FILING-DATE: April 28, 2000
Exhibit 21.1
Subsidiaries
Name of Subsidiary Percentage Owned
------------------ ----------------
WOSI on the Web, Inc. 100%
<PAGE>
WORLD OF SCIENCE, INC.
TICKER: WOSI
EXCHANGE: NMS
FORM-TYPE: 10-K
Exhibit 23. Consent of KPMG LLP
FILING-DATE: April 28, 2000
Exhibit 23.1
Independent Auditors' Consent
The Board of Directors
World of Science, Inc.
We consent to incorporation by reference in the registration statement Nos. 333-
36321 and 333-36037 on Form S-8 of World of Science, Inc. of our report dated
March 24, 2000, relating to the consolidated balance sheets of World of Science,
Inc. and subsidiary as of January 29, 2000 and January 30, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended January 29, 2000, which report
has been included in the January 29, 2000 annual report on Form 10-K of World of
Science, Inc.
/s/ KPMG LLP
April 28, 1999
Rochester, New York
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 1,572
<SECURITIES> 0
<RECEIVABLES> 217
<ALLOWANCES> 0
<INVENTORY> 11,804
<CURRENT-ASSETS> 16,218
<PP&E> 18,415
<DEPRECIATION> 8,134
<TOTAL-ASSETS> 27,761
<CURRENT-LIABILITIES> 7,571
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 19,227
<TOTAL-LIABILITY-AND-EQUITY> 27,761
<SALES> 61,135
<TOTAL-REVENUES> 61,135
<CGS> 44,968
<TOTAL-COSTS> 44,968
<OTHER-EXPENSES> 19,781
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 576
<INCOME-PRETAX> (4,170)
<INCOME-TAX> (1,668)
<INCOME-CONTINUING> (2,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,502)
<EPS-BASIC> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
